September 22, 2005 | General


BioCycle September 2005, Vol. 46, No. 9, p. 67
Final version includes major incentives to utilize alternative fuels and closed-loop biomass but lacks a national renewable portfolio standard and greenhouse gas emissions limits.
Jennifer Weeks

THE ENERGY POLICY ACT of 2005, signed by President Bush in Albuquerque, New Mexico on August 8, includes many provisions that will expand use of biomass energy and biofuels, including grants, tax credits and mandates. The bill – which focuses mainly on increasing supplies of traditional fuels such as oil, coal and natural gas – is not expected to reduce energy prices or U.S. dependence on imported oil in the short run, but takes some steps toward diversifying the transportation sector away from its near-total reliance on petroleum by offering incentives for use of alternative fuels and advanced-technology vehicles.
The bill represents the first comprehensive energy legislation in a decade, and was passed after similar measures foundered in 2002 and 2003 amid partisan disagreements in Congress. This year, record oil and natural gas prices and growing concerns about the national security implications of U.S. dependence on foreign energy sources helped to create momentum for agreement on a final bill. Several contentious measures, including authorization for oil exploration in the Arctic National Wildlife Refuge and an exemption from liability for manufacturers of the fuel additive MTBE, were excluded from the final legislation to improve chances for passage.
The final version of the energy bill includes a number of incentives for homeowners and businesses to utilize energy-efficient building technologies, appliances and vehicles. During President Bush’s first term, the White House tended to dismiss such policies. Notably, Vice President Cheney stated on May 1, 2001 that “Conservation may be a sign of personal virtue, but it is not a sufficient basis for a sound, comprehensive energy policy.” However, while traditional fuels remain the pillars of the administration’s energy policy, the administration has become more positive about energy efficiency and renewable energy. When President Bush signed the energy bill on August 8, he stated, “Energy conservation is more than a private virtue; it’s a public virtue.”
Among the bill’s provisions to promote energy efficiency are tax credits of up to $4,000 for individuals and businesses that buy alternative-fuel cars (vehicles that run on compressed natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen, or blends of at least 85 percent ethanol). Businesses that buy large alternative fuel vehicles, such as buses, can earn tax credits of up to $32,000. To expand the infrastructure for alternative fuels, the act offers 30 percent tax credits (up to $30,000) for installing fueling stations for any of the fuels listed above or for blends containing at least 20 percent biodiesel.
Many government agencies purchase dual-fueled vehicles (vehicles that can run on either gasoline or alternative fuels) to meet vehicle fleet efficiency mandates established under the Energy Policy Act of 1992, but only run them on gasoline or diesel fuel. The bill directs that dual-fueled vehicles in federal fleets must be powered with alternative fuels, unless these fuels are not reasonably available or the agency determines that they are too expensive compared to gasoline. Critics view this provision as extending a loophole that allowed federal agencies to avoid increasing the efficiency of their vehicle fleets.
The bill also includes tax credits for businesses that install fuel cells (30 percent) and microturbines (10 percent) in 2006 and 2007. Both types of systems can be operated on organic sources such as landfill or anaerobic digester gas, or on natural gas produced through refining LFG. (See “Landfills Expand Energy Output,” BioCycle, August 2005)
In a provision that was closely watched by renewable energy advocates, the energy bill extends the production tax credit (PTC) for electricity produced from renewable energy, which provided a ten-year credit of 0.9 cents per kilowatt-hour for sources including open-loop biomass, landfill gas and waste combustion facilities (1.9 cents per kilowatt-hour for closed-loop biomass) that were placed in service through 2005. The new provision extends the placed-in-service date through the end of 2007. Congress has allowed the PTC to lapse several times in recent years, creating uncertain economic conditions for renewable energy investors and a stop-start pattern for new projects. (For some industries, such as wind energy, the on/off status of the PTC has also delayed projects because demand for parts tends to spike and cause shortages when the credit is reinstated.)
The bill requires federal agencies to purchase at least 7.5 percent of their electricity from renewable sources by 2013, including biomass, landfill gas, and waste-to-energy facilities. Power generated on-site or on federal or tribal lands qualifies for double credit. In addition, the act requires the Department of Energy to produce an annual assessment of renewable energy resources.
The most significant provision of the energy bill for renewable energy advocates – a national renewable portfolio standard that would have required electricity producers to generate 10 percent of their power from renewable sources by 2020 – was included in the Senate bill, but dropped in conference. Opponents argued that the measure would drive up electricity prices, especially in states without significant renewable energy resources.
One of the energy bill’s most visible provisions requires that by 2006, gasoline sold in the United States must contain 4 billion gallons of renewable fuels, rising to 7.5 billion gallons in 2012. According to Argonne National Laboratory, the United States used about 3 billion gallons of fuel ethanol annually as of 2004, mostly blended with gasoline. After 2012, mandated levels of renewable fuel are to be determined by the Environmental Protection Agency based on experience from 2006 through 2012. The Energy Information Administration estimates that the renewable fuels mandate will reduce U.S. oil consumption by 80,000 barrels a day by 2012.
