Proposed USDA Budget Provides $397 Million for Energy Projects

February 7, 2007

The U.S. Department of Agriculture (USDA) announced on February 5th that the President's proposed budget for Fiscal Year (FY) 2008 provides for at least $397 million in guaranteed loans, grants, and other support for energy projects. That's an increase of 68 percent compared to energy outlays in FY 2007, which are estimated at $236 million. The budget includes $34 million for the Renewable Energy Systems and Energy Efficiency Improvements program, which will allow the program to issue $15 million in grants and to guarantee $195 million in loans. The FY 2008 proposal does not include any of the spending provisions included in the proposal for the reauthorization of the Farm Bill.

The budget includes plenty of funding for biofuels research, including $28 million for research focusing on the modification of the plant cell wall of energy crops and crop residues to increase the efficiency of converting crops to biofuels. Another $9.8 million will support projects that increase the production of renewable fuels from forestry and agricultural biomass. An additional $19 million will support the USDA's Bioenergy and Biobased Fuels Research Initiative. Finally, the budget includes $1 million to strengthen research and modeling capacity at the USDA's Economic Research Service to better understand the economics of bioenergy production, the demand for by-products, and the likely future adjustments in the crop and livestock sectors. See the USDA press release and see the charts and budget summary on the USDA Budget 2008 Web page.

Bioenergy production is not only causing corn prices to escalate, but is also helping the USDA to reduce parts of its budget. As noted in the above press release, USDA expenditures for farm support programs have declined from $20.5 billion in 2005 and 2006 to an estimated $13 billion in 2007 and $12 billion in 2008. The USDA attributes the drop to higher commodity prices, "largely due to growth in ethanol production." And because of the need to put more land into production, Agriculture Secretary Mike Johanns announced on February 5th that the USDA is not accepting new enrollments this year or next for the Conservation Security Program (CSP) or the Conservation Reserve Program (CRP), both of which hold farmlands in reserve. CSP focuses on maintaining natural resources within major watersheds, while the CRP helps farmers protect environmentally sensitive land. See the transcript of Secretary Johanns' news conference on the budget request.