BioCycle July 2009, Vol. 50, No. 7, p. 60
Biomass Energy Outlook
IN February in this space, I discussed the economic recession and the new Administration’s efforts to stabilize our failing economy. Now it is time to take that a bit further. Climate laws are being written with conflicting objectives that are adding unnecessary costs. Even though a climate law has an environmental focus, the bottom line depends on economic growth that is greater in value than the total costs incurred by consumers, industry and the government. Economic growth means the pie gets bigger for everyone. The quality of life goes up while using fewer resources. We learn to live more efficiently.
Part of the problem with the emerging climate law is how politicians and government agencies view carbon emissions. Essentially, carbon emissions are biomass resources that are in the wrong place. We should all be working together to pull leftover carbon (emissions) back into the economy as more biomass for energy, compost, organic nutrients, and biobased fibers. The goal is a higher value of life using fewer resources. By intensively managing our resources, there are fewer emissions. The result (not the goal) is zero waste.
BioCycle readers understand that adding value to waste stream organics is about getting more from less. This is the 50-year legacy of BioCycle. Solid waste recycling and composting pulls solid waste “emissions” back into the economy. Now the same thing needs to be done with greenhouse gas emissions. Our new carbon policies must make recycling emissions easy and relatively costless.
Unfortunately, that is not the direction we are going in at the moment. The Energy Independence and Security Act of 2007 (EISA) is the enabling statute for the revised Renewable Fuel Standards (RFS2) regulations. EISA was legislatively written to create an economic demand for biofuels. The motivation was to increase the supply and demand for a locally grown, cleaner liquid fuel. Between 2007 when the statute was written by the legislators and now, EPA switched the priority from increasing demand to restricting greenhouse gas emissions. As proposed, the rule makes it difficult for biofuels to qualify for the RFS economic benefits. While EPA can legally do this, proceeding as the agency has proposed will halt economic growth in biofuels production. The additional emission criteria EPA has added to biofuels make other non-RFS uses like making electricity from biomass more compelling.
In June, the Waxman-Markey climate legislation passed the U.S. House of Representatives by a narrow margin of 7 votes: 219-for and 212-against. Just days before this vote took place, House Agriculture Committee Chairman Collin Peterson announced a “deal” had been struck in which USDA would provide oversight instead of EPA for agricultural offsets. USDA is able to tie environmental performance to program payments. It would also put on hold significant portions of the emissions-based RFS2 rule. In short, to ensure passage of the climate bill, the House Agriculture Democrats placed a priority back on economic growth.
BITING THE CAPITAL COST BULLET
The infrastructure that got us into this climate “mess” relies on large, centrally located food, energy and waste collection and distribution systems. The new one based on small, locally grown biomass and renewable energy systems will cost trillions of dollars. In addition to these large physical system capital costs, we must add in interest on the trillions of dollars of federal stimulus money that has been borrowed against our children’s future.
If the commercial interest on this new production and distribution network costs 7 percent, we can set the interest on the federal stimulus funding at a cost of living of 3 percent. If everything runs smoothly, we pay an effective 10 percent interest on the new infrastructure until the trillions of dollars of borrowed capital are paid off. This is workable as long as the new bioeconomic infrastructure is returning more. If the average of all renewable energy projects is a 20 percent return before paying the debt and half of that (10 percent) goes to service the collective debt, we could still be ahead.
Unfortunately neither the legislative (Congress) nor administrative (agency) lawmakers are very good at writing costless laws. Serious policy collisions between poorly crafted oversight regulations and funding programs are very costly to industry, government and consumers. For years now, the USDA and the Department of Energy have been funding biomass energy projects and research in which industry and government have invested billions of dollars. If the biomass utilization/carbon emission laws are written to now exclude those investments, all those false-start dollars get added to the debt with no hope of a return.
Any economic friction added to the cost of building the bioeconomy will threaten the success of this risky, bold approach. For instance, if the policy implementation cost increases the debt servicing fees described above by 5 percent, then the new bioeconomy must pay an effective debt service cost of 15 percent before we have economic growth. If the policy implementation cost increases the effective interest by 10 percent, the breakeven economic bar now requires more than a 20 percent return. In this last example, the additional implementation costs have consumed all economic growth. This is not sustainable.
Substantive and sustainable change is achievable, but the risks are real. Policies can be written that promote enhanced quality of life and more efficient use of resources. The biomass industries need to guide the policies.
Mark Jenner, PhD, operates Biomass Rules, LLC and has over 25 years of biomass utilization expertise. Burning Bio News is Jenner’s scorecard of bio-energy project adoption, available at www.biomassrules.com.
July 21, 2009 | General
Recycling Carbon Emissions Into The Economy
BioCycle July 2009, Vol. 50, No. 7, p. 60