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EESI Comments to DOE
for Cellulosic Production Incentives (Reverse Auction)
On July 14, the
Environmental and Energy Study Institute submitted comments to
the Department of Energy (DOE) concerning the cellulosic
ethanol reverse auction, formally known as Production
Incentives for Cellulosic Biofuels program (Sec. 942) of
the Energy Policy Act
of 2005 (P.L. 109-58). Comments
from the public on the most efficient way to implement this
section’s incentives for cellulosic biofuel production must
be submitted by
8:00
pm ET, Friday, July 14, 2006.
In text comments
below.
Click
here for PDF
Click
here for DOE Solicitation
If you have questions,
please email or call Jetta Wong at jwong@eesi.org
or (202) 662-1885.
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Douglas Kaempf
Office of the Biomass Program
US Department of Energy
1000 Independence Ave., SW
Washington
,
DC
20585\
Subject: DE-PS36-06GO96032
Dear Mr. Kaempf:
As a long time advocate for biomass to energy technologies,
the Environmental and Energy Study Institute (EESI) is pleased
that the Office of Biomass Programs (OBP) is gathering
comments on the ‘Request for Information’ (RFI) on
Production Incentives for Cellulosic Biofuels, under the
Energy Policy Act of 2005 (EPAct), Public Law 109-58, Section
942.” We
believe that it is very important – and a very valid
governmental role -- to help accelerate deployment and
commercialization of cellulosic biofuel technologies, as we
believe that such technologies provide a necessary
diversification of the U.S. transportation fuel supply and
agriculture portfolio and, indeed, are likely to be a major
part of a cleaner, more sustainable energy future for the
country – and the world.
We appreciate the opportunity to comment on this RFI
and look forward to working with the OBP on other renewable
energy and agriculture-related issues in the future.
It is essential to move implementation of the new
biomass provisions in the Energy Policy Act of 2005
expeditiously.
Initial Period of
Program
- EESI
believes the initial production incentive set by the
Secretary of Energy (herein referred to as Secretary)
should be disregarded. At this point in the 2007 fiscal
year appropriation process there is no funding for Sec.
942 and there is no reason to expect any. Therefore, the
earliest DOE could implement this program’s initial
production incentive would be in fiscal year 2008,
assuming that Congress appropriates funding for this
program. Because
of the statutory obligation to start the first reverse
auction “no later than 3 years after the date of
enactment of this Act,” (August 8, 2005), which would be
August 8, 2008, funds would need to be distributed between
the initial production incentive and the reverse auction.
EESI believes that funding only the reverse auction is a
better use of Federal dollars and would advance the
original purpose of the legislation.
- If
DOE proceeds with the initial production incentive set by
the Secretary, then there should be a fixed number of
eligible participants.
However, eligible participants should be selected
through a competitive solicitation process, and specific
criteria for small feedstock producers, rural small
businesses, a variety of technological platforms and
regional diversity should be used to select applicants.
The minimum payment should create the greatest
production with the least cost, keeping in sight the
statutory obligation to give priority to the criteria
mentioned above and the existing incentives for ethanol
production, including the 51 cent excise tax and the 2.5:1
credit provided by the federal renewable fuel standard.
Reverse Auction
- EESI
believes that bidders should be able to submit multiple
bids through an open-bidding process. This technique will
facilitate a transparent use of tax payer dollars and will
create more competition among possible participants.
- Reverse
auctions have shown great success when implemented through
an online e-commerce program. It seems reasonable that the
federal government could use e-commerce software similar
to what the US Department of Defense (DOD) uses for its
reverse auctions. The
reverse auction should not be conducted by an outsider
contractor.
- The
most effective way to conduct a federal government
supported reverse auction is to follow procedures already
set up by other agencies in the federal government.
DOD currently uses reverse auctions and should be
consulted when developing implementing rules and
solicitations. In
addition the ‘List of Resources’ section of these
comments illustrates how various states and organizations
have implemented similar programs.
Special attention should be paid to the California
Renewable Energy Program and the past success of the
California
’s “Standard Offer” process.
