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Consistency is King

Without it, the wheels spin but get us nowhere
By Michael McAdams | April 25, 2011

If ever Washington needed more convincing evidence that decisions, or a vote, made on Capitol Hill can change an entire industry, then it need look no further than the message delivered by the head of BP’s alternative energy business, Katrina Landis, at last month’s New Energy Finance Summit in New York. As she announced the company’s plans to invest $2 billion in renewable energy projects this year, Landis didn’t hesitate to reveal that some of those investments around the world were on indefinite hold because inconsistent government policies had created an economic nebula too dense for investors. Landis didn’t mince words when relaying the realities of the advanced biofuels industry, pushing to commercialize our renewable technologies, when she said, “there needs to be some incentive to make those bets with some surety that there is going to be some return in the future.”

BP is just one example of the potential leadership position the U.S. has before it, as it could once again be an innovator the rest of the world could follow. Developing renewable energy alternatives is an inevitable part of our shared global future, and America should help lead the way.

The leadership opportunity is real, but will take a consistent commitment by Congress and the administration, avoiding the mercurial ups and downs of public opinion, to first successfully transform America’s energy policy and create a template to follow. A critical part of that could prove to be the renewable fuel standard (RFS). Last month I testified before the Senate’s Environment and Public Works Committee that RFS is the most important federal policy supporting development of a U.S. advanced biofuels industry. But Washington would be wise to not tinker with it by using it as a tool to pick winners and losers. Let the market play out and have RFS guide it.

Where RFS has shined, our tax policies have been the train light at the end of the tunnel barreling towards us.  Advanced and cellulosic biofuels tax policy has been too inconsistent and doesn’t provide parity, or the right form of tax options, to enable some to take advantage of current law. While other renewable sectors are afforded provisions such as a refundable investment tax credit, there’s nothing for the advanced biofuels industry. Depending on your company’s size and scale, a similar ITC option for our industry will prove essential to commercialization.

The tax code is also inconsistent in its rewards according to molecule, feedstock or process. We are seeing firsthand how it penalizes many producers such as algae, and other second-generation biofuels. A broader application is sorely needed. To add insult to injury, the current regulatory structure to govern gasoline and diesel integrates first-gen biofuels and must allow as many new molecules as possible into existing commercial distribution chains. While it must be thoughtful and continue to protect the environment and products currently in the chain, it must explore ways to allow fuels that can economically substitute for those made from imported oil. 

The effort to enhance and expedite the deployment of commercial advanced and cellulosic plants shouldn’t constrain all the various bidders. Rules mandating or excluding feedstocks economical today from use by second- or third-generation technology platforms should be harmonized with the intent of RFS to deliver as many gallons of renewable product. Currently many agencies try to filter their choices through lenses such as food vs. fuel or greenhouse gas reduction requirements. First, we should deploy and develop a wide range of technologies before trying to pick winners without regard to the price of their fuels. I can assure you that $20 ethanol from nonfood sources will have a hard time, even with a mandate, finding a buyer in this market.

By taking a small fraction of the more than $20 billion already invested in building first-generation biofuels plants, we can deploy our new technologies to those existing facilities to successfully commercialize and produce next-generation molecules that are more energy efficient and usable in today’s vehicles. Many new platform technologies could, for small investments, redirect the assets and make fungible molecules. Candidly, these would have more market value. Trying to cram every gallon of ethanol into the gasoline pool has limited returns over the longer haul, and I suggest we broaden the range of products these plants can produce. Heaven forbid some of these plants make specialty chemicals at $6 or $8 a gallon without subsidy. In today’s world, imagine the idea of a sustainable economic facility that no longer needs handouts from the federal government. 

We see proof time after time that without consistency in public policies our industry is destined for a hamster wheel existence. In a year when budget policy is first on the agenda, it will provide a catalyst for rethinking the status quo. It would force a re-examination of many policies and programs of the past. 
It’s decision time for the biofuels industry, whether it wants to continue supporting certain programs or change and enhance those that have not proven out. Programs such as the energy title of the last Farm Bill are not included in the current baseline federal budget and will require the industry to step up and politically support it, if it has any chance of moving forward. This provides us all an opportunity. Let’s open our minds to new ideas, let’s communicate across the various sectors and let’s create a better conversation to deliver to consumers the best results for tax payer dollars spent.

Author: Michael McAdams
President, Advanced Biofuels Association
(202) 469-5140
Michael.McAdams@hklaw.com

 

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