Biofuel Industry Seeks Biorefinery Investment Credit

Sirs:

The Energy Independence and Security Act of 2007 mandates the use of 21 billion gallons of advanced and cellulosic biofuels by 2022. Although the law requires the use of these fuels beginning in 2010, no commercial cellulosic biorefineries are anticipated to be commissioned before 2011 at the earliest. The principal cause of this delay in commercialization is lack of funding caused by the severe downturn in the U.S. economy. Just as Congress responded to the impact of this downturn on the renewable electricity industry by allowing a 30% investment tax credit in new facilities that can be monetized through a federal Treasury grant program, we believe additional tax incentives are needed for advanced biofuel refineries

The advanced biofuel industry has been diligently working on the many challenges it must overcome before it is capable of producing substantial commercial scale volumes of transportation fuels. These include the need to develop sustainable supplies of feedstocks, proving pre-commercial production technology and developing a delivery system for the large scale distribution and utilization of renewable fuels. In the near term, however, the seemingly intractable hurdle confronting the advanced biofuel industry is access to capital to support the timely development of commercial scale projects.

Advanced biofuels producers are eligible under current law for a federal production tax credit, but with no commercial production, that incentive remains unused. To be clear, cellulosic technology deployment is currently an expensive proposition. The total project investment for a 50 million gallon per year advanced cellulosic biofuel refinery is estimated by the National Renewable Energy Lab to be $250 million, compared with a total project investment of only $76 million for the same sized corn starch ethanol plant. The conversion technology in an advanced or cellulosic biofuel refinery is pre-commercial, which makes commercial financing virtually impossible in the current economy, even though the projected improvement over the long-term results in robust economics.

Private capital is often unwilling to take technology risk, an obstacle that Congress has identified and attempted to remedy through loan guarantees at the Department of Energy and U.S. Department of Agriculture. These loan guarantee programs provide a potential governmental source of financial backing for these projects, but neither program has yet to emerge as a material factor to support substantial project development.

We believe that the advanced biofuel industry could greatly benefit from the targeted reinstatement of a thirty percent investment tax credit for biorefineries. We believe the ITC should be technology neutral and instead require delivery against the goal of using renewable biomass to produce fuels that have lifecycle greenhouse gas emissions that are at least 50 percent less than baseline lifecycle greenhouse gas emissions. Ideally, this incentive would operate as a necessary precursor to the production tax credit, and would present potential renewable fuels investors with a robust incentive to commit to these technologies. This incentive will enable biofuels developers to attract private capital on an accelerated basis to meet the ambitious volume requirements of the renewable fuel standard.

As this Congress considers comprehensive energy and climate change legislation, we ask you to consider establishing a targeted investment tax credit for the advanced biofuel industry.