Weekly Clean Energy Roundup:September 5, 2007

News and Events

• Illinois Requires 25 Percent Renewable Power by 2025
• Kentucky Sets Incentives for Biofuels and Renewable Energy
• Federal Renewable Fuels Standard Takes Effect
• EPA Recognizes 48 Companies for Promoting Renewable Fuels in Trucks
• Tax Credit for Honda Hybrids to be Halved on January 1st

Energy Connections

• Kyoto Parties Agree Loosely on Long-Term Emissions Goals
  

News and Events

Illinois Requires 25 Percent Renewable Power by 2025

Illinois Governor Rod Blagojevich signed a law last week that requires the state’s electric utilities to draw on renewable energy for 25% of their electricity needs by 2025. The renewable energy requirement starts at 2% of the power supply on June 1st, 2008, and ratchets up to 10% of the power supply on June 1st, 2015, then increases by 1.5% per year until 2025. The law requires 75% of the renewable power to come from wind energy. Other than wind power, the law also allows solar energy, biomass energy, hydropower that does not involve new construction or significant expansion of dams, and “other alternative sources of environmentally preferable energy.”

The renewable energy requirement applies to electric utilities that serve at least 100,000 customers within the state. It allows those utilities to meet the requirements with renewable energy credits and gives preference first to projects within the state, then to projects in adjacent states, then to projects located elsewhere. The law also places limits on the cost impacts of the renewable requirement, allowing utilities to fall short of the requirement if the cost impact is too great.

The renewable energy requirement is part of a larger law that establishes the Illinois Power Agency, which has broad powers to develop electricity procurement plans; conduct competitive procurements; build electric power or cogeneration plants that use renewable energy, coal, or both, financed with bonds issued by the Illinois Finance Authority; and supply electricity at cost to municipal electric systems, governmental aggregators, and rural electric cooperatives. With those powers, the new agency will help large utilities plan their renewable power procurements while building some of the renewable power facilities needed to meet the requirement. See press release from the Environmental Law & Policy Center (PDF 26 KB) and the full text of the law, Public Act 095-0481 (PDF 412 KB).

Kentucky Sets Incentives for Biofuels and Renewable Energy

Kentucky Governor Ernie Fletcher signed wide-ranging energy legislation last week that creates a variety of incentives for biofuels and renewable energy. House Bill 1 creates incentives of up to half the capital investment in a project that creates alternative fuel from biomass or that creates electricity from renewable energy sources. To qualify, a biofuel facility must involve a capital investment of at least $25 million and a renewable power facility must involve a capital investment of at least $1 million. If the renewable power facility uses solar energy, it must be at least 50 kilowatts in size, but other renewable power facilities must be at least 1 megawatt in size. The incentives can include an advanced disbursement of the labor costs on a new project; a reimbursement of up to 100% of the sales and use taxes on property bought during construction; and a tax credit of up to 100% of the income tax and limited liability entity tax owed by the company. Under certain conditions, companies can also assess 4% of employee gross wages, which the employees can then take as a credit against their income tax. The bill’s incentives will be funded with the proceeds from $100 million in bonds.

The bill also expands an existing tax credit for biodiesel and adds new tax credits for other biofuels. The biodiesel tax credit of $1 per gallon is expanded to include renewable diesel, and the cap on the total tax credit is increased from $1.5 million to $5 million in 2008, and then further increased to $10 million in 2009. The bill creates separate new tax credits of $1 per gallon for ethanol produced from corn, soybeans, or wheat and for ethanol produced from cellulosic biomass, each of which includes a cap of $5 million. However, if some of the $5 million in cellulosic ethanol tax credits go unused, they can be used to increase the cap for the corn ethanol tax credit.

Among other features in the wide-ranging bill are the creation of the Governor’s Office of Energy Policy; the creation of the Kentucky Alternative Fuel and Renewable Energy Fund to promote research and development; an effort to create a Center for Renewable Energy Research and Environmental Stewardship; a refund of sales and use taxes on machinery or equipment that improves a facility’s energy efficiency by at least 15%; an effort to encourage the use of green building principles and energy saving contracts for state-owned buildings; an effort to shift half of the state-owned passenger vehicles to hybrids, alternative fuel vehicles, advanced lean burn vehicles, or fuel cell vehicles; an effort to encourage alternative fuel use in state vehicles; funds for new biofuels and biomass gasification research facilities at the University of Kentucky’s Center for Applied Energy Research; and even a student loan forgiveness program for certain college graduates working in an energy-related field. See the 105-page bill and Governor Fletcher’s 116-word press release.

