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Lights, Camera, Congress…

Can America afford to stick around for the second act?
By Michael McAdams | August 22, 2011

Washington’s last minute maneuvering this summer got me thinking that the country-spun political wisdom of Will Rogers continues to hold true even in today’s instant access world where one vote or press conference on Capitol Hill can have immediate worldwide consequences. I’m reminded of the observation the Oklahoman once made that, “This country has come to feel the same when Congress is in session as when the baby gets hold of a hammer.” Well that baby has certainly been busy and as Congress adjourned for its annual summer recess, Wall Street and other world markets are signaling the need for adult supervision in D.C.

The procrastination of the inevitable on Capitol Hill was enough to make a high school senior smile with envy but left the rest of us scratching our heads while watching the value of our investments plummet. Washington’s jolting performance and the economic aftershocks have those of you on the verge of commercializing your replacement fuels questioning whether Congress and the White House can successfully provide the policy tools needed to ensure certainty in the markets for your next step.

Unfortunately, I don’t have encouraging news to share with you as I look at the renewable fuels landscape right now in Washington. Here’s a recap. For three months, we saw an effort to amend and redirect the funds associated with the ethanol tax credit. The Senate, for the first time since 1978, actually voted to repeal the long-standing credit that has supported the domestic ethanol industry. By a vote of 73 to 27, senators voted to repeal the credit effective July 1. 

Following that vote, however, Sens. Thune, Klobachar and Feinstein attempted to negotiate a compromise to repeal the ethanol credit, bank $1.4 billion in savings to the treasury and allocate around $800 million for infrastructure and extending the cellulosic production tax credit. That deal ran into a number of snags and officially terminated July 31. Unable to pass this deal through the entire Congress, as part of a debt ceiling deal that was clear of any tax provisions, meant that $800 million of anticipated savings were now gone as the credit continues to operate across July and August at a burn rate of $400 million per month.

Further complicating the current political and legislative environment was that agreement to raise the debt ceiling. Prior to adjournment, after months of vitriolic wrangling, lawmakers agreed to cut the budget by $917 billion over the next 10 years in return for raising the debt limit. The deal essentially allows the president to raise the debt as long as Congress agrees to pass an equal amount of spending cuts or tax increases. The agreement also creates a first-of-its-kind congressional super committee made up of an equal number of Republicans and Democrats from each respective chamber.

In order to raise the debt limit, which everyone agrees will be needed, Congress must pass a plan to reduce spending or raise revenue on the order of $1.5 trillion over 10 years by Dec. 23. This plan is to be finished by the new super committee by Nov. 23. Then an up or down vote will be taken on the proposal by both chambers of Congress. If it fails, an automatic sequestration of across-the-board spending cuts will go into place up to $1.2 trillion from both mandatory and discretionary programs.

What does all this mean to our domestic advanced biofuels industry? If Congress does not reach agreement, the military budget could see significant cuts in the order of $300 to $600 billion over 10 years. That would not be particularly helpful in the Pentagon’s efforts to work with renewable fuels moving forward.

Secondly, if the current polar opposite view continues on tax increases or tax changes, this would make it extremely difficult to extend many of the four current biofuels provisions that expire at the end of this year, the ones I outlined here last month. If you thought 2009 and 2010 were difficult, wait until you see this fall’s effort to extend any of these credits. In a future column, we can explore why letting a current credit expire is viewed by several conservative icons as raising taxes. But that is for another day.

The good news for America’s domestic advanced biofuels industry is our continued support from members, both Republican and Democrat, who recognize not only the need, but also the promise and desire to see advanced and cellulosic replacement fuels come to the market. With that in mind, this is a critical time where all renewable energy elements need to work together.

As an industry, we will need to continue to work closely with Congress by identifying smarter investment opportunities for federal dollars that will help us successfully cross the so-called Valley of Death and commercialize our advanced technologies. So, before we’re knee-deep into next year’s presidential political wrangling, we need to do some serious rethinking about our expectations of Washington’s role and taxpayer support by presenting a solid return on investment across a range of national interests. If we do not make our case as a crucial element for funding, it may be another two years before we can create significant partnerships with the federal government.

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

 

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