In his recent State of the Union address, President Obama declared his full support for developing an alternative fuel source first endorsed by his predecessor…
Who says Republicans and Democrats can’t be on the same page?
Former President George W. Bush may have bore the brunt of many political guffaws during his two terms, but one of his boldest visions is finally starting to gain some momentum.
If you recall during Bush’s final year in office, he enacted the Energy Independence and Security Act of 2007.
Among the 16 provisions outlined to promote domestic energy security, a few pertained to the development of renewable fuels.
As I had mentioned in a previous article, ethanol production in the country has skyrocketed in the last few years as a result of the Renewable Fuel Standard law set within the Energy Act.
The law stipulates that oil companies must blend an ever-increasing amount of renewable fuels into the gasoline and diesel supply to help draw down our dependence on imported fuel and fossils fuels.
The Renewable Fuel Standard is set annually, and in 2013 the Environmental Protection Agency outlined a target production of 16.55 billion gallons worth of renewables.
Within this target, the law also mandated the specific production of 2.75 billion gallons worth of advanced biofuels, which corn-based ethanol does not qualify as. Rather, the fuel must be derived from grasses and other vegetation not used for food.
Reaching such lofty goals each year, especially in the biofuel sector, wouldn’t be possible without government support.
As such, a special tax credit was introduced along with the RFS to give biofuel producers incentives to ramp up their output.
That’s where Gevo Inc. (NASDAQ:GEVO) and its development of isobutanol saw real opportunity for growth, as my previous article had discussed.
But even after the tax credits were first offered nearly 7 years ago, it’s been a slow go for production. The global recession certainly had an impact on biofuel momentum, as it prevented the construction of any large-scale production facilities.
If that wasn’t enough, the credits also happened to expire on December 31st, 2013.
Fortunately, Obama announced plans to extend it during his address as well as introduce further financial incentives for the sector.
Here’s the official statement from the White House Press Office following the President’s speech:
“The President is announcing a new tax credit to catalyze investment in the necessary infrastructure to support deployment of advanced vehicles at critical mass. This proposal would be fuel neutral, allowing the private sector to determine if biofuels, electrification, natural gas, hydrogen, or other alternative fuels would be the best fit in different communities.
In addition, the President proposed to extend the cellulosic biofuel producer credit that expired on December 31, 2013. Cellulosic biofuels have the potential to reduce petroleum consumption and carbon pollution while boosting rural economic development. Extending the existing tax credit would accelerate development of this transformative transportation fuel.”
The President has also called on Congress to establish a $2 billion Energy Security Trust to invest in a range of sustainable technologies that would be drawn from oil and gas tax revenues.
Harking back to former President Bush’s plan to bring biofuels to the forefront, one source that’s going to get a huge leg-up from President Obama’s plans is a little-known plant with a pretty neat name: switchgrass.
Hardy by nature and native to North America, this warm season perennial grass can produce high yields of biomass with less water and fertilizer than almost any other crop (see a picture of switchgrass above).
Switchgrass has the potential to produce up to 380 liters of ethanol per tonne harvested. By contrast, corn ethanol yields around 400 liters per tonne.
But where switchgrass falls slightly short on output, it more than makes up for in sustainability.
One study cites it takes from 0.97 to 1.34 gigajoules (GJ) to produce 1 tonne of switchgrass, compared with 1.99 to 2.66 GJ to produce 1 tonne of corn.
Another study found that switchgrass uses 0.8 GJ per oven-dry tonne of fossil energy compared to grain corn’s 2.9 GJ/ODT. Given that switchgrass contains approximately 18.8 GJ/ODT of biomass, the energy output-to-input ratio for the crop can be up to 20:1.
The plants can grow as tall as nine feet high with roots that are similar in length. Due to its large root structure, each acre of switchgrass can sequester the equivalent of five tons of CO2 each year.
Under certain circumstances, perennial energy grasses like switchgrass could even be carbon negative – a benefit that other renewables cannot provide.
Top Biofuel Stock To Buy Today:
There’s a small handful of companies who specialize in switchgrass cultivation and production, but publicly-traded Ceres Inc. (NASDAQ:CERE) is the one to watch for.
Seed giant Monsanto (NYSE:MON) is a major investor in Ceres, giving the company clout and some stability.
Ceres markets a variety of seeds for energy crops used in the production of renewable transportation fuels, electricity and bio-based products.
Selling under the brand name Blade, the company develops switchgrass along with other bioenergy products, including sweet sorghum, high-biomass sorghum, and miscanthus.
Biofuels on the whole underwhelmed investors in previous years, as shale oil and natural gas gave little incentive to adopt other energy sources.
But in much the same way that solar power was given the opportunity to flourish (and it finally has), the new tax and other financial incentives at the federal level are exactly the sort of support the biofuel sector needs to achieve profitability for the long-haul.
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