Federal Renewable Fuels Standard Takes Effect

The federal Renewable Fuels Standard (RFS) went into effect on September 1st, setting new reporting, registration, and compliance requirements for major refiners, fuel blenders, and fuel importers. Authorized by the Energy Policy Act of 2005, the RFS requires that 4.2% of the fuel sold or dispensed to U.S. motorists in 2007 must come from renewable resources, an amount equal to about 4.7 billion gallons. That minimum volume will increase each year until it reaches 7.5 billion gallons of renewable fuel in 2012. See the EPA press release and the RFS Program Web page.

According to the Renewable Fuels Association, the ethanol industry should easily meet the requirements of the RFS. The industry currently has the capacity to produce nearly 6.8 billion gallons of ethanol per year, and expansions at existing biorefineries and new biorefineries under construction will add another 6.6 billion gallons of annual production capacity. Once those facilities begin operating, the industry will be able to produce 13.4 billion gallons of ethanol per year, far exceeding the RFS requirements. However, the RFS will guarantee a market in the event of a drop in demand for ethanol, and having the mechanism in place will make it easier to institute more ambitious RFS goals with future legislation. See the Renewable Fuels Association’s list of ethanol biorefineries.

The ethanol industry is also starting to implement new technologies to reduce the greenhouse gas impacts of ethanol production. E3 BioFuels opened an ethanol plant in late June that derives its energy from biogas generated from cattle manure and biomass. Located in Mead, Oklahoma, next to a feedlot with 28,000 cattle, the new facility consumes virtually no fossil fuel, according to the company. In mid-August, Blue Flint Ethanol celebrated the grand opening of its ethanol plant in Underwood, North Dakota, that uses excess steam from an adjacent coal power plant as its main energy source. The facility, which started operating in February, is capable of producing 50 million gallons of ethanol per year. See the press releases from E3 BioFuels and the Renewable Fuels Association, as well as the Blue Flint Ethanol Web site.

EPA Recognizes 48 Companies for Promoting Renewable Fuels in Trucks

The U.S. Environmental Protection Agency (EPA) acknowledged 48 companies in late August that have joined its “SmartWay Grow & Go” program, which encourages the use of renewable fuels in tractor-trailer trucks. The EPA program, launched in October 2006, is an offshoot of the EPA SmartWay Transport Partnership, which encourages the development and use of efficient trucks. The new program aims to convince one-quarter of the EPA’s SmartWay Transport partners to start using renewable fuels by 2012, raising that to one-half of the partners by 2020. EPA is currently working with about 600 SmartWay Transport partners, including major truck and rail carriers as well as shipping and logistics companies, so the agency still has a way to go before reaching its goal. But one partner, the National Biodiesel Board (NBB), is certainly doing its part, providing mapping software that helps truckers find biodiesel pumps. See the NBB press release.

The EPA recognized its partners at the Great American Trucking Show, where it also displayed the first SmartWay-certified tractors and trailers, a lineup of the cleanest, most fuel-efficient heavy-duty trucks available on the market. The six new models of SmartWay tractors and trailers are equipped with a series of advanced aerodynamic features, idle-reduction options, and low-rolling-resistance tires that together can serve as a model for improving the fuel efficiency of heavy-duty trucks by up to 20%. To date, SmartWay partners have saved more than 350 million gallons of diesel fuel and eliminated nearly 4 million metric tons of carbon dioxide, primarily through the adoption of fuel-saving technologies and strategies, according to the EPA. See the EPA press release and the list of partners on the SmartWay Grow & Go Web site.