- Lowest
priced proposals should be recipients of the incentive
only if they also can meet the statutory priorities
identified in Sec. 942(e). In other words, a proposal that
may have done a much better job at meeting the priorities
outlined may be a recipient of the incentive even if it
has a higher priced bid than other participants. This
situation is clearly identified in the statutory language
of Sec. 942(c)(4)(iii), “Secretary shall issue awards
for the production amount submitted, beginning with the
eligible entity submitting the bid for the lowest level of
production incentive on a per gallon basis and meeting
such other criteria as are established by the
Secretary”.
General
Comments
- While
the legislation does not mention nor provide for the
Federal government to purchase cellulosic biofuels through
reverse auction, there is nothing excluding Federal
agencies from pursuing contracts for cellulosic biofuels
as a product that they want to purchase through reverse
auction from their vendors. The purchase of these
cellulosic biofuels aligns agency actions with executive
orders (Executive Order 13101 and 13134) and other Federal
purchasing requirements.
- A
variety of cellulosic biofuel facilities should be
expected – different technologies, feedstocks and
capacities should be considered for production incentives.
- At
this time it is difficult to determine how essential
production incentives will be by the time this program is
implemented, since the price of petroleum may be so high
that cellulosic biofuels may be competitive without such
incentives. Historically, production incentives are one of the most important incentives
in developing and commercializing emerging technologies.
These incentives decrease the risk associated with
emerging technologies, by assisting the technologies in
being cost-competitive with existing and established
technologies.
- Cellulosic
biofuel producers should document their annual production
level in the same way that current starch-based ethanol
producers document their production.
- The
federal government should consider how cellulosic biofuel
plants add to the local/state tax base, create jobs,
encourage local ownership, and use local feedstocks in
meeting Congressional intent of this section of EPAct
2005.
List of Resources
-
California
has used reverse auctions for renewable energy incentives
since 1998. The California Renewable Energy Program
provides financial incentives to assist renewable
electricity generation projects through reverse auction
mechanisms.
- The
Minnesota Department of Administration has had the
authority to use reverse auctions for goods since 2000.
The state has conducted more than 180 reverse auctions.
Running the program costs the state about $150,000 a
year--but it yields annual savings of about $1 million. So
far, the state has saved about $5 million through the use
of reverse auctions.
- The
Kansas State Division of Purchases is responsible for the purchase of all goods and
services required by the State, except for road
construction and right-of-way acquisition. The
Division of Purchases requires competitive bidding
wherever practical. In order to achieve competitive
bidding, the Division of Purchases provides an
online forum for reverse auctions.
The website allows for one-stop shopping, providing
everything needed to become active in the auctions; vendor
registration, bid solicitation lists, requests for
proposal, procurement contracts, as well as other
available bid solicitation websites available for Kansas.
- The
Texas
Building
and Procurement Commission (TBPC) saves about 24 percent
compared with what items would cost in normal procurement
auctions.
Houston
alone has saved 35 percent (more than $2 million, on
renewal contracts for the city's fleet tires for 2006 and
$3 million on chemical contracts for water treatment
facilities
Once more, EESI encourages the OBP to continue its
support for cellulosic biofuels.
Programs such as this will aid in commercializing
substitutes for petroleum-based feedstocks and will create a
more energy independent country, while protecting our
environment and creating much needed rural and regional
economic development. Once again we commend your efforts and
urge that you take advantage of the language in the Energy Act
of 2005 to ensure priority is given to projects which
demonstrate local and regional economic development,
agriculture producers or cooperatives of agricultural
producers as equity partners and strategic agreements to
fairly reward feedstock suppliers that will meet Congressional
intent.
Sincerely,
Carol Werner
Carol Werner
Executive Director, Environmental &
Energy Study Institute
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The
Environmental and Energy Study Institute (EESI) is a
non-profit organization that works at the nexus of policy and
innovation to promote environmentally sustainable societies.
EESI was founded in 1984 by a bipartisan group of
Congressional Members dedicated to finding environmental and
energy solutions. EESI provides credible, timely
information and innovative policy ideas through coalition
building, media outreach, publications, briefings, workshops
and task forces on the issues of energy efficiency and
renewable energy, transportation, smart growth, agriculture
and global climate change. Carol Werner leads the EESI
team as executive director.
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