The Conclave: biofuels in the balance as Congress decides energy, jobs, carbon policy
Like the crowds outside of the Vatican Palace at the time of a Papal election, biofuels stakeholders have been nervously keeping an eye on Washington.
They wonder when the black smoke coming out of the Sistene Chapel will give way to white smoke, signifying that decisions have been reached, and a clear, stable energy policy will emerge to catalyze the commercialization of the industry.
It comes down now to three weeks, just three weeks.
There will be high drama of energy, jobs, tax and carbon legislation moving at, by Washington standards, light speed. After that, legislators aim to get out of DC for a four-week August recess that, given the anti-incumbent mood in the country, is less likely than ever to be shortened or missed.
What’s in store as the drama unfolds?
The Tax Extenders Package: week of July 19
Next week, expect to see the Tax Extenders package return to the table for consideration. The leadership on the Hill has figured out, after a series of attempts to attach controversial legislation to the popular Tax Extenders measures, that it is time to break off the unemployment benefits extension and get the tax extenders – such as the extension of the biodiesel tax break – passed and done.
The biodiesel tax credit extension – that will be retroactive to the start of the year – has been through the ringer time and again this year. The ballot has been cast in different ways on a dozen occasions but every time, black smoke has emerged from the chimney to signify that no Pope has been elected, no policy has been forthcoming.
But it is more than the tax extenders package at risk. Even the Advanced Biofuels Association, many or most of whose members do not make biodiesel, are crossing their fingers on this one.
“One thing we all support,” explains Mike McAdams, president of the ABFA and a shrewd judge of the Hill, “is take the things you can get to build some policy stability. Passing on the tax extenders package will be a signal of intent to lenders that the government is serious about a stable, long-term energy policy. Without stability, and without a signal of the intent to create it, we’ll never get off the dime.”
The Energy Package: week of July 26
The week of July 26th, expect to see the energy package to come forward. Expeft it to contain measures on oil pollution, energy creation, and jobs. The packages that are emerging from the House and Senate are expected to be in the $15-$20 billion range, though the House Ways and Means committee recently scored the latest round on the high side. The Senate will also be looking at a carbon legislation that week – there are bills all over Washington on carbon, and no clear picture has emerged on the contents. But the biofuels industry has united behind the concept of the level playing field.
Mike McAdams explains. “This year, there’s been real progress in recognition that current tax code for the electricity side has to be harmonized, to resolve an unintended tilt as a result of tax policy [in the way that biomass is used]. You don;t want to lose the highest value-add, or lose an environmental gain, because of policy, and the fact that we are having that conversation is real progress.
Harmonization has been a buzz word out of Washington all year. Harmonizing the overall shape of energy policy – so that wind, solar, biomass for power, electric vehicles, and transportation fuels, all have a chance to compete with fossil fuels to move the US away from the sorry mess it has landed in with its dependence on foreign and deepwater Gulf oil.
Congressional recess, and the fall elections
After the week of July 26th, August will come, and a congressional recess, and Congress will return in September, But it will all about the departmental budgets, and all about the election. The chances for non-partisan action on energy in a critical election cycle are near to zero, and in October Congress will break early because it will time to go home and try and get re-elected. There’s talk all over Washington of a lame duck session, but in all likelihood it will focus on pieces of legislation such as the estate tax, and the alternative minimum tax.
So the black smoke or the white smoke that comes out of the chimney by the first of August will be all the smoke there is. Either the black smoke signifying another failure to set a long-term US energy policy, or the white smoke that signifies that the Congress has taken another step forward in cementing US energy policy.
Among the items on the docket for bioenergy in the energy package and the tax extenders as a whole: the investment tax credit, loan guarantees, and the ethanol tax credit. Some of this work is not in the form of sweeping new measures, but in the Washington equivalent of “smallball”, where legislative language is tweaked to make the enabling bioenergy legislation more feedstock neutral, technology neutral, and the clarify the legislative intent to the agencies that must implement the policies.
Loan guarantees
For example, take the loan guarantee program. The Digest reported that the GAO heavily criticized the Department of Energy for six years of loan guarantee legislation and virtually no loans in bioenergy. The DOE responds that it is hamstrung by the original congressional legislation that mandated a low level of risk in issuing guarantees. Just as the EPA says it is not free to maintain Renewable Fuel Standard mandates for cellulosic ethanol, in the absence of production capacity, because the EISA Act says it cannot do so.
“The [Loan guarantee program] is being administered with the lens of the electric utilities, and how they structure wind and solar offtake agreements,” explains Lee Edwards, CEO of Virent Energy Systems and chairman of the ABFA. “In the biofuels space, [the sector is] being put through same lens. Neither the oil not the biofuels industry works that way. We have the volatility of commodity prices – corn, sugar or other biomass feedstocks. We also have technology risk, and a level of capital intensity that requires a fair amount of risk taking.”
