Advanced Biofuels USA Finds Clean Energy Victory Bonds (HR 6275) Lacking

by Robert E. Kozak (Advanced Biofuels USA) A bill to establish a US Treasury funding mechanism that would finance "clean energy" projects has been introduced as part of a renewable electrical energy bill (HR 6275) in the US House of Representatives.

The Clean Energy Bond is included in a very short section (301) that simply establishes that the bonds have to return an interest rate equal to current US Treasury EE or I bonds plus, "a rate of return determined by the Secretary of the Treasury which is based on the valuation of carbon mitigated or energy saved through funded projects funded from the proceeds of such bonds." The resulting interest rate would approach 4%.

Advanced Biofuels USA does not support this Clean Energy Bond proposal for the following reasons.

1. Bonding Is Not the Appropriate Method for Funding Renewable Energy Research and Project Prototypes

Using the definition included in the bill, the bonds will require immediate income from the projects to pay the interest income promised to the investor. Using the interest requirements from the bill, minimum annual revenue above costs from the projects would have to be about 4%/year just to pay interest.

In addition, since interest payments are required immediately and projects would not produce any income during the R&D, construction, or testing phases, higher percentages of project income after startup would have to be devoted to cover the guaranteed interest payments from the startup years that would have been paid from the principal of the bonds.

Hence, by definition such a bond could only be used for projects that have already been proven to be commercially viable and would not provide funding where it is needed most in biofuel and other renewable energy development – at the research and commercialization stages. While these stages (TRL-2-TRL-8) do not return investment in the time frame needed for bonds, these are the critical "Death Valley" stages that companies, especially since 2008, have largely not been able to obtain funding for.

Without adequate funding for US companies with technologies at these stages of development, the US will not have the future technologies that will result in long lasting industries with career-long good paying jobs.

2. Clean Energy Victory Bonds Would Duplicate Other Available Funding Mechanisms

With the Clean Energy Bonds required to have a return on investment that is higher than current US bond issues, the only projects that would be eligible for funding are those that are relatively low risk that would be funded by existing commercial instruments including municipal and state economic development bonds. Therefore, the Clean Energy Victory Bonds would not measurably help emerging renewable energy companies reach the commercialization stage.

3. Clean Energy Is Not Defined

No definition of Clean Energy is given in the bill. The only indirect guidance provided in HR 6275 is that all other bill provisions are directed solely at electrical production.

This is disturbing to say the least. Besides the fact that advanced transportation biofuels are not included, it would also seem that electric vehicle projects that would be based on Chinese raw materials extracted with great environmental damage, or solar projects using imported panels manufactured without environmental or energy use requirements, would be included.

Finally, leaving it up to the Secretary of the Treasury to decide the "carbon mitigated or energy saved" without specificity on technology, the price of carbon, or the energy used to produce components such as batteries or wind blades, or the financial and environmental costs to dispose of batteries is opening the door to significant gaming or corruption of the system. Essentially, in this version of the bill, the Secretary of the Treasury would be allowed to "pick winners and losers" without any scientific judgement.

4. Clean Energy Victory Bonds Are Simply Not the Answer

As the data pours in showing how human-produced Climate Change is dramatically altering rainfall and heating patterns, it seems incomprehensible that people and organizations that deeply care about the negative impacts of Climate Change would be wasting their time and political capital on such a trivial project.

What the US really needs is:

1) A $200 billion, ten year, science-heavy "Manhattan Project" for new renewable transportation, heating, and electrical production energy sources, and

2) A complete makeover of accounting and taxation laws that would properly charge for Climate Change and other environmental costs instead of allowing them to be called "economic externalities."

Compared to what is needed, Clean Energy Victory Bonds are but another embarrassing example of "Look Like You're Doing Something" legislation that diverts the efforts of caring people and prevents the needed solutions from being enacted.

We therefore recommend that efforts to pass Clean Energy Victory Bond legislation be abandoned and instead refocused on the major programs that are needed.

We understand that big solutions are harder to enact. However, in the past Americans made them realities.

Now it's not just our turn, but our responsibility.

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