Repowering Assistance Payments to Eligible Biorefineries, 7916-7933 [2011-2480]

Agencies

• DEPARTMENT OF AGRICULTURE
• Rural Business-Cooperative Service
• Rural Utilities Service

[Federal Register Volume 76, Number 29 (Friday, February 11, 2011)]
[Rules and Regulations]
[Pages 7916-7933]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-2480]



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Vol. 76

Friday,

No. 29

February 11, 2011

Part II





Department of Agriculture





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Rural Business-Cooperative Service



Rural Utilities Service



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7 CFR Part 4288



Repowering Assistance Payments to Eligible Biorefineries; Interim Rule

Federal Register / Vol. 76 , No. 29 / Friday, February 11, 2011 / 
Rules and Regulations

[[Page 7916]]


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DEPARTMENT OF AGRICULTURE

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Part 4288

RIN 0570-AA74


Repowering Assistance Payments to Eligible Biorefineries

AGENCY: Rural Business-Cooperative Service and Rural Utilities Service, 
USDA.

ACTION: Interim rule with request for comments.

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SUMMARY: The Rural Business-Cooperative Service (Agency) is 
establishing the Repowering Assistance Program authorized under the 
Food, Conservation, and Energy Act of 2008. Under this Program, the 
Agency will make payments to eligible biorefineries to encourage the 
use of renewable biomass as a replacement fuel source for fossil fuels 
used to provide process heat or power in the operation of eligible 
biorefineries.

DATES: This interim rule is effective March 14, 2011. Written comments 
on this interim rule must be received on or before April 12, 2011.

ADDRESSES: You may submit comments on this interim rule by any of the 
following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Submit written comments via the U.S. Postal Service 
to the Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, STOP 0742, 1400 Independence Avenue, SW., 
Washington, DC 20250-0742.
     Hand Delivery/Courier: Submit written comments via Federal 
Express Mail or other courier service requiring a street address to the 
Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, 300 7th Street, SW., 7th Floor, Washington, 
DC 20024.
    All written comments will be available for public inspection during 
regular work hours at the 300 7th Street, SW., 7th Floor address listed 
above.

FOR FURTHER INFORMATION CONTACT: Contact Frederick Petok, USDA Rural 
Development, Business Programs Energy Division, 1400 Independence 
Avenue, SW., Room 6870, STOP 3225, Washington, DC 20250-3225. 
Telephone: (202) 690-0784. E-mail: frederick.petok@wdc.usda.gov.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This interim rule has been reviewed under Executive Order (EO) 
12866 and has been determined to be significant by the Office of 
Management and Budget. The EO defines a ``significant regulatory 
action'' as one that is likely to result in a rule that may: (1) Have 
an annual effect on the economy of $100 million or more or adversely 
affect, in a material way, the economy, a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local, or Tribal governments or communities; (2) 
Create a serious inconsistency or otherwise interfere with an action 
taken or planned by another agency; (3) Materially alter the budgetary 
impact of entitlements, grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) Raise novel legal 
or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in this EO.
    The Agency conducted a benefit-cost analysis to fulfill the 
requirements of EO 12866. In the benefit-cost analysis, the Agency 
quantified the cost of the Repowering Assistance Program, but did not 
quantify its benefits. Costs were quantified for the burden of the 
Program to the public and to the Federal government, but its economic 
impacts were not quantified. Qualitative discussions of potential 
impacts of the Program on jobs, the environment, and energy are 
presented in the analysis. While unable to quantify the benefits 
associated with this rulemaking, the Agency believes that the overall 
effect of the rule will be beneficial.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act 1995 (UMRA) of Public 
Law 104-4 establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and Tribal 
governments and the private sector. Under section 202 of the UMRA, 
Rural Development generally must prepare a written statement, including 
a cost-benefit analysis, for proposed and final rules with ``Federal 
mandates'' that may result in expenditures to State, local, or Tribal 
governments, in the aggregate, or to the private sector of $100 million 
or more in any one year. When such a statement is needed for a rule, 
section 205 of UMRA generally requires Rural Development to identify 
and consider a reasonable number of regulatory alternatives and adopt 
the least costly, more cost-effective, or least burdensome alternative 
that achieves the objectives of the rule.
    This interim rule contains no Federal mandates (under the 
regulatory provisions of Title II of the UMRA) for State, local, and 
Tribal governments or the private sector. Thus, the rule is not subject 
to the requirements of sections 202 and 205 of the UMRA.

National Environmental Policy Act/Environmental Impact Statement

    These renewable energy programs under Title IX of the 2008 Farm 
Bill have been operated on an interim basis through the issuance of a 
Notice of Contract Proposal (NOCP) or Notice of Funds Availability 
(NOFA). During this initial round of applications, the Agency conducted 
National Environmental Policy Act (NEPA) reviews on each individual 
application for funding. No significant environmental impacts were 
reported. Taken collectively, the applications show no potential for 
significant adverse cumulative effects.
    The Agency has prepared programmatic environmental assessments 
(PEA), pursuant to 7 CFR part 1940, subpart G, analyzing the 
environmental effects to air, water, and biotic resources; land use; 
historic and cultural resources, and greenhouse gas emissions affected 
by the Repowering Assistance Program. The purpose of the PEA is to 
assess the overall environmental impacts of the programs related to the 
Congressional goals of advancing biofuels production for the purposes 
of energy independence and greenhouse gas emission reductions. The 
impact analyses are national in scope but draw upon site-specific data 
from advanced biofuel facilities funded under Sections 9003 
(Biorefinery Assistance Guaranteed Loans) and 9004 as reasonable 
assumptions for the types of facilities, feedstocks, and impacts likely 
to be funded under this rulemaking for FY 2010-2012. Site-specific NEPA 
documents prepared for those facilities funded under Sections 9003 and 
9004 in FY 2008 and/or 2009 were utilized, as well, to forecast likely 
impacts under the interim rule. Qualitative analyses of likely 
programmatic impacts beyond the FY 2012 program expiration date are 
provided, as appropriate. The draft PEA was made available to the 
public for comment on the USDA Rural Business-Cooperative Service's Web 
site in May, 2010. No comments were received on the draft PEA and the 
Agency has issued a Finding of No Significant Impact (FONSI) for the 
two programs that is available on the Agency Web site.

