Oil and Ethanol Fight at the Supreme Court Over the Word “Extension”
By Brentan Alexander, PhD; Chief Science Officer & Chief Commercial Officer
A protracted legal and political fight that has pitted two pillars of the Republican base against each other reached its apex last week as the Supreme Court heard arguments in HollyFrontier Cheyenne Refining, LLC v. Renewable Fuels Association. At issue is the authority of the US Environmental Protection Agency (EPA) to provide relief to refiners under the Renewable Fuel Standard (RFS), which mandates blending requirements in the domestic fuel supply for biofuels, primarily corn-ethanol. Refiners argue that EPA’s authority (including to offer waivers) is broad, while the farm lobby counters that the authority is limited. The outcome of the case rests on how the nine justices interpret the meaning of the word “extension.” Their decision has the potential to enormously affect the value of ethanol in the US, directly driving corn prices and economies in the US heartland.
The RFS regulation was established by Congress with the Energy Independence and Security Act of 2007. Formulated during a time of falling US oil production, the RFS biofuels blending requirement strategy was seen both as an economic benefit to Middle America and a way to fortify domestic energy security. Under the RFS, the EPA sets annual “Renewable Volume Obligations” for a variety of biofuels that refiners must blend into finished fuels. To track compliance and enable burden sharing, the RFS established a market-based system that allows obligated parties to trade compliance credits (RINs). These RINs have a fluctuating value depending on supply and demand of biofuels in the market, and the D6 RIN, which relates to corn-ethanol, has been an important economic driver for growers in the Midwest. The program underpins the ethanol industry, which generated more than $46 billion in revenues in 2018 alone.
The cost of the RINs is borne by refiners (and eventually the consumer), who must purchase sufficient RINs to ”retire” with the EPA to satisfy their mandate. To aid small refiners from the added compliance costs, the RFS includes a waiver process designed to exempt qualifying refiners from the obligations of the RFS. Through a petition to the EPA, qualifying refiners can be granted temporary exemptions from blending mandates if the EPA, in consultation with the Department of Energy, finds that RFS compliance would lead to “disproportionate economic hardship” for the petitioner.
The difficulty for corn growers is that this exemption program was expanded considerably during the Trump administration. The number of waivers granted to refiners skyrocketed from under 10 to over 30 in the first two years of the administration. Even large refiners were given waivers, and the EPA failed to increase mandates on other refiners to compensate for the missing gallons, effectively reducing demand for biofuels by billions of gallons overnight. Prices for ethanol and the D6 RIN collapsed. Many ethanol plants closed as a result. Incensed, Chuck Grassley (R-IA) noted that the EPA “screwed us” and the lobbyists for farmers and ethanol producers unloaded criticism on administration officials. A lawsuit followed, claiming the EPA overstepped its bounds in issuing the waivers.
That lawsuit was decided by lower courts on the interpretation of the statutory language. The RFS rules state that small refiners (under 75,000 bbl/day) did not need to comply with the RFS until 2011, and those refiners meeting the disproportionate economic hardship threshold were allowed a temporary exemption valid for an additional two years. The next paragraph in the statute further allows that a “small refinery may at any time petition for an extension of the exemption.” The 10th Circuit focused on the word “extension” and ruled that exemptions are only valid if they are extensions of exemptions previously and continuously granted from the start of the RFS. Most exemptions put in place under the Trump administration therefore didn’t qualify. The decision was a major win for the ethanol industry, and the value of the corn-ethanol D6 RIN has increased over 400% since the decision was handed down.
Three small refiners in Wyoming, who have not had continuous exemptions, challenged that ruling, paving the way for last week’s oral arguments at the Supreme Court. As expected, the justices focused on the word “extension,” working to determine if the law’s intent was to increase compliance over time as exemptions lapsed and weren’t renewed, or to allow for regulatory relief due to hardship. The justices questions did not provide much guidance on which way the court is heading, but a win for the ‘hardship’ interpretation pushed by the refiners would work to undercut the RFS, opening it to further political meddling (beyond the EPA’s authority to set annual blending mandates), and likely leading to further efforts by Midwestern politicians to shore up the RFS program. Either way, both the corn and oil industries will be watching this summer for the final opinion on the matter from the highest court in the land.
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Meeting Biden’s Climate Goals Requires Giving Exxon a Seat at the Table
By Brentan Alexander, PhD; Chief Science Officer & Chief Commercial Officer
Earth Day 2021 saw the release of major climate announcements from players seemingly on opposite sides of the greenhouse gas debate. President Biden took the stage at the Leaders Summit on Climate to pledge a net-zero US economy by 2050. Meanwhile, ExxonMobil published a detailed call to action for wide-scale carbon capture investment with a first focus on the Houston, Texas area. Carbon capture is required to reach the ambitious goals laid out by Biden, and petrochemical majors will most likely be involved. So finding a place for these fossil fuel giants in a low-carbon future will be important, though not clear cut. Whether Exxon’s announcement was a public relations stunt or serious strategic shift, policy makers and environmentalists need to get ready for big oil to pull up a seat at the table.
Competitors big and small, foreign and domestic, have seen the writing on the wall for a few years now: BP has set a 2050 net-zero goal and has been active in shifting to renewable fuels. Royal Dutch Shell has a 2050 net-zero goal of its own and a burgeoning portfolio of biofuels investments, including one that turns trash into fuel. In Exxon’s backyard, Occidental Petroleum’s CEO, noting that the future depends on lower greenhouse gas emissions, has formed a joint venture to utilize technology from Carbon Engineering to suck carbon dioxide directly out of the air and store it permanently underground. To be sure, these companies' efforts are still a small part of their overall budgets and expenditures, but their growth demonstrates that the energy market is changing. As the world moves on from fossil carbon, business as usual will lead to stranded assets, heavy losses, credit downgrades, and ultimately no business at all. What happened to coal will inevitably come for big oil.
