Is National Gridlock on Fiscal Policy Hurting Green Alumni Entrepreneurs?
By Tony Giunta '82, CEO of AMENICO
[Editor's note: AMENICO produces a wide range of renewable products from locally collected used cooking oils. See www.amenico.com.]
Is national gridlock on fiscal policy hurting green alumni entrepreneurs? The bottom line is yes, indecision has hindered our ability to secure financing and grow our businesses. But in reality, this indecision has also jeopardized previously enacted national security legislation.
In 2007, American Energy Independence Company (AMENICO) made the business decision to join a national effort to produce domestic renewable liquid fuels. We did so buoyed by the passage of two significant pieces of legislation—the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007—both aimed at improving our national security by increasing domestic production of renewable fuels and reducing our dependence on foreign sources of oil.
The 2005 and 2007 "energy independence" legislation attempts to boost domestic renewable fuel production by mandating increasing percentages of renewable liquid fuels be blended into our existing fossil fuel supply. Because renewable fuels are generally more expensive than petroleum, Congress has attempted to level the playing field by offering "credits," or price subsidies, for each gallon of renewable fuel produced. In most instances, it is the federal tax credit that makes renewable fuel manufacturers viable business entities. As long as the credit remains in place, the legislative intent succeeds; however, add uncertainty into the formula and the entire concept (and industry) is jeopardized.
As renewable fuel producers attempt to start or expand their businesses, they need capital—and that capital generally comes from banks. Banks hate uncertainty! Since 2005, funding of the federal tax credit has rested with each new Congress and, as a result, has been perilously unreliable (as of this date, Congress has not funded the credit for 2012). So when producers are asked for their business plans or financial projections and banks realize the viability of the company depends on an uncertain federal tax credit, the chances of getting a loan are "slim to none."
One way to improve capital investment opportunities would be for Congress to fund the credit for the effective date of the "energy independence" legislation (2022). Doing so would bring financial predictability to a business plan (something lenders like to see when considering their capital investment) and would support the underlying goals of the enabling legislation. Without financial stability associated with a subsidy, companies like AMENICO are forced to either seek financing from the three F's (family, friends, and fools) or choose a different line of business. Unfortunately, neither of these choices are very good ones when it comes to helping achieve our nation's goal of "energy independence."
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