As of press time, the U.S. Senate failed to terminate a filibuster over an energy bill that would have delivered a host of federal tax breaks, loan guarantees and big research & development programs that could support expansion of clean-diesel fuels and vehicles. A liability exemption for gasoline additive MTBE caused the bill to flounder in the Senate.
Highlights of the bill:
–”Small” refiner ULSD breaks: Refiners of up to 155,000 barrels/day (with up to 1,500 people working in refining operations) could fully expense up to 75% of capital costs for desulfurizing fuels to upcoming U.S. EPA specifications, while refiners between 155,000 to 205,000 barrels/day could take a lesser, pro-rata portion of the full 75% expensing provision. The break would take effect on “expenses paid or incurred” between 2003-2009.
This means that “small” refiners could speed-up tax deductions on ULSD capital expenses rather than taking annual depreciation.
–The same “small” refiners also could claim a 5 cents/gallon tax credit on each gallon of ultra-low sulfur diesel (ULSD) produced between Jan. 1, 2003 and Dec. 31, 2009, for up to 25% of capital costs including “construction of new process operation units or the dismantling and reconstruction of existing process units” as well as “associated adjacent or offsite equipment (including tankage, catalyst and power supply), engineering, construction period interest and sitework.”
–Coal-GTL loan guarantees: Between 2003 to 2009, U.S. Department of Energy (DOE) would “establish a program to provide guarantees of loans by private lending institutions for the construction of facilities for the production of Fischer-Tropsch diesel fuel and commercial byproducts,” tapping coal or waste-coal mined in the U.S. as the prime feedstock.
Such a federal loan guarantee could be granted only if “credit is not available to the applicant under reasonable terms or conditions sufficient to finance the construction” and if the “prospective earning power of the applicant and the character and value of the security pledged provide a reasonable assurance of repayment of the loan.”
Loan recipients for these coal-gas-to-liquids (GTL) plants would have to meet federal/state permit requirements, have available coal or coal-waste nearby and be located in markets with “a projected high level of demand for Fischer-Tropsch diesel fuel or other commercial byproducts” of the plant.
–Coal-GTL tax credits: So-called “Section 29″ tax credits ($3/barrel of oil or Btu-equivalent, or roughly 7 cents/gallon) normally used to encourage production from non-conventional oil & gas wells and from lignite coal-gasification would be extended to fuels from “refined coal” or from agricultural and animal waste, until end-2009. “Refined coal” would qualify for the credit only if it results in 20% less emissions of nitrogen oxides (NOx) and SOx (or mercury), and if it sells at a 50% premium to ordinary coal. “The conferees intend that fuels made from coal using the Fischer-Tropsch process would qualify as refined fuel provided that such fuels satisfy the environmental and value tests,” the conference report says.
–Gasification tax credits: “Clean coal technology” tax credits could cover up to 17.5% of cost basis for projects including integrated gasification combined cycle (IGCC), “with or without fuel or chemical co-production.” Some IGCC plants have potential to add-on a Fischer-Tropsch diesel unit (see Diesel Fuel News 10/27/03, p19). The bill also now allows a five-year cost recovery (under tax laws) for coal-IGCC including those with fuel or chemical co-production, such as FT diesel.
–Petroleum coke gasification would get “at least one” federal loan guarantee for a “polygeneration project” including power, steam and possibly other products, although the bill language doesn’t specify.
–Federal funding of “clean coal power” gasification: Over the next nine years, $1.8 billion in federal funds is authorized to support “clean coal power initiatives,” 60% of which is reserved for coal-gasification technologies. It’s possible that a GTL unit might tag-on to one of these coal-IGCC plants.
–Alternate feedstocks R&D: Under fossil energy programs totaling nearly $3 billion, U.S. Department of Energy (DOE) would sponsor R&D on gas hydrates (a potentially huge source of feedstock for GTL fuels); “ultra-clean fuels” (such as Fischer-Tropsch diesel); IGCC; optimization of turbines running on syn-gas from coal; carbon capture and sequestration; and “coal-derived transportation fuels and chemicals.”
–Diminished prospects for Alaska GTL: Chances for building GTL diesel plants on the Alaska North Slope (ANS) probably are dimmed in the wake of a provision granting an $18 billion federal loan guarantee for an ANS gas pipeline to the “lower 48″ U.S. states, in part paralleling the existing crude oil Trans Alaska Pipeline System (TAPS). If such ANS gas is no longer “stranded” then its commercial value will match the “lower 48″ price, probably closer to $5/thousand cubic feet–or roughly 10 times what GTL promoters cite as acceptable.
–Clean/efficient vehicle purchase tax credits: Until Dec. 31, 2008 consumers buying “advanced lean-burn” cars/light trucks (including diesel or direct-injection gasoline) or hybrids could get tax credits for the first 80,000 vehicles sold by each offering manufacturer. For “lean-burn” cars, the credit varies between $650 to $3,400 for vehicles that improve baseline fuel economy from 25 to 250%. Cars up to 6,000 pounds would have to achieve EPA Tier 2/Bin 5 emissions limits; vehicles between 6,001-8,500 lbs. would have to achieve Tier 2/Bin 8.
–Hybrid cars: Buyers could get tax credits worth up to $7,500 on vehicles under 14,000 pounds, or up to $30,000 if more than 26,000 lbs. The lighter hybrid vehicles (under 8,500 lbs.) would have to meet applicable EPA Tier 2/Bin 5 emissions limits and would have to have at least 4% of power from electric drive. Vehicles between 8,500-14,000 lbs. must get at least 10% of power as electric, while those over 14,000 pounds would have to get at least 15% by electric.
–Heavy-duty diesel trucks & buses grants: “Clean” heavy-duty fleet vehicles running on ULSD between 2003-2006 and meeting 2007 EPA limits on particulate matter (PM) could tap up to $5 million in “pilot program” grants. School bus operators could get up to $60 million in grants between 2005-2007 to buy clean-diesel buses with particle filters, running on ULSD. Separately, school bus operators could tap up to $100 million between 2005-2007 for diesel school bus retrofits, also running on ULSD.