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Biofuels Industry Lobbies U.S. Congress for 30% Tax Credit

Biofuels Industry Lobbies U.S. Congress for 30% Tax Credit

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Published by SugarcaneBlog
The U.S. Congress is being lobbied by the advanced biofuels industry for financial help to kick-start construction projects, Dow Jones reports. The industry has written a joint letter to lawmakers asking for a 30% investment tax credit it says it needs to get the ball rolling on a number of projects designed to meet the federal renewable fuel mandate. While the economy is recovering slowly, a lack of easy access to cheap finance as well as lacklustre interest in the sector means that many firms in the industry cannot afford to build the facilities.Significance: Renewable fuel mandates call for a start on the production of advanced biofuels this year, but the economic downturn and financial crisis of the last two years has significantly dented not only this schedule, but also market appetite for helping finance such projects.

Advanced biofuels, such as cellulosic ethanol, are meant as a gradual replacement for traditional corn ethanol, whose use was blamed previously for pushing up food prices. They are also meant to be cleaner and more sustainable. Naturally, these requirements drive construction costs up significantly for advanced facilities, typically by a factor of five compared to traditional plants. While the industry benefits from existing production tax credits, this does not help with the initial construction phase, hence the request for the investment tax credit.
The U.S. Congress is being lobbied by the advanced biofuels industry for financial help to kick-start construction projects, Dow Jones reports. The industry has written a joint letter to lawmakers asking for a 30% investment tax credit it says it needs to get the ball rolling on a number of projects designed to meet the federal renewable fuel mandate. While the economy is recovering slowly, a lack of easy access to cheap finance as well as lacklustre interest in the sector means that many firms in the industry cannot afford to build the facilities.Significance: Renewable fuel mandates call for a start on the production of advanced biofuels this year, but the economic downturn and financial crisis of the last two years has significantly dented not only this schedule, but also market appetite for helping finance such projects.

Advanced biofuels, such as cellulosic ethanol, are meant as a gradual replacement for traditional corn ethanol, whose use was blamed previously for pushing up food prices. They are also meant to be cleaner and more sustainable. Naturally, these requirements drive construction costs up significantly for advanced facilities, typically by a factor of five compared to traditional plants. While the industry benefits from existing production tax credits, this does not help with the initial construction phase, hence the request for the investment tax credit.

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Categories:Types, Letters
Published by: SugarcaneBlog on Mar 05, 2010
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06/19/2010

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March 3, 2010U.S. Senator Max BaucusChairman, Senate Finance CommitteeSenate Hart Room 511Washington, D.C. 20510U.S. Senator Charles GrassleyRanking Republican, Senate FinanceCommitteeSenate Hart Room 135Washington, D.C. 20510Representative Charles RangelChairman, House Ways and MeansCommittee2354 Rayburn House Office BuildingWashington, D.C. 20515Representative Dave CampRanking Republican, House Ways andMeans Committee341 Cannon House Office BuildingWashington D.C. 20515RE: Investment Tax Credit for Advanced Biofuels IndustrySirs:The Energy Independence and Security Act of 2007 mandates the use of 21billion gallons of advanced and cellulosic biofuels by 2022. Although the law requiresthe use of these fuels beginning in 2010, no commercial cellulosic biorefineries areanticipated to be commissioned before 2011 at the earliest. The principal cause of thisdelay in commercialization is lack of funding caused by the severe downturn in the U.S.economy. Just as Congress responded to the impact of this downturn on the renewableelectricity industry by allowing a 30% investment tax credit in new facilities that can bemonetized through a federal Treasury grant program, we believe additional tax incentivesare needed for advanced biofuel refineriesThe advanced biofuel industry has been diligently working on the manychallenges it must overcome before it is capable of producing substantial commercialscale volumes of transportation fuels. These include the need to develop sustainablesupplies of feedstocks, proving pre-commercial production technology and developing adelivery system for the large scale distribution and utilization of renewable fuels. In thenear term, however, the seemingly intractable hurdle confronting the advanced biofuelindustry is access to capital to support the timely development of commercial scaleprojects.Advanced biofuels producers are eligible under current law for a federalproduction tax credit, but with no commercial production, that incentive remains unused.To be clear, cellulosic technology deployment is currently an expensive proposition. Thetotal project investment for a 50 million gallon per year advanced cellulosic biofuelrefinery is estimated by the National Renewable Energy Lab to be $250 million,
 
compared with a total project investment of only $76 million for the same sized cornstarch ethanol plant. The conversion technology in an advanced or cellulosic biofuelrefinery is pre-commercial, which makes commercial financing virtually impossible inthe current economy, even though the projected improvement over the long-term resultsin robust economics.Private capital is often unwilling to take technology risk, an obstacle thatCongress has identified and attempted to remedy through loan guarantees at theDepartment of Energy and U.S. Department of Agriculture. These loan guaranteeprograms provide a potential governmental source of financial backing for these projects,but neither program has yet to emerge as a material factor to support substantial projectdevelopment.We believe that the advanced biofuel industry could greatly benefit from thetargeted reinstatement of a thirty percent investment tax credit for biorefineries. Webelieve the ITC should be technology neutral and instead require delivery against the goalof using renewable biomass to produce fuels that have lifecycle greenhouse gas emissionsthat are at least 50 percent less than baseline lifecycle greenhouse gas emissions.Ideally, this incentive would operate as a necessary precursor to the production tax credit,and would present potential renewable fuels investors with a robust incentive to committo these technologies. This incentive will enable biofuels developers to attract privatecapital on an accelerated basis to meet the ambitious volume requirements of therenewable fuel standard.As this Congress considers comprehensive energy and climate change legislation,we ask you to consider establishing a targeted investment tax credit for the advancedbiofuel industry.Sincerely,Advanced Biofuels AssociationAmyrisAurora BiofuelsRenewable Fuels AssociationBlueFire Ethanol FuelsCalifornia BioEnergy Producer Assoc.
 
CoskataDuPont Danisco Cellulosic Ethanol LLCElevanceEmersonEnerkemFulcrum BioEnergy, Inc.Frontier Renewable Resources, Inc.GeoSynFuels,LLC GevoINEOS BioIogen CorporationKern Oil and Refining Co.KL EnergyLive FuelsLS9, Inc.MascomaNew Generation BiofuelsNew Planet Energy

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