The renewable fuel requirement, which is expected primarily to benefit the ethanol industry, had been hotly debated for several years during consideration of previous energy bills. Legislators from Midwestern states strongly support increased use of ethanol, which they praise as home-grown energy and an important market for farmers. Representatives from areas such as California and the Northeast, where ethanol is more expensive, oppose the requirement, along with the oil industry, which views ethanol producers as competitors. Critics also argue that corn ethanol would not be cost-competitive without Federal subsidies and that it offers only modest benefits in terms of reduced fossil fuel consumption and greenhouse gas emissions because large quantities of nonrenewable energy are required to produce it.
Because ethanol is used as an additive to increase the oxygen content of reformulated gasoline, or RFG (clean-burning fuel that is required seasonally in many states with high air pollution levels), the ethanol mandate has been entwined in Congress with the issue of reducing use of MTBE, another additive that has been widely used since 1990 for the same purpose but has been found to pollute ground water. California and several Northeastern states have moved to ban MTBE and develop their own clean-burning fuel blends, but feared that a federal requirement to boost the oxygen content of RFG would flood their markets with ethanol (the only widely-available substitute) and raise fuel prices.
The final provision in the energy bill takes several steps to address these concerns. It provides refiners with credits valid for 12 months for renewable fuel blended above their baseline requirement, so that refiners can use renewable fuels when it is most cost-effective to do so, rather than competing for limited supplies of ethanol during peak demand seasons for RFG (which is typically required during the summer driving season). The bill eliminates the federal requirement that RFG must contain two percent oxygen by weight and does not enact a federal ban on MTBE, so refiners have the option to stop using the additive but are not forced to do so before other options are developed. Every gallon of ethanol produced from nongrain sources, such as waste or cellulosic biomass, counts as 2.5 gallons toward the renewable fuels requirement, so states far from the Midwest can draw on other ethanol sources to meet the overall requirement. (According to Argonne National Laboratory and other experts, cellulosic ethanol offers significantly higher energy and greenhouse gas benefits than corn ethanol.) EPA can waive the requirement if supplies are tight or prices are unusually high.
The energy bill also includes several incentives for biomass energy production. It authorizes $500 million over 10 years for the Interior and Agriculture departments to make grants to facilities that produce heat, electricity, or nonpetroleum fuels using wood wastes from forest thinning to prevent fires or reduce disease and pest infestation. Environmentalists criticized this provision as an incentive for tree-cutting. In addition, it authorizes $550 million over five years to fund demonstration projects for making biodiesel fuel from biomass ethanol, and $750 million for grants to support construction of facilities for manufacturing ethanol and other renewable fuels.
The legislation extends the current income and excise tax credits for biodiesel through 2008, and creates similar credits for production of renewable diesel fuel using thermal depolymerization processes to break waste down into liquid fuels. It changes the maximum output for small ethanol producers from 30 million to 60 million gallons per year, thus broadening access to ethanol producer tax credits, and creates a similar program for small producers of agri-biodiesel (biodiesel produced from virgin oils and animal fats).
Renewable energy advocates, particularly producer industries, cheered the enactment of an energy bill that extended and expanded benefits for bioenergy. National Biodiesel Board Chairman Darryl Brinkmann stated “Biodiesel is an important part of the solution for America to reduce its dependence on foreign oil, and at the same time, boost the economy and benefit the environment. Renewable Fuels Association president Bob Dineen commented, “By focusing on renewable fuels, we’ve set a new course for energy policy and significantly widened the role American agriculture plays in providing for our most basic human needs.”
Critics, including environmentalists, fiscal conservatives, and consumer advocates, contended more broadly that the bill lacked three major elements needed to start shifting the nation away from reliance on fossil fuels: a national renewable portfolio standard, tighter fuel economy standards for passenger cars, and binding limits on greenhouse gas emissions that contribute to climate change. They also decried the legislation for providing tens of billions of dollars’ worth of royalty relief, tax credits, loan guarantees, and other forms of support to the oil, gas, coal, and nuclear industries at a time of high energy prices and record profits. “If we could roll the clock back to 1905, this would be a very good bill. It would be about oil, gas and coal,” said Rep. Edward Markey (D-MA), a senior member of the House Energy and Commerce Committee, during floor debate on July 28. “It is 2005, however. We should be talking about the new technology agenda for our country. This bill is a political and a moral and a technological failure.”
In the longer run, continued high oil prices and concerns about U.S. dependence on imported oil may provide increased support for diversifying U.S. energy sources.
Jennifer Weeks is a Massachusetts writer specializing in energy and environmental issues.

Sign up