The American Clean Energy and Security Act (H.R. 2454) began floor debate this afternoon. Also under consideration is the Republican alternative. While Democratic leaders are confident that they have the votes to pass the bill, ClimateIntel has heard from its Congressional sources that it is actually the progressive wing of the Democratic party that is proving the most recalcitrant.

Currently debate is focused around a 310-page amendment to the bill adopted by the Rules committee which deals with a wide range of issues, including the definition of biomass; the oversight of forestry and agricultural incentive programs; transmission line siting authority and changing how a renewable electricity standard operates. See an overview of the changes here.

We will update this post with any further developments in the debate.

For further information about this topic, please contact Akin Gump.

In our final installment examining the issues surrounding the creation of a Russian biofuels market, we examine the “green shoots” of a nascent industry-domestic production for export and domestic interest in development of an industry.

The Russian National Biofuels Association, which monitors biofuel developments in the country, held the IV International Conference “Fuel Bioethanol 2009″ in mid-April 2009 in Moscow.  Aleksey Ablayev, president of the Association, noted on the sidelines of the conference that there is still strong opposition to the creation of a grain-based ethanol market in the country and that much of the discussion today has shifted to cellulosic biofuel.  Projects in this area do exist, though funding difficulties in particular have affected their ongoing pace  in various parts of Russia.

The most recent and ambitious biofuel initiative was launched by OJSC Biotechnologies Corporation, which is controlled by the state corporation Russian Technologies (Rostekh).  Having acquired the Tulun Hydrolytic Plant in Irkutsk (Eastern Siberia), the corporation last September produced and tested experimental butanol as a fuel additive in cars.  No information has been provided on the total cost of the butanol as compared to the cost of gasoline sold locally, nor is it clear whether the chosen method of producing butanol is cost efficient.

Titan, an Omsk Group of Companies, reportedly completed the construction of a grain-based ethanol plant in Omsk. This export-oriented project was launched in 2006, with an initial plan to build a production capacity of 150,000 metric tons of ethanol per year.  (A Czech company, Alta, was chosen as an equipment supplier for the plant.)

Funding Difficulties Slow Biofuel Projects 

A  plan to produce about 30,000 tons of butanol at the Tulun plant (in addition to other products) reportedly had difficulty last year obtaining the funds needed for the purchase and installation of equipment.  Biotechnologies Corporation also announced plans to set up butanol production at other sites, including at existing hydrolytic plants, by 2017.  The corporation’s long-term plan is to attract about $1.5 billion for its biofuel initiative.  If implemented as planned, this initiative would produce about 2 million tons of butanol annually.  The corporation reportedly has asked the authorities for subsidies, including reductions in future profit and property taxes during the initial investment period.

Bioethanol Ltd, a daughter company of the agricultural firm “Vinogradov,” launched a project in 2007 to construct a bioethanol plant in the Lipetsk Special Economic Zone, but halted construction in 2008, reportedly due to funding difficulties.  The initial plan was to produce wheat and/or corn-based ethanol as a biofuel additive.  The Moscow Oblast-based engineering company NPK Ekologia announced in April 2009 that it had an order to do the planning for a project with a production capacity of 250,000 tons of bioethanol per year in Tambov Oblast (in the Western part of Russia), and another order for a project with a capacity of 200,000 tons in Stavropol in Southern Russia.  The country’s financial crisis may put a hold on these projects as well.

Non-Food Based Biofuels

Several Russian companies have expressed interest in biodiesel.  For example, in May 2008, the Konti Group of Companies said that it was interested in producing rapeseed-based diesel in Ivanovo Oblast.  The plan was to construct a plant with an annual production capacity of up to 200,000 tons of biofuel.   In June 2008, the Masloprodukt Group of Companies signed a memorandum of cooperation with the National Reserve Bank (NRB), with the goal of increasing production of sunflower-seed oil at an existing plant in Voronezh Oblast.  The Masloprodukt-Bio initiative envisioned an annual production capacity of 100,000 tons of biodiesel and 10,000 tons of raw glycerin.

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In this, our second post on the issues surrounding a biofuels industry in Russia, we examine the attempts by the Russian political class to overcome the various policy barriers we outlined in our last installment.