It’s not yet clear if Exxon has come to this realization given that it has no net-zero pledge despite growing shareholder pressure. Its proposal last week read less as a change in strategic thinking and more as a trial balloon aimed at the new power brokers in Washington. Exxon says it is seeking to enable carbon capture and sequestration on the Gulf Coast, but offers no upfront commitment and no further deployment plan, yet asks for significant amounts of public money. Reaction from the climate community, which has spent decades watching Exxon actively bury climate research and gaslight the public, ranged from anger to eye-rolls.
And yet the proposal has merit. The Gulf Coast is home to a concentrated collection of carbon intensive industries. The local geology is perfectly suited for long-duration carbon sequestration. Exxon is well-positioned to enable carbon capture and sequestration given its personnel and expertise. And government action is needed to change the economic balance between clean and dirty energy.
Carbon capture is just one of many approaches needed to reach the ambitious goals laid out by President Biden, as a recent report from Energy Innovation demonstrates. A net-zero economy requires a little bit of everything: renewables, energy storage, electric vehicles, hydrogen, building efficiency standards, advanced nuclear, biofuels, carbon capture and sequestration, and more. It’s hard to pick a winner when everybody needs to finish first. As a result, the Biden administration’s announcement last week was heavy on ambition but light on details, which created a policy void. That allowed others to fill in the blanks, from Exxon’s aforementioned vision for carbon capture, to a relaunching of the Green New Deal by progressives, to a bad-faith effort by Biden opponents to use literal red meat issues to rile up their base.
The fact is that most, if not all, of the technologies and companies best positioned to enable a net-zero future have environmental blemishes (or worse) on their records. It’s possible to find something to like and dislike about nearly every solution. For example, batteries require vast amounts of minerals unearthed in environmentally destructive mines; biodiesel has led to mass deforestation in Asia; the list of companies that can enable the quick and effective deployment of carbon capture technology heavily overlaps with the list of companies most responsible for extracting fossil carbon. Giving money to enable a carbon capture and sequestration hub along the Gulf Coast may make for good climate policy, but the optics are poor when the companies most likely to benefit are Exxon, Schlumberger, Halliburton, Chevron, or another major petrochemical player.
Nearly all solutions to the climate crisis have tradeoffs, but not all are actively embraced by the climate community. So far, carbon capture run by petrochemical majors has been a hard pill for some to swallow. Getting the climate community to come to terms with this is going to be difficult because distrust rightfully abounds. Do these companies truly see a profitable and responsible future in climate-friendly business lines, or are they making a cynical calculation to avoid more drastic regulations that threaten their core business? We don't know the answer to that yet. What we do know is that the companies most experienced with drilling wells and moving vast quantities of molecules are also the best positioned to help enable the carbon capture sector. They deserve a seat at the table, even if it's an uncomfortable one.
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Blackouts in Texas and California Teach a Hard Lesson
Climate Change is Costly
By Brentan Alexander, PhD; Chief Science Officer & Chief Commercial Officer
A record-setting polar vortex, which brought intense cold to a majority of Americans, has led to massive blackouts in Texas; significant amounts of energy generating capacity have been knocked offline. The Texas grid operator, the Electric Reliability Council of Texas (ERCOT), announced early Monday morning the need for short-duration rolling blackouts across the Texas grid to balance demand with available supply. Within hours, those short duration blackouts had morphed into massive outages impacting more than four million residents for hours on end. As of last week, millions from Houston to Austin still did not have power restored and utilities were advising consumers to be prepared for further outages. ERCOT projections pointed to roughly 54 GW of generating capacity being available by end of day last Tuesday (above the 48 GW available at this time of writing), far short of the 69 GW in demand the system saw a week prior.
If this all sounds familiar, it's because California went through a similar situation just a few short months ago. Faced with an unprecedented heatwave, residents of the Golden State found themselves losing power for hour-long periods as the California Independent System Operator (CalISO) struggled to match supply with demand statewide. CalISO had dealt with heat waves in the past, and generally called upon electricity imports from neighboring states to balance the load in prior years. But the heat wave that hit California last year was particularly extreme and beyond what scenario planners had ever envisioned: a region-wide event impacting the entirety of the western US. The usual route of shoring supplies through electricity imports failed because other states in the region were experiencing the same heatwave, and blackouts were ordered before the entire grid went down.
All indications point to a considerably worse scenario that unfolded in Texas. Despite the uproar, California’s blackouts were modest by comparison, with around 500,000 homes and businesses losing power at the height of the blackout period for between 15 minutes and 2.5 hours. Texas, however, suffered from an unprecedented loss of generating capacity, with early reports pointing to roughly 30 GW of primarily gas-fired capacity offline, representing more than a third of generation capacity in the state. Some have taken the chance to blame wind and renewables for the issues plaguing Texas. But supposedly resilient fossil-fired assets are primarily impacting the region. Compounding matters, Texas is the lone state in the lower 48 with its own power grid and has limited ability to import power from neighbors. The Southwest Power Pool, another grid operator in the central United States that had indicated earlier this week that it may begin blackouts of its own, avoided a similar disaster in part by leaning on neighbors.
While it’s too soon to identify a root-cause for the catastrophe in Texas, it’s likely that planning failures analogous to California’s are to blame. A cold snap of this severity and longevity was likely not considered by ERCOT or Texas utilities in their resiliency planning scenarios. The failure of such a large portion of the generating fleet suggests that infrastructure designed for less extreme weather was left defenseless to the extreme cold. Equipment is icing, natural gas lines and distribution points are freezing, and fuel supplies are being prioritized elsewhere. Technologies exist to keep the wheels in motion during extreme cold (just ask Minnesota), but the added expense for the cold weather upgrades was likely deemed unjustified in traditionally mild Texas or cost-prohibitive in the deregulated Texas electricity market.
