Ethanol Industry May Lose Subsidies
Over the course of the last decade, the ethanol industry has supported American fuel independence. Ethanol blends of ten percent have become the norm at the pumps, and congress even approved blends of 15 percent (ethanol/gasoline) in just the last few months. A vast number of flex-fuel vehicles have also made their way to U.S. roadways, allowing drivers to fill up with ethanol blends as high as 85 percent. However, while ethanol offers a homegrown alternative to foreign oil dependence, it has relied heavily on government subsidies to jumpstart the industry. With gasoline prices on the rise, congress is calling the subsidies—along with import tariffs—into question.
U.S. Senators Tom Coburn (R-OK) and Dianne Feinstein (D-CA) have put forth a piece of legislation that would effectively ethanol’s 45-cent per gallon tax credit and eliminate the 54-cent per gallon tariff on imported ethanol. The “Ethanol Subsidy and Tariff Repeal Act,” if approved, will take effect July 1. The passing of the act could save taxpayers $3.3 billion.
Comments made by the American Meat Institute claim, “At a time when animal agriculture is facing pressures on many fronts, this legislation would ease the economic strain that is heavily impacting the industries that rely so heavily on corn to feed livestock and poultry,” the associations wrote. “Corn-based ethanol has distorted the corn market, and stretched corn supplies to the point production costs have been increased significantly. Additionally, eliminating the import tariff will allow ethanol from around the world to compete on a level playing field with U.S. ethanol.”
An alternative bill has been proposed by Senators Charles Grassley (R-IA) and Kent Conrad (D-ND), called the “Domestic Energy Promotion Act of 2011. Their version would see a gradual lowering of tax incentives to the ethanol industry through to 2016, instead of the immediate cutoff proposed in the Coburn and Feinstein’s bill. The bill would also extend the alternative fuel property refueling credit, the cellulosic procers’ credit and the special depreciation allowance for cellulosic biofuel plant property.
The alternative bill has garnered support from the ethanol industry itself, with the American Coalition for Ethanol stating, “At a time of near-record gas prices and continued volatility in world oil markets, America’s growing production and reliance of domestic ethanol sources is creating jobs, keeping gasoline prices down, and reducing this nation’s appetite for imported oil. The Domestic Energy Promotion Act of 2011 would ensure we don’t abandon this increasingly vital American industry, but rather smartly and responsibly foster its continued growth and evolution.”
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So as a taxpayer, what do you think? Don’t forget that just last week, congress decided not to end the billions of dollars worth of subsidies for major oil producers (whom brought in record profits while we face record price spikes at the pump). Ironically, within the same two-week period, congress also turned down a bill to expedite domestic oil production, which means increased reliance on foreign oil.
Now, congress is targeting fledging renewable industries, such as biofuels, wind and solar to try and put an end to the subsidies that have helped get these industries off the ground. Why? It all comes down to price point. Oil is still the cheapest of these energy forms, but does it mean that we should outright abandon the others? Most certainly not! As a taxpayer, I would be happier knowing my hard earned money was helping to fund the next generation of companies and infrastructure that could reduce U.S. dependence on foreign oil, all while providing cleaner, renewable alternatives. What doesn’t quite make sense is ending subsidies for tomorrow’s technology, while allowing oil companies with record profits to keep their subsidies. What makes even less sense is claiming that these actions will boost domestic energy security, but without boosting domestic oil production.
In either case, the “Domestic Energy Promotion Act of 2011” seems like the better option of the two bills being pursued. Cellulosic ethanol in particular holds untold promise, and is a game-changer for the ethanol industry, whose image has been tarnished by unsustainable corn ethanol production. Yes, oil is tried and true, and we would all like to see prices at the pump come down. But the U.S. is at a critical crossroads where alternative energy infrastructure must be implemented NOW, not later. By continuing to favor the oil industry over alternatives, in a few decades, pump prices will be out of the price range of most average Americans, and alternative fuels will hold price advantage. Unfortunately, if the fueling infrastructure isn’t in place, then the transition will be anything but smooth, and with energy infrastructure historically being a public sector endeavor, that means our tax money should be funding alternative fuel infrastructure development, instead of subsidizing antiquated oil infrastructure and companies that don’t even need the subsidies!
Industry movement with heat decarbonisation
It is estimated that the heat network market requires approximately £30 billion of investment by 2050 to meet the UK Government’s net zero targets, and the decarbonisation of heat has been highlighted as a particular challenge.
The Climate Change Committee’s Sixth Carbon Budget states the UK should target 20% of UK heat demand through low-carbon heat networks by 2050 - but as with most discussions surrounding mass decarbonisation, even reaching that target won't be an easy task. In the UK approximately 40% of energy consumption and 20% of GHG emissions are due to the heating and hot water supply for buildings.
The International Energy Agency (IEA) estimate that globally, around half of all energy consumption is used for providing heat, mainly for homes and industry.
Source: Heat Trust
This week saw some positive movement, however, with gas distribution company SGN and UK renewable energy solutions provider Vital Energi announcing a 50:50 joint venture, which will create an Energy Services Company (ESCO) representing utility infrastructure and heat network providers.
This includes delivery of heat to developments planned by SGN’s property arm, SGN Place, and the local vicinities where there is a demand for low-carbon heat.
The objective is to supply new and existing residential, industrial and commercial facilities and development activity is already underway for two projects in Scotland and the South East, with another 20 in the pipeline. SGN is looking to develop alternative heat solutions alongside its core gas distribution business and expand into the growing district heating market, recognising the future of heat is likely to include a mix of technological solutions and energy sources.