For several years, the Russian political leadership has given rhetorical support to the idea of developing the domestic biofuel sector, but this has not followed that rhetoric with the new laws required to jump-start growth. While cabinet members made promising announcements on renewable energy and parliamentarians submitted drafts of biofuel laws, few results ensued.

The Agriculture Ministry under Aleksey Gordeev was a strong advocate of biofuel legislation.  In 2007, the Ministry made projections for biodiesel demand in Russia linked to the growth in rapeseed production and listed twelve cities as sites for future biofuel production.  Several Russian regions, including Tatarstan, announced pilot biofuel projects and called attention to the need for legislation that would open the door to biofuel businesses.  In late November 2007, President Vladimir Putin told Gordeev that business conditions to produce biofuel in Russia needed to be created.

In February 2008, the federal government approved the technical requirements for gasoline and diesel that allow the use of bioethanol as an additive for up to five percent.  (Russian law does not mandate the use of biofuel as an additive.)

In early March 2008, Chairman of the State Duma Boris Gryzlov said at a meeting with President Vladimir Putin and Duma faction leaders that 20 million hectares [about 49.4 million acres] of agricultural land were not currently being used, and that almost half of this land “could be used to produce biofuel, such as biodiesel and bioethanol.”  Following Gryzlov’s speech, the President called on the government to make use of the country’s comparative advantage in arable land.

The following day, Prime Minister Viktor Zubkov (currently first Deputy Prime Minister) announced that there was a proposal to finance the construction of 30 new bioethanol plants to eventually increase the country’s ethanol production to 2 million tons per year.  (By early 2009, production of industrial-grade and food-grade ethanol stood at about 0.6 million tons[1])  Mr. Zubkov did not anounce a time period for completing this program.  It is not clear whether such a federal biofuel funding program exists today or if it was ever been approved by the Cabinet.

Nikolai Ryzhkov, Chairman of the Federation Council Committee on Natural Monopolies, wrote in a December 2008 article that his Committee would “pay special attention to expanding the range of alternative energy sources.”  He praised the first results of experimental production, including the use of wood-based butanol produced at a biotechnology plant in the city of Tulun (Irkutsk Oblast).  The legislator also emphasized the urgent need “to prepare the legislative base for a biofuel industry.”

Despite such high-level support for biofuel initiatives, efforts to pass legislation based on a draft bill “About Alternative Motor Fuels” (#130858-4) introduced in January 2005 did not succeed.  The Government put the bill on hold on the grounds that it did not clearly address, among other issues, issues of jurisdiction and responsibilities of regional and/or federal authorities.  Subsequently, the Duma Energy Committee called upon the authors of the 2005 bill to amend the text in line with previous criticism by the State Duma’s Legal Department.

State Duma deputies and Federation Council members with the backing of the Ministry of Agriculture prepared another draft bill, “About the Bases for the Development of Bioenergy in the Russian Federation.”   This bill, submitted to the State Duma in Spring 2007, was scheduled for review by the Duma Agrarian Committee in 2008.  According to the Deputy Chairman of the Committee, work on the draft bill will continue in 2009.

Legislative and ministerial work has gone very slowly in part because of the regulatory and technical issues that must be addressed.  There are also broader reasons for the lack of progress.  First, renewable energy sources, including biofuel derived from grain or bio-waste, are a low priority on the legislative agenda, especially compared to the regulation of the gas and oil sectors.  Given the heavy dependence of the country on revenues from hydrocarbon production, this is quite understandable.  Second, there is limited interest in alternative energy in general and no desire on the part of business to jump into risky projects.  Third, the financial crisis has shrunk the pool of available investment for all types of energy projects.

For further information about this topic, please contact Akin Gump.

In an earlier post, we noted that stalled negotiations between sponsors of the American Climate and Security Act and farm-state Democrats were one of the major hurdles preventing that bill from being voted on by the full House before the end of the week. Late last night, as The Hill reports, those negotiations concluded successfully, with an amended bill and an agreement to bring it to the floor before Friday.

The text of the amended bill is here.  We will continue to update the blog with any new developments.

For further information about this topic, please contact Akin Gump.

