To view Part I of “Update on Developments in Russia’s Renewable Energy Sector,” please click here.  

Investment in Renewable Energy

After the 2008 announcements and proposals calling for increased investment in production of solar products in Russia (see earlier ClimateIntel postings), some steps were taken by the government and by industry.  For example, Nano Solar Technology (NST), created in June 2009, undertook a solar module project in the Republic of Chuvashia.  This 49/51 joint venture is owned respectively by Russian state corporation Rusnano and the Renova Group of Companies.  Oerlikon Solar has been chosen to provide a 120 MW end-to-end line for the production of thin film modules.   The equipment is scheduled to be delivered to a new production facility located on the territory of the chemical plant “Khimprom” (city of Novocheboksarsk) in 2010, with production scheduled to start in 2011.  This project will significantly increase the production capacity of the Russian PV market.  Ryazan Metal Ceramics Instrumentation Plant in Ryazan Oblast is already using a 12 MW module manufacturing line supplied by Spire Corporation. Bogoroditsk Plant of Techno-Chemical Products in Tula Oblast also received a solar module manufacturing line from Spire Corporation last year (see previous ClimateIntel postings).  Both Russian plants are daughter companies of the holding company OJSC Russian Electronics, which is controlled by state corporation Rostekh.

Some investments have also been undertaken in the nascent biofuel sector.  OJSC RT-Biotekhprom, a wholly-owned holding company of state corporation Rostekh, announced plans to produce biofuel pellets and butanol in Arkhangelsk Oblast.  The wood pellet facility will have an annual capacity of 150,000 tons and is expected to be completed in Fall 2010.  The head of RT-Biotekhprom also heads an affiliated company — OJSC Biotechnologies Corporation — which is developing plans to produce two million tons of biofuel additives for motor fuels (gasoline and diesel) in the future.

The Ministry of Regional Development in September 2009 discussed a major project to promote energy efficiency in Arkhangelsk Oblast.  This project seeks to convert boilers from coal and diesel to biomass (from readily available wood waste in the region) and to set up production of biofuel pellets.   

As concerns hydropower, the development of small hydro power plants in the country appears to have slowed.  The fund “New Energy” created in early 2007 to implement RusHydro’s 2006 program for building small hydro power (SHP) plants with new capacity of up to 300MW by 2010, has been unable to handle the task, according to a source familiar with the situation.  In 2008, the fund’s portfolio included 383 prospective SHP projects with total capacity of 2.1 GW.

Prospective wind power projects are also in the news.  In 2009, the Russian daughter company of Canada’s Greta Energy Inc announced plans for a 72 MW wind project in the Yeisk district of Krasnodar Krai and began negotiations with manufacturers of wind turbines and related equipment.  The company plans to put three wind power facilities into commercial operations in early 2012.  According to a media report, Greta Energy “plans to invest up to €250 million in its first wind farm” near Russia’s Black Sea coast.  The Russian daughter company of The Netherland’s Windlife Energy is the leading developer of a 200 MW wind farm project (with 100 wind turbines) in Murmansk Oblast. This project is expected to be fully completed by the end of 2013.  Various wind power projects, as well as challenges facing the industry, were discussed during the first national conference held by the Russian Wind Industry Association in mid-November 2009. 

It may not take long before Russian hydrocarbon companies also begin to invest in domestic wind power projects.  For example, LUKOIL, citing the Yeisk project, has publicly expressed interest in a pilot project proposed near the city of Lagan on the Caspian Sea. 

However, it is less certain that the country’s wind-power capacity will reach the goal presented by RusHydro in 2008 to increase wind power capacity tenfold (from an estimated 12 MW in 2005 to a target capacity of 120 MW in 2010).  The federal government’s January 2009 decree did not include specific percentages for each type of RE input (i.e., small hydro, wind, solar) to be used in electricity generation.  Specific targets were in a draft decree, but these were later removed, according to a person familiar with the situation. 

The future development of the renewable energy sector depends on the Ministry of Energy speeding up work on developing and adopting additional RES regulations responsive to the market.  Currently, the number of finalized projects is small and the amount of government support for renewable energy is quite limited - especially when measured against the huge amounts allocated for gas and oil development projects.  It will take not only the passage of new laws and favorable regulations, but also a long-term political and financial commitment to further develop the renewable energy sector before one can speak of “breakthroughs” in this area.

