The Chesapeake Bay region could lead the nation in developing a biofuels industry that will help wean Americans from dependence on foreign oil and keep farmers in business while also improving water quality. But to succeed, the states and the federal government must create markets and encourage the needed investments.

Those conclusions mark the end of the Chesapeake Bay Commission's three-year research effort into biofuels and the Bay.

The commission recommended a regional production goal of 500 million gallons of biofuels a year. The fuels would be produced from a mix of agricultural and forest-based feedstock.

The findings, and the report's ambitious goal, signal an evolution in thinking about biofuels that mirrors a shift in the technology available to produce them.

The conventional wisdom that ethanol has to come from corn and is only viable in the farm-rich Midwest has been fading. In its place is an understanding that a viable biofuels industry that also safeguards water quality requires proximity to markets, diverse crops-including barley and rye-and dense forests. It also requires legislators who want to see the industry succeed and are willing to pass laws to enable it, such as regulations mandating ethanol additives to gasoline and subsidized financing for biodiesel plants.

The Chesapeake region meets all those criteria, said Chesapeake Bay Commission Executive Director Ann Swanson.

"There's no other place in the nation that has done this kind of regional analysis (of the relationship) between biofuels and water quality," she said.

The change in thinking is good news for the Bay. The initial burst of enthusiasm focused primarily on ethanol produced from corn, using widely available technology. As corn prices soared, so did the number of corn acres planted across the nation, and in the Bay watershed. But corn uses nitrogen inefficiently, typically leaving large amounts in the ground after harvest that can eventually make its way to streams, and ultimately the Bay.

Increases in corn production and other crop changes in 2007 alone-when corn prices peaked because of increased ethanol demand-is estimated to have increased nitrogen runoff from farm land in the Bay watershed by anywhere from 3 million to 8 million pounds, offsetting years of agricultural nutrient reduction efforts.

Also, the push for ethanol inflated corn prices, causing food shortages in corn-consuming nations such as Mexico. The energy required to produce ethanol comes from fossil fuels and is so high that the fuel produced represents little, or no, net gain in carbon savings.

As a result, the commission's first report mostly focused on the perils and promise of ethanol. It came on the heels of the Fuel Standard provision of the Federal Energy Independence and Security Act of 2007, which required 36 billion gallons of biofuels to be used in the nation's transportation fuel supply by 2022-thereby accounting for 20 percent of the nation's transportation fuel. Of that, 21 million gallons are expected to come from cellulosic and other advanced non-corn biofuels. Cellulosic biofuels come from the non-edible parts of plants, such as cornstalks, as well as from sources such as wood chips and switchgrass. The Obama administration recently recommitted itself to that goal, but allowed a higher amount of corn-based ethanol to be in that mix after newer technologies showed ethanol could be produced using less energy than before.

The new thinking has led to a push for cellulosic fuels produced from corn stover, switchgrass and wood remnants-which could be a boon for a forest-rich state like Pennsylvania. The commission's newest report, released in January, estimated that a biofuels industry in the region built largely on cellulosic materials would supply 18,000 jobs-5,000 in construction and 13,000 in more permanent operational work.

The main obstacle is cost-effective technology. Fermenting the sugars from corn into ethanol is a fairly straightforward operation-the technology has existed since people learned to make moonshine. Making ethanol from cellulosic material requires extra steps to convert their complex carbohydrates into fermentable sugars. Though doable, it is more costly.

The 2010 report outlines policy goals for Maryland, Virginia and Pennsylvania to make cellulosic biofuels a reality. In the short term, it acknowledges that the biomass needed to produce cellulosic ethanol may be more effectively used by burning for heat or in local bioenergy facilities. But the report also calls for regional goals and incentives intended to drive both the demand-and technologies-that could make the region a leader in next-generation biofuels. Among its top recommendations is a regional coordinating council on biofuels, which Pennsylvania Agriculture Secretary Russell Redding has agreed to chair.

John Urbanchuk, an economist who advised the commission on biofuels, said states will need to look at changing land use policies, offering low-interest loans and beefing up their research and development arms to jump-start the industry.

"It's very important for the states to work toward a common purpose and not develop contradictory or conflicting policies," Urbanchuk said.

