Statement of The Honorable Earl Pomeroy, a Representative in Congress from the State of North Dakota

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

April 24, 2007

Chairman Neal and Ranking Member English, I would like to thank you for the opportunity to testify before the subcommittee today regarding three pieces of legislation that I have introduced in the 110^th Congress to incentivize the development of renewable energy. These bills would extend the current tax credits for ethanol and biodiesel, the renewable energy production tax credit and would allocate more money for the Clean Renewable Energy Bonds program.

I would first like to discuss my bill H.R. 197, which will extend for five years the production tax credit (PTC) for electricity produced from wind and other renewable energy sources such as closed and open-loop biomass and geothermal power. The PTC provides a 1.5 cent per kilowatt hour tax credit for electricity that is produced from these qualified renewable sources. The credit is adjusted for inflation and is currently 2 cents per kilowatt hour. It is currently scheduled to expire at the end of 2008. Rep. Jim Ramstad (R-MN) and I introduced H.R. 197 on the first day of the 110^th Congress and there are currently 87 bipartisan cosponsors.

The PTC has a history of short term extensions and expirations that have hampered industry’s ability to effectively develop generation capacity. Since 1999 the PTC has expired three times.  With each of these expirations came dramatic slow down in wind power investment and the loss of thousands of jobs across the industry. LM Glasfiber, a blade manufacturer in my district that is currently approaching 800 employees, was forced to furlough 60-70 of what was then approximately 100 employees when the credit had expired 2004. A five year extension will prevent this from happening and provide a level of stability for the industry that it has not had for many years.

We have seen over the past two years how effective the PTC has been when there is some level of certainty that the credit will not expire. Over 2,400 megawatts (MW) of wind power were installed in each 2005 and 2006 when industry was assured that the credit was not going to expire at the end of that year, versus only 389 MW in 2004 when the credit was expired for the first 10 months of the year.

In my state of North Dakota we can see an example of a project that would not be going forward if the most recent extension had not been enacted. The 179 MW Langdon Wind Farm is scheduled to begin construction this year.  Had the most recent one year extension not been enacted, this project would not be proceeding due to the risk that the facility would not be placed in service by the previous December 31, 2007, expiration date. A five year extension will help utilities in their efforts to plan and construct renewable energy projects by providing the certainty that is necessary for large scale development.

While investor-owned utilities and private developers are eligible for the PTC to incentivize renewable electricity development, rural electric cooperatives and public power utilities are ineligible for the PTC as they are not-for-profit utilities and therefore do not pay income tax.  Rural electric co-ops and public power utilities, who serve 25% of the nation’s power needs, should be provided an incentive similar to the PTC to encourage them to develop renewable energy in a cost effective manner.

To address this issue, Rep. Ron Lewis (R-KY) and I introduced the Clean Energy Bonds Act of 2005 (H.R. 2794) in the 109^th Congress to create a new type of bond to help fund renewable energy projects by not-for-profit utilities. When a person purchases a regular bond, the issuer gives the bondholder interest payments on their investment. With clean energy bonds, instead of the issuer (the cooperative or public utility) paying out interest to bondholders, the bondholders receive a federal income tax credit in recognition of their investment. The issuer can then utilize all bond proceeds to finance clean energy projects.

The Energy Policy Act of 2005 authorized the creation of the Clean Renewable Energy Bonds (CREBs) program and allocated $800 million for the bonds. The first round of allocations was announced by the IRS at the end of 2006 with 610 projects awarded allocations.  The IRS is currently in the process of accepting applications for an additional $400 million in allocations that were approved in the Tax Relief and Health Care Act of 2006.

While the program has been a success to date, there has been one major flaw - an insufficient availability of the bonds to meet demand. The IRS received over $2.5 billion in requests for the initial allocation of $800 million. To address the need for greater allocations of these bonds, Rep. Lewis and I have introduced H.R. 1965, which would provide a $1 billion allocation of CREBs in each 2008 and 2009. This additional allocation will provide not-for-profit utilities, who are often better situated to harness renewable energy sources like wind and biomass, further resources to finance renewable energy projects. I strongly urge the committee’s support for increased allocations of Clean Renewable Energy Bonds.