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

Additional legislation and executive branch implementing regulations will be required to boost substantial private investment in domestic renewable energy (RE) projects inasmuch as  private investment in this area will follow - not precede - the federal government’s investment in major projects.  Private Russian companies will nevertheless continue to undertake feasibility studies as they await federal legislation, as well as the development of specific regulations as required by certain provisions of the 2007 federal law “On Electric Power.”

Electricity Generation

In April 2008, the Chairman of the State Duma Energy Committee spoke of the need for the federal government to develop and introduce regulations based on the 2007 law “On Electric Power” concerning RE pricing and economic incentives, and to articulate “clear economic rules” for attracting investors.  Subsequently, the federal government issued an important decree on June 3, 2008 (№426) for determining the qualification of generators that use renewable energy sources (RES).  On November 17, 2008, the Ministry of Energy issued a regulation (№187) for the issuance, transfer and redemption of renewable energy certificates (RECs).  This regulation, which came into force on February 27, 2009, is likely to be reworked in 2010.  The executive directive issued on January 8, 2009 outlined the federal policy on the use of renewable energy for electricity generation and tasked the Ministry of Energy with developing regulations and other follow-up actions (see previous ClimateIntel posting). 

According to Anatoly Kopylov, Vice President of the Russian Wind Industry Association (RAWI) and a leading expert on renewable energy policy issues, a series of regulations still need to be developed and adopted detailing RES provisions and the requirements of the 2007 law.   Some concern mark-ups for electricity generated from RES, as well as the volume of electricity to be purchased on the wholesale market.  Other regulations concern “rules, criteria and procedures for providing federal budget subsidies to compensate costs associated with connecting RES generators of up to 25MW” to the grid.

The draft bill “On Heat Supply” (#177427-5), introduced in the State Duma in March 2009, was passed in a first reading on November 11, 2009.  Although “renewable energy sources” (RES) are not specifically mentioned in the text of the proposed legislation, the Ministry of Energy’s website comments that the draft bill envisions “measures for development of RES in the area of heat supply.”  Amendments and comments are to be submitted to the State Duma Energy Committee by February 10, 2010.

It is interesting to note that Russia’s efforts to create a legislative framework and regulations for renewable energy have been paralleled by Kazakhstan.  Legislation adopted earlier by Kazakhstan “On Support for the Use of Renewable Energy  Sources” was signed into law in July 2009.  Work on relevant regulations in Kazakhstan is currently under way.

Alternative Fuels

The draft bill “On the Use of Alternative Motor Fuels” (#130858-4), initially introduced in the State Duma in January 2005, has been revised for a third time by the authors and reviewed by the State Duma Energy Committee, which is overseeing this initiative.  On October 9, 2009, the Energy Committee sent the draft bill to the State Duma Council.  According to the draft ruling posted on the Duma website, the State Duma Council recommended that the draft bill be resent to the State Duma Legal Department, the Presidential Administration, the Cabinet, and various committees of the Russian parliament for comments and suggestions.  One criticism already received by the Energy Committee notes that the draft bill does not address the issue of “mandatory certification of alternative motor fuels” as they relate to current emission requirements.  The text of the draft ruling of the State Duma Council suggested that the Energy Committee receive feedback until November 13, 2009 and that the Committee should then prepare the draft bill for a first reading during the spring (January-July 2010) Duma session.

Although more than two years have passed since a legislative initiative on biofuels was announced, the fate of the draft bill, “On the Bases for the Development of Bioenergy in the Russian Federation,” is not clear.  Presented as a joint effort of both the Ministry of Agriculture and the Federation Council Committee on Economic Policy, the text of the 2007 draft bill has still not been posted on the State Duma website.  The head of the Bioenergy Development Center at the state-owned Russian Research Institute for Mechanization in Agriculture recently announced that the Agriculture Ministry had contracted the Institute to work on the draft.  Thus, it is not clear who is ultimately responsible for the introduction of this draft bill in the Duma.  In an interview with the “Regions of Russia” journal (Issue #9, September 2009), the head of the Center noted that the steps required for “mass production of equipment for bioenergy projects in Russia” have still not been taken and that the country’s “mechanical engineering is not ready to participate in the development of the new industry.”

