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Biomass in the US: Finding our Carrot and Stick

Opening discussions at the International Biomass Conference & Expo (BBI) in Minneapolis elicited some strong opinions about the big challenges facing biomass in the U.S., and what can be done to overcome them -- and where we can look for guidance to do it. Panelists' comments could generally be defined around several key policy issues that need resolution: carbon tax, RFS, and tax credits.

Bob Cleaves, president/CEO of the Biomass Power Association, listed three themes in today's construction of biomass, particularly for electricity. Dominion's laudable efforts to convert three 51-MW coal peaker plants to biomass baseload -- which earned them this year's annual Groundbreaker award at the show -- is really a more small-scale effort, compared to more mainstream 500 MW coal plants, and conversions of that type "are hard to do, despite what's going on in the UK," he said. Secondly, recruiting paper mills is a strategic opportunity. "Natural gas is not a panacea; some places it's not available, or the infrastructure doesn't support it," he said. And the theme that troubles him the most is IPPs. "Everything in biomass is in slow-motion; it takes years to do a project," he said. "Those were started back when we had $14/gallon gas and 1603 Treasury grants. We don't have those any more. Now what?"

Cleaves urged the industry to "play defense and offense." On the defensive side, "we're in a very serious period with the EPA figuring out the carbon equation," and a ruling the wrong way will categorize biomass along with coal plants. Secondly, on offense, "we need to do better on tax policy," he said. "The tax credit policy doesn't work for biomass; essentially it's a wind credit."

Mike McAdams, president of the Advanced Biofuels Association, agreed with the dire tone regarding industry challenges in policy definition, and ratcheted up the discussion into apocalyptic terms: "At no point in the eight years I've been involved, have we been greater challenged in Washington DC," he said. "We won't have an industry without consistent federal support," be it biomass-friendlier tax structures, RFS, grants, or any other policy-oriented tools -- which provide the certainty that investors need to make commitments, he noted. The industry needs to mobilize and push back, because otherwise "we may not have an industry and a meeting [like BBI] in two years."

Carbon Debt

"One of the biggest policy challenges we face" is a "misguided notion" of how to apply carbon debt to biomass, agreed Seth Ginther, executive director of the U.S. Industrial Pellet Association. Biomass carbon debt (specifically for woody biomass) should include the carbon sequestered in the wood from the beginning, and the wood replanted to replace it. One cannot say that about coal or oil, for example. But how the EPA determines carbon accounting, "we have to get that right here," he said -- if not, US biomass companies seeking to do business in Europe will confront doubts about our own government's criticism of biomass and its carbon debt.

At the heart of the issue, according to Cleaves, is that the EPA's authority to regulate CO2 emissions "didn't categorically exempt biomass," where in Europe it is viewed as, and treated fundamentally different than, fossil fuels. After several years of deferrals and jurisdictional questions, a draft rule from the EPA is expected this summer. "We need to make sure the EPA gets this right," because "if not half the nation's renewable energy supply is in peril."

A similar problem to be fixed: how to categorize nonhazardous secondary materials such as urban wood, which don't fit neatly into EPA regulations -- except as waste. Biomass proponents say it's not "waste" because they pay for it, it's not landfill, it has fuel value, and countries all over the place think it's good to use. And more importantly, if it is indeed categorized as waste, biomass' use would be labeled as incineration, which will pile on more pollution control measures, Cleaves noted. At least new boiler MACT rules, after some back-and-forth with the EPA, "are substantially better than they were," and should be resolved soon.

RFS Rules

"We have enormous chatter taking place, a dark cloud, over the RFS [renewable fuel standards]," said McAdams. "There is nothing more important" than mounting a defense to Congressional proposals to repeal renewable fuel standards (RFS) across the board. The issue of RFS boils down to a "seminal policy discussion" between the oil industry, which wants to keep ethanol at 10% of gas, vs. ethanol supporters who want to grow their content in the fuel pool, he explained.

