DOE Re-Starts Loan Guarantee Program, This Time for Advanced Fossil Fuels

Although EPA’s newly announced regulations for new power plants are being bashed, as expected, by conservatives as a "War on Coal," it turns out that’s not the case.

True, to comply with the rules new coal plants have to be equipped with carbon capture and sequestration technology, which many see as way too expensive and unproven to be realistic in any near-term time frame.  

But at the same time EPA announced the proposed rules, the Department of Energy (DOE) made an analogous announcement: it plans to re-start its loan guarantee program – but this time, instead of supporting renewable energy companies and technologies, it will appropriate $8 billion for innovative technologies that make fossil fuels cleaner.

In other words, the government is backing development of the very carbon capture technologies new coal plants require to comply with EPA’s new rules. 

In addition to carbon sequestration, DOE will back projects that:

  • reduce emissions from the process of recovering fossil fuels, such as mining or novel drilling techniques for oil and gas that reduce flaring.
  • systems that capture carbon and then turn it into beneficial products through reuse.
  • reduce emissions per product through efficiency improvements, such as improving feedstock utilization of fossil-fuel based systems, such as combined-heat-and power and waste heat recovery on industrial facilities. 

Thus, rather than raging a war against coal, the Obama Administration is actually working to keep the industry viable.

"These investments will play a critical role in accelerating the introduction of low-carbon fossil fuel technology into the marketplace and reduce greenhouse gas pollution," says DOE Secretary Ernest Moniz. "Fossil fuels currently provide more than 80% of our energy, and adopting technologies to use them cleanly and more efficiently is critical to our all-of-the-above approach."

Although DOE halted this program in 2011, it still has $34 billion in unused funds. It is also earmarking $1.5 billion for energy efficiency and renewable energy projects, $18.5 billion for nuclear generation and $2 billion for other nuclear projects. 

Perhaps conservatives will like DOE’s program better now that it supports fossil fuels and nuclear must more than renewable energy.

Even though DOE’s $34.4 billion portfolio of loan guarantees has been extremely successful in ramping up the US renewable energy and electric vehicle industries, conservatives relentlessly attacked it, making Solyndra a household name. The government lost $800 million, a great return on investment by any accounting. 

The "guarantees" make it possible for companies to get loans from the Federal Financing Bank – interest rates currently run 37.5 basis points above Treasury bond rates. DOE can guarantee loans covering up to 80% of total project costs for the lesser of 30 years or 90% of the projected useful life of the project’s major physical assets, explains Kenneth Hansen and Charlotte Del Duca of Chadbourne & Parke LLP.  

Projects that qualify for DOE loan guarantees will now be subject to different requirements: they must have "new or significantly improved" technology; pay a non-refundable $1 million filing fee; and credit subsidy closing costs; and forego any other federal incentives or support they would otherwise be eligible for. 

House Republicans released their list of "demands" to raise the debt ceiling: besides delaying delaying Obama’s health care law, it includes greatly expanded offshore and land-based oil development, approval of the Keystone pipeline;  preventing EPA’s rules from being enacted by requiring Congressional approval of regulations and giving DOE veto power over energy-related rules, among others. 

They promise to make the new EPA regulations a key political issue for the 2014 elections, calling it a War on Coal that will  decimate the industry, put thousands of people out of work and raise energy prices.

Senate Minority Leader Mitch McConnell says the regulations "guarantee there’s never a coal-fired plant built again in America." "This needs to be stopped and we’re going to go after them in every way we possibly can."

The National Republican Congressional Committee is already running ads targeting incumbent Democrats on energy and regulation, which they view as a winning issue for the GOP.

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