There is no internal momentum for developing biofuel technologies in Russia and the country must rely on foreign technology in this area (as in many other areas) for launching domestic projects - despite the fact that in late 2007 then-President Vladimir Putin stressed the need to create conditions for private companies to produce biofuel in Russia (see previous ClimateIntel posting).  One of the drags on progress in this area is opposition - possibly from the Ministry of Finance - to lowering the excise tax on biofuel for domestic use.

As in the electricity generation area, Kazakhstan is developing a draft law “On State Regulation of Production and Turnover [Sales] of Biofuel,” which was approved by the lower house of the Kazakh parliament in a first reading in May 2009 (see previous ClimateIntel posting).  A related draft law outlining serious penalties for violations of the law was also approved.

The Russian executive branch continues to voice support for the development of the nascent renewable energy sector.  As concerns biofuel development in Russia, President Dmitry Medvedev said at a September 2009 meeting of the Commission for Modernization and Technological Development of Russia’s Economy that Russia has “made some advances here but [we] have few results to show for it so far,” adding that “this is something that requires very detailed preparation, but it is nevertheless important for our country.”  It is not clear whether the President’s objective assessment of the situation will lead to accelerated work at lower levels in federal ministries and agencies, given the severity of the economic downturn and the many other areas in which the Russian economy is lagging or underperforming.

To view Part II of “Update on Developments in Russia’s Renewable Energy Sector,” please click here.

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

In their article “The U.S.-China Clean Tech Opportunity,” co-authors Mario Mancuso and Asma Chandani of Akin Gump describe the opportunity for the United States and China to collaborate on clean energy technologies and assess some of the current challenges to a transparent and level-playing field in clean tech trade and investment between the two countries.  In particular, the authors examine the implications of (i) export controls, (ii) enforcement of intellectual property rights and (iii) regulatory barriers and protectionism.  The authors propose concrete steps that the United States and Chinese governments can take to create the framework and conditions for an open, functioning and competitive clean technology market.  Such an approach would lay the foundation for a clean tech future that the world wants and needs and introduce the next constructive chapter in one of the most important bilateral relationships in the world.

The Hon. Mario Mancuso is a partner at Akin Gump Strauss Hauer & Feld, LLP, an international law firm that opened its Beijing office in 2007.  He previously served as a senior U.S. Defense Department official (2005-07) and as U.S. Under Secretary of Commerce (Industry and Security), U.S. Chair of the U.S.-China High Technology and Strategic Trade Working Group, and member of the Committee on Foreign Investment in the United States (2007-09).

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

Algae-based biofuels have been receiving increasing attention from researchers, investors and Congress.  Not previously thought of as a major player within the biofuel community, support from Congress coupled with strong private investment could make algae a very competitive biofuel feedstock.

The renewable fuel mandate established in 2007 requires that twenty-one of the thirty-six billion gallons of annual (BGY) ethanol production by 2022 come from advanced biofuels. Seventeen of the twenty-one BGY must come from cellulosic biofuels or biodiesel.  The legislation, however, contains no specific provision for algae.  A bill recently introduced in the House (H.R. 3640) would change the state of play, adding a specific provision for algae and, perhaps more importantly, extending to algae-based biofuel producers the tax credit given to cellulosic biofuel producers.  Those within the industry hope that this type of congressional support will create parity between the algae-based biofuel industry and others within the Renewable Fuel Standard.

Presaging the increased congressional attention, the algae-based biofuel industry has recently seen some major investments in research.  Some of the more widely publicized investments include:

• ExxonMobil announced plans to invest at least $600 million in a joint venture with Synthetic Genomics, Inc. (SGI). If all goes well, ExxonMobil’s investment could increase into the billions.
• Dow Chemical Co. announced plans to build a $50 million pilot plant in Freeport, Texas, as part of a joint venture that will test the technology developed by Algenol Biofuels. The technology grows algae in plastic tubes containing saltwater, which are then filled with CO₂. The project envisions hundreds of acres of algae farms containing these tubes, using CO₂ that comes from nearby oil refineries and chemical plants to produce ethanol.
• The Woods Hole Oceanographic Institution, the Massachusetts National Guard and Plankton Power are teaming up with the eventual goal to produce five percent of Massachusetts’s diesel and home heating oil, which would require producing 100 million gallons of biodiesel per year. In the meantime, the group plans to build a $20M pilot plant, $16M of which is from DOE funding, which would lead to 1 million gallons of biodiesel per year.

