After GOP eliminates funding, nascent industry wonders if it has a place in N.C.

Source: Amanda Peterka, E&E reporter • Posted: Thursday, July 17, 2014

W. Steven Burke spends his days devoted entirely to his collection of American folk art buildings — miniature replicas of famous houses and buildings around the world.

His collection — he owns 1,200 of them, making it the largest in the country — includes the Empire State Building and has been featured in local art exhibitions and magazine articles.

A year, ago, though, Burke’s life was very different. He was the president of the North Carolina Center for Biofuels, the nation’s only state-funded center devoted to researching and developing advanced biofuels. He managed a staff of about 15 and a budget of about $4 million a year, using the resources to provide grants, conduct research and woo the world’s first maker of cellulosic biofuels into the state.

But the state’s Republican-led Legislature last July abruptly zeroed out the funding in its state budget, forcing the center to shut its doors. There are signs that the Tar Heel State is moving forward with biofuels, but Burke and other former leaders of the center, who say their endeavor was swept up in a broader vendetta against renewable energy, worry that its closure has done lasting damage to a nascent industry.

“I am profoundly regretful that North Carolina has probably lost enormous opportunity to have national leadership in an emerging new sector,” said Burke, who was a longtime state leader in biotechnology before taking over the center’s leadership in 2009. “Enormously regretful.”

During its life, the center contributed $10.1 million toward 71 projects.

Advanced biofuels refer to plant-based fuels made from inputs other than corn, such as agricultural residue, switch grass, woody biomass and municipal solid waste. They emit less greenhouse gases than corn ethanol and bypass the food-versus-fuel debate, but building them up to commercial scales has been a costly and, as of yet, unsuccessful endeavor.

Much of the push to develop advanced biofuels has come from the Midwest, but in 2007, as the nation was considering new mandates for renewable fuels and advanced biofuels, North Carolina jumped onto the national scene.

That year, the Democratic-controlled Legislature created the Biofuels Center of North Carolina. The center had three locations, but most of the work and employees were located at an empty Department of Agriculture and Consumer Services research station in Oxford, N.C.

Its establishment was not altogether surprising, given the state’s long history of leadership in biotechnology at Research Triangle Park and the North Carolina Biotechnology Center. The original goal, as laid out by Burke and other biotechnology leaders, was to explore how genetic engineering could be used to develop new plants that were suited for biofuels.

But the mission quickly shifted to one of just building up North Carolina’s nonexistent capacity for biofuels.

“As our landscape was in 2006 and 2007 devoid of resources, capabilities, commitment or policy for this new sector, we judged that it would be a smart decision for North Carolina to commit over time to develop this sector,” said Burke, a white-haired man who carefully chooses and precisely enunciates each word when he speaks. “A state doesn’t just say, ‘Let’s be in good in this.’ A state in any place must carefully target over time. By analogy, we might as well have said in North Carolina in 2007, ‘Hey, let’s develop a submarine sector. We’ve got a coast, we’ve got water, we know how to make things, let’s just do that.'”

In concrete terms, the center’s goal was to replace 10 percent of the state’s liquid fuels with biofuels by 2017. It received early support from Democrats, including then-state Sen. Kay Hagan (D), now the state’s junior U.S. senator in the midst of a tough re-election campaign, and Walter Dalton, then a state senator who later became lieutenant governor and was the unsuccessful Democratic nominee for governor in 2012.

“It provided an opportunity and a focus for North Carolina to kind of galvanize itself around the concept,” said Anne Tazewell, clean transportation manager at the North Carolina Solar Center.

During its life, the center used its yearly appropriation to hand out grants and participate in research for biofuels projects.

For example, Piedmont Biofuels, a small biodiesel producer that started up in 2002, received loans and grants from the center that helped it develop co-products and a new way of making biodiesel through enzymes rather than chemicals.

“If you looked at where their money went, it went across the state into everything from education and outreach to research and policy — really, all things biofuels,” said Lyle Estill, Piedmont’s owner and a founding board member of the center.

The effort put North Carolina on the map: In 2012, Agriculture Secretary Tom Vilsack visited and proclaimed the state a sweet spot for biofuels. Its last big accomplishment was sealing a deal with Biochemtex, the operator of the world’s first commercial-scale cellulosic biofuels plant in Italy.

Biochemtex considered other locations but chose Clinton, N.C., for its first U.S. facility because of the state’s commitment to advanced biofuels, said Paolo Carollo, North America executive vice president of Beta Renewables Inc. and former executive vice president of Chemtex.