According to the commission, the six-state Bay region provides a ready market. It consumes 13 percent of the nation's gasoline and nearly half of its home-heating oil. The area has excellent pipelines, a vast interstate highway system and proximity to the nation's second largest petroleum refinery, which is in Philadelphia. With transportation being one of the highest costs in fuel's overall price, those short distances are a major asset.

Agriculture lands cover 9 million acres in the Chesapeake Bay watershed. Five million of that is planted in row crops, primarily corn and soybeans. Another million acres is harvested for hay. This diversity provides another advantage over the South or Midwest, where monoculture agriculture is predominant. It allows the farmer to plant rye or barley as a winter crop after corn is harvested, which can reduce nitrogen loads to streams. The crops can then be harvested and used as feedstock for ethanol.

"There's a sense that if we were able to provide a sustainable, environmentally sound feedstock, then the industry could grow here in the watershed," said Tom Richard, director of Penn State University's Institutes of Energy and the Environment.

What the region needs now, Richard said, is to marry the incentives already in place for nutrient reduction with ramped-up biofuel production. For example, he said, farmers are already encouraged and compensated to plant cover crops and winter crops. Now, they can be encouraged to harvest some of that as biofeed stocks if there is a marketplace.

But, the commission warns, states have to work out how they want to incentivize that planting. If they are already providing a subsidy for a cover crop in a field and that farmer decides instead to harvest the crop to sell it as a feedstock, he ought to have that option, but maybe not with as generous a subsidy. That's because the most effective cover crop to protect the Bay is one that is not harvested. Nonetheless, a harvested winter crop is better than fallow ground-especially if that ground was most recently covered with corn, because the winter crop will use unabsorbed nitrogen in the soil.

Pennsylvania is on its way to creating a market. It requires a percentage of biofuels to be blended with gasoline, starting at 2 percent that will eventually reach 20 percent when production is high enough to support it. Most of that blend comes from corn ethanol, Richard said. But as fuels derived from cellulose come online, the percentage of those in the blends will increase. The state also has an ethanol plant in Clearfield that is currently using corn but will be able to produce fuel from cellulose, too.

Legislators in Maryland tried to pass a similar law in 2009, but failed. Sen. Thomas "Mac" Middleton, who chairs the Bay Commission, is trying again this year. The Charles County Democrat, who is the Maryland legislature's only working farmer, said he thinks the chances are good, although the petroleum lobby is still concerned because "they would rather not have any mandates." Rental car and trucking companies worry about following different standards as they move from state to state as well as a change in the consistency of the product. And, Middleton said, they want to make sure any required blend won't affect vehicle warranties.

Middleton is hopeful that he and fellow commission member, Del. Jim Hubbard, can work to assuage the industry's concerns. They contend that farmers are grappling with so many hardships-new regulations on confined animal feeding operations, potential new mandates from the EPA, as well as economic hardships-that they need an additional market to help them stay in business.

"This legislation means jobs and economic growth for Maryland. It has the strong support of the farming, small business, environmental and renewable energy communities," Hubbard said. "That consortium of supporters tells you something about why this bill is good for Maryland."

Maryland has a few biodiesel operations, but no ethanol plants.

Virginia is unlikely to pass such a bill because that state's legislature has little appetite for mandates, according to John Warren, the former director of the state's energy office. But what the Old Dominion State does have is a business bent, and in the last couple of years it has passed several bills to encourage investments by the biofuels industry. Before he left office in January, Gov. Tim Kaine awarded $10 million in stimulus money to 15 firms for their biofuel efforts. It was the latest of several efforts to incentivize the biofuels industry, many of which were proposed by Sen. Emmett Hanger, Jr., the commission's former chairman and an active member.

Warren became such a believer that he left state government two years ago to become a director at Osage Bio Energy, a plant near Richmond that will convert barley into ethanol. The refining process captures and isolates the rich proteins in the barley, which will provide the livestock industry with a source of feed. Osage will also convert leftover barley hulls into pellets, which can go to coal-fired plants to help reduce emissions. Thus, Warren said, farmers can make a profit from every part of the barley.

At the Virginia Farm Bureau, Andrew Smith is excited about Osage's prospects-and, he said, so are his members.

"The only way to keep agriculture viable in Virginia, or really anywhere, is to develop new markets. The only way to keep the land open is to keep it profitable," said Smith, who works in government relations. "The interest in renewable fuels is an opportunity. Those feed stocks are going to come from us."