There are many promising aspects of algae-based biofuels that may explain why the industry is gaining so much traction.  The fact that algae can be grown on non-arable land, requiring only sunlight, water and carbon dioxide to grow and produce oil means that its production does not interfere with food supply.  Also, the fuel produced from algae can be chemically identical to that made by petroleum, which would enable a seamless integration into commercial use.  Some advocates also tout algae’s carbon capturing ability, though others doubt its ability to handle large amounts of emissions from neighboring refineries and power plants.

Despite the recent attention and investment algae has been receiving as of late, many question whether the commitment behind developing this technology.  The concern within the industry is that the commitments are for research only and that the investments may not continue after the results come out.  These skeptics cite to BP’s recent abandonment of its joint venture with UK-based D1 Oils to develop jatropha as a biofuel feedstock as an example. 

Though algae-based biofuels are still at least a couple years from being commercially competitive with crude oil at $60 to $80 a barrel, the intrigue in their potential appear legitimate.  If the industry is successful in obtaining more government support, private investment will likely follow.

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

A key political compromise addressing the concerns of farm-state Democrats facilitated passage in the House of Representative passage of the American Clean Energy and Security Act, H.R. 2454 (ACES).  The so-called Peterson Amendment would make substantial revisions impacting the Environmental Protection Agency’s (EPA’s) Renewable Fuels Standard (RFS) program. The Energy Policy Act of 2005 established the RFS and the Energy Independence and Security Act of 2007 (EISA) expanded the program.  EISA established new renewable fuel categories and eligibility requirements, including mandatory greenhouse gas reduction thresholds for the various categories of renewable fuels.  EPA issued a notice of proposed rulemaking in May 2009 to implement the legislative changes required by EISA (RFS-2), and is currently soliciting comments on such issues as specifying the volumes of cellulosic biofuel, biomass-based diesel, advanced biofuel and total renewable fuel that must be used in transportation fuel each year.

If enacted into law, ACES would impact the RFS-2 proceeding in two major ways, (1) delaying and potentially eliminating the calculation of emissions related to indirect land use changes resulting from renewable fuels and occurring outside the feedstock’s country of origin (generally, these emissions are considered indirect international land use changes); and (2) exempting certain biomass-based biodiesel plants from compliance with the RFS-2 lifecycle greenhouse gas (GHG) requirement. 

EISA directed the EPA to calculate, for renewable fuel pathway, GHG emissions over the full lifecycle of the renewable fuel, including indirect international land use changes.  Examples of these lifecycle emissions include, for example, the clearing of international forest land to grow crops for food to compensate for the conversion of US-acreage toward the production of renewable fuels.  EPA would then compare the renewable fuel GHG emissions to the lifecycle emissions of 2005 petroleum baseline fuels displaced by the renewable fuel, such as gasoline or diesel. The lifecycle GHG emissions performance reduction thresholds established by EISA range from 20 to 60 percent reduction, compared to the baseline fuel, which varies upon the renewable fuel category.  GHG emissions from international indirect land use changes is a hotly contested issue between the renewable fuels industry and environmentalists and, as even EPA notes in its Notice of Proposed Rulemaking, there is considerable uncertainty in the estimation of emissions resulting from land use changes.

ACES would temporarily prohibit consideration of indirect international land use emissions, defined as land use changes outside of the feedstock’s country of origin. The legislation would establish a period of up to six years to study whether there are valid economic and environmental models to calculate indirect land use changes that are related to production outside of the country of origin in which feedstocks are grown.   The provision directs National Academies of Science to review and report on the issue within three years of enactment.  Based on this report, EPA and USDA would have a three-year period to promulgate a final determination of how to calculate indirect land use changes attributable to the production of renewable fuels.  If EPA and USDA were to conclude that indirect land use changes should not be considered, they would be required to include a statement of the basis for that determination.

EISA exempted a category of “renewable fuels,” largely defined as corn ethanol, from lifecycle GHG emission performance standards if facilities manufacturing the fuel commenced construction before December 17, 2007, the date of EISA’s enactment.  The length and scope of the exemption is among various issues under examination by EPA in the proposed RFS-2 rulemaking. ACES would provide a further exemption from the lifecycle GHG emission performance standards of up to 1 billion gallons of renewable fuel from biomass-based diesel plants that commenced construction before the date of enactment of EISA from the lifecycle greenhouse gas performance standards at issue in RFS-2.