As climate change worsens extreme weather events, we should expect more of these failures. Aging infrastructure built around 20th century weather patterns will be continually tested by the more extreme weather now becoming commonplace. Reliability plans based off similar assumption sets will need to be reworked entirely. Industry analysts peg the cost of upgrading and modernizing the US grid in the trillions of dollars alone, which doesn’t even account for the trillions more needed to replace aging fossil-fired assets and build gigawatts of energy storage to support further renewables penetration. No matter your policy positions or thoughts, climate change will find its way into your utility bills. These grid failures are wake-up calls and provide further proof that the impacts of climate change are not geographically constrained, nor do they take aim at one political party. One way or another, the cost of climate change on each of us will make itself known: in this, both California and Texas can now agree.
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Carbon Capture: 11 Highlights From the Finalized 45Q Rules
A summary of key points from the 187-page final regulation
By Matt Lucas, PhD; Managing Director, Business Development
I’m excited about carbon capture technology; it’s critical for decarbonizing hard-to-electrify industrial infrastructure and other facilities whose emissions are challenging to mitigate. So, like many others, I’ve been waiting for the IRS to release its final carbon capture regulations on 45Q, the federal tax credit.
After nearly three years of anticipation, we finally have both the regulations and the IRS’s commentary. As then-Treasury Secretary Mnuchin said, “These final regulations provide taxpayers and the American energy sector with needed clarity on utilizing the section 45Q credit.” Finally!
For carbon capture to continue to iterate, scale, and improve, it needs non-recourse project financing and the traditionally conservative tax equity community to come to the table. Tax equity is critical for monetizing 45Q.
There’s a great deal to glean from the IRS guidance, but I would guess most people don’t have the time or patience to sift through its 187 pages. Here’s your cheat sheet: I’ve summarized the key points, which collectively provide the additional clarity and certainty that investors need to invest in carbon capture.
11 Takeaways from the 45Q Final Guidance:
- Removing the Cap: One of the key reforms to the 45Q regulation was to lift the 75 million ton cap on credits. However, the cap still applies to qualified carbon capture facilities placed in service before February 9, 2018 (i.e. before the reform was passed). In the interim, several 45Q credits have been ‘disallowed’—IRS-speak for ‘revoked’ because the taxpayers claiming them were not complying with the regulations. The IRS clarified that those disallowed credits will be returned to the 75Mt pool. To keep track, the IRS publishes an annual running tally (page 925) of claimed credits and will continue to do so until the cap is reached. In June 2020, 72,087,903 credits had been claimed, so I suppose the cap will be hit soon, even with the exclusion of the disallowed credits, and this annual report will then become irrelevant.
- Clarifying Who Gets the Credit: Some carbon capture projects (including many of the early demos) were vertically integrated from capture through geologic storage, so there was no question about who could claim the tax credit and who had responsibility for secure storage. However, this becomes more complicated when the capture and storage are completed by different parties. The IRS ruled that the credit belongs to the party that owns the capture equipment, and only they can elect to transfer the credit. Furthermore, the owner of the capture equipment may be different than the owner of the industrial facility, which the equipment is capturing from. This is important for carbon capture entrepreneurship; third-party capital can be brought to existing emitting facilities that don’t understand carbon capture but still want to benefit from the emissions reduction.
- Contractually Ensuring CO2 is Stored (Sort of): Beyond ownership, a greater complication is the contract between the capture company and the storage company. After all, if the storage company leaks the CO2, the capture company would be the responsible entity in the eyes of the IRS, since they were awarded the tax credit. The IRS thoughtfully allows for multiple CO2 storage contracts, as well as a string of contracts (say from a general contractor to subcontractors), but has only minimal rules about what liability the storage company is required to take on (“must include commercially reasonable terms and provide for enforcement of the party’s obligation”). As business hates ambiguity, I think this is a prime opportunity for investment-grade insurance solutions, like those from New Energy Risk, which can indemnify the capture company against leakage from storage.
- Timing the Credit: Legislation states the 12-year period for claiming the credit starts when the equipment is originally placed in service. Some rejected comments sought to stretch the timeline, by delaying the ‘Placed in Service’ date to account for MRV plan approval or a commissioning ramp-up period. The current policy design rightfully incentivizes the fastest possible commissioning schedule.
- Lifecycle Accounting Is Only for CO2: Some CO2 utilization pathways mitigate greenhouse gases other than CO2, and mitigation may be greater than the Qualified Carbon Oxide directly utilized. To comply with ISO 14044:2006, the IRS required lifecycle analysis reports (LCAs) to ensure the overall carbon utilization process was reducing greenhouse gas emissions, but expressly limited those LCAs to account for carbon oxides only for purposes of the tax credit. The credit volume is capped by carbon oxides that are captured rather than also including those that are mitigated. This is an admittedly messy area with many different processes. In particular, there are issues with defining system boundaries, defining a baseline, and verification generally. Overall, I doubt any of this nuance will contribute meaningfully to overall credit volumes since geologic storage projects will be much larger.
- Defining Carbon Capture Equipment: Earlier drafts from the IRS had attempted to list the included and excluded equipment, which turned out to be confusing given the diversity of carbon capture technology and processes. The final regulations allow for inclusion of all equipment related to carbon capture up to the point of transportation.
- What Is an Electric Generating Facility: One would think this is obvious, but some facilities, like combined heat and power facilities, may sell incidental electricity to the grid even if power generation isn’t their primary purpose. Many are not large enough to meet the 500,000 ton per year minimum requirement. The IRS defines these facilities by their MACRS asset classes, which are used in calculating depreciation. Since MACRS classes are well defined, this should put to rest any questions about which facilities have to meet the higher minimum capture volumes of an Electric Generating Facility.