The failure of the loan guarantee program has come at an inopportune time for bioenergy, because as Edwards explains, “There are now numerous technology pathways emerging that unlock the roadblocks of first generation fuels. A lot of the technologies are on the cusp of commercialization, but accessing capital is proving difficult and a challenge. Some of the well intentioned government programs are not fulfilling the legislative intent. Absolutely, we know that we must have many victors rather than winner take all, and all of the members [of the ABFA] will be able to leverage off the success of the first plants.”
McAdams adds: “The purpose of all the legislation on biofuels was to create new green jobs, energy security and impact greenhouse gas emissions with a policy to expedite the volume of renewable fuel,” added McAdams. “The question is: what is the appropriate amount of risk the government risk relative to the social impact?”
The Advanced Biofuels Association in action
That’s why 30 companies descended on Washington this week for the annual summer board meeting of the ABFA, with four companies joining the association for the first time, and members broke early to participate in 50 meetings on the Hill. Notable among the attendees: representatives from the DOE, the USDA and the energy committees, including those who are doing the hard work of writing energy legislation that is being readied for the week of July 26th. Their message: Washington needs to take more risk in the loan guarantee programs.
“When you look at the specific requirements of the loan guarantee program,” McAdams said. “Four of my CEOs pointed out at the meeting this week, “if I could meet those requirements I would be using a commercial bank.”
But the elephant in the room is not the investment tax credit, or biofuels technology neutrality, feedstock neutrality, harmonizing biomass policy for power and fuels, or even loan guarantees, though they are all important components for bioenergy this year. Not even potential changes to the Renewable Fuel Standard, where Growth energy has declared war on indirect land use change, and Klobucher of Minnesota is expected to bring forward legislation to remove the 215 billion gallon cap on corn ethanol.
The ethanol tax credit
The elephant in the room is the VEETC – the 45 cent per gallon tax credit for first-generation (that is corn, non-cellulosic) ethanol.
“We expect a very thoughtful dialogue from a wide variety of stakeholder groups,” commented McAdams.”Livestock, environment, advanced biofuels, and the cellulosic communities are asking questions about where you get the biggest bang for the buck. There’s a continued appetite [in Congress] to support advanced biofuels. They want strong viable first generation industry as a provider of national energy security. But is it an appropriate time to reallocate?”
Edwards adds, “If it weren’t for ethanol we wouldn’t be here. But as a molecule – if you want to get beyond 15 percent, we need better molecules to compete for the same farm land. We need to do more not just grandfather in the old technology and the old molecule. Ethanol is an important part of the journey, but Congress has real work to do to evaluate all the flows in and out of the government – to do these deficit balancing acts. They are asking, are we delivering the value and the benefits? What other options are there? Our view is that we need bridging finance that will get the industry away from long-term addiction to subsidies.”
The Digest’s Take
As far as the exact future of the ethanol subsidy, our take is that it is not time to look for white smoke, but white flags. The Digest has been long opposed to the ethanol tax credit, in editorials such as “Get off the Dope”, and Quo Vadis? Whither goes thou, biofuels? (that proved to be more effective in generating hate mail and subscription cancellations from the corn ethanol industry than changing minds about the policy).
Our rationale for heresy? We said that the VEETC was becoming unsustainable, and had changed from a driver of industrial expansion to a driver of united opposition to ethanol that would damage the industry as a whole.
We pointed out, as has the NRDC, that the 15 billion gallons ethanol mandate is a guarantee of a large, viable corn ethanol industry for some time to come, as long as the industry does not build out excessive capacity on a speculative basis, and get itself into some of the troubles that a face the biodiesel industry today. We said that “the biofuels industry must now check into a half-way house with a firm schedule for getting off the dope.”
Our prediction: though more seasoned, expert industry insiders suggest that the VEETC will be extended for one more year, we expect that the Congress will sunset the VEETC.
A signal from Growth Energy that the jig may well be up was received last night, in the form of an announcement that “Growth Energy, a coalition of U.S. ethanol supporters, will call for the redirection and eventual phasing out of government support for ethanol in return for a level playing field — infrastructure investments that will create competition in the fuels market and give consumers true freedom to choose their fuel.” Growth Energy CEO Tom Buis, Wes Clark, former congressman Jim Nussle and POET CEO Jeff Broin will be on the call at 10:30. And then we’ll know the state of play.
So we’re down to it. Hours left, perhaps, on a two-year effort by Growth Energy to gain a long-term renewal of the VEETC. Just a few weeks left until Congress has finished, or left unfinished, its work on energy policy.
Habemus Energy Policy!
Black smoke from the Sistene Chapel, signifying that no Pope has yet been elected
“Habemus Papam!” (“We have a Pope”) comes the joyous announcement from the Vatican when the Conclave has elected a Pontiff.
There will be no “Habemus Energy Policy,” that joyous announcement from the steps of the Capitol that the Congress has done its duty, but the members will in fact have done so if they get it all done.
We are coming down to hours and days, and the brazier in the Conclave is being prepared for white smoke and black. White is the color of cleantech, and bioenergy, and fervently do the developers of bioenergy hope that the white smoke will shortly arrive, and policy will be settled, and everyone can get back to the business of building the molecules of hope, and the energies of tomorrow, and the fuels that will make us secure.
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