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Executive Order 12988, Civil Justice Reform

    This interim rule has been reviewed under Executive Order 12988. In 
accordance with the rules: (1) All State and local laws and regulations 
that are in conflict with these rules will be preempted; (2) no 
retroactive effect will be given the rules; and (3) administrative 
proceedings in accordance with the regulations of the Department of 
Agriculture's National Appeals Division (7 CFR part 11) must be 
exhausted before bringing suit in court challenging action taken under 
this rule unless those regulations specifically allow bringing suit at 
an earlier time.

Executive Order 13132, Federalism

    It has been determined, under Executive Order 13132 that this 
interim rule does not have sufficient federalism implications to 
warrant the preparation of a Federalism Assessment. The provisions 
contained in this rule will not have a substantial direct effect on 
States or their political subdivisions or on the distribution of power 
and responsibilities among the various government levels.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601-602) (RFA) generally 
requires an agency to prepare a regulatory flexibility analysis of any 
rule subject to notice and comment rulemaking requirements under the 
Administrative Procedure Act or any other statute unless the agency 
certifies that the rule will not have an economically significant 
impact on a substantial number of small entities. Small entities 
include small businesses, small organizations, and small governmental 
jurisdictions.
    In compliance with the RFA, Rural Development has determined that 
this action will not have an economically significant impact on a 
substantial number of small entities. Rural Development made this 
determination based on the fact that this regulation only impacts those 
who choose to participate in the Program. Small entity applicants will 
not be affected to a greater extent than large entity applicants.
    The entities affected by the Program are biorefineries. Regardless 
of whether the participating biorefinery is a small or large business, 
the average cost to a biorefinery to participate in the Repowering 
Assistance Program is estimated to be approximately $16,400. Because 
the major factor in determining whether a biorefinery, small or large, 
will participate in this program is likely to be whether the 
biorefinery has the capital, or access to the capital, for the 
repowering project, the Agency does not believe that the cost of 
applying and participating will dissuade a small business from seeking 
to participate in this program. For example, this average cost 
represents less than 0.5 percent of the proposed rule maximum of $5 
million that a biorefinery could receive under this program. Further, 
biorefineries are expected to realize a reduction in the costs to power 
their operations once the repowering project is in place. Thus, 
participating biorefineries will be able to recoup this expense, 
although small biorefineries are likely to take longer to recoup the 
expense because they are likely to have smaller power usage than large 
biorefineries.
    This regulation only affects biorefineries that choose to 
participate in the programs. Lastly, the program is open to all 
eligible producers, regardless of their size.

Executive Order 13211, Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use

    The regulatory impact analysis conducted for this rule meets the 
requirements of Executive Order No. 13211, which states that an agency 
undertaking regulatory actions related to energy supply, distribution, 
or use is to prepare a Statement of Energy Effects. The analysis did 
not find that the rule will have any adverse impacts on energy supply, 
distribution or use.

Executive Order 12372, Intergovernmental Review of Federal Programs

    This Program is not subject to Executive Order 12372 because the 
Program is not listed as a covered program on the Intergovernmental 
Consultation list.

Executive Order 13175

    USDA will undertake, within 6 months after this rule becomes 
effective, a series of regulation Tribal consultation sessions to gain 
input by elected Tribal officials or their designees concerning the 
impact of this rule on Tribal governments, communities and individuals. 
These sessions will establish a baseline of consultation for future 
actions, should any be necessary, regarding this rule. Reports from 
these sessions for consultation will be made part of the USDA annual 
reporting on Tribal Consultation and Collaboration. USDA will respond 
in a timely and meaningful manner to all Tribal government requests for 
consultation concerning this rule and will provide additional venues, 
such as Webinars and teleconferences, to periodically host 
collaborative conversations with Tribal leaders and their 
representatives concerning ways to improve this rule in Indian country.
    The policies contained in this rule would not have Tribal 
implications that preempt Tribal law.

Programs Affected

    The Repowering Assistance Program is listed in the Catalog of 
Federal Domestic Assistance under Number 10.866.

Paperwork Reduction Act

    The information collection requirements contained in the Notice of 
Funding Availability for the Section 9004 Repowering Assistance 
Payments to Eligible Biorefineries program published on June 12, 2009, 
were approved by the Office of Management and Budget (OMB) under 
emergency clearance procedures and assigned OMB Control Number 0570-
0058. In accordance with the Paperwork Reduction Act of 1995, the 
Agency is now seeking standard OMB approval of the reporting 
requirements contained in this interim rule. In the publication of the 
proposed rule on April 16, 2010, the Agency solicited comments on the 
estimated burden. The Agency received no comments in response to this 
solicitation. This information collection requirement will not become 
effective until approved by OMB. Upon approval of this information 
collection, the Agency will publish a rule in the Federal Register.
    Title: Repowering Assistance.
    OMB Number: 0570-NEW.
    Type of Request: New collection.
    Abstract: The collection of information is vital to the Agency to 
make decisions regarding the eligibility of biorefineries to 
participate in this program, to ensure compliance with the provisions 
of this proposed rule and to ensure that the payments are made to 
eligible biorefineries.
    Biorefineries seeking funding under this program will have to 
submit applications that include specified information, a feasibility 
study, certifications, and agreements. Once a biorefinery has been 
accepted into the repowering program and the repowering project has 
been completed, the biorefinery must submit reports documenting their 
renewable energy production. Participating biorefineries must keep 
records, and make them available to USDA upon request, documenting the 
ongoing displacement

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of fossil fuel usage resulting from the repowering project. These 
requirements are stated in the interim rule.
    The estimated information collection burden hours has increased 
from the proposed rule by 8,728 hours, from 4,390 to 13,118 for the 
interim rule. This increase is attributable to the Agency's reassessing 
the potential number of applicants who would be interested in applying 
for this Program. At proposal, the burden estimate was based on 
assuming that only facilities that primarily produced liquid 
transportation biofuels would apply. The rule, however, allows 
facilities producing biofuels and biobased products from renewable 
biomass to apply. This increases the potential pool of applicants 
significantly.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 23 hours per response.
    Respondents: Biofuel Producers.
    Estimated Number of Respondents: 67.
    Estimated Number of Responses per Respondent: 9.
    Estimated Number of Responses: 581.
    Estimated Total Annual Burden on Respondents: 13,118.

E-Government Act Compliance

    Rural Development is committed to complying with the E-Government 
Act, to promote the use of the Internet and other information 
technologies to provide increased opportunities for citizen access to 
Government information and services, and for other purposes.

