Statement of William H. Carlson, Chairman, USA Biomass Power Producers Alliance, Redding, California

Testimony Before the Subcommittee on Select Revenue Measures
of the House Committee on Ways and Means

April 19, 2007

My name is William Carlson and I appreciate the opportunity to appear before the Subcommittee in my role as the Chairman of the Steering Committee of the USA Biomass Power Producers Alliance (USABPPA), representing the views of the nation’s open-loop biomass power industry.  USABPPA is the only trade group organized solely to represent the nation’s grid connected biomass power supply, and as of today we represent more than 1,200mW of base load renewable electricity. The thrust of my testimony today is to identify the many unique environmental and other public benefits provided by open-loop biomass, and to urge the committee to change the production tax credit (PTC) rules to place this technology on a level playing field with other valuable and deserving renewable technologies.

As you know, the term biomass can be, and is, used to describe a very broad variety of energy technologies.  In my testimony today, I am referring to the production of electricity from the controlled combustion of untreated solid cellulosic wastes such as bark, orchard trimmings, rice hulls and sugar bagasse.  These production facilities generate firm base load power that provides local voltage support and enhanced reliability, and is added in small disbursed increments that do not require transmission system upgrades.  Qualified open-loop biomass facilities are eligible to receive only one-half of the current PTC for their electricity, which creates issues I will describe later in my testimony.

To see the potential role of open-loop biomass as a necessary component in any national effort to limit greenhouse gases, it is important to understand that open-loop biomass electricity production is one of the few renewables that lowers net greenhouse gas (GHG) emissions below a zero greenhouse gas emission level.  This is because biomass waste materials, an unavoidable fact of modern life, disposed of conventionally (landfilling, onsite decomposition, open burning) all generate substantial quantities of methane, a very damaging greenhouse gas, while biomass power converts all that potential methane to CO², resulting in a net negative greenhouse gas emission profile.  California has now formally recognized this benefit, in a California Public Utility Commission ruling in CPUC Decision 07-01-039, which implements SB 1368, the GHG emissions performance standard:  “In particular, the record shows that electric generation using biomass (e.g., agricultural and wood waste, landfill gas) that would otherwise be disposed of under a variety of conventional methods (such as open burning, forest accumulation, landfills, composting) results in a substantial net reduction in GHG emissions.  This is because the usual disposal options for biomass wastes emit large quantities of methane gas, whereas the energy alternatives either burn the wastes that would become methane or burn the methane itself, generating CO2.  Since methane gas is on the order of twenty to twenty-five times more potent as a GHG than CO2, and since methane has an atmospheric residence time of twelve years, after which it is converted to atmospheric CO2, trading off methane for CO2 emissions from energy recovery operations leads to a significant net reduction of the greenhouse effect.”

Additionally, biomass power extends landfill life, eliminates air pollution from open burning of agricultural and forestry residuals, helps lower the incidence of catastrophic Western forest fires, and allows cost effective restoration of our nation’s overstocked and unhealthy forests, resulting in better watershed health, wildlife habitat, forest fire resilience, improved growth rates for enhanced carbon sequestration and overall forest health.  The list of societal and environmental benefits from an expanded biomass power industry is long and impressive.

Historically, the national high-water mark for open-loop biomass facilities occurred around 1990, with an inventory of approximately 135 facilities producing as much as 2,300mW.  From the early 1990’s to 2005, the industry experienced a precipitous decline of approximately 30% of U.S. biomass power production due to the expiration of fixed contract rates and contract buyouts.   Furthermore, changes in federal forest policies diminished the supply of materials flowing from National Forests, negatively impacting the fuel supply for many of the plants.

I wish to thank the members of the Committee for their role in recent actions positively impacting open-loop biomass.  In the 2004 JOBS Act, Congress expanded the PTC to acknowledge the valuable contributions of open-loop biomass and other renewable technologies (though at only ½ the rate of some other renewable technologies).  Then, in the 2005 Energy Bill the PTC was further modified to provide all qualifying technologies with 10 year credit duration for new facilities.