- Holding the Line on Tough EOR Regulation: The IRS appropriately held firm that enhanced oil recovery (EOR) operations had to have their MRV plans or ISO certifications in place before claiming the 45Q credit and could not do so on a provisional basis.
- Expansively Defining a ‘Qualified Carbon Capture Facility’: A previous IRS document, Section 8 of Notice 2020-12, provided a broad definition for how to define a Qualified Facility. I applaud the IRS’s flexibility, allowing projects that share some features including:
- common ownership
- common loan agreement were planned under the same FEED study
- share common operations and management
- share infrastructure
- are part of the same contractual offtake
- are combined in regulatory permits and reporting
- and/or are proximally located to qualify as a single unit.I see no compelling reason to disqualify facilities solely for being too small. Technoeconomics will dictate a minimally viable facility size, but I see no reason for the IRS to put its thumb on that scale. However, Placed-In-Service requirements will still require any distributed projects to be commissioned simultaneously, which I think will limit the utility of this broad definition. - Slammed the Door on Photosynthesis and Soils as “Direct Air Capture” and “Secure Disposal”: For proponents of photosynthesis and soil carbon as climate solutions, ‘direct air capture’ sounded like plants and regenerative agriculture sounded like ‘secure storage.’ The IRS rejected these comments and preserved the Congressional intent of the tax credit to support ambient capture facilities and geologic storage in deep formations, not soils.
- Lookup Period is Shortened: Any CO2 leakage is deducted on a last-in, first-out basis. Earlier rules provided a five-year lookback period for ensuring geologic storage, but the IRS shortened this to a three-year period. Class VI storage sites are not exempt from recapture requirements. The shorter lookup should be helpful as it lowers the compliance burden on the taxpayer. Insurance solutions from New Energy Risk can mitigate this further.
If you have additional questions about 45Q, we’d be happy to hear from you. Here at New Energy Risk, we are geared up to play a substantial role in helping to scaling new carbon capture technologies. So for us, the finalization of 45Q is the bedtime reading we’ve been waiting for. And now we can finally get some rest.
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Interview: Kara Owens, Global Executive Underwriting Officer – Cyber & ESG
We are inspired by people who are passionate about insurance and technology that solves pressing global challenges. In this interview series, our chief actuary, Sherry Huang, talks with friends of New Energy Risk whose work makes a difference, and whose journeys will inspire you, too.
This interview has been lightly edited for clarity.
“You should meet Kara Owens,” my reinsurance broker friend suggested to me last summer. “She is a cyber risk underwriting executive and is heavily involved with Markel’s ESG initiatives.” I had mentioned to him that NER is refocusing on our own ESG efforts: the ways we engage in business that is positive for environmental, social, and governance goals.
So, I reached out to Kara who shared the story of her career and her latest initiatives at Markel. Markel provides coverage for specialty insurance and reinsurance for commercial niche markets. Markel is one of the reinsurance partners of AXA XL that works with us at NER.
Kara, tell us about how you get to where you are today, and some of the mentors who showed you the way.

It’s been quite the journey. I am one of those odd ducks that majored in Risk Management and Insurance rather than falling into the industry. I went to Temple
University and had numerous insurance internships in college. After graduation, I accepted a role at Guy Carpenter. I decided after a couple of years that underwriting was more my passion, so I moved to TransRe. I spent eight years at TransRe, moving up from a line underwriter to a global P&L manager for Cyber before age 30. My role at TransRe took me all over the world – from South America to Europe to Asia doing presentations and helping insurance companies start cyber portfolios. I helped form the Women’s Group at TransRe and was on the Board of a project with the Singapore government. I was out of my comfort zone a lot. I truly think being outside of my comfort zone helped to shape my career.
I moved to Markel about three years ago and now I can work with all of the (re)insurance divisions, from fronting paper to Insurtech to alternative capital. I’m on the board of the Association of Professional Insurance Women (APIW), which helps me to give back while doing something I’m passionate about. I am also now engaged on the leadership team for the Markel Women’s Network. I recently became a strategic advisor to a start-up company that advises individuals and firms on how they can measure their impact in building a more sustainable world. When the role of global executive underwriting officer for ESG was established, Markel recognized my passion and I was graciously offered the position. I’m thrilled to continue this adventure!
I have been incredibly lucky with mentors throughout my career. I keep in touch with them all regularly and still need to seek advice to this day! I don’t think that will ever change. What has changed is that I am now acting as a mentor to several mentees. It’s important to me to give back to this industry.
What is your vision for Markel’s ESG practice?
My role is still very new and I’m so excited for what is to come! I think there’s a lot of work to be done in the industry that will really make a difference (while at the same time reducing risk). At Markel, we have always had a strong commitment to our communities and ESG is a natural fit with the culture. I’m in the process of working with colleagues to create an underwriting framework and strategy to allow Markel to better understand, prevent, and reduce ESG risks. There is also a lot of opportunity for product development by enhancing, creating, and supporting products that promote responsible environmental and social efforts.
I see a lot of ways for more collaboration in the insurance industry. We have seen examples already with the United Nations Environment Programme Finance Initiative Insurance Working Group and Principles for Sustainable Insurance initiatives where insurers and stakeholders collaborated on the proposed ESG standards. In addition to the insurance space working together, [the industry can embrace] other partnership opportunities with other industries and initiatives.
What do you enjoy the most about your job? What is the most challenging aspect?
What I enjoy most and what is the most challenging is the same thing for me.
Being involved in two areas that touch nearly every product line provides me the opportunity to constantly be learning, which I really enjoy. But sometimes I feel like I’m drinking from a firehouse as I evaluate numerous products’ exposure to cyber and now ESG.
I really enjoy the concept of ‘round-table’ in underwriting, which describes the need to look at each transaction from many perspectives, including how current events might affect our business and how each transaction/risk might affect our portfolio. I also love the potential to really make a difference with the ESG role.