I. Background

    Rural Development administers a multitude of programs, ranging from 
housing and community facilities to infrastructure and business 
development. Its mission is to increase economic opportunity and 
improve the quality of life in rural communities by providing 
leadership, infrastructure, venture capital, and technical support that 
can support rural communities, helping them to prosper.
    To achieve its mission, Rural Development provides financial 
support (including direct loans, grants, loan guarantees, and direct 
payments) and technical assistance to help enhance the quality of life 
and provide support for economic development in rural areas. The Food, 
Conservation, and Energy Act of 2008 (2008 Farm Bill) contains several 
sections under which Rural Development provides financial assistance 
for the production and use of biofuels.
    The Repowering Assistance Program interim rule addresses Section 
9004 of the 2008 Farm Bill, which authorizes the Secretary of 
Agriculture to ``* * * carry out a program to encourage biorefineries 
in existence on the date of enactment of the Food, Conservation, and 
Energy Act of 2008, to replace fossil fuels used to produce heat or 
power to operate the biorefineries. * * *'' by making payments to 
assist in the installation of new systems that use renewable biomass.
    On April 16, 2010 (75 FR 20073), the Agency published a proposed 
rule for Repowering Assistance Payments to Eligible Biorefineries. 
Comments were requested on the proposed rule, which are summarized in 
Section III of this preamble. Most of the proposed rule's provisions 
have been carried forward into subpart A of this interim rule. Changes 
to the proposed rule are summarized in Section II of this preamble.
    Interim Rule. USDA Rural Development is issuing this regulation as 
an interim rule, effective March 14, 2011. All provisions of this 
regulation are adopted on an interim final basis, are subject to a 60-
day comment period, and will remain in effect until the Agency adopts 
the final rule.

II. Summary of Changes to the Proposed Rules

    This section presents changes from the April 16, 2010 proposed 
rule. Most of the changes were the result of the Agency's consideration 
of public comments on the proposed rules. Some changes, however, are 
being made to clarify proposed provisions. Unless otherwise indicated, 
rule citations refer to those in this interim rule. Significant changes 
made to the proposed rule for the Repowering Assistance Program 
include:
    1. The citizenship requirement as an applicant eligibility 
requirement was removed. In addition, the term ``immediate family'' was 
deleted because the term was only used in the context of the 
citizenship requirements.
    2. The requirement that a biorefinery must be located in a rural 
area was removed as an eligibility criterion, and has been replaced 
with a scoring criterion that awards points if the biorefinery is 
located in a rural area.
    3. The payment provisions of the rule were revised to allow 
participating biorefineries to request and receive reimbursement 
payments for eligible project costs no more often than monthly during 
the construction of the repowering project. Up to 90 percent of the 
total award may be dispersed prior to completion of the repowering 
project with the remaining 10 percent to be paid upon successful 
completion of the project.
    4. The name of the methodology for measuring the cost effectiveness 
of a project was revised from ``return on investment (ROI)'' to 
``Simple Payback.''
    5. The scoring for the percentage of reduction of fossil fuel was 
modified by adding a provision that deducts 5 points when any of the 
fossil fuel being replaced is natural gas.
    6. The renewable biomass scoring criterion was revised by 
decreasing the points awarded from 10 to 5 (in order to provide points 
for the new scoring criterion of rural area location) and by changing 
the proposed requirement that an applicant demonstrate 100 percent 
control over its feedstock for a period of 3 years to the requirement 
that the applicant demonstrate at the time of application that it has 
on site available access to biomass or enforceable third party 
commitments to supply biomass for the repowering project for at least 3 
years.
    7. The applicant eligibility criteria were revised to require that 
successful applicants must be awarded at least minimum points for cost-
effectiveness and for percentage of reduction of fossil fuel use under 
Sec.  4288.21(b).
    8. The scoring for ``cost effectiveness'' was revised to add a 
fourth level to the estimated simple payback period. For applicants 
projecting a simple payback period of between 6 and 10 years, the 
maximum points to be awarded was changed from 0 points to 5 points. 
This change allows applicants with a projected payback period of up to 
10 years to meet the minimum criteria for applicant eligibility, as 
discussed in item 6.
    9. The definitions of ``eligible renewable biomass'' and 
``feedstock unit'' were deleted as these terms are no longer used in 
the rule.
    10. In addition to providing information on the biofuel production 
as part of the application contents, information is now required for 
any biobased product produced at the facility.
    11. The Agency removed the requirement to provide receipts for drop 
shipments of and use of renewable biomass from the application content 
requirements under Sec.  4288.23(a)(5)(iii).
    12. The Agency has added a requirement to submit annual reports for 
the first 3 years after completion of the repowering project. These 
reports must include documentation regarding the usage and production 
of energy at the biorefinery during the previous year, including both 
the previous and current

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fossil fuel load and the renewable biomass energy production.
    13. The Agency has added a provision giving it the right to 
disqualify payments made to a biorefinery if, upon completion of the 
repowering project, the biorefinery fails to reduce its fossil fuel 
consumption, produce energy from renewal biomass, or otherwise operate 
as described in its Agency approved application.
    14. A new section (Sec.  4288.26) was added such that an entity 
that submitted an application for payment to the Agency under this 
program prior to the effective date of this rule will have their 
payments made and serviced in accordance with the provisions specified 
in this subpart.

III. Summary of Comments and Responses

    The proposed rule was published in the Federal Register on April 
16, 2010 (75 FR 20073), with a 60-day comment period that ended June 
15, 2010. Comments were received from 8 commenters yielding 30 
individual comments, which have been grouped into similar categories. 
Commenters included biorefinery owner/operators, Rural Development 
personnel, trade associations, and individuals. As a result of some of 
the comments, the Agency made changes in the rule. The Agency sincerely 
appreciates the time and effort of all commenters. Responses to the 
comments on the proposed rule are discussed below.

Eligibility Requirements

    Comment: One commenter suggests the proposed eligibility 
requirements remain open to ethanol biorefineries to be able to use any 
process stream that would be capable of generating a renewable biogas 
to replace fossil fuel related energy usage. The commenter states that 
process streams typically considered for biogas generation are the 
whole stillage, thin stillage, or syrup streams and that these streams 
contain renewable biomass at various solids concentrations that could 
be used in biogas generation technologies.
    Response: Ethanol biorefineries are eligible under the Repowering 
Assistance program. The byproducts from the production of ethanol, 
whole stillage, thin stillage, or syrup streams are eligible biomass 
which can be used to replace fossil fuels.

