Energy Bill Finally Signed Into Law:
Biofuels Win Big, but Some Other Renewables Don’t Fare as Well
By: TODD A. TAYLOR
January 2008
On December 19, 2007, President Bush signed the energy bill, which included a landmark renewable fuels program. This bill contains significant victories for biofuels advocates and will increase the required usage of biofuels throughout the United States. However, an effort to require 15 percent of all U.S. electrical power be derived from renewable energy resources failed, as did funding to extend valuable tax credits for wind, solar, geothermal, and other renewable energy.
In 2005, President Bush had signed into law the first ever national requirement to use renewable fuels, requiring 7.5 billion gallons be used by 2012. The ethanol industry immediately started a building spree that resulted in 134 ethanol plants capable of producing more than 7.2 billion gallons per year. An additional 77 ethanol plants under construction or expansion are expected to be completed in the next 18 months. When complete, these additional plants will add another 6.2 billion gallons of capacity per year.
Unfortunately, the industry overbuilt demand and available infrastructure and now faces infrastructure problems that have lead to regional oversupply issues, blending walls, and continued resistance from oil companies.
The renewable fuels provisions of the 2007 energy bill should help the industry overcome these challenges. Its provisions increase the 2008 required usage of conventional biofuels from the old bill’s requirement of 5.4 billion gallons to the new requirement of 9 billion gallons. This is expected to alleviate some of the oversupply issues, at least until more new plants come on line. The updated renewable fuels standard requires 36 billion gallons of biofuels to be used by 2022. Conventional biofuels, specifically biofuels derived from corn, cannot exceed 15 billion gallons. Use of advanced biofuels, including biodiesel and cellulosic biofuels, is required to start in 2009, and 21 billion gallons must be used by 2022. For biodiesel biofuels, usage of 500 million gallons is required in 2009, eventually reaching 4 billion gallons per year in 2022. The cellulosic biofuels industry is the biggest winner with 16 billion gallons required by 2022.
On the downside, $10 billion to $16 billion of production tax credits (PTC) and other tax credits for wind, solar, geothermal, biomass, and carbon capture from coal plants were eliminated as part of a deal to preserve tax breaks for oil companies. Those wind credits, the solar investment credit, and most federal renewable-energy tax credits are set to expire at the end of 2008. Supporters are trying hard to get the PTC credits extended in another bill this year. Also abandoned was a provision that would have required investor-owned utilities nationwide to generate 15 percent of their electricity from solar, wind, and other renewable sources. The two-year extension of the PTC, the small wind credit, and the renewable energy standard fell one vote short of the 60 needed to avoid a filibuster.
Takeaway
Overall, the 2007 energy bill will help the development of renewable fuels and energy security in the United States. Continuing efforts to extend the PTC are expected early in 2008.