Energy Law Alert: Ethanol and Biomass Industries Fare Well in Energy Policy Act of 2005
The Energy Policy Act of 2005 (the "Act") has been signed into law by President Bush. The Act includes important benefits for producers of ethanol, and for the biomass industry in general. Some of the most notable ethanol and biomass provisions include:
RENEWABLE FUELS STANDARD
The Act establishes a Renewable Fuels Standard ("RFS"), requiring refiners to use 4 billion gallons of renewable fuel in 2006, ratcheting up to 7.5 billion gallons per year by 2012. Every gallon of cellulosic or waste derived ethanol counts as 2.5 gallons toward the RFS requirement. After 2013, levels will be as determined by the EPA Administrator in coordination with the Secretaries of Agriculture and Energy. Additionally, cellulosic biomass must compose a minimum of 250 million gallons of the applicable volume of renewable fuels.
The provision also establishes a credit-trading regime to provide refiners with flexibility. Excess credits can be transferred to another person for purposes of complying with the RFS mandate. The RFS requirement does not apply to small refineries until 2011, but small refineries may opt-in to the program. "Small refinery" is defined as a refinery for which the average aggregate daily crude oil throughput per calendar year does not exceed 75,000 gallons.
- Production Tax Credit. Current law provides qualifying facilities a "Production Tax Credit," (or "PTC") for electricity produced by "qualifying facilities." The Act extends the placed-in-service date for both closed-loop biomass facilities and open-loop biomass facilities through December 31, 2007. In addition, for all qualifying biomass facilities placed in service after the Act’s enactment date, the Act now allows a 10-year credit period.
Other relevant tax incentives available to renewable resource industries in general are described in our Client Alert titled: Energy Bill Extends Production Tax Credit and Provides New and Expanded Tax Benefits for Renewable and other Energy Activities. If you have did not receive a copy of this alert, you can view it here.
OTHER ETHANOL/BIOMASS INCENTIVES
- Incentive Payments and Grants for Renewables. The Act extends renewable energy production incentive payments for electric energy generated by qualified biomass energy facilities owned by a not-for-profit electric cooperative, a public utility described in section 115 of the Internal Revenue Code of 1986, a State, Commonwealth, territory, or possession of the United States, or the District of Columbia, or a political subdivision thereof, an Indian tribal government, or a Native Corporation.
Additionally, the Secretaries of Agriculture and Interior may make grants to those owning/operating a facility using forest biomass as raw material to produce electric energy, transportation fuels, or other petroleum-based substitutes. Grants may not exceed $20 per green ton of biomass and may not exceed $500,000 total. The act authorizes $50 million to be appropriated each year through FY 2016.
The Act also authorizes grants to merchant producers of cellulosic biomass ethanol, waste-derived ethanol, and approved renewable fuels in the U.S. to assist them in building eligible production facilities for the production of ethanol or approved renewable fuels. The Act authorizes appropriations for 2005-2007 ranging from $100 million to $400 million.
- Loan Guarantees. The Act authorizes loan guarantees for up to 80% of the project cost of an eligible project. Eligible projects must both reduce greenhouse gas emissions and employ significantly improved technologies. Loan categories relevant to the ethanol and biomass industries include: (1) renewable energy systems; (2) efficient electrical generation, transmission and distribution technologies, and (3) efficient end-use energy technologies.
The Act also directs the Secretary of energy to establish a program providing guarantees of loans by private institutions for the construction of facilities for the processing and conversion of municipal solid waste and cellulosic biomass into fuel ethanol and other commercial byproducts.
This portfolio of regulatory revisions and incentives make investing in ethanol and biomass attractive over the next several years. If you have any other questions about this update or if you would like our assistance in connection with this matter, please contact your Stoel Rives lawyers or one of the following lawyers:
Gary R. Barnum at firstname.lastname@example.org or (503) 294-9114
Jennie L. Bricker at email@example.com or (503) 294-9631
Kathleen Doll at firstname.lastname@example.org or (503) 294-9675
Edward D. Einowski at email@example.com or (503) 294-9235
Clint M Hanni at firstname.lastname@example.org or (801) 578-6904
Lee N. Smith at email@example.com or (206) 386-4651
This is a publication of Stoel Rives Energy Group for the benefit and information of clients and friends. This bulletin is not legal advice or a legal opinion on specific facts or circumstances. The contents are intended for information purposes only. Copyright 2005, Stoel Rives LLP.