By: Charlie Spalding
Perhaps one of the few points of agreement on the campaign trail this election cycle is America’s need to wean itself from an addiction to foreign energy sources. Romney’s plan emphasizes the role government can play in stimulating alternative energy development, and President Obama’s forays into alternative energy sources are well documented. While Solyndra has grabbed national headlines for months, a similar episode has unfolded in Georgia’s Treutlen County in the case of Range Fuels, a biofuels company seeking to produce cellulosic ethanol from wood chips without the use of enzymes. The saga of the Range Fuels facility is a clear example of the immense political pressure that has come to characterize the energy debate and indicates an extreme lack of accountability on the part of government officials on both sides of the aisle.
Corn-based ethanol has become increasingly prevalent since the announcement of the federal government’s ethanol mandate, which required refiners and importers in the United States to use 8 billion gallons of the product in fuels per year. One of the mandate’s unfortunate repercussions was a noted increase in the price of food. As a result, the Bush administration announced initiatives to develop new sources of ethanol, offering significant loan guarantees in an attempt to spur innovation in alternative fuels and to help rein in the spiraling cost of corn. Range Fuels applied for such a loan and, after giving testimony to Congress, received their initial loan guarantee of $76 million in March of 2007. Construction of the Soperton facility began in November of the same year.
In addition to these federal funds, Range Fuels was able to lease land in the Treutlen County Industrial Park for an extremely favorable rate – around $1 per year – in addition to twenty years of county tax abatements, a total value of around $33 million. A University of Georgia study projected $106 million in economic benefit for the county and surrounding areas. Yet the steps taken by Treutlen County represent a significant gamble, compounded exponentially by the county's 24.7% poverty rate and a median household income nearly $15,000 below the national average. Moreover, the firm became party to an agreement with the state to provide a minimum of 60 jobs by 2015 in return for a $6.25 million One Georgia grant used to buy equipment for the new Soperton plant. National taxpayers in general and county and state taxpayers in particular suddenly became important stakeholders in the company’s success.
Range Fuels was being showered not only with cash, but with accolades as well. Frost and Sullivan, an international business research firm, presented Range Fuels with the North American Alternative Fuels Technology Innovation Green Excellence of the Year Award in 2008, one of the most coveted (and verbose) in the entire industry. Unbeknownst to Frost and Sullivan, th
e company was facing significant issues in its technology development process. It was forced to drastically cut its ethanol production forecasts by nearly 75% and instead boost its forecast of methanol production by 33% in the same award-winning year.
The production of cellulosic ethanol, the product first promised by Range Fuels, requires sophisticated new technology; it can presently be used in everyday vehicles and can be applied to the government’s mandate for ethanol based fuels. On the other hand, methanol does not count towards the government’s mandate and is manufactured through a process that has existed for almost a century, not exactly the ground breaking innovation government officials had in mind or that taxpayers had expected. However, methanol can be used to power vehicles, on the condition that the vehicle in question is a drag racer or funny car.
Unfortunately, it cannot be said that this announcement came as a shock to government officials. The Atlanta Journal Constitution reported just last week that the project was given the go ahead despite multiple scathing budget reports and concerned internal letters and memos. The announcement of scaled back cellulosic ethanol production should have been a signal that the development process was far behind schedule. Nonetheless, the USDA continued to invest money in the project, while many within the department knew that it was destined for failure.
While it is becoming easy to pin any type of failure on the resident of the White House, the failure of Range Fuels is not an example subject to this criticism. The project’s initial loan guarantee of $76 million was announced in March 2007, and ground was broken at the Soperton facility eight months later. Furthermore, despite numerous red flags about potential problems with the plan, Range Fuels managed to scramble enough funds to make a payment on their initial loan in early of 2010. As a result, the United States Department of Agriculture issued another $80 million loan guarantee in February of 2010, leaving the fingerprints of both the most recent administrations on the doomed project. It was not until the company failed to make a payment in January of 2011 that the government finally extricated itself from the debacle and revoked Range Fuels access to the low-risk government funding that had served as the company’s lifeblood for nearly four years.
There is little doubt about the finite nature of the fossil fuels on which our country heavily relies. With this in mind, the development of alternative energy sources is certainly an important goal and should be a high priority. However, as the episodes of Solyndra and Range Fuels clearly show, such innovation should be dictated and controlled only minimally by government policy. The politicization of the development process of alternative energy sources can lead to a conflation of the goals of energy independence and electoral success and leave some of our country’s most economically vulnerable taxpayers footing the bill.
Despite the obvious failure of the plant, the story of Range Fuels does have some marginal benefits. In particular, the USDA has more stringent protocols in place for the allotment of its loan guarantee authority, a direct response to the unbridled access to federal funding Range Fuels had for a questionable venture. As a result, it is likely that future efforts to develop new ethanol-based fuels will be subject to enhanced scrutiny, ensuring that taxpayer dollars are relatively safe in an inherently risky process.