The Senate Energy Bill, S. 1462, the American Clean Energy Leadership Act of 2009, reported to the floor by the Committee on Energy and Natural Resources did not include similar revisions to the RFS.  It appears likely, however, that revisions to the RFS will be a part of comprehensive energy and climate legislation.  In a recent op-ed, Senator Bingaman addressed support for revision of the RFS, as the Senate refines its energy bill, highlighting the definition of renewable biomass, the study of international land use change and the re-evaluation of technology- and feedstock-specific mandates within the program as areas for improvement.  A separate House Proposal, HR 3460, would expand the RFS to specifically include algae-based biofuels.  The Committee on Environment and Public Works Chair, Senator Boxer, has not indicated support of ACES’ revisions to the program, but recently noted that all options are on the table with respect to RFS revisions as her Committee takes up climate legislation.

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

While United States and Chinese diplomats are working to forge cooperation between the countries on climate issues, the Chinese government’s huge clean tech investments may help that country pass the U.S. as the worldwide clean technology leader.  Could this “competitiveness crisis,” as one group terms it, have implications for the U.S. economy and the clean tech industry?  The results of this global race for dominance in the cleantech sector could significantly impact not only the national economy, but also the condition of the global environment.

Chinese Energy Investments

The Chinese are investing approximately 3% of their GDP on cleantech and renewable energy, as compared to less than half a percent of GDP in the U.S.  During early summer, the Chinese government floated plans to spend at least $440 billion in another stimulus package-all of that money going toward new cleantech investment.

The Chinese government also set a number of demanding goals for renewable energy and clean tech production and installation, including-

• Increasing renewable energy production from wind to 150GW by 2020, from an earlier goal of 100GW, and solar production from 1.8GW to 20GW by the same year
• Increasing production of plug-in hybrid electric vehicles to 500,000 by the end of 2011, up from 2,100 in 2008
• A raft of transportation spending initiatives and policy reforms, including $1 trillion for increased railway infrastructure, tax programs to incentivize the purchase of fuel-efficient cars and increased fuel economy standards
• Strict energy-efficiency standards in building codes, home appliances and amongst China’s top 1000 energy consuming businesses.

China is also moving full speed ahead in the race to dominate nanotechnology research, a likely source for many of the cleantech industry’s future breakthroughs.  These investments, combined with what some see as a willingness to use border measures and anti-competitive bidding practices to discourage foreign participation in the Chinese cleantech market, position Chinese manufacturers to be a dominant player in the global cleantech market.  Indeed, China’s rise in the cleantech space has prompted some U.S. analysts to question the wisdom of investing in domestic cleantech manufacturing capacity, versus simply ceding manufacturing to China and focusing on domestic installation of less expensive Chinese equipment. 

When Cleantech Doesn’t Mean Cleanup

While China has made significant strides in cleantech investment and implementation, it has continued to resist international calls for binding emissions caps or reductions.  Instead, citing its prerogative as a developing nation, China has focused its pledges on reducing energy intensity-a measure of carbon emissions in relation to GDP.  This poses several challenges for international efforts to stabilize carbon levels.  First, with China becoming the world’s largest net emitter of CO₂, internationals effort to freeze global emissions will be an exercise in futility without China (and other large developing countries) making binding commitments.  Second, even under China’s current emissions-rate based goals, China has yet to meet any of the benchmarks necessary to achieve its efficiency goals of reducing emissions 20% by 2010.

China’s aggressive investment in the cleantech sector, combined with its continued refusal to reduce its net emissions, illustrates a major flaw in the assumption that investment in clean energy infrastructure and manufacturing capacity will automatically lead to both a cleaner environment and more robust national economies.  If, as some critics argue, China has opted for the robust economy while leaving the cleaner environment to others, China could reap disproportionate economic benefits from global cleantech investment, while shifting a disproportionate economic and environmental burden to other counties.  This, in turn, could undermine other countries’ efforts to fund today’s environmental cleanup efforts through long-term economic growth in their domestic cleantech industries. 