While most people would think of biodiesel when talking about renewable fuels in trucks, the Volvo Group recently demonstrated that its trucks can be modified to run on up to seven different renewable fuels. Volvo ran its trucks on biodiesel; biogas (methane); a mix of biodiesel and liquefied biogas; dimethyl ether, or DME, produced by gasifying biomass; a blend of ethanol and methanol; synthetic diesel produced from gasified biomass; and a mix of hydrogen and biogas. As the CEO of Volvo put it, “With these vehicles, we have shown that Volvo is ready, that we possess the technology and the resources for carbon-dioxide-free transport … ” See the Volvo press release.

Tax Credit for Honda Hybrids to be Halved on January 1st

Honda Motor Company has sold more than 60,000 hybrid vehicles that qualify for the federal tax credit, so the tax credits for the automaker’s hybrid vehicles will be cut in half as of January 1st, 2008. The U.S. Internal Revenue Service (IRS) announced last week that as of the second quarter of this year (that is, the end of June), Honda had sold 58,872 hybrid vehicles that have qualified for the federal tax credit. But Honda sold another 2,753 hybrids in July, pushing its total to 61,625. According to rules established by the Energy Policy Act of 2005, the federal tax credit maintains its full value through the end of the first quarter following the quarter in which the automaker sells its 60,000th qualified vehicle. That means that Honda has the remainder of this quarter and next quarter left, and on January 1st the tax credits will be reduced by half. For the second half of
2008, the tax credits will be cut in half again, and they’ll be eliminated in 2009. Buyers can currently earn federal tax credits of up to $2,100 by buying a Honda Civic Hybrid, although those credits may be limited by the alternative minimum tax. See the press releases from the IRS and Honda.

Honda has also earned IRS certification for its 2005 and 2006 Honda FCX fuel-cell vehicle. The IRS announced in late July that the Honda FCX could earn a federal tax credit of $12,000. The only problem is, you can’t really buy a Honda FCX, and only a select few people and companies are being allowed to lease it, so it’s hard to see how anyone can actually earn the credit. Meanwhile, the tax credit for Toyota and Lexus hybrids ends on October 1st, but other hybrid makers won’t have to worry about phase-outs for some time. As of the end of the second quarter, Nissan’s qualified hybrid sales are at just 5,222, General Motors Corporation (GM) is at 9,454, and Ford Motor Company is at 33,547. For comparison, Toyota Motor Sales sold 70,641 hybrids in the second quarter alone, and have sold a total of 344,083 qualified hybrids. See the IRS press releases on the Honda FCX and the quarterly sales for Toyota, Nissan, GM, and Ford.

Energy Connections

Kyoto Parties Agree Loosely on Long-Term Emissions Goals

A round of international climate change talks held last week in Vienna, Austria, concluded with an agreement on the rough framework needed to stabilize the concentration of greenhouse gases in Earth’s atmosphere at safe levels. The talks, held under the auspices of the United Nations Framework Convention on Climate Change (UNFCCC), led to the official recognition that global emissions of greenhouse gases need to peak in the next 10 to 15 years and must then be reduced to very low levels, as indicated by recent reports from the Intergovernmental Panel on Climate Change (IPCC).

According to a special working group at the meeting, avoiding the most catastrophic events forecast by the IPCC would entail emissions reductions by industrialized countries in the range of 25% to 40% below 1990 levels. Because of the Kyoto Protocol’s Clean Development Mechanism, which gives industrialized countries credit for financing emission-reducing projects in developing countries, such an emissions goal in industrialized countries could ultimately spur efforts to cut emissions in developing countries, as well. A key feature of the talks was a United Nations report that showed how energy efficiency could yield significant cuts in emissions at low cost. The talks are meant to set the stage for a major international meeting to be held in Bali in December. See the UNFCCC Web site for the press releases on the agreement (PDF 133 KB) and the report (PDF 52 KB), for the full report (PDF 748 KB), and for information on the special working group.

Climate change will also be a topic of discussion at the leaders meeting of the Asia-Pacific Economic Cooperation (APEC) forum, which President Bush is participating in on Saturday. President Bush announced in late May that the United States will work with other nations to establish a new framework on greenhouse gas emissions for when the Kyoto Protocol expires in 2012. See the White House press release and the APEC Web site, and for background, see the article on President Bush’s announcement from the June 6th edition of this newsletter.

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