What is your advice for people entering the insurance industry today?
One piece of advice is to never stop taking advice! There’s always room to grow.
A few more takeaways that have really helped me:
- Even with technology coming full-force at the insurance space, relationships are still the heart of the industry. Make sure to build a network and a support system including mentors.
- Join organizations and take leadership roles within those groups. This will help to build your confidence while building a network!
- Raise your hand when no one else wants to (this is what I did with cyber). Also: speak up. I always loved Ruth Bader Ginsberg’s quote, “Speak your mind even if your voice shakes.” Don’t be afraid to get out of your comfort zone often.
- Never stop learning—whether it’s taking classes or getting designations, going to conferences, taking a new job, or just reading the news and applying it to the insurance industry—there are always opportunities to grow.
- Find your passion. My passion seemed to change over time, but I always let it guide me in my decision making.
- Give back! This is an area where this industry never ceases to amaze me. I have met some of the most charitable people in insurance. Also, as you grow in your career, give your time to mentor and to organizations such as Gamma Iota Sigma or [elsewhere] such as universities to recruit talent into our amazing industry.
- Take care of yourself. It’s often difficult to balance it all, but it’s more important now than ever! Meditation, building in small breaks to my workday and going for walks outdoors have really helped me.
Thank you, Kara, for this interview. You inspire me with your can-do attitude, your desire to give back, and your passion for insurance-related ESG potentials!
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$100 Million from Elon Musk Won’t Enable Carbon Capture
By Brentan Alexander, PhD; Chief Science Officer & Chief Commercial Officer
Last Thursday, Elon Musk announced (in well under 140 characters) his intention to donate $100 million to the “best” carbon capture technology, chosen through a competition whose details and judging criteria are yet to be announced. Musk promised further details next week. The problems holding back the mass deployment of carbon capture technology are primarily economic. As such, funding for research and development of carbon capture technologies is most welcome, and Musk’s donation will surely lead to technological advances. However, a Silicon Valley mindset like Musk's, one that champions disruptive innovation as the solution to all problems, is the wrong fit for this important industry.
One difficulty with carbon capture technology is that uses for its recovered CO2 are still limited. The predominant usage today is in enhanced oil recovery, a process that increases oil reservoir yields by injecting CO2 into the well. Multiple other commercial uses are in development, but until there is an offtaker willing to purchase CO2 at scale, projects are having a hard time gaining traction with capital investors.
Those investors are direly needed, however, because carbon capture technology is costly. For example, separating CO2 from the emissions of power plants or industrial facilities (e.g. Petra Nova in Texas) doesn’t happen spontaneously: it takes loads of energy. Separating CO2 from air (e.g. Carbon Engineering) is more costly still because the CO2 is thinly dispersed, making up only 0.04% of the air we breathe. Then on top of the expensive power needed to perform the separation, the equipment itself is still extremely expensive. Even as equipment costs come down, no technological advancement can overcome the laws of nature and make this process free.
Proposals to avoid the need for complex equipment by utilizing kelp, trees, soil, and other natural processes to capture and sequester carbon face the usual challenges associated with funding, creating, and managing forests or farms, but with the additional challenge that the true efficacy of these potential carbon sinks is still widely debated.
Whether the technology performing carbon capture is chemical, biological, or otherwise, somebody has to buy the resulting CO2 or otherwise incentivize its capture and sequestration to make the upfront and ongoing costs worthwhile.
To find markets for the captured carbon, some are looking at chemically converting CO2 into high-value products, like carbon nanotubes. The downside of this approach is scalability: the most attractive products hold high value precisely because they are hard to make or have small and limited markets. As one scales up carbon capture technology to impact climate change, the sheer quantity of produced material would swamp the niche markets for these high-value products, cratering prices and undermining the original business case.
A more scalable solution aims to create a circular economy wherein CO2 is used to make fuels; the kerosene used by Musk’s SpaceX could be made this way. Even here, however, fundamental laws of thermodynamics show that the energy input required to convert CO2 into chemicals or fuel is higher than the energy available in the products themselves. For an idealized system that converts CO2 and water into gasoline using only exactly as much energy as ends up in the fuel, the cost of the energy to perform the conversion would be $3.69 for each gallon of gasoline produced, assuming electricity at 10 cents per kilowatt-hour. It’s physically impossible, no matter the advancement of technology, to use less energy to synthesize that fuel. Real systems aren’t 100% efficient, and further, add in the cost for maintenance, overhead, water, energy for the CO2 separation from its source, and financing costs for the equipment to do all this work, which leads to still higher costs per gallon produced. Competing against cheap fossil fuels on a dollar for dollar basis is nearly impossible.
The only durable solution that enables the scaling of carbon capture technology is a regulatory regime that makes it more expensive to emit CO2 (through taxes, fees, or otherwise), that pays companies to capture CO2, or that does some combination of the two. Thankfully, some of these tools are already in place. Just weeks ago the United States Internal Revenue Service (IRS) finalized its rules for a program colloquially referred to as 45Q, a tax credit that provides projects with up to $50 per metric ton of CO2 stored underground. The California Low Carbon Fuel Standard (LCFS) provides credits to facilities that capture and store CO2, with the value of the credit floating based on a mandated trading market and the number of granted credits dependent on the overall carbon intensity of the process. Similar programs exist in the Pacific Northwest and a federal program is under development in Canada.
These programs are not enough. 45Q is temporary and will expire in a few short years. The LCFS program has limited scope and jurisdiction, and its market would be quickly overwhelmed if carbon capture reaches scale. But these programs provide mechanisms to help support the burgeoning industry today and provide blueprints for new programs in the future. The solution to carbon capture deployment lies in expanding financial programs like these to provide further incentives to technology developers.