Finally, I would like to discuss H.R. 196, which Rep. Kenny Hulshof (R-MO) and I have introduced to permanently extend the current tax credits for biodiesel and ethanol as well as the current tariff on imported ethanol. As Congress debates energy policy that will reduce America’s dependence on foreign oil, many different technologies will need to be developed. Increased renewable electricity generation and energy efficiency will be vital, as will the increased use of alternative fuels in the transportation industry.

Long term extensions of the current ethanol and biodiesel credits are necessary to ensure that these industries are able to gain a significant foothold in the market so that traditional petroleum based fuels are not able to force alternative fuels out of the market.

The Energy Policy Act of 2005 mandated that 7.5 billion gallons per year of biofuels be used by 2012.  Just two years ago that level seemed unreachable to some. Now a mere 20 months after the passage of the Energy Policy Act, over 5 billion gallons of biofuels will be produced this year and the 7.5 billion mark will be passed long before the 2012 deadline. This has largely been achieved because of the current tax credits for ethanol and biodiesel. These developing industries do not have the developed infrastructure that the oil and gas industry possess and there for need an incentive to compete.

The statistics show that these credits have had their intended effect.  The ethanol industry has more than tripled production capacity since 2000 and the biodiesel industry has increased its sales from 25 million gallons in 2004 when the biodiesel credit was first enacted to 250 million gallons in 2006. The increase in biofuels development in North Dakota alone has been astounding.  Two years ago North Dakota produced just 35 million gallons of ethanol.  Now, an additional 100 million gallons have come online with more than 250 million gallons of production capacity in various stages of development, as are over 100 million gallons of biodiesel production.

The current ethanol credits include 51 cents per gallon available at the blender lever and 10 cents per gallon for small producers (those producers with less than 60 million gallons per year of capacity). The biodiesel credits include the same 10 cent per gallon credit for small agri-biodiesel producers and a $1 dollar per gallon credit at the blender level for agri-biodiesel (50 cents per gallon of non agri-biodiesel). As the 51 cent per gallon credit for ethanol is also available for imported ethanol, a 54 cent per gallon tariff on imported ethanol is imposed to prevent foreign ethanol that already receives subsidies in many countries around the word, from flooding the US market and putting domestic producers out of business. 

As the committee knows, currently, most of the ethanol produced in America is produced using corn as the primary feedstock.  Though this has the potential to change, technology continues to develop that will allow the utilization of cellulosic ethanol.  A long term extension of ethanol and biodiesel credits will provide an incentive to ensure that research into cellulosic ethanol technologies continues. This research has the potential to lead to commercial scale cellulosic ethanol plants that will be more energy efficient and dramatically increase the volume of biofuels that can be domestically produced.

In addition to reducing America’s dependence on foreign oil, the biofuels industry represents a tremendous opportunity to revitalize America’s rural economies. The construction and operation of biofuels plants has led to the creation of thousands of jobs and billions of dollars in economic activity, much of it in rural states like North Dakota. A vibrant biofuels industry will ensure that money that would have otherwise flown outside of the country to pay for oil imports will flow into America’s heartland.

Mr. Chairman, no single technology is going to cure America of its dependence on foreign oil or significantly reduce carbon emissions to address global warming.  Instead multiple technologies and approaches must be implemented. The incentives that I have discussed will go a long way towards developing America’s renewable energy industries and aid in meeting those goals. I look forward to working with the committee on these proposals. In addition to the industries I have discussed today, I believe that we must make significant investments in clean coal technology, energy efficiency and in the nations electric transmission grid which is currently inadequate to meet the growing demands of renewable energy and the American people.  Thank you.