Scoring Criteria

    Comment: One commenter states that the scoring criteria are good. 
The commenter further states that the criteria promote projects that 
have a major repowering impact on the facility, give preference to 
technologies that can have an immediate/near-term impact, and credit 
companies that have a firm handle on the biomass supply aspect.
    Response: The scoring criteria have remained substantially the same 
since the inception of this program. The Agency agrees with the 
commenter that they have worked well. However, based on experience with 
the first round of applications, the Agency believes that improvements 
can be made.
    The revised scoring criteria are not substantially different from 
those in the Notice of Funding Availability (2010 NOFA) published in 
the Federal Register on May 6, 2010. The scoring criteria have been 
revised to better effect the program's purpose, and to encourage the 
use of biomass to replace fossil fuels.
    For cost effectiveness, a fourth level was added to the scoring for 
the estimated simple payback period. For applicants projecting a simple 
payback period of between 6 and 10 years, the maximum points to be 
awarded was changed from 0 points to 5 points and for applicants 
projecting a simple payback period of 10 years or more, no points would 
be awarded. This change allows applicants with a projected payback 
period of up to 10 years to be awarded points and, thus, meet the 
minimum criteria for applicant eligibility.
    In addition, a provision was added to the percentage of reduction 
of fossil fuel use scoring criterion to deduct 5 points when any of the 
fossil fuel being replaced is natural gas. As discussed below, this 
provision was added to in recognition of the greater emission 
reductions to be achieved under this program when renewable biomass is 
used to replace coal compared to natural gas.
    Lastly, a new scoring criterion was added that awards 5 points to 
biorefineries located in a rural area. This scoring criterion replaces 
the proposed rule's eligibility criterion that the biorefinery be 
located in a rural area in order to be eligible for the program.

Payment Rate and Terms

    Comment: One commenter states that most qualifying projects will 
likely exceed the $10 million threshold. Based on the anticipated 
amount of fossil fuel replaced by such projects, it appears the maximum 
award level will never be reached under the current payout system 
proposed. The commenter recommends increasing the initial payment 
amount received and/or increasing the amount per fossil fuel MMBTU 
replaced so that the maximum award level may be reached. The commenter 
provided an example where 50 percent or $2.5 million of the maximum 
award of the proposed rule's $5 million cap could be included in the 
first payment with payments of $1.00 per MMBTU replaced. The commenter 
states that under this payment structure the intended maximum award 
level should be achieved within 3 years after operation. To further 
ensure the award level is reached, an allowance can be made to extend 
the payment term for longer than 3 years or until the award level is 
reached. The commenter also proposes payments be extended 3 years or 
otherwise determined from the beginning date of biogas production not 
the award date as there could be a significant amount of time before 
production begins due to project permitting and construction.
    The commenter further states that, at current payment levels and 
economic parameters, there seems to be no incentive for larger 
repowering projects at ethanol biorefineries. Repowering projects will 
be downsized from their potential size to make the economics favorable 
when considering the present payment structure of only 3 years of 
payments and the proposed rule's $5 million maximum award that appears 
will never be realized for some projects. The commenter recommends 
higher award amounts be considered to allow the economic analysis for 
larger projects be favorable enough to encourage even more reduction in 
fossil fuel usage. The commenter also requests that any potential 
changes in payment structure that further encourages completion 
projects be retroactive. This will help fulfill the intent of the 
program and payment structure to reach the current maximum award levels 
of 50 percent of the project up to the proposed rule's $5 million 
maximum award.
    Response: The purpose of the Repowering Program is to incentivize 
the switch to renewable biomass fuels, not to be the major source of 
project funding. There is a relatively small amount of money available 
in this program given the capital cost of the projects. The Agency 
wanted to maximize the number of award recipients while still providing 
a meaningful financial incentive. While the proposed rule's $5 million 
cap would have achieved this objective, the Agency has determined that 
it is better for the Repowering Program to determine the cap each year 
because the funding available for the program could change in the 
future. Therefore, the Agency will announce in a Federal Register 
notice the maximum award for the Repowering Program each year.

[[Page 7920]]

    The Agency has revised the payment structure to provide 
reimbursement payments for eligible project costs during the 
construction phase of the repowering project. Payments will be made no 
more often than monthly and participating biorefineries must submit a 
request for payment with proper documentation of the incurred costs to 
be considered for payment. The Agency has determined that this payment 
structure will better enable biorefineries to obtain financing for 
repowering projects.
    The commenter's reference to a $10 million threshold is incorrect. 
There is no cap on the cost of projects eligible for the Repowering 
Program. The cap will apply to the amount awarded to individual 
applicants.
    Comment: Another commenter states that the $0.50/MMBTU production 
payment with 20 percent project cost share after completion of the 
project does not share enough financial burden/risk in today's economy 
and bank financing scarcity. The commenter states that project 
financing, not technology, is the show stopper on building capital 
intensive repowering projects and that a more appropriate approach 
might be a simple, low interest Federal loan to finance the project 
with 50 percent loan forgiveness after a demonstration of system 
performance. The commenter states that, under such an approach, the 
owner will be motivated to operate the repowering equipment to achieve 
a return on the investment and make payments on the loan balance.
    Response: The Agency acknowledges the burden on the applicant 
seeking credit to fund projects, and has revised the payment method. 
However, the Repowering Assistance rule implements the terms of Title 
IX of the Food, Conservation and Energy Act of 2008 (Pub. L. 110-246) 
which provides for payments to biorefineries based upon the extent of 
the replacement of fossil fuels with renewable biomass and the cost 
effectiveness of the renewable biomass system. The statute does not 
provide for a loan program. As noted above, the purpose of the 
Repowering Program is to incentivize the switch to renewable biomass 
fuels, not to be the major source of project funding.

Payment Amount Alignment

    Comment: One commenter states that, based on the current estimated 
fossil fuel reduction and the capital costs likely needed for such 
reduction, the payment amount should be increased in order to reach the 
incentive levels defined as the maximum award level in the proposed 
program. The commenter states that the potential for up to 100 percent 
fossil fuel reduction exists at many ethanol biorefineries, but to 
achieve that level or very high levels of reduction the amount of 
capital needed in relation to the amount of the current incentives 
would unlikely provide the necessary payback or return on investment 
needed to move the larger projects forward at this time. The commenter 
states that a thorough economic analysis would need to be completed to 
determine the necessary incentive level to achieve the necessary return 
on investment to complete the larger project scenarios.
    Response: The purpose of the Repowering Program is to incentivize 
the switch to renewable biomass fuels, not to be the major source of 
project funding. There is a relatively small amount of money available 
in this program given the capital cost of the projects. The Agency 
wanted to maximize the number of award recipients while still providing 
a meaningful financial incentive. As noted in a previous response, 
because funding for the Repowering Program could change in the future, 
the Agency has determined that it is better to determine the cap each 
year and will announce the cap in an annual Federal Register notice. 
Therefore, the Agency has revised the rule accordingly. In addition, 
the Agency revised the payment method to address commenters' concerns 
about biofineries having to fully fund a project. Payments will now be 
made during the construction phase of a project.

