Solid Waste Association of North America
Silver Spring, Maryland 20910
June 19, 2001

The Honorable Jim McCrery
Chairman
Subcommittee on Select Revenue Measures
House Committee on Ways and Means
United States House of Representatives
Washington, D.C. 20515

Dear Congressman McCrery:

Statement of the Solid Waste Association of North America
to the Subcommittee on Select Revenue Measures
of the House Committee on Ways and Means

for the Record of the

On behalf of the Solid Waste Association of North America (SWANA), I appreciate the opportunity to submit this written statement for the record of the Subcommittee’s hearing on current tax incentives and their role in the nation’s energy policy. SWANA would like to commend you, and the members of your Subcommittee, for holding this timely hearing in light of the critical efforts of the Bush Administration and this Congress to develop sound energy policies to allow our nation to maintain its economic vitality and self-sufficiency. The association urges the Subcommittee to support HR 1863, which would amend the I.R.C. Section 45 tax credit so it is available for landfill gas-to-energy projects. Like the expired I.R.C. Section 29 nonconventional fuel production credit did, an amended Section 45 can encourage the solid waste management industry to produce energy as an adjunct to its handling of the millions of tons of municipal solid waste (MSW) generated by the country’s households and businesses.

SWANA and MSW as a Source of Energy

SWANA, an association of over 6700 solid waste management professionals, companies and government agencies in the United States and Canada, has as its mission the advancement of environmentally and economically sound solid waste management policies and practices. The association has long recognized that development of energy from municipal solid waste can be done reliably, while resulting in more efficient solid waste management, resource recovery, cleaner air quality, and reduced potential for global climate change. Accordingly, SWANA has advocated the two types of energy production that are identified with solid waste management: i) projects which directly combust MSW to produce electricity, also known as waste-to-energy (WTE) projects , and ii) projects that collect landfill gas, naturally generated at a landfill as the waste decomposes, and utilize the gas as a fuel either to produce electricity or to supplement local natural gas supplies, known as LFG-to-energy projects or simply "LFG projects."

Currently, WTE projects and LFG projects provide energy to over 2 million homes and businesses. Both are an energy resource that is sustainable, diverse, environmentally positive and local and provide a multitude of benefits that are unique among renewables. WTE and LFG projects together have the potential to generate a significant portion of the nation’s electricity as further technological innovations are developed and public appreciation of their benefits grows. SWANA continues to believe that federal policies should be adopted to encourage our nation to diversify energy production against risks of an uncertain future and to continue to develop supplements to fossil fuel generation. Providing tax incentives for WTE and LFG project development are clear examples of such federal policies.

A medium sized landfill can generate more than 300 billion BTUs of methane gas a year, which, if converted to electricity, could annually provide 3.0 MWs of capacity, enough to serve the yearly electrical needs of 3000 households. Projects at larger landfills have generated as much as 50 MWs of electric power. Typically, LFG-to-electricity projects are located in urban areas allowing them to serve as distributed power sources to help improve the reliability of the region’s power grid. The methane gas could also be used directly as a supplement to natural gas supplies. Existing "direct gas-use" LFG projects are providing the gas for commercial heating, as boiler fuel at industrial installations, as an alternative fuel for various vehicle fleets, and, recently, as a hydrogen source for fuel cells. Many of the "direct gas-use" LFG projects are dispersed in the urban centers of our nation and provide a viable back up to local natural gas supplies.

LFG projects provide society with several "external benefits" in addition to the domestic energy supply. Specifically, if not controlled and flared, LFG can pose a fire hazard, is odorous, impairs local air quality, and would add, for each ton of methane emitted, an equivalent of 21 tons of CO₂ into the global atmosphere. Consequently, each of these impacts is eliminated when a LFG project is constructed and operated.

Section 29 Tax Credit

The tax credit for the production of nonconventional fuels provided under Section 29 has been the key impetus for the solid waste management industry constructing and operating more than 300 LFG projects around the country. Under Section 29, taxpayers that produce certain qualifying fuels from nonconventional sources, including "gas from biomass," are eligible for a tax credit until 2008 (or 2003 if the project was installed before 1993) equal to $3 per barrel or barrel-of-oil equivalent (adjusted for inflation) as long as the gas is sold as a fuel to an unrelated party. The tax credit provided the incentive to make LFG projects economically feasible. However, since June 30, 1998, the deadline under Section 29 by which LFG projects must be "placed in service" to qualify for the credit, no new LFG projects have been planned and constructed.

