DOE Recommits to Public-Private Research & Development for Clean Fuels in Its 2015 Budget

The marketplace has diminished in the past year for biofuels due to regulatory and infrastructure issues. The 40 percent proposed reduction of the RFS has created uncertainty for producers and investors; the domestic oil and gas boom, as well as overall reduced consumption of gasoline in the past few years have sowed doubt in the biofuels sector. Meanwhile, advanced biofuels are getting closer to production levels. Abengoa is nearing completion of its $500 million advanced cellulosic facility in Kansas which will be capable of producing 25 million gallons of biofuel and 21 million megawatts of power. South Dakota-based Poet will finish building its advanced cellulosic plant in Emmetsburg, Iowa this summer. DuPont will complete the largest advanced biofuels plant so far – with 30 million gallon production capacity -- by sometime next year. Despite the news that cellulosic biofuels are finally here, it’s hard to remain positive when the Energy Independence and Security Act’s original goal of 21 billion gallons of advanced biofuels by 2022 is considered practically impossible, requiring an investment of at least $95 billion in the next ten years, according to the Biotechnology Industry Organization. For comparison, about $5.7 billion has been invested in advanced biofuel research and development to-date. Will regulators and investors continue the public-private partnership needed to bring advanced biofuels to their full potential?

Today, the United States is bearing the fruit of just such a public-private partnership. While fracking seemingly appeared out of nowhere, producing less than 2 percent of natural gas in the United States to over 25 percent in 10 years, this technology is the result of a very long partnership between the oil and gas industry and the federal government. George Mitchell, the father of fracking, began investigating the process in 1976 despite low industry interest in pursuing domestic natural gas at the time. While America loves an underdog, Mitchell and his fellow wildcatters had a lot of help along the way to their immense success. DOE spent $24 billion on fossil fuel research between 1978 and 2007, in addition to billions spent through the federal Gas Research Institute. At the time, the money spent on the endeavor was seen as a huge waste by the public, due to the low price of natural gas throughout the 1980s and 1990s. George Mitchell nearly went bankrupt more than once during his dogged pursuit of fracking technology, but was vindicated in the end. This type of public-private partnership is not unique; rather it has been used countless times in the last century to drive technologies as diverse as the internet, wind turbines and solar panels, and decoding the human genome. The government invests in high risk research and development that has great potential but is of little interest for private investors because it seems too risky. This long history makes the familiar refrain to allow the marketplace to decide which renewables will become cost competitive particularly hollow.

Hopefully today’s industry setbacks will not distract from the long-term goal – cost-competitive alternatives to petroleum. Federal support is needed to drive research and development through the short-term price fluctuations of any new technology, biofuels are no exception. Encouragingly, the Department of Energy’s 2015 budget contains a lot of good news for advanced fuels. In keeping with its goal of $3.00 per gallon fuel equivalent by 2022 and a 30 percent reduction in petroleum use, DOE announced this week that it will direct $4 billion in loan guarantees to renewable technologies which include grid integration, drop-in biofuels, waste-to-energy, facility improvement and energy efficiency technologies. This is the first new loan program since 2009 and the infamous Solyndra incident. Secretary of Energy Moniz commented on DOE’s recommitment to renewable technologies during hearings in the House and Senate this month, stating, “Through our existing renewable energy loan guarantees, [DOE] launched the U.S. utility-scale solar industry and other clean energy technologies that are now contributing to our clean energy portfolio … We want to replicate that success by focusing on technologies that are on the edge of commercial-scale deployment today.”

Within the 2015 DOE budget, a total of $9.8 billion has been earmarked for energy research and development. Of the $4 billion loan guarantee program, $10 million has been earmarked specifically towards the commercialization of drop-in biofuels, including cellulosic feedstocks, bio-solids and biogases. Other related programs include $60 million in funding administered jointly between the Department of Defense and the USDA to continue research in the production of advanced biofuels for military uses; another $253 million for bioenergy technologies, particularly algae and cellulosic feedstocks; and $10 million towards developing appropriate technology for higher biofuel blends in light duty vehicles. While critics may bemoan such loan programs as picking “winners and losers”, without substantive federal support of clean energy technology development, ultimately everyone loses.