Citizenship Requirements

    Comment: One commenter states that funding should be carefully 
restricted to promote domestic owners efforts to reduce fossil fuel 
use. The commenter states that domestic derived energy needs to have 
domestic owners to deepen the roots of domestic energy security and 
promote the movement (and pride) by domestic companies to take 
ownership of the movement to reduce greenhouse gas (GHG) emissions.
    One commenter states that USDA's citizenship requirements are 
hurting rural America. The commenter believes the policy is delaying 
the Administration's ability to reach its economic goals for rural 
America and energy independence goals for the country. The citizenship 
status of the applicant should not be an eligibility requirement of a 
facility as it has no effect on the program goal of encouraging the 
development of commercial scale biorefineries that produce advanced 
biofuels. The commenter states that the rural economic development 
potential resulting from the local construction and operation of a 
biorefinery is substantial and these facilities use local feedstocks 
and employ U.S. workers. Therefore, the ability for a biorefinery to 
provide substantial local economic development opportunities is 
directly related to the location of the facility, not the citizenship 
of the owner.
    The commenter further states that biorefineries need government 
grants, loans and loan guarantees to attract investors who understand 
green investment and that investors who understand a green investment 
framework are often foreign, where the clean technology investment 
framework is readily understood. The commenter states that, in the age 
of a global economy, this citizenship requirement is impractical and 
ineffective and it inhibits the purpose of the program to incentivize 
private equity investment in the sector.
    The commenter also states that, as a regulatory matter, a 51 
percent determination of domestic investors is untenable. An investor's 
domicile often cannot be discerned as foreign or domestic. A 
successful, ready to scale biochemical company is usually funded by a 
number of sources, both foreign and domestic, often made up of venture 
funds with investment from around the world, funds of funds, and 
independent investors alike. To discern whether or not the fund that 
owns a fund, that is invested in a particular portfolio company has 51 
percent U.S. ownership, is not only impractical, it is impossible. The 
commenter states that, as green technology companies struggle to find 
funding from U.S. and foreign investors alike, the U.S. government 
clings to an outmoded policy that limits the substantial investment 
incentives of grants, loans and loan guarantees that will bring the 
U.S. green economy to scale.
    Another commenter supports the position of the previous commenter 
and adds that the U.S. clean tech sector will need $10 trillion of 
capital in the next ten years if we expect to reach climate change 
goals. The commenter states that this sector struggles to shift from 
research and development to large-scale deployment in an uncertain 
economic and regulatory environment. Private equity investors readily 
recognize the investment risk of bringing these technologies across the 
commercialization gap. Many U.S. private equity investors are simply 
unwilling to take on the burden of helping green tech companies to 
cross into full-scale commercialization without the same regulatory 
certainty

[[Page 7921]]

that exists today in China and Europe. The commenter also added that 
U.S. equity investment incentives, already limited in scope by 
government programs, are cut down further by a 10 percent reduction in 
the capital costs of new technology deployed on foreign soil (i.e., the 
Middle East, China, Malaysia). In addition, as technology deployment 
costs are lower overseas, foreign governments have gone far and beyond 
U.S. government commitments to clean technology. The China Development 
Bank has allocated $11.7 billion for solar production alone over the 
next ten years with regulatory certainty in place for the next ten 
years. These are the competitive realities of the clean tech sector on 
a global scale.
    One commenter states that the proposed ``citizenship requirement'' 
discriminates in favor of some U.S. companies and workers while 
disadvantaging other U.S. companies and workers. Under the proposed 
test of at least 50 percent domestic ownership, numerous U.S.-
incorporated companies would be excluded from participation. As 
currently drafted, significant USDA partners would be excluded. Such 
companies employ tens of thousands of American workers in research, 
production and manufacturing facilities throughout the United States.
    The commenter states that restricting certain U.S.-incorporated 
companies and their American workers from access to the program 
undermines U.S. goals of job creation and undermines the effectiveness 
of the program in its goal of encouraging the use of renewable biomass 
as a replacement fuel source for fossil fuels. The important goals laid 
out by President Obama in his May 5th Presidential Directive--to 
increase America's energy independence and spur rural economic 
development while encouraging production of the next generation of 
biofuels--are unlikely to be achieved without allowing U.S. 
subsidiaries, some of the most innovative and successful companies in 
the world, to fully participate.
    The commenter states that U.S. subsidiaries can make important 
contributions to the USDA and their participation would be of 
significant benefit to the Rural Business-Cooperative Service and to 
the United States. The Department of Energy's Advanced Research Project 
Agency-Energy (ARPA-E) recognized the benefits of such participation 
when it lifted similar eligibility requirements in December 2009. ARPA-
E now fully permits entities incorporated in the United States to apply 
for funding, regardless of whether they are ultimately foreign-owned or 
U.S.-owned. The commenter urges similar equal treatment by the 
Department and equal access for U.S. subsidiaries to the Repowering 
Assistance Payments to Eligible Biorefineries program.
    The commenter also states that the proposed ``citizenship 
requirement'' calls into question the U.S. commitment to a 
nondiscriminatory environment for foreign investment, and invites 
similar protectionist retribution from other countries. Setting aside 
any questions the restrictions raise under U.S. international 
agreements, they are also inconsistent with the longstanding and 
explicit U.S. policy to encourage foreign investment in the United 
States and accord nondiscriminatory treatment. The commenter further 
states that the proposed rule invites discrimination against U.S. 
companies abroad, which is exactly what President Obama and the other 
G20 Leaders have pledged to avoid through their commitment to ``promote 
global trade and investment and reject protectionism.''
    Response: The Agency has reconsidered the citizenship requirement 
and has decided to eliminate this requirement from the rule. The Agency 
agrees that the beneficial impacts of the program will be at the local 
level regardless of ownership.

