Overcoming Regulatory and Legislative Volatility
In 2007, Congress passed the renewable fuels standard 2 (RFS2), which called for building a biofuels industry capable of 36 billion gallons by 2022. In that legislation, Congress sought to encourage and incentivize the advanced and cellulosic sectors of the biofuels industry. As a guest columnist for Biomass Magazine this month, I want to convey my thoughts on some of the challenges facing the advanced biofuel industry.
Currently, I serve as the CEO of Sundrop Fuels, as well as this year’s chairman of the Advanced Biofuels Association. In this capacity, I not only have first-hand experience with the current industry challenges as Sundrop Biofuels builds its first plant, but also as the chairman of ABFA, I have been able to engage with a significant number of our industry’s leading CEOs and executives facing a similar task. Most, if not all of these leaders will tell you that much of our job is managing risk. These risks are principally three types: volatility in the commodity market for both fuels and feedstocks, unpredictability in the regulatory and legislative sector, and the risk associated with scaling up new innovative technologies.
All three of these risk issues can significantly impact the ability to garner the financing necessary to build new facilities, which ultimately were the goal of Congress in passing the RFS2 in 2007. This month, I want to discuss the volatility in the regulatory and legislative sector.
Inconsistent Federal Policy
To reasonably discuss the potential of financially expanding their organization, any good CEO has to describe a situation that conveys clear facts and projections. For instance, it is far more difficult to provide a spreadsheet showing profitability of a potential plant, including the portion of that profit coming from the value of the RINs afforded under the RFS2, if the pathway, feedstock or molecule is not already approved by U.S. EPA. Unfortunately, that is the circumstance for many producers who have new innovative technologies and must petition EPA for approval in the pathway system.
The tax code can also be a challenge. Today’s tax code has leaders asking themselves questions such as, “What if I make a drop-in diesel, but the renewable diesel credit tax provision might expire at the end of this year?” Another example: companies can claim the alternative fuels mixture credit, but can no longer receive it in a refundable nature like many other credits. Finally, companies can receive $1 for diesel, but only 50 cents for gasoline, and this credit expires at the end of the year. These inconsistencies become difficult obstacles to overcome when attempting to close on a round of financing.
Finally, the industry’s most important policy tool, the RFS2, is currently under debate, and opponents have Congress introducing weekly amendments and/or hearings to call for its repeal.
A Call to Action
The only solution is for all of us in the advanced and cellulosic industry to redouble our efforts and work together to educate policy makers and their staffs at all levels of the effect the current uncertainty in Washington is having on our ability to build the next generation of plants. As you know, we have many good technologies, plenty of feedstock, and the desire to compete for America's fuels demand. We simply need to have a more uniform, expeditious and consistent policy framework if we are to reach our goals in this area as a nation.
July will be a busy month with a great deal happening on Capitol Hill. I encourage all of you to weigh in with your respective members of Congress, tell them how far you have come and where you are headed. Tell them to stay the course to build new jobs, provide more energy and national security, while being good stewards of our resources and the environment. Tell them the RFS2 and consistent, foreseeable tax policy are key in the building of your industry. This is not a partisan issue, it is a national one. Redouble your efforts, let your voice be heard, and let’s build the future of the advanced and cellulosic industry together.
Author: Wayne Simmons
CEO, Sundrop Biofuels