American cleantech companies are poised between a radical expansion of their potential markets into China and other cleantech-hungry developing countries and the specter of foreign companies, energized by concerted investment in their home nations, outcompeting them both overseas and at home.  This high-stakes race for cleantech hegemony will be hard fought, with China and the U.S. just two of the countries competing.  The race to be a global leader in actual emissions reductions, however, remains any country’s to win.

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

As the Senate continues its work on a comprehensive climate and energy bill, it is drawing ideas from a broad range of sources, from the American Clean Energy and Security Act (H.R. 2454) which passed the House in late June and the various alternatives to that Bill, introduced during the 110^th  and 111^th Congress, to the work done by Senator Jeff Bingaman’s Energy and Natural Resources Committee.  To the extent that the bill will address smart grid and cleantech policy, one source which should not be overlooked is the Storage Technology of Renewable and Green Energy Act of 2009, (S.1091).That 9-page bill, introduced by Senator Ron Wyden (D-OR) on May 20, 2009, would extend the IRS energy investment credit and clean renewable energy bond programs to include investments in grid-level and residential energy storage equipment.  In doing so, the bill would fill a gap in current federal energy tax policy, which provides tax incentives for investments in a wide range of renewable (e.g., solar, wind, thermal, etc.) and low-carbon energy generation (example, carbon capture and sequestration) technologies, but not the grid level-storage necessary for these technologies to meet their full potential.

S.1091 helps to bring current tax policy in line with Congressional and Administrative energy policy, which has recognized the importance of grid-level energy storage technology to any long-term effort to reduce the carbon intensity of the domestic electric industry.  In, 2005, Congress included energy storage in its list of critical research areas for electric transmission and distribution programs under Energy Policy Act of 2005.  In 2007 the Energy Independence and Security Act provided dedicated funding for research into thermal energy storage and directed DOE to “carry out a research, development, and demonstration program to support the ability of the United States to remain globally competitive in energy storage systems.”

Most recently, Congress highlighted energy storage in the stimulus package (the American Reinvestment and Recovery Act of 2009 (ARRA)), providing the Department of Energy with funding to promote research into energy storage systems, funding demonstration projects for smart-grid energy storage technologies, and establishing a Qualified Advanced Energy Project Tax Credit for businesses that invest in manufacturing facilities to build grid-level storage equipment.  The Department of Treasury has also interpreted section 1603 of ARRA, which authorizes Treasury to issue grants in lieu of the investment tax credit for renewable energy investments, to include energy storage systems integral to the project’s operation.

These programs are important, but, with the exception of the grants-in-lieu-of tax credit guidance, they tend to focus incentives on a limited number of marquis smart-grid storage projects - important work, but not enough to move energy storage technology from the demonstration level to wider penetration in homes and on the grid.  The Wyden bill takes the next step, putting energy storage investment on an equal footing with other cleantech projects, promoting widespread commercial and residential (and in the case of renewable energy bonds provisions, public) adoption of energy storage technologies.  These investments will advance the penetration of renewable generation and storage technologies without picking winners in the storage marketplace. Increased residential and grid-level storage, in turn, provides multiple benefits to the national power system by:

• Increasing the capacity for renewable generation assets on the grid;
• Increase the reliability and stability of the electric grid;
• Reducing reliance on old, inefficient, and dirty peak-generation facilities; and
• Encouraging residential storage investment that builds distributed storage capacity.

Congress, DOE, and even the Treasury Department have acknowledged that developing the nation’s energy storage capacity is a core requirement for maximizing the nation’s clean, renewable energy capacity.  The Storage Technology of Renewable and Green Energy Act of 2009 provides Congress with a simple vehicle for incentivizing the private deployment of this much needed storage capacity.

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

On August 7, 2009, the United States International Trade Commission (ITC) handed down a ruling in a dispute that could have broad repercussions for international trade in clean technology.  The case involves patent infringement allegations by General Electric (GE), the source of about 50% of the new wind capacity in the U.S. and the country’s largest domestic supplier of turbines.  The Commission’s decision may serve as an example of how the United States will continue to protect  intellectual property rights in both domestic and international climate change negotiations, as well as clear further paths for U.S. business to capitalize on the rapidly growing domestic wind energy industry—now the largest in the world.

