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By Robert Rapier on Aug 8, 2007 with no responses

A Disjointed Energy Policy

Hypothetical question: If a group of farmers in Iowa cut a deal with Tyson Foods to produce 2nd generation renewable diesel via a hydrotreating process, would Congress step in to stop them from receiving the renewable diesel credit? Anyone?

But it wasn’t a group of farmers in Iowa. It was an oil company in Texas, and so Congress is attempting to stop the credit and protect the first generation biodiesel producers.

Measure targets fatty fuel tax break

WASHINGTON — In language buried deep in an energy tax bill approved Saturday night, the House took direct aim at a plan by ConocoPhillips and Tyson Foods to take advantage of a federal tax credit that could save them $175 million a year.

On page 46, under Sec. 203. Extension and Modification of Credits for Biodiesel and Renewable Diesel, paragraph (b), subparagraph (1), the bill would strike language from the Energy Policy Act of 2005 that reads “using a thermal depolymerization process.”

In April, ConocoPhillips and Tyson announced they were teaming up to use Tyson’s beef, pork and poultry waste to produce 175 million gallons — or 4.2 million barrels — of renewable diesel fuel annually at existing ConocoPhillips refineries.

But the partners insist the project would not be economical without the tax credit.

Don Duncan, ConocoPhillips’ vice president for federal and international affairs, said company officials were “stunned” that lawmakers, who have criticized the oil companies for not doing enough to promote use of renewable sources, would throw up a roadblock to a project that would help reduce the nation’s dependence on foreign crude.

“They chastised the industry for doing nothing, and then they want to stop us when we do propose doing something,” Duncan said.

To be honest, I have been expecting this. After watching the energy policy debates play out over the past several years, I have become very cynical of the motives (and energy IQ) of our leaders. By providing a credit for biodiesel, and denying a credit for green diesel, congress is attempting to pander to various constituencies, and pick technology winners. What they are not trying to do with this measure is diversify the energy supply and encourage new technologies.

I think first generation biodiesels will (and should) go the way of the dinosaur. The product has very inferior cold-weather properties, has lower energy density than conventional diesel, and loses part of the energy content during processing as a low-value glycerin by-product. Second generation diesels – the so-called “green diesels” are identical to petroleum diesels in cold weather properties and energy density (and can therefore be mixed in any proportion), and the by-product is propane. (Biomass gasification is also called “2nd generation diesel”, but I would really call it 3rd generation). But none of the renewable diesels are cost-competitive with petroleum diesel, so Congress can attempt to pick technology winners by offering a credit to one technology and denying it to another.

So, due to special interests, we will discourage oil companies from the biofuels market and tell them we would rather they continue to produce oil. But let’s also put punitive measures in place that make them think twice about producing more oil. Then, let’s convene again in 2 years and try to figure out why we still have high energy prices and why we depend on petroleum more than ever before.

We have a completely disjointed energy policy. Major projects have long lead times and ultimately long completion times. Adopting a new energy bill every two years in which there is no long-term consistency on energy policy just ensures that many projects will not go forward. How can they, when the economics are liable to drastically change in the middle of construction?