Carbon capture today looks a lot like solar technology did 20 years ago, when it was on the brink of growing 500x over the next two decades. Research and development money did not unlock the solar market at the turn of the century; rather it was the emergence of a viable business model driven by mandated renewable energy targets that allowed solar to rapidly expand and run down the cost curve, driving further growth. Carbon capture is ready to make that jump.
Musk’s prize will surely help some firms further their technology and reduce their costs, but Silicon Valley-type solutions won’t create the market that unlocks carbon capture. Instead, carbon capture is ready for Wall Street and Capitol Hill. It will take the deployment of today’s technologies supported by billions of dollars in incentives and investment from governments, banks, and corporations to demonstrate the much-needed business case for carbon capture and truly enable it to scale.
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Interview: Audrey Lee, PhD, Clean Energy Senior Executive
We are inspired by people who are passionate about technology that solves pressing global challenges. In this interview series, our chief actuary, Sherry Huang, talks with friends of NER whose work makes a difference, and whose journeys will inspire you, too.
This interview has been lightly edited for clarity.
I first ‘met’ Audrey through a few shared online interest groups. One day I saw that she had posted about being a co-chair of Clean Energy for Biden. (I subsequently found out that Matt Lucas, NER’s managing director of business development, is also involved in the same organization.) This piqued my interest, and I then learned that Audrey has an impressive background with a wealth of diverse experiences. She has done everything at work from scientific research, policy and regulation, big data and analytics, product and market development; she is now a Board director for ArcLight Clean Transition Corp, a special purpose acquisition company with a focus on sustainability and clean energy. I spoke with Audrey on the eve of Election Day with great anticipation. Audrey is personable, open, driven, and enthusiastic about the work she is doing to promote the clean energy sector.
When did you first start working on energy-related technologies? Was there a pivotal opportunity or individual who led you to working in the renewable energy sector?
I first discovered energy policy in graduate school while struggling with my PhD in electrical engineering. I took classes in public policy with Professor Denise Mauzerall at Princeton and I loved how directly impactful to society it is. Professor Valerie Thomas was also an early believer in me and she helped give me a lot of confidence. When I graduated, I joined the Department of Energy through a Presidential Management Fellowship. I highly recommend that program, which targets recent graduates with an advanced degree for federal government public service. At the DOE Policy Office, under the guidance of Carmine Difiglio, I found a way to be the bridge between the technical analysts and modelers at Brookhaven National Lab and White House policy decision-makers.
Can you tell us about the most rewarding project that you worked on in the last few years? Between being an advisor to the California Public Utilities Commission, running Sunrun’s Energy Services group, and co-chairing the Clean Energy for Biden initiative, I am sure it’s hard to talk about only one!
I love proving that something new can be done. At Advanced Mircrogrid Solutions, we replaced fossil fuel power plants with an aggregation of batteries at customer sites. With Sunrun, we entered the ISO-NE capacity market with the aggregation of rooftop solar and batteries. Most recently, it has been great to be involved in Clean Energy for Biden – a volunteer organization – and witness the impact that we made from hundreds of active volunteers and 10,000 members.
Tell us a little more about the Clean Energy for Biden initiative.
We have three goals: fundraise, get out the vote, and provide policy recommendations. We leverage diverse skills of volunteers, across the country with more than 30 state/regional/affinity teams. Check out the upcoming policy summits on November 16 (4-6pm PT) and November 23 (4-5:30pm PT):
https://www.cleanenergyforbiden.com/policysummit
Do you have any advice for women who are pursuing a STEM career, who wish to maximize their impact using their backgrounds and skills?
Personally, my education in applied physics and electrical engineering provided a good foundation. I would encourage women to explore, talk to people, and understand the problems they are trying to solve. I’ve always loved learning from other people – including from my own family. My Dad is a physicist, and my mother is an entrepreneur. My general advice is never be too comfortable; ask yourself how can I learn more, how can I apply a quantitative, analytical approach to solve a problem.
Which areas require the most work in advancing clean energy solutions? Policy/regulation, innovation in technology solutions, or private investment?
Many technology solutions are economically competitive for clean energy already, and private investment, such as ArcLight, is ready to deploy investment and reduce the cost of capital. On the technology innovation front, we need more technology solutions for negative emission, such as carbon capture, to help achieve a rightfully aggressive clean energy goal of net-zero emissions by 2050. I think we have the most need for policy at this moment. Policies that set the rules of the game, set mitigation goals, and let competitive technologies and market solutions participate. Such policies can go hand in hand with economic recovery as more jobs are created in the clean energy sectors.
Thank you, Dr. Lee, for talking to me for this interview series!
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One Small Step for Torrefaction, One Giant Leap for the Bioeconomy
Commissioning of the US’s first commercial torrefaction facility is a milestone in its own right, and a potential game-changer for the bioeconomy’s inroads against fossil fuels
By Matt Lucas, PhD, Managing Director, Business Development
Moonshine: It might not sound synonymous with the bioeconomy, but at a massive scale, the fermentation of traditional sugar to create ethanol was where the bioeconomy got its start. Leaving behind tasty feedstocks and inebriating bioproducts until happy hour, today we see that the bioeconomy includes a growing and wide variety of feedstocks, processing technologies, and products. Importantly, when the feedstocks are cost-advantaged wastes that are converted into value, the bioeconomy is good for both commercialization and environmentalism.
One processing technology of the bioeconomy is torrefaction, a member of the trifecta of dry thermochemical waste processing technologies, which also includes gasification and pyrolysis. With the completion of the Restoration Fuels (RF) commercial scale torrefaction facility in Grant County, OR, the US now has a complete set of all three technologies in or nearing commercial operation. Each process has its own strengths and weaknesses, but all of them are important contributors to a new wave of bioeconomy innovation.
What is torrefaction?