The case involved Administrative Law Judge Carl Charneski’s determination that certain GE patents were infringed by wind turbines manufactured by Mitsubishi Heavy Industries, Ltd. and Mitsubishi Power Systems Inc.  In the ITC’s investigation, filed in February of 2008 and titled “In the Matter of Certain Variable Speed Wind Turbines and Components Thereof,” GE claimed that Mitsubishi wind turbines infringed patents directed to variable speed wind turbine technology, which allows the speed of a wind turbine’s rotor to vary with wind speeds while continuing to supply a constant current of electricity to a utility grid.

GE uses the technology covered by the patents in question in its 1.5 MW wind turbines, which are intended to provide emissions-free technology at costs lower than other renewable resources-partially closing the competitiveness gap with coal- and natural gas-fueled facilities.  GE  claimed its patents were infringed by Mitsubishi’s 2.4 MW wind turbines, as well as components of such wind turbines.  According to GE’s complaint, Mitsubishi sold its accused 2.4 MW turbines in the U.S. and had received additional “massive” orders for its wind turbines from major U.S. power generation developers.

Patents, Border Measures and the ITC

Section 337 of the Tariff Act of 1930, 19 U.S.C. §1337, makes unlawful any unfair methods of competition and unfair acts, such as patent infringement, in the importation of articles that could destroy or substantially injure an industry in the United States, or prevent the establishment of such an industry, or restrain or monopolize trade and commerce in the United States.  The ITC is an independent administrative agency in which all Section 337 proceedings are initiated and finally decided.  The remedy for a finding by the ITC that a violation of Section 337 has occurred is a general exclusion order, thereby, excluding the infringing articles from entering the United States.  Money damages for such infringement is not an available remedy at the ITC.

Not surprisingly, the ITC is an increasingly popular forum for litigating patent infringement disputes due to the relatively fast disposition of the case, the familiarity of the ITC’s Administrative Law Judges with intellectual property disputes and the formidable remedy of an exclusion order to prevent infringing goods from entering the U.S.

Next Steps

The Initial Decision by Administrative Law Judge Charneski is not a final ruling by the ITC; Mitsubishi will have the opportunity to present post-hearing arguments, as well as appeal the decision to the full ITC Commission.  Finally, the President has the ability to review the decision and could overturn any exclusion of Mitsubishi turbines “for policy reasons.”  One potential policy determination could be the current shortages of key products needed for projects authorized under this spring’s stimulus bill.  That bill contained “Buy American” provisions, which have in some places forced the shelving of projects-including an issue with a GE-produced water filter.  The significant amounts of stimulus money allocated towards energy projects could provide the President with an incentive to remove additional obstacles to such projects, including the ITC decision blocking turbine imports.

Should the decision be upheld, however, it would be a severe blow to Mitsubishi, which was trying to break into the potentially very lucrative American wind energy market.  The U.S., which overtook Germany as the world’s largest wind energy producer, is also laying the ground for even more significant wind energy expansion-billions of dollars set aside in the stimulus will go to improving the transmission grid supporting renewable energy, as well as significant funds in the Department of Energy budget to increase wind energy’s market penetration.

The Commission’s decision may serve as an example of how the United States may seek to protect  intellectual property rights in both domestic and international climate change negotiations, as well as clear further paths for U.S. business to capitalize on the rapidly growing domestic wind energy industry–now the largest in the world.

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

Earlier today Tom Vilsack, Secretary of Agriculture; Steven Chu, Secretary of Energy; and Lisa Jackson, Administrator of the Environmental Protection Agency (EPA) held a conference call to discuss the Obama Administration’s commitment to biofuels. Highlights of the call were EPA’s issuance of the Renewable Fuel Standard Program (RFS2) Notice of Proposed Rulemaking and the Department of Energy’s (DOE) announcement of $786.5 million in Recovery Act funds to accelerate biofuels research and commercialization.

Secretary Chu indicated that of the $786.5 million in Recovery Act funds, $480 million will go to soliciting integrated pilot- and demonstration-scale biorefineries; $176.5 million to commercial-scale biorefinery projects; $110 million to fundamental research in key program areas; and $20 million to ethanol research. Secretary Chu addressed questions about ethanol’s impact on food prices in the U.S., stating that our agricultural resources can provide food, both domestically and internationally, and much-needed energy.