Current Administration and congressional climate proposals depend heavily on geological sequestration to reduce CO2 emissions from coal-fired power plants and other major sources and tend to presume that sources in every state will have access to nearby underground storage capacity.  This is the second post in a three-part series reviewing obstacles to a 50-state sequestration strategy and suggesting the need for a national infrastructure to support medium to long-range transport of CO2. 

Even if additional research and site characterization could resolve geological uncertainties regarding widespread local CO2 storage, companies also will have to overcome the public and political opposition that locally undesirable land use (LULU) energy projects engender.  While CO2 sequestration provides important global benefits, local communities are likely to balk at hosting a sequestration project injecting millions of tons of liquid CO2 as a waste product under or near their communities.

The saga of Used Nuclear Fuel Storage at Yucca Mountain in Nevada illustrates the challenge of siting even one nationally-important, but locally-opposed, facility.  First identified as the nation’s prospective high-level nuclear waste storage site in 1987 and approved by Congress in 1994, the Yucca Mountain high-level nuclear waste storage facility received over 9 billion dollars in funding through 2008 despite vociferous opposition from local stakeholders and, in some cases, key federal constituencies.  In early 2009, the Obama Administration proposed to defund the project.  While only Congress can cancel the project, Senate Majority Leader Harry Reid (D-NV) has committed to doing just that.  Irrespective of the merits of the decision to defund Yucca, it is a significant setback for the domestic nuclear energy industry, as the reversal leaves the nation twenty years behind in developing a long-term disposal strategy for high-level nuclear waste.

Even relatively innocuous renewable energy projects  face siting difficulties.  Indeed, the U.S. Chamber of Commerce recently initiated a campaign to document the wide variety of energy projects that have been stopped or delayed across the nation by local opposition.  The siting challenge illustrates an important reality check for policymakers and investors:  a prospective site may contain optimal subsurface geologic characteristics, but if developers cannot negotiate the local siting process, the technical feasibility of a location is irrelevant.

Siting CCS facilities on federal lands may be one way to reduce the ability of local opposition to stop a project.  The Department of Interior has estimated that 5.5 percent of the onshore U.S. CO2 storage capacity is beneath potentially leasable Federal lands.  But, federal lands bring limitations of their own.  First, federal lands are not uniformly distributed across regions and states, and many areas of the country (e.g., the northeast, southeast and midwest) lack large swaths of federal lands on which facilities could be sited.  The disconnect is even more significant when major emissions sources are considered.  According to a recent DOE Report, while 65% of emissions come from east of the Mississippi River, 83% to 86% of storage capacity on federal lands lies west of the Mississippi River.   In other words, a siting strategy that relies on federal lands for citing will require investment on CO2 transport to match source generation to sequestration capacity.

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The major climate-related news on Capitol Hill this week remains the negotiations going on within the Democratic party over the American Clean Energy and Security Act. Sponsor Rep. Harry Waxman (CA) and a group of moderate, farm state Democrats, lead by Rep. Collin Peterson (MN) continue to disagree over how to administer a program encouraging climate-friendly practices among farmers, putting plans to bring the bill to the House floor before the July 4^th recess in jeopardy.

In other House news, a Wednesday markup of a transportation authorization bill will have major climate implications. The markup, in the Transportation and Infrastructure Committee headed by Rep. Jim Oberstar, will provide $500 billion in funding for the nation’s roads and transit systems, and will shift a significant percentage of funding away from highways and towards transit systems, especially high-speed rail-which will receive $50 billion. Also before the committee is a proposal which would require planners to consider the carbon footprints of the transit sector.

Finally, the House Energy and Water Development Appropriations Subcommittee will markup the appropriations for the Department of Energy (DOE), the Army Corps of Engineers and the Bureau of Reclamation on Thursday at 9am in 2362-B Rayburn. The DOE budget, which ClimateIntel examined previously here, contains significant new funding for cleantech, renewable energy and climate science initiatives.

After the jump, other important hearings this week.