Chair of bioenergy council says PA, region on track for industry

When the Chesapeake Bay Commission's biofuels panel decided it needed a regional body to coordinate the Bay states' efforts, panel members knew they'd have to find someone who was equal parts policy expert and boots-on-the-ground farmer, a person comfortable talking about barley prices and legislation.

Russell Redding fit the bill. The secretary of Pennsylvania's Department of Agriculture has worked in the department for 15 years. He and his wife used to operate a dairy farm in Adams County, where the family still lives. Redding is also the son of a dairy farmer. He spoke to the Bay Journal about his plans for the Regional Council for Bioenergy Development.

1. Why did you agree to chair the regional efforts to bring biofuels to the watershed? What do you hope will come from that?

I volunteered because I believed that, since the commonwealth of Pennsylvania and the commission have been championing this, I would stay in the leadership position.

As we've learned, this is a topic that has multiple benefits for the region. It's about energy, the economy and the environment, so we think there's a lot of benefit.

There's also an element to repeating the conversation, continuing the conversation, which is an important part of learning. That's not going to happen by simply publishing a report. ... We're also going to have to work with the states to achieve the recommendations and outcomes of the report.

2. What are the most important initiatives the states, particularly, Pennsylvania, are working on to promote biofuels?

We have a state law that all on-road diesels must contain 2 percent biodiesel. That law goes into effect in May. As production capacity increases, that's going to go to 5 percent. We are also drafting legislation that would set comparable mandates for home heating oil. We use more than a billion gallons of home heating oil. Through our Department of Environmental Protection, we also have several grant programs for producers, and rebates.

3. What are the biggest stumbling blocks to creating a viable biofuels industry here?

Clearly, you need to create demand, that's why the mandates are critical. We're on the right track, but that's a major challenge.

Two, you need the production capacity here. There is a plant coming online in Clearfield that will be converting corn to ethanol, and that corn will come in via rail, but (the plant) has the ability to convert cellulosic fuels as well. We need to have those facilities permitted and constructed to even have the 2 percent and 5 percent for biodiesel in Pennsylvania. We're in this for agriculture benefits, as well as the economic ones, but for those to work, we've got to combine those pieces right here at home.

Three, we need some research and development in the state and the region. We have to get out of the mind-set that we're going to do this alone. If we're going to do this as a region, then we have to think as a region.

4. What's the best way to determine biomass harvest guidelines, so a farmer knows what to leave on the land for water quality and what to harvest for profit, when it comes to feedstocks?

This is where we need to do a lot of education on what crops are available and what kind of material has to be left. We would work with the National Resource Conservation Service and the U.S. Department of Agriculture to help do that. There are baseline experiences with corn fodder or plant materials. We're going to have to have this discussion.

5. Do you think other states are getting serious about meeting the fuel standard? Do you think, without a coordinated effort, our region can meet it?

I do. In our discussions with the commission's advisory panel, we're very serious. The question is, how do you convert the expectations out there for water quality and agricultural and economics to something that consumers understand? Discussions we've had have changed considerably with the mandates-we're doing more than simply talking about it.

6. What sort of authority do you envision this regional initiative having? Will it suggest legislation and incentive programs, or advice on how to implement them? And who will be on it?

I don't have specifics yet. We want to make sure we have land grant universities, the private sector, national groups. I hope we will in the next couple of months. As far as what we will do, we will be looking at specific actions states will have to consider. It could be recommending state regulatory changes. It could be legislative changes. It could be advocating for federal changes. It could be workgroups to talk about invasive species. It could be to work on ordinances to help build plants. These are the kinds of things where this group could bring the best thinking together for the region to address these issues.

7. Much has changed in the attitude toward biofuels and corn-based ethanol since the commission's first report in 2007. Can you talk about that change?

The commission was leading a conversation of biofuels, which intrigued me. But then I realized they were really the right people, because they were looking multidimensionally. Pennsylvania is a corn-deficient state, so to make ethanol work, we'd have to bring corn in. Knowing that, lots of people were saying, "we need alternatives if we're going to be in this conversation."

When we started out, we had a fair amount of opposition, as in, "why are you even questioning (corn-based) ethanol?" But I think now we've gained a lot of credibility in talking about the alternatives for next-generation. People said, "there's only one way, and it's corn-based ethanol." I think we've proven that that's not the case.