Administrator Jackson focused on EPA’s commitment to the Energy Independence and Security Act (EISA) and stated that the proposed rulemaking implements EISA and grandfathers in 15 billion gallons of ethanol. She expressed the need for home-grown energy - specifically mentioning corn-based ethanol and cellulosic ethanol - to lower our dependence on foreign oil and our vulnerability to price spikes; reduce GHG emissions; create green jobs, especially in rural America; and meet the RFS of 36 billion gallons of ethanol by 2022. Administrator Jackson renewed her commitment to utilizing the best available science and indicated there would be a 60-day comment period on the proposal.

On the issue of indirect land use, which ClimateIntel previously examined, Administrator Jackson stated EPA is gathering peer reviews on satellite data, land conversion and other factors affecting GHG emissions. She added that EPA’s data shows that corn-based has 16% lower emissions than fossil fuel. She also stressed the need for development of new product technology for non-grandfathered, corn-based ethanol plants and new pathways for biodiesel to meet the 50% reduction required to comply with the EISA.

Secretary Vilsack discussed that USDA will work to create new biorefinery resources and convert existing refineries to biofuels. He indicated that the three agencies have drafted a memorandum that reflects Obama’s commitment to rural US, creates clean jobs and new opportunities, and creates additional income for farmers.

Today’s inter-agency commitment, backed by President Obama, to both corn-based and advanced biofuels is yet another boost to the ailing biofuels industry. In recent weeks, ClimateIntel reported on the Congressional Budgets Office’s report entitled “The Impact of Ethanol Use on Food Prices and Greenhouse-Gas Emissions,” and the E 15 waiver request. So far, at least, it appears that federal policy remains fully supportive of ethanol-based biofuels and reconciliation with the direction of the California-led effort to move away from such fuels remains for another day.

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

In the past week, the ethanol industry received two pieces of positive news.  First, the Congressional Budget Office (CBO) issued a report, entitled “The Impact of Ethanol Use on Food Prices and Greenhouse-Gas Emissions,” finding that high energy prices had a much more profound effect on the price of food than increased ethanol production in the period April 2007 through April 2008.  Second, EPA published a notice and solicited comments on a waiver application to increase the amount of ethanol that can be blended into a gallon of gasoline to up to 15 volume percent (E15).

CBO Report

The CBO report concluded that, for the period studied, ethanol production accounted for only 10 to 15 percent of the estimated 5.1 percent increase of food prices.  By comparison, the increase in the consumer price index (CPI) for all urban consumers for energy accounted for 22 percent of the 5.1 percent increase in the price of food.

In analyzing ethanol production’s contribution to the increase in the price of food the CBO assessed how increased ethanol production contributed to increases in the price of corn, animal products and soybeans, and how higher prices for these commodities contributed to the prices of foods that are measured in the CPI-U.  Other contributing factors noted by the CBO include a growing demand for meat that increased the demand for animal feed, dollar exchange rate fluctuations that increased demand for U.S. corn exports and concerns about weather for spring planting that caused corn prices to rise during the spring of 2008.

E15 Waiver Request         

The Clean Air Act authorizes EPA to regulate fuels and fuel additives to reduce the risk to public health from exposure to their emissions.  EPA’s regulations require that each manufacturer or importer of gasoline, diesel fuel or a fuel additive, register its product with EPA before “introducing the product into commerce.”  See generally, 40 CFR Part 79.  Since 1978, EPA has established a limit of ten volume percent ethanol (E10) for conventional (non flex-fuel) vehicles.  Growth Energy and fifty-four ethanol manufacturers submitted their E15 application on March 6, 2009.  After EPA’s Notice has been published in the Federal Register, stakeholders have 30 days to submit comments on the waiver application.  The Clean Air Act requires EPA to rule on the waiver application within 270 days of receipt, December 1, 2009.

There will almost certainly be comments submitted to EPA in opposition to the waiver request.  The National Petrochemical and Refiners Association, the American Lung Association, the Sierra Club, the Engine Manufacturers Association and other groups wrote former EPA Administrator Stephen Johnson on December 18, 2008, to oppose any increase in the 10% limit on ethanol in gasoline.  Among the concerns expressed, with respect to a higher blend, were potential machinery impacts, health and safety issues, emissions and compliance with the Clean Air Act.

EPA’s ruling on the waiver request could give an important signal on the direction the Obama Administration will take with respect to the ethanol industry.

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