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A global financial crisis and the subsequent economic slowdown in Russia have dampened Russian companies’ investment and plans to invest in the biofuel business.  Unlike in the West, Russia is not pushing to get on the biofuels bandwagon.  Yet, despite the many existing constraints on the development of the country’s infant biofuel sector, opportunities to develop this sector do exist.  In this series of posts, we examine the factors constraining a Russian biofuels industry, and the possibilities for overcoming those obstacles and developing a nascent market. In this first post, we examine the production and policy constraints on the industry.

Supply & Demand

On the supply side, Russian agriculture, as well as the forestry and the chemical industry could provide necessary inputs and labor under favorable conditions (such as subsidies in the form of production and blending tax credits).  The potential of the country’s idle distilleries could also be utilized. Grain-based ethanol (which can be produced from non-food grade grain), cellulosic ethanol (using wood waste, straw, etc.), or biobutanol (often called “a second-generation fuel” produced from the same feedstocks as ethanol) can be mixed with conventional gasoline. 

A 10-percent biofuel additive would work for most new cars.  Russian experts’ proposals have ranged from a 5 percent to 10-percent blend of ethanol.  The issue of how much biofuel should be blended with conventional gasoline has caused a debate even in the United States. In 2008, about 9 billion gallons of bioethanol were blended into U.S. transportation fuels in compliance with EPA’s mandated volume/RFS requirement. The output of about 90 billion gallons of E10 is about 70% of all gasoline sold in the United States in 2008.

There is currently no commercial, large-scale production of bioethanol or biodiesel for transportation purposes in Russia.  One of the main obstacles is production cost.  Factors that influence production cost include the choice of input and technology, the location of production facilities, and climatic factors.  A second important obstacle is an existing excise tax on ethanol makes production of a bioethanol additive for domestic transportation purposes cost prohibitive.  Third, Russian energy companies, which own the oil refineries and gas stations, see biofuel as a prospective additive to gasoline sometime in the future, but they are not eager to invest now in biofuel R&D projects.  Oil companies cite a number of impediments to the development of the biofuel business, such as biofuel production costs, the amount of arable land required, and the Russian climate. 

On the demand side, private individuals and businesses may see the benefits to the environment (in terms of GHG emissions on a full fuel cycle basis), but they are unlikely to push for more expensive biofuel blended fuel. 

Domestic Concerns and Challenges

In addition to the many commercial and business issues that have not yet been addressed, there are policy and legislative reasons why the biofuel sector has not developed. 

First, it will be challenging to develop a subsidy policy that would encourage both the use of non-food grade grain and bio-waste for biofuel production (thus benefiting farmers and chemists) and the use of a biofuel additive by oil refineries and fuel blenders (thus creating positive incentives for these businesses).  Over time, large-scale projects will have to become less dependent on subsidies and justified on the basis of economic efficiency and technological advances.  R&D funding is particularly needed to develop more cost-effective technologies for producing advanced biofuels.  Such technologies and equipment, however, can be acquired abroad and applied domestically.  The Russian federal government classifies “technologies for production of fuel and power from organic raw material” as “critical.”  The government considers these technologies “important from the socio-economic standpoint or for the defense of the country and state security,” but funding to develop them is still lacking.  The use of government subsidies is also being debated.  As the state begins to bail out faltering private businesses, critics are complaining that the last thing Russia needs is another heavily subsidized sector—one where the government, rather than business, chooses where investment should go, and favors certain recipients with financial incentives. 

Second, it will be necessary to remove the currently prohibitive excise tax on bioethanol used as a gasoline additive. 

Third, the traditional inertia against producing something new will have to be overcome.  Regulation and production standards for fuel bioethanol and biodiesel will have to be put in place.  Russian consumers continue to complain about poor quality gasoline, and even the best quality bio additive will perform poorly if mixed with low quality fuel.

For further information about this topic, please contact Akin Gump.

Current Administration and congressional climate proposals depend heavily on geological sequestration to reduce CO2 emissions from coal-fired power plants and other major sources and tend to presume that sources in every state will have access to nearby underground storage capacity.  While some federal agencies and studies consider widespread localized sequestration to be viable, a nationwide rollout faces significant obstacles.  In areas where local sequestration is impractical, emissions sources will be forced to transport captured CO2, by pipeline, ship or other mode, to a viable sequestration site.  To date, however, federal climate proposals have given limited attention to developing the CO2 transport infrastructure. 