Torrefaction is a thermochemical process where organic material feedstock (“biomass,” e.g. wood chips) is heated in the absence of oxygen to drive off water and volatile organic compounds (VOCs). The VOCs are burned to provide process heat, but the vast majority of the feedstock’s mass remains in solid form and exits the process as the product. The product, termed “bio-coal,” is more energy dense than biomass, is hydrophobic (important for shipping and storage), and is far more resistant to rotting (important for storage). Bio-coal is used as a drop-in replacement for coal as a global energy source, more on this below.
Torrefaction’s thermochemical counterpart, gasification, instead applies an oxidant to the feedstock so that most of it converts to a gaseous product stream. (Gasification makes gas, go figure.) The other counterpart, pyrolysis, uses the same oxygen-starved environment as torrefaction but typically operates at higher temperatures to drive further reactions that convert more of the feedstock to gases and liquids. (The meaning of pyrolysis is “pyro” for heat and “lysis” for break down. Incidentally, to torrefy means to roast, so I like to loosely think of torrefaction as the slow-cooker barbeque in the bioeconomy kitchen.)
What happened?
In 2019, the RF commercial-scale torrefaction facility started operations. The facility is co-located with an existing lumber mill. It processes forest residues from a forest restoration project on public lands, making use of what would otherwise be wasted or what would become a wildfire hazard. This is the first commercial-scale torrefaction facility located in the US.
The project had been a long time coming. It originated from the Consortium of Advanced Wood-to-Energy Solutions, a public-private partnership between the US Forest Service and the US Endowment for Forestry and Communities, a non-profit. The Consortium supported bio-coal production for a test campaign at Portland General Electric’s Boardman power plant.
Bio-coal as a coal substitute?
The bioeconomy has long been making inroads as a source of fossil fuel substitutes. Ethanol displaced gasoline (within limits). Biodiesel displaced diesel (within limits). Then renewable diesel came along to displace diesel entirely (without limits). Also, various biofuels can blend into the aviation fuel supply. Finally, let’s not forget renewable natural gas, which displaces fossil natural gas.
But throughout this bioenergy revolution, coal remained untouched. And that makes some sense. Coal is cheap and already losing ground to other fuels, so why chase a replacement for the lowest-margin product in a declining market? However, there actually are compelling reasons to pursue bio-coal. The coal-fired power generation fleet in much of the world is still young and critical to national grids. There are calls for a just transition from coal, which means prioritizing workers and keeping their jobs. A drop-in replacement, bio-coal, lets that happen, but also allows for these fleets to be an integral part of the energy transition. RF’s new facility takes advantage of this upside.
Lessons learned
Although it was ultimately successful, the reality is that RF had a tough time getting to market. What lessons can we learn? New Energy Risk’s products and some more general lessons from project financing could help for future projects:
- No offtake: RF didn’t have a long-term purchase agreement to enable project financing of their facility. For new products where market demand is not yet clear, it can be tempting to build an entirely merchant project. If possible, it is more desirable to establish market demand and a fit between your product and your customers’ specifications at sub-scale before the big dollars are at risk. Fortunately, subsequent torrefaction projects are securing letters of interest from overseas utilities for bio-coal, so we feel hopeful about the potential for creditworthy offtakes to support future projects.
- Minimal scale: RF can process 100,000 tons of feedstock per year, which is modest for a bioeconomy facility. Thermochemical processes almost always see improvement in capital efficiency at larger scale, so a larger facility would likely have been cheaper. RF has stated that part of their thesis is to match facility size to the local forest residue resource, so they targeted a smaller facility near a smaller forest. Luckily, there’s an opportunity to co-optimize facility sizing and location with forest restoration contracting. New Energy Risk’s insurance solutions can facilitate the technological and financial de-risking required to unlock larger capital projects.
- Feedstock uncertainty: The site that hosts the RF facility almost shut down in 2012 owing to a lack of wood fiber from the public forest lands in the area. The need for certainty in a long-term feedstock supply is critical to project financing. New Energy Risk is developing insurance solutions to help mitigate feedstock risk.
At New Energy Risk, we’re excited to see the trifecta of dry thermochemical processes—gasification, pyrolysis, and torrefaction—reaching commercial scale to support the waste-to-value and bioeconomy sector. These projects are even more impactful when the feedstock comes from forest restoration, both reducing the risk of wildfires in the forest while creating bioenergy and bioproducts. It’s an uncommon win-win for forest managers, coal workers, and environmentalists alike; may they celebrate together with a glass of moonshine and a toast to the future of the bioeconomy.
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Trump Embraces Corn Ethanol As The Election Draws Near
By Brentan Alexander, PhD; Chief Science Officer & Chief Commercial Officer
Reports surfaced recently that President Trump had directed the U.S. Environmental Protection Agency (EPA) to reject a series of applications for biofuel waivers submitted by U.S. oil refiners, and on Monday the EPA confirmed the action. The move is the latest, and likely last, development in a major drama that has pitted traditionally red constituencies against each other, with farm states battling against big oil. For most of this presidency, the Trump administration has sided with the oil lobby and granted relief from biofuels mandates, but with an election year upon us, the president’s allegiances have shifted.
The regulation at the center of this dispute is known as the Renewable Fuel Standard, or RFS. Established by law during the last Bush presidency in 2007, the program was developed during an era of falling U.S. oil production as a strategic initiative to ensure domestic energy security. As esoteric as it may seem, the regulation underpins an ethanol industry that generated more than $46 billion in revenues in 2018 alone. Since ethanol is produced from corn, the RFS directly supports farm economies across the U.S. Midwest, with the bulk of production centered in Iowa and the surrounding states.