Rural Area Limitation

    Comment: One commenter requests that USDA expand the boundaries 
that define the location population to define a city as a populous of 
over 500,000 to 1,000,000 persons versus 50,000 persons. The commenter 
explains that they are not qualified to apply for any USDA funding 
programs (grants or loans) because their facility is located in an area 
that encompasses the City of Erie (population about 102,036) and its 
outlining areas, even though they have low population. The commenter's 
facility has the versatility to run on various feedstocks from non-
vegetable oils to animal fats to agricultural feedstocks such as soy. 
It is also located on Lake Erie where it has access to shipping, two 
interconnected railroads (CSX and Norfolk Southern), I-90 and I-79. 
Thus, it can easily bring in feedstock and ship out finished biodiesel. 
If they could be deemed located in an applicable area then they could 
apply for USDA funding and build on relationships with local/domestic 
farm institutions.
    Two commenters caution against defining ``Rural Area'' with too 
much restriction, potentially disqualifying ideal sites for 
biorefineries that would, in fact, meet the program goals and increase 
economic opportunity in rural communities, but may be located in areas 
that do not fit the program definition. The commenters explain that, 
for a biorefinery, the cost of feedstock can typically represent 80 
percent of the total cost of finished product. As a general rule, a 
majority of the feedstock will inherently come from the rural 
community, and be produced/collected/harvested by a local labor force. 
Similarly construction and operation workforces will be predominantly 
local. The rural economic development potential resulting from a 
biorefinery is substantial. One advantage of advanced biofuels is that 
they can be produced all over the country utilizing multiple 
feedstocks. Projects should not be evaluated negatively on one of the 
advanced biofuels industry's greatest assets, flexibility. Offering 
eligibility to facilities in non-rural communities is critical to the 
success of the program goals and the advanced biofuels industry. 
Restricting the location of these facilities is not necessary to 
maintain the spirit of enhancing rural development and the geographic 
diversity of advanced biofuels production. More flexibility of site 
selection, not less, should be installed in these programs.
    The commenters further state that having a consistent, cost 
competitive regional supply of feedstock is key to the success of any 
project. Non-rural plants that use agricultural feedstocks will most 
certainly rely on the surrounding rural communities to produce, 
harvest, store, and handle feedstock needs. With feedstock cost 
representing the largest operational cost of a biorefinery, this in 
turn means that most of what the plant spends goes to the rural 
community in paying for that feedstock. This should demonstrate that 
the biorefinery does not need to be in a rural area to fulfill program 
goals. Excluding plants that are not in rural areas denies the 
supporting rural community significant opportunity.
    Another commenter disagrees with the rural area proposal because 
the Repowering Assistance section in the Farm Bill does not restrict 
applicants to only those in rural areas. ``Repowering Assistance'', by 
its terms, applies to any biorefinery, regardless of location. Further, 
this proposed restriction would narrow the pool of eligible applicants 
beyond Congressional intent. In so doing, the rural restriction will 
reduce the overall effectiveness of the program. The commenter states 
that when Congress authorized the Repowering Assistance program and 
established the eligibility requirements, it did not limit the 
Repowering Assistance program to

[[Page 7922]]

only biorefineries located in rural areas. This rural restriction is 
not supported in either the Manager's Report or the legislation. The 
authorizing legislation very clearly states eligibility includes ``any 
biorefinery that meets the requirements of this section.'' The 
statute's sole discussion of ``eligibility'' is the following:
    Eligibility--To be eligible to receive a payment under this 
section, a biorefinery shall demonstrate to the Secretary that the 
renewable biomass system of the biorefinery is feasible based on an 
independent feasibility study that takes into account the economic, 
technical and environmental aspects of the system.
    The commenter states that an example of a similarly clear 
Congressional rural restriction may be found under Section 9007, the 
Rural Energy for America Program (REAP). The eligible recipients for 
REAP are ``agricultural producers and rural small businesses.'' The 
second part, ``rural small businesses,'' clearly limits eligible 
businesses to only those in rural areas. As REAP shows, Congress knows 
how to include a rural restriction when it wants to do so.
    Notably, the mission for the USDA Rural Business-Cooperative 
Service can be served without a rural restriction, and without 
conflicting with public policy goals. When facilities in non-rural 
areas use biomass--whether as a feedstock to produce final products or 
as fuel--they increase demand for materials produced mostly in rural 
areas. When public investments build a larger bioeconomy, rural 
residents benefit from increased rural income from biomass sales and 
wages. Prohibiting participation by non-rural biorefineries would have 
the effect of reducing benefits to rural citizens.
    The commenter states that by restricting the pool of eligible 
applicants, the proposal violates the plain language of the statutory 
authorization, and elevates agency interest over clear Federal policy 
goals.
    Response: The Agency has reconsidered the proposed rural area 
requirement. The beneficial impacts of the program will generally be in 
rural areas even if the biorefinery is located in an area that does not 
meet the proposed rural area definition, because biomass production is 
expected to occur largely in rural areas and, thus, rural economies 
will benefit from the increased use of biomass. The Agency is, 
therefore, removing the proposed rural area requirement from the rule 
as an eligibility criterion. However, as has been stated previously, 
the biorefinery must be located in a rural area in order to receive 5 
points under the revised scoring criteria.

Timeframe for Control of Feedstock

    Comment: Two commenters oppose the scoring criteria that reward 
maximum points to applicants who demonstrate control of the repowering 
project feedstock for at least 3 years. One of the commenters states 
that at an ethanol biorefinery this demonstration is impractical and 
unnecessary. Typical feedstock contracts at many ethanol biorefineries 
do not extend out to this duration of time. The repowering feedstock is 
readily available after the production of ethanol and so many ethanol 
biorefineries are already controlling feedstocks as necessary according 
to existing market and plant operating conditions. The commenter 
recommends removal of this scoring criteria as it discriminates 
unfairly against those who do not need to control feedstock 3 years out 
and already have a repowering feedstock available in their current 
process.
    The other commenter states that many firms operate biomass 
facilities without long-term contracts for their biomass supply. This 
is a strategic business decision and does not necessarily determine 
success or failure. Biomass plants often procure materials on a mixed 
basis, sometimes by long-term contract and other times by simply 
procuring on the spot market or on short-term contract. For example, a 
firm may purchase wood from the spot market while also having contracts 
for biomass from private forests and/or for residues from wood products 
manufacturers. The term for the contracts can vary and the supply of 
biomass for a plant will change over time in response to market 
conditions.
    The commenter states that it is possible that USDA included these 
points as a way of assuring a longer-term supply of biomass. Private 
investors often require a demonstration of the availability of 3-10 
times the annual biomass requirement within a reasonable shipping 
distance as a part of their due diligence. The commenter recommends 
that, since sufficiency of supply, rather than control of the supply, 
is the crucial question, USDA should require as a threshold criterion 
that applicants demonstrate an adequate supply of biomass for the 
plant. Doing so will address the real issue (feedstock supply) without 
limiting the refinery's flexibility in managing their fuel supply.
    Response: While many of the repowering applications proposed to use 
feedstock produced from their own process, such as stillage or syrup, 
many others proposed to purchase biomass. Control and availability of 
biomass are crucial to a project's viability. The rule does not make 
the control of biomass mandatory, rather a scoring element. The Agency 
revised the scoring criteria to include on site availability of 
renewable biomass or enforceable third party commitments to supply 
renewable biomass, similar to the Fiscal Year 2010 NOFA.