This series reviews three obstacles to a 50-state sequestration strategy and discusses the need for a national infrastructure to support medium to long-range transport of CO2.

Part 1: The Porosity Problem (below)
Part 2: Not Under My Back Yard
Part 3: 50-States, 50 Hurdles

Recognizing these obstacles and honestly confronting them is a critical step to making geological sequestration work.  And, without a successful geologic sequestration program, the United States’ ability to achieve emissions reduction targets is astronomically more difficult.

Part 1: The Porosity Problem

While there are many different factors that determine the suitability of a geological formation to store liquefied carbon, one important threshold consideration is porosity.  An effective sequestration site must contain deep layers of porous rock, capable of absorbing and retaining injected CO2 within its void spaces, much like a sponge that absorbs and holds water.  This porous rock must be covered by an upper layer of dense and highly impermeable cap rock that will prevent upward migration of CO2 toward drinking water aquifers or the surface.  

Citing private and public studies conducted to date, the Environmental Protection Agency (EPA) and the Department of Energy (DOE) have estimated that 95% of all coal-fired plants are within 50 miles of an “ideal” candidate sequestration site.  Other government analyses, however, suggest that not all regions and states are geologically equal when it comes to underground storage capacity.  Indeed, federal researchers have had mixed success in identifying viable sequestration sites with the proper geological characteristics based on theory and scientific testing alone. 

EPA and DOE are working to demonstrate the feasibility of geological sequestration at a wide range of host geological sites nationally, but to date, most successful CCS projects have been sited at current or former oil and gas fields.  For decades, the oil and gas industry has injected liquid CO2 underground to promote enhanced oil recovery.  If CCS storage potential is tied to oil and gas production potential, however, there are likely to be significant disparities in storage potential from one region to another.  DOE’s own website acknowledges that “there is a mismatch between largest [CO2 emission sources] and the largest oil and gas traps.”  A 50-state sequestration strategy will force the CCS industry to diversify its portfolio of storage sites.  Federal studies indicate that unmineable coal seams and deep saline formations offer promising storage potential, but the practicality of such formations remains untested in many parts of the country, despite considerable efforts at regional characterization.

For example, there are large numbers of CO2 emitting sources in the Appalachian Basin, making it an important test area for the viability of DOE’s localized sequestration strategy.  In a recent report on progress at a small-scale sequestration field test in the Appalachian Basin of Ohio, researchers found that “porosity, void space and permeability of the target formations were lower than expected.”  DOE’s difficulty in pinpointing a viable sequestration site location for a small regional pilot project illustrates the uncertainties that remain when it comes to siting at the local level.  

DOE is addressing this nationwide site characterization challenge aggressively, investing department resources and grant funding into projects to improve understanding of sequestration capacity in different geological settings.  Earlier this month, DOE announced its intent to offer an additional $50 million in grants to support site characterization work. 

Missing from both Congress and DOE is a serious Plan B in the event that localized geologic sequestration is not feasible in major portions of the country.  Federal policymakers will need a plan to transport captured CO2 from “pore-locked” emissions sources to areas where high-volume sequestration is practicable. 

The prevailing hope of widespread access to local sequestration capacity could become reality within the timeframes policymakers will need to support U.S. climate mitigation plans.  The U.S. experience with project siting on the basis of geology alone suggests strongly that this hope is a dim one.  Geologic sequestration is critical to U.S. climate policy and Congress and the Administration need to address the available alternatives should the local sequestration strategy prove untenable. 

For further information about this topic, please contact Akin Gump.

An international debate has recently intensified to determine the role, if any, that the transfer of intellectual property rights and technologies may play in current and future international climate change treaties.  Specifically, the transfer of intellectual property rights—patents, copyrights, etc.—directed to low-carbon technologies that can be utilized by countries to meet their greenhouse gas (GHG) reduction targets is an increasingly significant, and contentious, consideration for developed and developing countries. Delegates at the United Nations Framework Convention on Climate Change (UNFCCC) conference in Bonn earlier this year discussed the transfer of intellectual property rights, such as by compulsory licensing.  These issues are expected to be subject to intense negotiation this December at the UNFCCC meeting in Copenhagen. The UNFCCC has begun to formulate and express its long-term visions and goals for clean technology transfer mechanisms. The transfer of intellectual property rights and technologies to combat the effects of climate change necessarily implicates U.S. foreign policy, U.S. climate change policy, and U.S. intellectual property policy.  In recognition of the importance of the technology transfer issues, the U.S. Congress escalated this issue among its legislative priorities and intends to set forth its positions in advance of the Copenhagen meeting. 