The biofuels center introduced Biochemtex to many key farms and landowners that eventually signed contracts with the company. It also provided support in the areas of supply chain logistics, connections with contacts within the government, identification of state incentives and trial crops. The state provided the company with a performance-based grant through its One North Carolina Fund of up to $300,000.

“North Carolina, through the Biofuels Center of North Carolina and Department of Agriculture, understood many of the key drivers associated with lignocellulosic process technologies and feedstock supply chain development and was already developing an energy crop strategy for the state of North Carolina that matched well with our goals and objectives when we connected to explore potential,” Carollo said in an email interview.

Burke described the center as being halfway to its goal of building up North Carolina’s biofuels capacity when it closed.

Still, some renewable energy advocates in the state said they thought the center’s goal of 10 percent by 2017 was always too aggressive.

“The mission, to be honest, was really lofty, overly ambitious. I didn’t think it was ever going to happen,” Tazewell said. “But it’s important to have a lofty position that people can work towards.”

Looking back on the center, Estill said that its leaders would sometimes “impose petroleum thinking on the biofuels endeavor.” In other words, the center aimed for big projects that require massive quantities of feedstock.

In conventional ethanol, big-scale projects have never taken hold in North Carolina; the last ballyhooed multimillion-dollar effort, Clean Burn Fuels, went bankrupt in a 2011 before it ever produced any fuel.

Estill believes that the center should have aimed for a vision of small biofuels plants dotting the landscape. But that thinking sometimes put him at odds with other center staff members and its founders.

“I’m coming at things from a small-scale perspective,” he said. “In my view, the next 100 million gallons of biofuels should not be coming from the 100-million-gallon plant, but rather should come from a hundred 1-million-gallon plants.”

Political autopsy

The center officially shut its doors on Oct. 1 of last year. While its defunding came as a surprise, the death sentence was written when state leadership abruptly turned Republican, according to interviews with those closely involved.

“The new leadership of North Carolina displayed an early lack of interest in that which is called renewable, that which is judged sustainable, that which is judged environmentally compelling, that which is judged innovative, and that which requires sustained long-term attention,” Burke said.

Republicans in 2010 took power over both houses of the state Legislature for the first time since the 1870s. Two years later, Democratic Gov. Bev Perdue declined to run for another term, and Republican Pat McCrory, a former Duke Energy Corp. executive who had lost to Perdue in 2008, beat Dalton for the governor’s seat.

The sudden new political dynamic in North Carolina has had dramatic consequences for a host of energy and environmental issues, as well as hot-button budget and social issues (E&E Daily, May 22).

Relatively new and without a lobby to defend itself, the biofuels center was a vestige of the old guard that did not make the cut.

It had already seen its $4 million budget cut to $2.24 million the previous year. And in his original budget proposal last year, McCrory called for a further $1 million reduction in the biofuels center’s budget. But the final spending deal negotiated between the governor’s office and state legislative leaders didn’t include any funding.

Center directors could have voted to keep it open as an independent nonprofit, but chose to shut it down because there was no other funding available. There didn’t seem to be much of a fight over the decision by legislators, because it happened very abruptly and no one knew it was coming.

“To pull the rug from under the center is deplorable,” said Rep. G.K. Butterfield, a Democrat whose district included the biofuels center. “We’ve got to invest in our future. We talk about that all the time. And this was an outstanding example of an effort that was going to lead us to energy independence — not in the short term but in the long term.”

Other public-private centers, including the solar center, saw their funding reduced, as well, when Republicans took control. For biofuels, two forces were at work in the Legislature, said Jane Preyer, Southeast director at the Environmental Defense Fund.

“You have some legislative interest in building this industry. It’s an important thing for agriculture,” she said. “On the other hand, you have forces in the Legislature that talk a lot about, have a lot of negatives on incentives or potential subsidies to promote at least certain industries.”

Adam Monroe, president of Novozymes North America, a major enzyme and biotechnology company with U.S headquarters in North Carolina, blamed a tough budget atmosphere.

“I think what we see in general and certainly in North Carolina is states — they try hard to basically deliver jobs and care for their citizens and balance their budgets,” said Monroe, who was also on the center’s board. “It’s not a state that I would classify as one party or the other.”

Near the end of its life, the center also found itself opposite Republicans in a key regulatory issue for developing biofuels crops.