The actions taken to date, coupled with strong positive actions by numerous states, have arrested this decline in U.S. biomass power production.  The combination of federal and state actions has initiated a nearly 300mW increase in U.S. capacity since 2005 that will be completed by the end of this year, which is roughly a 15% rebound. An additional 100+mW is expected to be placed in service by 12/31/08 as a response to the extension of the PTC placed in service date enacted as part of the Tax Relief & Health Care Act of 2006.  This increase in capacity is attributable to two factors — first, the restarting of biomass plants (and conversion of a couple of older coal-fired plants to biomass) that had been closed since the early 1990’s and second, the addition of combined heat and power (CHP) installations at forest product facilities utilizing low valued mill residual materials. Restarting idle facilities and installing CHP at existing facilities takes less time and can be more economic than building a new greenfield biomass facility from the ground up.

In the scale of our national electrical power requirements, however, we are significantly underutilizing a significant green, renewable resource.  Currently, the combination of the relatively high cost of new greenfield open-loop biomass power, and the availability of only one-half the PTC, prevents the open-loop operators from being competitive in the new capacity solicitations held by various utilities under state renewable portfolio standard (RPS) requirements.  These auctions are almost universally won by those renewable technologies having access to the full Section 45 PTC.

Therefore, the single most important thing that the Ways & Means Committee could do to foster the growth of biomass power and thus diversify the types of renewable electricity within the nation’s energy portfolio, is to approve legislation equalizing the credit rate for biomass and other renewables by equalizing the PTC rate for open-loop biomass to that of wind and geothermal energy.  Only then, will another 900 megawatts of biomass capacity in projects that have been identified and proposed become a reality and allow numerous other projects to enter the planning phase.

Another significant impediment to the production of electricity by open-loop biomass facilities is a rule published last year by the IRS that affects only biomass among renewable technologies.  Under Notice 2006-88, facilities sited at industrial plants must net the electrical consumption of the industrial facility with the production of the biomass power facility and claim the credit on only the net amount, even if the biomass power facility is not serving the industrial facility electrical load.  This ruling will affect more than 2/3 of the biomass projects currently proposed, destroying their viability. 

The USABPPA, working with the American Forest & Paper Association, urges you to include a reversal of this rule in any upcoming energy tax legislation (a copy of a joint letter on this issue is attached to my testimony).  Other federal agencies, such as the EPA and DOE, are working to encourage the very types of combined heat and power (CHP) cogeneration facilities that IRS would eliminate by this ruling.  These CHP facilities are among the most efficient and cost effective ways to utilize biomass fuel and lower fossil fuel use.  This type of activity should be encouraged by IRS regulations, not penalized.

Like other technologies on this panel, we would urge the Ways & Means Committee to extend the Section 45 Production Tax Credit beyond the current “placed in service date” expiration of December 31, 2008.  Biomass projects not currently under equipment purchase and construction contracts are already halting planning and permitting activities until Congress extends Section 45.  Like some other renewable technologies, new biomass power has a fairly long time horizon from conception to “placed in service”, typically 3-4 years.  Consequently, one long-term extension would send a more powerful market signal to investors than would a series of one and two year extensions. 

In closing, let me reiterate that the No. 1 priority of the open-loop biomass power industry is to achieve parity in the PTC credit rate.  To obtain more than five to ten new facilities a year, to obtain a significant number of completely new facilities, and to transform a portion of our nation’s bulk electric supply from being a major emitter of greenhouse gases, not just to a neutral position, but to a negative emitter of GHG, the full Section 45 credit is required.  Simply maintaining the Section 45 status quo via a “placed in service date” extension will not bring the broader benefits of open-loop biomass technology to the nation.  Thank you again for this opportunity to present to the Subcommittee and I hope that USABPPA can serve as a resource to your ongoing efforts.