The Third Challenge: Creating a Coastal States Energy Sector

Sterzinger: A New Gulf Energy Sector

THE GULF Coast offshore oil drilling catastrophe raises three challenges for the affected states, the federal government, and BP. Stop the leak. Clean up the spill. Reverse the economic damage. Of these three, the first two pose enormous engineering challenges, but the challenges have at least been accepted. The last challenge—finding some way to reverse the long-term economic damage to the region—has not been fully tackled.

Some are proposing ways to use this tragedy to catalyze the move toward clean energy in the twenty-first century. Calling it a “Sputnik” moment, a group of CEOs asked the federal government to triple the clean energy research and development budget, in order to move the country away from oil dependence. A few weeks ago, President Obama traveled to Pittsburgh to address plans to reform our energy sector. At that point he stressed the importance of taking away incentives for oil drilling and increasing the use of natural gas and nuclear power.

On June 15, day fifty-seven of the spill, Obama addressed the nation and called for Congress to pass a comprehensive clean energy bill in response to the catastrophe. The bill he wants is packed with controversy–yet we don’t really need comprehensive legislation to usher in a twenty-first-century energy sector. Moreover, this legislation would not provide a substantial economic stimulus for the Gulf states. Without waiting for new comprehensive legislation, Obama can declare the Gulf states the center of a push to commercialize twenty-first-century energy technologies.

Advanced biofuels in particular have the potential to change the coastal economies for the better. In 2005 and in 2007 Congress committed to providing 20 percent of transportation fuels, or 36 billion gallons per year, from advanced biofuels by 2022. These fuels are produced from cellulose, the backbone of plants found in everything from straw to algae to wood chips. Because they are completely domestic, their production increases energy security. Of equal importance, they emit no CO2.

The Gulf states have some of the best biomass resources in the country: wood, sugar cane waste, and rice hulls. Gulf residents have underutilized these resources, but with the right technologies, they could turn these substances into billions of gallons of advanced biofuels. Their production would create jobs by increasing demand for harvesting feedstock, plant construction, the ongoing operation and maintenance of plants, and scientific research to continually advance the technologies that produce these fuels.

The final product could cost $3 per gallon to produce, a large portion of which would pay for local resources and stay in the local economy. The advanced fuels mandate could require that production plants located in the coastal states produce one-sixth of those fuels, providing an economic engine circulating as much as $18 billion per year through the Gulf region.

The technologies to produce advanced biofuels are moving from labs and prototypes toward full commercial scale. For example, the Bush administration’s Department of Energy selected eight biofuel projects to fund for commercial-scale development—but they are not there yet. So before we can get the Gulf states to produce 6 billion gallons per year, the challenge is to create an innovation and commercialization engine in the Gulf states.

This is a great challenge for advanced biofuels—the same challenge that faces clean electric generation. It is also a challenge that the United States has basically forgotten. Meeting it in the Gulf states would have important positive effects for other clean energy technologies and the entire country.

We must find the will to use innovation to revitalize domestic economies and advance clean energy in order to make real progress on energy security, climate change, and job creation. It could work for the coastal states as a kind of twenty-first century Tennessee Valley Authority. The federal government could form a regional development group with the mission of leveraging the best private technologies to bring advanced biofuels to a reliable, cost-effective production in the region. This group would posses a portfolio of valuable assets it could use to engage the best of private industry and innovation in the field. The development group would pursue and fund a roadmap of innovation and development to scale up production and drive down costs of the best technologies. A combination of BP penalties and direct federal appropriation at $1 billion per year for five years could fund this effort.

This is not a research project. This is a systematic effort to buy-down the cost of innovation and make new, breakthrough technologies commercially viable. These funds would leverage private investment in initial plants on a one-to-one basis. Once the group identified commercially successful technologies, companies would have to finance and build new production facilities. The development group would offer access to low- or no-interest loans to support these new industries or the expansion of existing industries. The group could also use these supports to build critical infrastructure. A dedicated allocation of Clean Renewable Energy Bonds totaling $15 billion would support 5 to 6 billion gallons of advanced biofuels production per year. These supports would leverage private investment on a two-to-one basis.

The development group would be “given” the market to provide the 6 billion gallons per year of advanced biofuels. They could also tap the expertise of national labs working on these technologies. Finally, each private industry that took advantage of the supports offered by the development group would have to commit to using trained workers from the area.

Innovation will create and drive the energy industry of the twenty-first century. This innovation is renewable energy’s strongest competitive advantage, and it can become the competitive advantage of the domestic industries that produce it. The coastal states can be the first real laboratory to move these policy ideas into reality. It will take support, intention, and patience. But it can be done. And think of the irony: using onshore advanced biofuels to recover from an offshore oil catastrophe.

George Sterzinger is the executive director of the Renewable Energy Policy Project.

Homepage Photo: Harvesting Sugar Cane (Mette Nielsen / Creative Commons)