Ted Niblock

March 8, 2017 | General

BioEnergy Outlook: The Biogas Pitch

Ted Niblock

Ted Niblock
BioCycle March/April 2017

The most disturbing discussion I have ever had on Capitol Hill regarding policies that benefit renewable energy occurred a few years ago in the office of a Congressman who opposed such policies. The visit was to promote a very modest tax break for the manufacture of heavy trucks powered by natural gas, so we could then identify fleets and persuade the owners to run them on biogas instead.
Despite his skepticism, he wanted to hear us out, but it quickly became clear we were not going to crack the circular logic upon which opponents of renewables often rely. The Congressman first opposed the policy on the grounds that his office did not back technologies that “couldn’t compete without subsidies.” We pointed out that compressed natural gas (CNG) and liquefied natural gas (LNG) trucks were rapidly approaching commercially competitive manufacture and just needed a final push, a situation ideally suited for a small amount of government help to vault a new technology into the mainstream. In that case, he replied, the industry was going to succeed on its own and did not need subsidies.
This Catch-22 obviously could be applied to any preferential tax treatment for any industry. And with a tax code about 2,600 pages long, there obviously are some tax breaks for some industries that are acceptable, even to the above renewable energy skeptic Congressman.
One large category of such tax breaks are those given to traditional energy industries, and specifically the one producing oil and gas. These preferential tax treatments — primarily consisting of accelerated or unlimited deductions for the costs of activities such as exploration, discovery, production and drilling — are, unsurprisingly, considered not to be subsidies by their supporters, even though the renewable energy tax breaks are called subsidies. While we could have pointed out this contradiction to the Congressman, longstanding etiquette on Capitol Hill dictates that, when meeting face to face, you do not call them out on their blatantly hypocritical, nonsensical, circular logic.

Making The Biogas Case

This is not meant to be a naïve, wailing, lament against these traditional energy subsidies. For years we have argued that dependence on fossil fuels must be reduced, and these types of large tax breaks do not help that process. But it is clear that the new President and Congress have little to no interest in such a reduction. Therefore, to help the biogas industry grow, we should assert the valid and persuasive argument that pipeline grade biogas is molecularly identical to fossil derived natural gas, and therefore the production of pipeline grade biomethane should receive the same government support as the production of fossil natural gas.
Biogas advocates in Washington, including the American Biogas Council, are evaluating possible changes to suggest, including:
Expand definition of “natural gas property” to include renewable natural gas (RNG) properties. Changing definitions at the beginning of laws can provide access to any subsection that relies on the definition. The history of lobbying on the Production Tax Credit and the Investment Tax Credit often involved these sorts of definitional issues.
Expand definition of “independent producers” (1,000 barrels/day of oil or its natural gas equivalent) to include RNG producers with the same threshold.
Ensure domestic manufacture and production deduction applies to RNG facilities.
Apply deduction for geological and geophysical expenditures to developing digester feedstock agreements for RNG producers.
Expand deduction for “tertiary injectants” to include digester feedstocks.
Apply deductions for domestic exploration and development costs, including intangible drilling cost deduction, to the costs of developing and operating an RNG project.
These are almost all tax deductions, not grants or subsidies, and as such are only valuable to companies with large amounts of revenue from which to deduct. To benefit, the biogas industry must create larger companies that can then leverage these benefits. The argument for this being possible is that the presence of the tax advantages will help attract investors and strategic partners to more ambitious biogas sector business plans.
Does participation in these tax benefits somehow dilute or threaten the biogas industry’s green image? I think on balance most supporters of biogas will see this as simply the desire to be treated fairly. In any event, it is worth the risk if the gain is to receive even some of the benefits afforded to one of the largest, most influential, and most favored of all U.S. industries, traditional energy production.
To pursue inclusion in these tax deductions, the biogas industry and its representatives in Washington must push for discussions with unlikely allies, or perhaps better expressed as even less likely than usual. This is an ideal message with which to reach out to representatives from states and districts that have active traditional energy industries but also plentiful biogas reserves. States like Texas and Pennsylvania have significant oil and gas activity but also abundant agriculture and large urban centers, prime sources of feedstock for biogas.
Even in the case of states where biogas potential is lower, moderate Republicans active on energy issues, on the lookout for “win-win” policies that help renewables while also supporting traditional energy, might also like this idea. Given the respective sizes of the industries, adding biogas to some of these tax provisions will hardly affect the total cost to government revenue, although low scores (in terms of cost to the government) from the Joint Tax Committee have not always saved the day for renewables. Perhaps stowing away below deck on the larger ships in the ocean of the tax code is a good strategy for now.
Ted Niblock develops biogas projects for NewAg Development.

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