The RFS has few fans in the oil industry however, as the program adds compliance costs and overhead. When the regulation was passed, the oil lobby secured a waiver program in the legislation, allowing small refiners to obtain exemptions from biofuels mandates. Under the Obama administration, few waivers were issued. But once Trump came into office, the floodgates opened and over 30 waivers were granted in the first two years of the administration, including to large refiners. Biofuels mandates for other refiners weren’t increased to compensate, and ethanol prices fell steeply. By 2019, the value of the ethanol credit (known as a ‘D6 RIN’) had collapsed to just a quarter of its value from two years earlier, its lowest level since 2013.
The battle was on: Chuck Grassley (R-IA) attacked the EPA, saying the organization had “screwed us.” Lobbyists for farmers and ethanol producers unloaded criticism on administration officials. Lawsuits were filed to challenge the validity of the waivers. Ethanol producers closed facilities and went out of business. Throughout this process, the Trump administration tried to mollify corn growers and made various promises to farmers. The promises, however, turned out to be hollow and the administration failed to deliver. It seemed as if farmers and ethanol producers were on the losing side of the fight.
Then the courts stepped in. In January of this year, the U.S. Tenth Circuit in Denver sided with the ethanol industry and ruled that the Trump EPA exceeded its authority in issuing the waivers. Soon after, the government signaled it would not appeal. The oil industry, incensed, wasn’t ready to accept defeat. They noted that the court’s decision didn’t invalidate the EPA’s ability to issue waivers entirely: The court held that the EPA maintained the authority to grant waivers, but only as extensions to waivers already issued. Oil refiners quickly filed a series of retroactive waiver applications, 68 in all, to provide the necessary chain to pass legal muster.
They didn’t stop there either. The oil groups opened a second flank in the battle by petitioning the U.S. Supreme Court to review the lower court’s decision. They did this despite knowing that the strategy is highly unlikely to succeed, given that the defendant in the suit, the EPA, has not joined their brief or filed an appeal. Beyond these near-term battles, a larger conflict looms: legislated quotas under the RFS expire at the end of 2022. At that point, the program will still technically exist and the EPA will still be required to set quotas, but with no mandates specified in law. Lobbying from both sides will aim to shore up or eliminate the RFS prior to the expiration. Should Congress fail to act, expect more lawsuits.
But for now, farmers have gained the upper hand. The decision by Trump to deny the 68 retroactive biofuels waivers has put a final, permanent end to refiner’s strategy of undermining the RFS through mandate waivers. Their next hope is that the EPA sets low volume requirements for 2021, but with an election looming and support for Trump dipping across the Midwest, the president has bet that backing farmers across states like Ohio, Minnesota, and Wisconsin is good politics. He has turned his back on the oil lobby his administration originally supported, and for now, the RFS lives on.
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Interview: Connie Joe, Corporate Social Responsibility Officer, Bank of the West
We are inspired by people who are passionate about technology that solves pressing global challenges. Scaling and commercializing those solutions requires serious knowledge, courage, perseverance, and support systems like those who work in the insurance industry. In this interview series, our chief actuary, Sherry Huang, talks with friends of NER whose work makes a difference, and whose journeys will inspire you, too.
This interview has been lightly edited for clarity.

Connie and I met through our kids and we are in the same book club. We seldom discuss work when we meet (our kids are usually in the way!), but recently we realized our work has some common ground. Connie is the Corporate Social Responsibility (CSR) officer at Bank of the West, while I work on an insurance team that supports commercialization of sustainable, breakthrough technologies. After spending some time talking to Connie, I realized we have more professional commonality than I thought! We both work to enable innovative new ventures using the platform of traditional industries, and we each enjoy the aspirational part of our jobs, making a difference for our partners and the world.
Connie, you are always so enthusiastic about your job! Tell us about what you do at Bank of the West.
As a CSR officer at Bank of the West, my role involves setting up and implementing governance guidelines for various mission-driven programs that align with environmental, social, and governance (ESG) initiatives at the company. Along with others on my team, we work on programs that span from community outreach, to governance for new sustainability-related requirements (e.g. no coal business by 2030), and we partner with others in the company to grow new business portfolios such as our Energy Transaction vertical. Both Bank of the West and its parent company, BNP Paribas, have a strong focus on sustainability and a commitment to social issues, striving to be the bank for a changing world.
How do you measure success at work and what are some of the challenges you and your team face?
Our group goal is aligned with the company’s mission to become a leader in sustainable banking. We measure our success by monitoring and reporting on our annual CSR plan. Balancing the cost and benefit of implementing the right mission-driven programs and managing missed opportunities is something that I think all of us have to work with from time to time.
What parts of your job excites you the most?
I sincerely love being able to make a positive difference as the core part of my job. It gives me great satisfaction to know that my role plays an integral part in making sure that we are only financing companies that are supporting energy transition. Bank of the West also has some innovative sustainable financing programs that support energy transition for retail consumers. For example, our ‘1% for the Planet’ debit account provides a carbon footprint tracking tool for every purchase made with the debit card and will donate 1% of revenue to environmental nonprofit partners. I am also proud that Bank of the West is one of the few US banks that has a CEO who is a minority woman!
How did you get to where you are today?
I studied biology in college and started my career as a consultant at Accenture with a focus on public health. Starting out in consulting was a great experience – I loved the goal-oriented, clear-path environment that allowed me to grow exponentially. I decided to move away from consulting after starting a family and got more involved with process and program management. I took a chief of staff position at Bank of the West that enabled me to return to community development through working on the Community Reinvestment team, which eventually led me to the CSR team today.
Did you have a mentor who helped you shape your career?
Yes, I have been lucky to have mentors that have helped me grow and navigate my career. One of my mentors is famous for promoting women into positions that were stretch roles. He constantly challenged us to never become too comfortable in our roles and demonstrated to me how important it is to have an executive who can see your potential before you can. Another mentor was instrumental in supporting [me when I was] finding my way back to working in community development. Her support during my career pivots, even if it was not the easiest path to her organization, allowed me to begin and grow my career in the CSR area.
Thank you, Connie!
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