On June 10, the House of Representatives passed H.R. 2410, the “Foreign Relations Authorization Act, Fiscal Years 2010 and 2011.”  Section 329 of this legislation is directed to the “Protection of Intellectual Property Rights.”  Its title alone alludes to the stance that the U.S. is expected to take in Copenhagen.  

While not limited exclusively by its language to climate change issues, Section 329 requires the Secretary of State to ensure that the protection in foreign countries of intellectual property rights owned by U.S. persons and U.S. companies is a “significant component” of U.S. foreign policy.  In countries that have been identified as denying adequate protection or market access for intellectual property rights, the Secretary also must ensure that the U.S. diplomatic presence will have sufficient resources:

1. to support enforcement actions in that country against violations of intellectual property rights owned by U.S. persons or companies; and
2. to cooperate with the host country to reform its laws, regulations, practices, and agencies to enable that country to fulfill its obligations with respect to the protection of intellectual property rights. 

The Secretary of State is further authorized to appoint ten intellectual property attachés to serve in U.S. embassies, prioritizing these appointments based on the greatest potential benefit to reduce counterfeit or pirated goods entering into the U.S. market, to protect the intellectual property rights of U.S. owners and their licensees, and to protect the interest of those in the U.S. who are otherwise harmed by intellectual property violations in those countries.  The intellectual property attachés will have other duties and responsibilities, as well, including engaging in public education efforts against counterfeiting and piracy. 

Rep. Rick Larsen (D-WA) sponsored an amendment to H.R. 2410 that was approved unanimously.  Referred to as the “Statement of Policy Regarding Climate Change,” the amendment asserts that “[t]o protect American jobs, spur economic growth and promote a ‘Green Economy,’ it shall be the policy of the United States that, with respect to the [UNFCCC], the President, the Secretary of State and the Permanent Representative of the United States to the United Nations should prevent any weakening of, and ensure robust compliance with and enforcement of, existing international legal requirements [] for the protection of intellectual property rights related to energy or environmental technology,” and lists a variety of technologies, including wind, solar, biomass, clean coal, energy efficiency-related technologies, and others.

Thus, the legislation passed by the House intends to protect the overseas intellectual property rights of U.S.-based owners.  With the UNFCCC investigating means for technology transfer that may be seriously discussed as early as December 2009, the U.S. has made it known that it will ensure that U.S. owners of relevant intellectual property rights will be protected, and, in all likelihood, compensated for any such transfer of rights or technologies. 

For further information about this topic, please contact Akin Gump.

With two weeks until the July 4 congressional recess, discussions about how to move Chairman Waxman’s cap-and-trade legislation are still ongoing.  The Senate Committee on Energy and Natural Resources is slated to finish its mark up of the American Clean Energy and Leadership Act.  A major piece of this bill is the delicately negotiated fifteen percent renewable electricity standard for utilities.  The goal is to implement this standard by 2021 with up to a quarter of the requirement available through efficiency improvements.  While the Senate legislation is getting far less attention than the broader climate change legislation passed out of the House Committee on Energy and Commerce last month, it will likely become the center of a bicameral energy bill that might, or might not, include the cap-and trade-provisions drafted in the House.  The markup will commence on Tuesday and might continue into Wednesday.

The Senate Finance Committee will also take a close look at the tax implications of a cap-and-trade system in a hearing Tuesday morning.  The chair of the Finance Committee, Sen. Max Baucus, is also a member of the Environment and Public Works Committee, so he has a stake in how the final cap-and-trade legislation is put together.  Witnesses include Gary Hufbauer, Peterson Institute for International Economics; Keith Butler, Duke Energy; Mark Price, financial products analyst, Washington National Tax.

For further information about this topic, please contact Akin Gump.