Congress and the President Betting Big on Biofuels
By: TODD A. TAYLOR & SCOTT J. DORFMAN
March 20, 2009
With a new renewable-energy friendly administration in Washington and a multi-trillion dollar 2010 budget currently being considered in Congress, the outlook for government support of biofuels is brighter than ever. The recently signed stimulus bill, the American Recovery and Reinvestment Act, will provide billions in grants, tax credits and loan guarantees for renewable fuels. President Obama’s 2010 budget pledges billions more to the Departments of Energy, Agriculture, and Interior for development and commercialization of future renewable fuel technologies. In addition, the Fiscal Year 2009 Omnibus Appropriations bill contains hundreds of millions more in grants for cellulosic ethanol and other biofuels.
Stimulus Bill
The stimulus bill contains four key provisions for biofuels producers. First, the bill appropriates $2.5 billion to the Department of Energy for renewable energy and energy efficiency demonstration and deployment projects. Roughly a third of the $2.5 billion, or $800 million, of the money will go to DOE’s Biomass Program, which is researching biomass to biofuels conversion technologies. Second, the bill provides $6 billion in loan guarantees for the development of renewable energy systems, including biofuel projects that commence construction by September 30, 2011. The loan guarantees are limited to “leading edge biofuel projects” that appear commercially viable and can produce fuels that significantly reduce life-cycle greenhouse gas emissions, such as cellulosic ethanol. The guarantees are limited to $500 million per project. The $6 billion in loan guarantees are expected to support more than $60 billion in project loans.
Third, the stimulus bill provides $54 million to expand the alternative fuel vehicle refueling property credit for property placed into service during 2009 or 2010, including property related to ethanol and biodiesel refueling. The bill increases the credit from 30 percent to 50 percent of the cost of qualifying property and increases the cap on the credit for depreciable property from $30,000 to $50,000. Finally, the bill creates a new 30 percent investment credit for facilities that manufacture qualifying “advanced energy property,” including property designed to refine or blend certain biofuels. A project must undergo a competitive bidding process and be certified by the Secretary of the Treasury, in consultation with the Secretary of Energy, in order to be eligible for the credit. The Act provides that up to $2.3 billion in credits may be allocated.
2010 Budget
The President’s 2010 budget builds upon the stimulus bill’s spending provisions to provide additional department-level renewable energy funding. The budget allocates $26.3 billion to the Department of Energy, including funding for renewable energy loan guarantees and investments in research, development, and commercialization of clean energy technologies. The budget has yet to allocate specific amounts for each program, but pledges to support innovative technologies that accelerate the transition to a low-carbon economy through loan guarantees and direct funding, which should include funding for biofuels projects.
The budget also increases funding for the Department of Agriculture from $24.6 for fiscal 2009 to $26.0 billion for fiscal 2010, including $250 million in loans and grant money to renewable fuel projects to be identified by the Department. President Obama stated that the goal of the USDA budget is to ensure “that we are using our farmlands not only to strengthen our agricultural economy, but to grow advanced biofuels that will help make the United States energy independent and create jobs.”
Finally, the budget increases funding for the Department of Interior from $11.3 billion to $12.0 billion, and invests $50 million to promote renewable energy projects on federal lands and waters. The funding specifically will go towards conducting the environmental evaluations and technical feasibility studies needed to assess available alternative resources and mitigate the impacts of development, according to the budget.
2009 Omnibus Appropriations
In the near term, the Fiscal Year 2009 Omnibus Appropriations bill includes hundreds of millions in appropriations for renewable energy projects, including biofuels. The bill was passed by the House on February 25, and is awaiting passage by the Senate. The Energy and Water appropriations portion of the bill provides $217 million in grants to the Department of Energy to improve production of biodiesel, cellulosic ethanol and other advanced biofuels. The bill also appropriates $4.8 billion to the Office of Science, including $2.2 billion for labs and equipment necessary to perform next generation testing of advanced energy research, including biofuels.
The appropriations bill also provides $16 million to the Environmental Protection Agency to implement the Energy Independence and Security Act of 2007, including $10 million to meet the Act’s renewable fuels standard requirement that the U.S. produce 36 billion gallons of biofuels by 2022, more than half of which must come from next-generation biofuels such as cellulosic ethanol.
Takeaway
While regulations are still being implemented for the appropriations and stimulus bills and the 2010 budget will likely not be passed for months, the direction of governmental policy is clear. The administration and Congress are making a sizeable commitment to biofuels, in both rhetoric and funding, and now is the time for biofuels companies and investors to determine how they can take advantage of the opportunities. If you have any questions regarding the biofuels provisions in the stimulus bill, budget, and appropriations bill, please call a member of Fredrikson & Byron’s Energy Group.