Closed System Use of Own Waste Streams

    Comment: One commenter recommends developing a scoring criterion 
that would give preference to biorefineries that have closed systems or 
that can use their own waste or process streams in the repowering 
project. Preference should be given to these types of projects that 
utilize an already available biomass feedstock on-site. By using the 
available biomass feedstock in existing process streams, the carbon 
intensity associated with operations is further minimized by not having 
to include the carbon emissions associated with the processing and 
transportation of biomass feedstock from off-site sources as well as 
the amount attributed to the current transportation of the waste or 
process streams constituents off-site.
    Another commenter noted that the meaning of the term ``closed 
system'' in this request for comment is not clear. Thus, the commenter 
recommends not including a scoring criterion for ``closed systems'' 
without clearly defining the term.
    Response: Title IX of the Food, Conservation and Energy Act of 2008 
(Pub. L. 110-246) provides for payments to biorefineries based upon the 
extent of the replacement of fossil fuels with renewable biomass and 
the cost effectiveness of the renewable biomass system. The statute 
contains no other criterion for awarding payments. The Agency believes 
it has effectively implemented the intent of the statute in the current 
rule.

Type of Fossil Fuel Displaced Payment

    Comment: One commenter agrees with the concept of scoring an 
application higher for replacing certain types of fossil fuels that are 
the higher GHG emitting fuels. The commenter also states, however, that 
unless there are additional incentives for those fuels or the cost of 
those fuels significantly changes, it is likely the economic analysis 
will tend to favor replacement of natural gas based fossil fuel usage.
    Response: The statute does not make the distinction among fossil 
fuels that the commenter proposes and does not specifically address 
emissions. While

[[Page 7923]]

the majority of facilities that have applied to date use natural gas, 
emissions from coal are more significant than from natural gas. The 
Agency recognizes that reductions of greenhouse gas emissions and 
hazardous air pollutant emissions will be greater under this program 
when coal is replaced than when natural gas is replaced. Therefore, in 
recognition of this, the Agency has revised the cost-effectiveness 
scoring criterion to include a provision that deducts 5 points when any 
portion of the fossil fuel being replaced is natural gas.

Purpose and Scope--Sec.  4288.1

    Comment: Two commenters state that the rules as proposed exclude 
future advanced biofuels and biobased products facilities which hold 
great promise in achieving the program goal of incentivizing the 
replacement of fossil fuels by including the requirement that the 
incentives can only be awarded to biorefineries in existence on June 
18, 2008. The commenters recommend that USDA use a broad definition of 
``in existence'' when evaluating the eligibility of a biorefinery based 
on the requirement that the facility must be in existence on June 18, 
2008 to be eligible for the program so that the maximum number of 
facilities qualify.
    The commenters state that, while there are significant benefits to 
incentivizing biopower at biorefineries in existence on June 18, 2008, 
there are equal if not greater benefits to opening eligibility to new, 
more efficient technologies as well. Allowing this incentive to only be 
available to facilities in existence before June 2008 gives an 
advantage to existing technologies and biorefineries over new 
technologies and facilities, thereby threatening to stifle innovation 
in commercialization of biotechnologies such as advanced biofuels, 
biobased products, and renewable specialty chemicals that will be 
produced collectively at modern biorefineries. Incentivizing 
conventional technologies over advanced technologies in this manner 
will have significant effects on other programs such as renewable and 
low carbon fuel standards by giving these technologies an incentive to 
improve their lifecycle GHG emission reductions while not providing the 
same incentives to advanced technologies to do the same.
    The second commenter adds that biorefineries that use energy 
efficient and cost effective business models, like producing multiple 
bioproducts at one facility, should not be disadvantaged.
    Response: The statute only authorizes biorefineries in existence as 
of the date the Food, Conservation, and Energy Act of 2008 was passed 
(June 18, 2008) as eligible for participation in the program. This is 
not a matter within the discretion of the Agency.

Definitions--Sec.  4288.2

    Comment: One commenter requests that USDA clarify that projects 
that retrofit biorefineries in existence prior to June 18, 2008 with 
additional equipment are eligible for this program provided the heat 
and power are centrally produced.
    Response: The Agency's understands this comment to inquire whether 
retrofits made prior to the inception of the program are eligible for 
payments. Section 4288.12 specifically provides that project costs 
incurred prior to submitting an application to the Repowering 
Assistance Program are ineligible.

Applicant Eligibility--Sec.  4288.10

    Comment: One commenter states that, while the Department is right 
to take steps to avoid the program disproportionately benefitting one 
company, many companies or entities own more than one plant. USDA's 
proposed ``one company, one plant'' rule might prevent conversion of 
more energy systems, thereby limiting program success, if funds would 
otherwise go unused as a result. The commenter suggests that, to avoid 
this potential unintended consequence, companies with more than one 
plant should be allowed up to two applications. Once a firm's highest 
scoring submission wins an award, the lower scoring of the two 
proposals would be set aside for a second round pool. The second round 
pool would only be considered if sufficient funds remain available from 
the first round. If sufficient funding is available, these second round 
submissions would be ranked according to point scores and selected 
until available funding is awarded. This approach will allow the 
Department to accomplish more in the event a smaller number of firms 
demonstrate interest in repowering and the program. By limiting the 
awards to two, USDA will largely preserve its goal of avoiding unfair 
benefits to one firm, while allowing potentially more use of program 
funds in some circumstances.
    Response: The Agency's intent is to maximize the number of projects 
funded by limited resources, $35 million. The Agency wants to ensure 
that small- to medium-sized companies have an opportunity to compete 
for payments. Limiting applicants to one application achieves this 
objective.
    Comment: One commenter would like USDA to clarify that energy 
integration synergies from co-locating a cellulosic ethanol plant with 
an existing starch-based plant will qualify for this program in the 
final rulemaking. The commenter states that certain technologies for 
production of cellulosic biofuels, will have substantial excess steam 
energy available for co-located users. When a cellulosic ethanol 
facility is co-located with an existing corn ethanol plant, it has the 
opportunity to reduce the natural gas requirement for the corn plant 
and allow it to qualify for this program.
    Another commenter also asked for a similar clarification, pointing 
out that co-location is another way companies intend to participate in 
improving the economic viability and environmental sustainability of 
biofuel production facilities.
    Response: An existing ethanol facility would be eligible for 
Repowering Assistance payments, and co-locating a project would not be 
a problem as long as the scope of the project would be limited to the 
existing ethanol facility. That portion of the project which served the 
cellulosic plant would be ineligible unless that cellulosic plant was 
in existence as of the date of passage of the Farm Bill (June 18, 
2008).

