U.S. Energy Bill Provides Clean-Coal, Gasification Funding

Gasification tax incentives made their way into the final U.S. energy bill signed by President George W Bush.

Following four years of energy-bill deadlock over how to deal with water pollution caused by leaks of gasoline additive MTBE, the House and Senate negotiators finally decided to axe MTBE liability limits and give Bush a long-awaited but relatively modest energy bill.

Despite howling by some critics over the bill’s supposed “giveaway” to fossil fuel interest, renewables get the lion’s share of funds authorized by the new law.

Still, some money was set aside for clean-coal technologies and gasification.

Among the highlights:

* Up to $1.6 billion authorized for “clean coal” research, development and commercialization projects, including $350 million authorized for 20% investment tax credits for gasification projects. This includes integrated gasification combined cycle (IGCC) or “industrial” gasification projects that include “chemical or physical conversion.”

At least 70% of “clean-coal” research and commercialization program funds would be dedicated to gasification, the new law says.

Qualifying gasification projects include processes that covert coal, petroleum resid, biomass or “other materials which are recovered for their energy or feedstock value” into syngas, for “direct use or subsequent chemical or physical conversion.” The bill specifically includes gasification for “production of chemical feedstocks, liquid transportation fuels or co-production of electricity.”

Likewise, biomass gasification credits can include “agricultural or plant waste” as well as wood or paper mill byproducts including spent pulping liquor and “other products of forestry maintenance,” the bill says.

* Transportation fuel projects tapping unusual feedstocks such as dead trees could tap a “commercial use grant” for up to $20 per green ton of biomass delivered. While the grant language isn’t specific, it’s conceivable that Alaska proponents hoping hope to launch a dead-wood biomass to liquids (BTL) plant might tap this fund.

* Unspecified “sums as necessary” are authorized for “innovative technologies” loan guarantees, including coal-gasification plants, IGCC, refineries and “production facilities for fuel-efficient vehicles including hybrid and advanced diesel vehicles.” Coal- gasification loan guarantees would be limited to coal-producing western states (if above 4,000 feet elevation) and taconite- producing areas (targeting Minnesota).

Also qualifying for such loans are facilities that gasify coal or coal waste “to facilitate the production of ultra clean premium fuels through the Fischer-Tropsch process,” apparently including the Waste Management & Processors Inc. (WMPI) waste-coal-to-diesel CTL project in Pennsylvania.

Coal-liquefaction projects also would qualify for federal loan guarantees, if they tap “Western bituminous or sub-bituminous coal” on lands owned by states, tribes or private companies.

* Up to five petroleum coke (petcoke) gasification projects would qualify for new federal loan guarantees. Some refiners not only see petcoke gasification as a smart alternative to pricey natural- gasfired power and hydrogen supply, but also as a potential future pathway to gas-to-liquids (GTL) from the resulting syngas.

* Up to $85 million is authorized to build an Illinois coal “gasification products test center” to “evaluate and confirm liquid and gas products from syngas catalysis in order that the system has an output of at least 500 gallons of Fischer-Tropsch transportation fuel per day” Southern Illinois University Coal Research Center, University of Kentucky Center for Applied Energy Research (CAER) and the Energy Center at Purdue University would get new and modified facilities to support this coal-FT research.

By early next year, DOE would have to “select processes for evaluating the commercial and technical viability of different processes of producing Fischer-Tropsch transportation fuels and other transportation fuels from Illinois basin coal,” the new law says.

* Fuel makers tapping “nonconventional sources” including oil shale could tap a new $88 million tax credit. On a related front, the Dept. of Interior (DOI) will make new federal land-leases available for research & development (R&D) projects designed to accelerate the exploitation of the U.S.’s vast oil-shale reserves, mostly in western states.

Schemes to convert oil-shale to liquid fuels often have an exceptionally high yield of middle distillates (diesel fuel and jet fuel). DOI and DOE also will launch a U.S./Canada task force on ways to exploit oil shale and tar sands, including “similar partnerships with other nations that contain significant oil shale resources.”

DOE also must “carry out a national assessment of oil shale and tar sands resources” with a focus on the Green River region of Colorado, Utah and Wyoming.

* U.S. Dept. of Defense (DoD) must develop a new strategy to use fuels from coal, oil shale and tar sands. That means “non- conventional” middle distillates, since all DoD tactical fuels are kero-jet type fuels. Later, DoD could execute supply contracts with such fuel makers, the new law says.

Here’s a brief look at some of the tax incentives targeting renewables:

* $194 million authorized for extending the current $1/gallon federal tax credit for biodiesel (typically from soybean oil) until Dec. 31, 2008; the credit otherwise would expire by end-2006. “Renewable” biodiesel – created by thermal depolymerization (such as proposed for turkey processing plant waste-to-biodiesel) also now qualifies for the tax break. “Small” biodiesel producers could get an extra 10 cents/gallon credit for up to 15 million gallons/year until end-2008.

* $25 million authorized for testing programs to evaluate the impact of biodiesel (including ULSD-biodiesel blends) on emissions system warranties, in-use liability and anti-tampering; and long- term impact on engines.

* A 4.6 cents/gallon federal excise tax break for diesel-water fuel emulsions of at least 14% water. This means emulsions (which cut diesel NOx by about 15%) will pay 19.7 cents/gallon diesel tax instead of the usual 24.3c/gal. Impact on the Treasury is almost nil, due to small quantities of emulsion sales and because water doesn’t burn, unlike “taxable fuel,” anyway.

* $250 million authorized in pergallon subsidy payments (to be determined by DOE) or “reverseauction” federal funding for the first 1 billion gallons of biofuels produced from cellulose (rather than the typical corn-ethanol or soybeanbiodiesel), by 2015. The per- gallon subsidy would gradually decline, and no single producer could get more than $100 million in any year or no more than $ 1 billion “over the lifetime of the program.”

* Up to $100 million for any new “biorefinery” demonstration project using non-food lignocellulose feedstock. Such feedstock could come from “crops, trees, forest residues and agricultural residues not specifically grown for food.” The program aims to make such fuels “price-competitive with gasoline or diesel.”

* Up to $750 million authorized in grants for cellulosic ethanol or “renewable fuels” plants built between 2006-2008.

* Up to $550 million authorized for “advanced biofuels technologies” demonstration projects include “not less than five technologies for co-producing value-added bioproducts (such as fertilizers, herbicides and pesticides) resulting from the production of biodiesel fuel.”

Jack Peckham, Executive Editor, Diesel Fuel News

Jack Peckham can be reached at jpeckham@hartenergy.com

Copyright Hart Energy Publishing, LP Jul 2005