Vital Energi is seeking to expand into asset ownership opportunities to complement its core design, build and operations businesses. The complementary skillsets of both organisations will offer a compelling proposition for developers, commercial and industrial users and public sector bodies seeking low-carbon heat solutions.
SGN’s Director of Commercial Services and Investments Marcus Hunt said: “Heat networks are likely to play an increasing role in the delivery of UK heat in the context of net zero. The creation of this joint venture with market-leading Vital Energi enables us to build a presence in this emerging market, delivering new heat infrastructure and supporting decarbonisation.”
Nick Gosling, Chief Strategy Officer at Vital Energi, said: “Combining the resources, expertise and know-how of both organisations will allow us to play a major role in delivering the UK’s transition to low and zero-carbon heat.”
In March, the European Marine Energy Centre (EMEC) starting collaborating with Highlands and Islands Airports Limited (HIAL) to decarbonise heat and power at Kirkwall Airport through green hydrogen technology. 2G Energy was selected to deliver a CHP plant which generates heat and electricity from 100% hydrogen.
Heat decarbonisation options
The Energy & Climate Intelligence Unit (ECIU) highlights the following options for decarbonising heating.
Use renewable electricity to generate heat in the home. As power sector emissions fall, emissions associated with electric heating are decreasing rapidly.
Low carbon gases
Replace natural gas that most homes use for heating with hydrogen, which releases energy but not carbon dioxide, the only waste product is water. Biomethane is also an option as it produces less carbon than natural gas over a full lifecycle.
For hydrogen to work, the pipes in the national gas grid would need to be replaced and home boilers would need to be adapted or changed. This is possible but could incur considerable cost.
Biomethane is chemically identical to methane from natural gas, so is suited to existing infrastructure and appliances. It is unlikely, however, that it can be produced in sufficient quantities to replace fossil gas entirely.
A hybrid system combining both electrification and hydrogen is a third option. Here, heat pumps could be used to meet the majority of heat demand, with a (low carbon) gas boiler taking over in extremely cold weather. Advantages of this approach include helping establish a market for heat pumps while hydrogen is developed to displace natural gas in the hybrid system eventually, and the ability to call on hydrogen when heat demand is at its very highest.
Heat networks connect a central heat source to a number of buildings via a series of underground hot water pipes, and are popular in countries such as Denmark, where heat networks supply 63% of households. The Government expects the heat networks market in the UK to grow quickly to supply up to 20% of heat demand over the next decade or so, investing £320 million into its flagship Heat Networks Investment Project to help get this underway.
Heat networks work particularly well in built-up urban areas or industrial clusters where there is a large and concentrated demand for heat. Over time, it is thought that if the central heat source can be low carbon, then there is the opportunity to ensure that multiple homes and buildings are decarbonised at once.
Biomass can be used to reduce emissions when used instead of more polluting fuels like oil in off gas grid properties. Support for biomass boilers has been available since 2011 via the Renewable Heat Incentive (RHI), but take-up has been low.
Supply constraints also restrict the role that biomass – burning solid material such as wood – can play. In any case, according to the Committee on Climate Change, this resource may be better used in other sectors of the economy such as construction, where it provides carbon storage without the need for CCS and reduces demand for carbon-intensive materials such as steel and cement.
The Energy Transitions Commission (ETC)'s latest report sets out how rapidly increasing demand for bioresources could outstrip sustainable supply, undermining climate mitigation efforts and harming biodiversity, unless alternative zero-carbon options are rapidly scaled-up and use of bioresources carefully prioritised.
"Alternative zero-carbon solutions, such as clean electrification or hydrogen, must be developed rapidly to lessen the need for bio-based solutions," it states.
The overall decarbonisation of industry is another major challenge, especially among four sectors that contribute 45 percent of CO2 emissions: cement, steel, ammonia, and ethylene, according to a McKinsey report.
The process demands reimagining production processes from scratch and redesigning existing sites with costly rebuilds or retrofits. Furthermore, companies that adopt low-carbon production processes will see a short- to mid-term increase in cost, ultimately placing them at an economic disadvantage in a competitive global commodities market.
Ken Hunnisett is Project Director for the Heat Network Investment Project (HNIP)’s delivery partner Triple Point, which is the delivery partner for the government's Heat Network Investment Project, which is responsible for investing up to £320million in strategic, low-carbon heat network projects across England and Wales.
He is calling for the urgent need to invest in the development of new heating infrastructure to support the nation’s decarbonisation effort. So far £165m of HNIP funds have prompted £421m CAPEX, providing more green jobs as the UK economy eases from the lows sustained from the pandemic.
Decarbonising the UK's heating infrastructure is critical if we are to reach our net-zero goals and it’s crucial that progress is made in this decisive decade, he added.
"Heat networks are a part of the lowest-cost pathway to decarbonising our homes and workplaces in the future but are also the bit of the jigsaw that we can be putting into place now," he said. "Penetration into the UK market is still low, despite heat representing 37% of UK greenhouse gas emissions, the largest single contributor by some way. Funding needs to be urgently directed towards reducing the environmental impact of the residential sector, particularly given the slow pace of the decline in residential emissions in comparison to those of business and transport."
Currently, just 3% of UK buildings are serviced by heat networks. "Further investment in this industry, using public and private funds, will not only drive wider sustainability targets but will boost the economy by providing more green jobs as the country emerges from the pandemic," he said.