For reasons unrelated to LFG projects, Congress to date has not extended the Section 29 tax credit. Unfortunately, without the continued availability of the Section 29 tax credit, private investors have been reluctant to undertake development of new LFG projects at more than 700 additional landfills identified by the Environmental Protection Agency as producing sufficient volumes of LFG. Consequently, the nation faces the real loss of a valuable domestic and renewable energy resource, the recovery of which is simple, proven and has no negative impact on the environment.

President Bush’s National Energy Policy (NEP) recognizes the contribution that LFG projects can make in addressing the nation’s current energy shortfalls. The NEP specifically recommends that "the Secretary of the Treasury... work with Congress on legislation to expand the section 29 tax credit to make it available for new landfill methane projects."

Section 45 currently provides a 1.5¢/kw-hr tax credit for electricity generated by wind, closed-loop biomass(organic material from a plant that is planted exclusively for purposes of being used to generate electricity) or poultry waste. The tax credit is provided for the first 10 years of production if such electricity is sold to an unrelated party. In response to Congress’ past unwillingness to extend the Section 29 tax credit, SWANA and the landfill gas industry have targeted Section 45 as a possible substitute.

Ironically, several pieces of legislation were introduced during the 105^th and 106^th Sessions of Congress amending Section 45 to add additional renewable energy sources as qualified fuels that expressly excluded MSW and LFG. SWANA strongly believes that any recommendation to include tax credits for encouraging renewable energy development as part of our nation’s energy policy should ensure that tax incentives are provided on a "renewable source neutral" basis. A free market government should not pick winners and losers among renewable energy sources. Accordingly, landfill gas and waste to energy projects should not be placed at a disadvantage in the energy policy.

Congressman Dave Camp has introduced HR 1863, legislation which would duplicate the incentive provided by Section 29 by making both LFG-to-electricity projects and LFG-"direct gas-use" projects "qualified facilities" under Section 45. In the case of these latter type of projects where the gas is sold for direct use, the 1.5¢/kw-hr tax credit is applied to the "kilowatt-hour equivalents" contained in the particular volume of gas calculated on a 10, 000 BTU per kilowatt-hour basis. HR 1863 is intended to compliment bills introduced by other House Members each of who would add a specific renewable energy resource as a qualified fuel under Section 45. SWANA urges the Subcommittee to act on these bills and to do so in a "renewable source neutral" manner.

The "renewable source neutral" approach has been embraced by Senator Frank Murkowski in his recently introduced S. 389, the National Energy Security Act of 2001. That bill, among its many other provisions, contains a provision similar to that contained in HR 1863 providing the Section 45 tax credit to both electricity generating and "direct gas-use" LFG projects. S. 389, however, also amends Section 45 by adding other renewables as qualified fuels, including MSW, and extends the placed-in-service windows for projects generating electricity from these renewable sources. The Energy Security Tax Incentive Act of 2001, S. 596, introduced by Senator Jeff Bingaman, also expands the list of qualified fuels in Section 45 to include landfill gas and MSW. S. 596, however, only provides the Section 45 tax credit to LFG-to-electricity projects and not "direct gas- use" projects. About one-third of the 300 existing LFG projects and about one-third of the 700 potentially new LFG projects are "direct gas-use" projects. Accordingly, unless the Section 45 tax credit is provided to both types of LFG projects, approximately 233 "direct gas-use" LFG projects would not be built for lack of a tax credit and the nation would lose a valuable fuel source.

The Subcommittee has an opportunity to significantly impact the development of a new energy policy for the nation. Use of the tax code to encourage energy -related private investment is justified by the compelling energy security, economic and environmental concerns facing our nation currently and in the foreseeable future. Specifically, a tax incentive for energy production through the combustion of MSW or the utilization of LFG would allow the nation to not only benefit from increased domestic energy supplies, but to also realize the many consequent environmental and resource conservation benefits. SWANA urges the Subcommittee to support the tax credit provision for LFG projects contained in HR 1863. An extension of the Section 29 tax credit for LFG projects is certainly another alternative. In any case, it is important that a tax credit be available to both LFG projects producing electricity and LFG projects providing the gas for direct use. In addition, SWANA urges the Subcommittee to support adding waste-to-energy projects that combust MSW to generate electricity as qualified facilities under Section 45. I appreciate very much this opportunity to present SWANA’s views.

Sincerely,

John H. Skinner, Ph.D.
Executive Director and CEO

cc:  All Members of the House Subcommittee on Select Revenue Measures