More critically, "this fight over who is going to get market share, is chilling investments [...] and hurting lots of folks who are putting steel in the ground, wondering if the government will change the rules in the middle of the game," McAdams said. Hearings are set for this summer to hash out the blend issue.

And there's clearly market interest in biofuels to keep this debate going. Among results of a survey shared by Mary Rosenthal, executive director at the Algae Biomass Organization: two-thirds of algae producers said they would expand in 2013 at existing or new facilities -- and nine out of 10 of them believe algae fuels can be price-competitive by 2020. At the nation's first gas pumps with domestically produced algae biodiesel in California, 92 percent of people who purchased the biofuel cited environmental benefits, and 40 percent said they would consider paying a premium. And there was a 35 percent increase at stations offering that algae fuel, vs. ones that didn't.

Friendlier Tax Rules

Regarding tax structures, Joseph Seymour, executive director of the Biomass Thermal Energy Council, said there’s strong focus on a 30 percent tax credit for biomass, akin to what solar/solar heating and geothermal benefit from, and the goal for a 30 percent investment tax credit (ITC) for large systems to get over the obstacle of initial capital outlays. "If you want to sell more biomass fuels, with the recognition that it's clean and sustainable and reliable, you need to promote tax parity," he said. "Reflect that in the tax code."

Carrot and a Stick

"What concerns me greatly is that Washington is profoundly dysfunctional, and the administration has not stepped up to the plate," from immigration policy to the forced sequestration, Cleaves said. " We overwhelmingly have support of our industry [...] the problem is the dysfunctional government is incapable of acting on these issues."

"Bob hit it on the money," McAdams agreed. He said it's frustrating that questions are being asked not about the substance of the subject, but rather to "ping the other side and not move the ball forward." He then added: "The White House didn't win one single rural county in America. Look at the biomass community standing up; they did it even though the people who benefit the most voted *against* them. That's a phenomenal problem."

Seymour emphasized the importance of policy, relating the story of a rural school in Alaska that, facing budget cuts, switched from heating oil/diesel to biomass thermal heating, locally produced -- and as a result saved enough money to continue an early education program and rehire its music teacher. "Don't we want more of that?"

What's frustrating is that Europe seems to "get it" with renewable energy support, and biomass in particular. Ginther agreed that the U.K. is now leading the way with an extension of its renewable obligation certificate (ROC) scheme, which coupled with a tax for pricing gives a carrot vs. stick approach for domestic utilities. That's "creating incredible demand," he said, pointing to efforts from Drax among others. Meanwhile, the Dutch are "very close to renewing their cofiring subsidy," which they see as not only helping a baseload fuel source, but because they see Rotterdam as the gateway port for bringing industrial wood pellets to the rest of Europe. And Belgium just renewed its biomass-friendly policies with 6-7 additional plants that use pellets. That kind of support from offtakers provides the certainty that is required for suppliers back here in the US who want to seek private equity or debt capital. Simplicity is also attractive to potential financiers, Ginther added.

In Europe, some countries saw a lack of specific support for solid biomass in sustainable requirements for liquid biofuels so they made their interpretations, but that's caused problems with pellet suppliers selling to different states with different sustainability criteria. Having a uniform set of "harmonized" schemes in Europe -- which is what the US should be doing as well -- will create greater liquidity and make pellets a true commodity, said Ginther.

"There's a carrot in the EU, and it's working," Cleaves agreed. "In the U.S., there's a lack of leadership to get it done." Ginther added that European citizens have incorporated into their DNA that "it's the right thing to use renewables, it's part of their civic duty -- and to pay higher rates [for it]. Until we see that in the U.S., until we generate that sort of public support, it'll continue to be a struggle."

"I continue to be envious of Europe -- they have a carrot and the stick," said Cleaves. "In the U.S., we need that carrot and stick." Until we decide on and put in place a national energy policy, we'll keep "bashing our heads against the wall to patch things up and keep things going," he said, and "not move the needle like we need to move it."

Lead image: Carrot, stick and blackboard, via Shutterstock

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