Payment Info--Sec.  4288.13

Paragraph (a)
    Comment: One commenter expressed concern with the realistic 
opportunity for a biorefinery to qualify due to all of the stipulations 
outlined in the program while making the changes in an economically 
feasible manner. The commenter states that the majority (80 percent) of 
the payment in this program is made after the project is in place and 
producing energy so the money to install these systems must be fronted 
by the biorefinery in hopes of recouping the costs in the future. There 
are very few funding sources in today's economic environment that will 
take the risk of installing a fairly new and unproven system at an 
existing biorefinery with the plan of collecting the funds once the 
system is producing energy. The commenter states that the other issue 
is that the return on investment must happen very quickly (<4 years), 
yet the costs of implementing many of the systems and acquiring the 
feedstocks heavily outweighs the current costs of the rural fossil fuel 
derived utilities to the facility. The commenter states that they have 
a strong desire to offset fossil fuel derived utility usage but it must 
make good economic sense in order to allow the biorefinery

[[Page 7924]]

to thrive during already extremely difficult market and economic 
conditions.
    Response: The Agency acknowledges the burden on the applicant and 
has changed the payment method to provide an expedited incentive 
intended to lower barriers for applicants seeking to use the program to 
repower facilities. The program seeks to encourage and incentivize 
sustainable, long term biomass projects.

Application Review and Scoring--Sec.  4288.21

Cost-Effectiveness--Paragraph (b)(1)
    Comment: One commenter states that USDA proposes the cost-
effectiveness metric to implement the legislative requirement for cost 
effectiveness. The commenter states that while USDA refers to it as 
ROI, it actually appears to be a formula commonly understood as 
``simple payback'' to represent the time necessary to pay off the 
investment through savings or other measurable benefits. The commenter 
states that ``return on investment'' is widely understood to represent 
a different calculation (see below) that measures in terms of percent 
or rate, not years, and believes that USDA's proposed measure should be 
referred to as the ``payback period'' or ``simple payback.''

ROI = (gain from investment-cost of investment)-cost of investment

    The commenter further states that, regardless of its name, USDA's 
proposed approach to implementing this requirement has drawbacks, 
primarily by boosting the eligibility of projects that need the least 
funding. The commenter questions whether, if the payback is under 3 
years, the incentive is really necessary, or perhaps if only a smaller 
incentive is needed to lower the payback to levels warranting 
investment. Increasing the incentive based on lower payback period may 
also increase the numbers of ``free riders'' who do not need an 
incentive to invest in the plant but can get a grant anyway.
    The commenter further explains that payback and return on 
investment performance measures are appropriate for a private investor, 
but can easily lead a public agency astray from implementing the clear 
goals of the legislation. The measure employed for cost-effectiveness 
should focus on the effectiveness in accomplishing the legislative 
intent and goals, rather than short-term profitability. When a public 
agency cost-shares projects, such as under Repowering Assistance, the 
decision should be based on measures related to the public policy, not 
to profit maximization (which is the concern of the private partner).
    Payback analysis outcomes will often skew from policy outcomes due 
to the very factors which make the policy necessary in the first place, 
such as the failure of energy project evaluation to include the costs 
of carbon pollution. Payback can also differ between candidate 
submissions based on factors such as differences in local economics, 
fuel costs or plant layouts. For example, some facilities may require 
more costly modifications to adapt to biomass power given their 
existing plant layout or access to fuel yards. Or, different biomass 
energy technologies may result in longer payback periods yet higher 
carbon pollution reductions. A payback focus might diminish the chances 
at funding for projects that are cost-effective at reaching the public 
policy goals.
    The commenter proposes that the criteria for cost-effectiveness be 
based not on the private sector's measure of payback but, instead, on a 
measure related to the public policy goals. In this case the primary 
policy goal is carbon reduction; therefore, the appropriate criterion 
is the cost per ton of fossil CO2 emissions displaced. By 
using this measure the USDA would more effectively address cost-
effectiveness as required in the legislation through using the policy 
goal itself.
    Response: The ROI methodology used was intentionally selected 
because of its simplicity; it is a simple return on investment 
calculation, also known as simple payback. The Agency agrees with the 
commenter that the methodology is more commonly known as Simple Payback 
and has changed its name in the rule from ROI to Simple Payback.
    Title IX of the Food, Conservation, and Energy Act of 2008 sets 
forth specific criteria to determine the amount of payments. The 
criteria include: (1) The quantity of fossil fuels replaced by biomass, 
(2) the percentage reduction in fossil fuel, and (3) the cost and cost 
effectiveness of the biomass system.
    The rule has been written to implement the statute. The cost 
effectiveness of the biomass system is not only a statutorily mandated 
criterion, but one which is essential for a project to provide a 
realistic cost competitive alternative to fossil fuels, such as natural 
gas and coal. The operation of a biorefinery is, ultimately, a 
business, and must achieve cost effectiveness to be viable over the 
long term.

Application Review and Scoring--Sec.  4288.21

Percentage of Reduction of Fossil Fuel Use--Paragraph (b)(2)
    Comment: One commenter believes this is a very appropriate 
criterion that the Agency should use with the strong weighting factor 
proposed, because the goal of reducing carbon pollution is central to 
the purpose for Section 9004. The legislation states, in Section 
(b)(2), that the Agency should consider ``the percentage reduction in 
fossil fuel used by the biorefinery that will result from the 
installation of the renewable biomass system.'' The commenter 
recommends that the scoring on this point should be calculated as 
proportional to the percent of fossil fuel displacement. So, for 
example, displacement of 100 percent of the fossil fuels results in 35 
points.