Biochemtex and the center had been exploring planting biofuels crops, including the giant reed plant, which is considered invasive in some parts of the country, in hog spray fields. The fields are a means of getting rid of the massive amounts of waste generated by North Carolina’s swine industry and are typically planted with Bermuda grasses, a plant species with a high nitrogen uptake rate.

In order to comply with the Clean Water Act, biofuels crops planted on those fields needed to be able to take up enough waste so as not to cause runoff into local waterways. Those opposed to the plan argued that the crops would not fit the bill.

“A number of the most energy-efficient biofuels crops don’t take up as much nitrogen as the current crops used on the spray fields,” said Robin Smith, a North Carolina environmental blogger and former assistant secretary for environment at the North Carolina Department of Environment and Natural Resources. “As a result, it’s going to be difficult to get farmers to switch to the new crops, because they couldn’t apply as much waste. They were going to run into a problem in terms of complying with their permits.”

Draft legislation floated in the state Legislature would have allowed for the application of animal manure to new biofuel crops at rates that exceeded those set by a state technical committee. The legislation — seen as part of Republicans’ anti-regulatory agenda — caused a stir in the environmental community, which already opposed the plan to plant giant reed, and faced opposition by DENR and North Carolina State University.

After a board meeting in May 2012, the center’s board decided to oppose loosening restrictions on animal manure applications. In a memo, the board said that rates should be set by scientific experts, not by politicians. The draft legislation was never introduced.

The governor’s office did not respond to a request for an interview on the closure of the center or the future of biofuels in the state. Last December, two months after its closure, the McCrory administration announced that Biochemtex would still be moving forward with its plans and touted his state’s business climate.

The state Agriculture and Consumer Services Department, where the state Legislature transferred the state bioenergy efforts after zeroing out the center’s funding, said that it is working to ramp up its work.

“It’s not like this is new to us totally,” said Richard Reich, assistant commissioner of agricultural services at the department. “The responsibilities are new and different, but the fact is we worked with the biofuels center.”

But the mandate for the initiative is narrower than the center, focused solely on research and development of feedstocks for bioenergy. It has just two full-time staffers and one part-time staffer dedicated to the effort and working at the center’s former home at the Oxford Tobacco Research Station. This fiscal year, the department has $900,000 for the initiative — less than a fourth of the budget of the center, and the authority to hire up to five people.

After the center’s closure, Reich said, the department’s first priority was making sure the 20 or so research projects in the works, many of them grants to support research at universities and nonprofits, were continued.

“We’ve tried to go slow and not get out of balance here,” Reich said. “We’re trying to build a staff as we need them to do the work.”

The department earlier this month announced six initial grants for bioenergy research, five of which are going toward research at North Carolina State University. Among the chosen projects, which total $500,000, is research on giant reed and planting energy crops in spray fields.

For its part, Biochemtex says it still sees room to expand in North Carolina after its first $200 million plant, thanks to work done by the biofuels center. The center “helped us identify supply chain opportunities for multiple plants of equivalent scale across the eastern part of North Carolina,” Beta Renewables’ Carollo said.

Another company has also recently expressed interest in North Carolina.

Danville, Va.-based Tyton BioEnergy Systems announced in June that it plans to repurpose the failed Clean Burn Fuels plant into a facility capable of producing cellulosic biofuels from tobacco crops. In an email, Tyton spokesman Eric Wind said that the company looked at various ethanol plants across the country for its technology.

“The facility in Raeford appealed to us because of its location in the country’s traditional tobacco growing region and because of North Carolina’s rich history of agriculture, manufacturing and biotechnology,” Wind said. “The Raeford biorefinery is in excellent condition, and its location on the East Coast is favorable for both domestic and international market opportunities.”

The agricultural community says it has hope that the momentum for biofuels will continue in the state.

“We’re still optimistic,” said Paul Sherman, air and energy programs director at the North Carolina Farm Bureau. “Obviously, in the Southeast, we have the right climate and the right infrastructure to play a big role in feedstock supply for biofuels.”

But the scale of the state’s effort is nowhere near what the biofuels center achieved.

“I’m wary of the state’s ability to now capture that leadership, because that small number of investors and companies were highly perplexed that North Carolina pulled back from biofuels,” Burke said. “So I think they’ve gone elsewhere. They said, ‘Whoa, North Carolina’s changed; I don’t think we’re going to find them receptive.'”

Former employees of the biofuels center are scattered throughout the state in new jobs, some related to renewable energy and others not.

After a long career in biotechnology and biofuels, Burke, for one, is not interested in returning to the sectors in North Carolina.

“There’s no role for me.”