Obama administration boosts oil industry with $8B in loan guarantees

When President Barack Obama unveiled a broad plan for combating climate change last week, few observers would have predicted one of his administration’s first steps would be aimed at giving a boost to fossil fuels.

But on Tuesday, the Obama administration launched a process to award $8 billion in loan guarantees for cleaning up the extraction and burning of coal, oil and natural gas. In issuing a draft solicitation for the fossil fuel loan guarantees, the Energy Department essentially revived a long-stalled program that hasn’t been tapped since it was first authorized eight years ago.

Energy Secretary Ernest Moniz stressed that the plan this time is to broadly open the program up to a wide range of fossil fuels and technologies — with the goal of paring heat-trapping greenhouse gas emissions from the oil, gas and coal that power the U.S. today.

Fossil fuels: The word you didn’t hear in Obama’s climate change speech

“As we develop the transformational technologies of the very low-carbon future of tomorrow, we also have to innovate around today’s energy,” Moniz told reporters on a conference call outlining the plan. “We are trying to prepare the way for all these different technologies to be market competitors as we go to a low-carbon economy.”

The Energy Department’s proposal would include not just downstream carbon capture initiatives that could separate carbon dioxide emissions from coal-fired power plants, but also upstream projects for extracting natural gas and oil.

For instance, the Energy Department is proposing to make loan guarantees available for projects involving “novel oil and gas drilling, stimulation and completion technologies…that avoid, reduce or sequester air pollutants.” That could include so-called “dry fracking” technology which eliminates the use of liquids in well stimulation processes now being used to pull natural gas and oil from dense rock formations.

Other qualified projects would include coal-bed methane recovery meant to curb the emissions tied with coal mining and the capture of methane emissions released at wells and along pipelines.

The Energy Department also proposed loan guarantees for projects to use “associated gas production to reduce flaring,” potentially supporting the development of natural gas infrastructure in North Dakota and Montana, where the fossil fuel is extracted along with oil.

Noting that the development and extraction of oil, gas and coal accounts for roughly 5 percent of U.S. greenhouse gas emissions, the Energy Department said “new or significantly improved technologies” could help shrink their carbon footprint.

Moniz: Carbon dioxide could enhance US oil by millions of barrels a day (video)

Other qualifying projects could include low-carbon power systems, such as hydrogen turbines, chemical looping processes and natural gas oxycombustion. Another targeted area is energy efficiency, with loan guarantees potentially available for combined heat and power projects and initiatives to recover and use waste heat at industrial facilities.

The Energy Department in 2008 issued a much smaller draft loan guarantee solicitation for the fossil fuel program that was aimed almost exclusively at carbon capture and storage. In broadening the potential projects that would qualify for support, the Energy Department could win support from oil and gas advocates, but simultaneously anger coal backers who see carbon capture as essential to extending the lifespan of the fossil fuel amid new limits on greenhouse gas emissions.

The initiative also is expected to win jeers from environmentalists who say any support for fossil fuels undermines a broader move toward new, low-carbon and renewable alternatives.

Moniz had a pragmatic response to the expected argument. “Fossil fuels currently provide more than 80 percent of our energy,” he said. “Adopting technologies to use them cleanly and more efficiently is critical to our all-of-the-above approach.”

The fossil fuel loan guarantees are part of the Sec. 1703 program created by Congress in the Energy Policy Act of 2005 to support clean energy technologies that may have trouble securing commercial financing.

In the years since it was first created, the program has drawn criticism from some quarters for a few high-profile failures, most notably the default of the solar panel maker Solyndra. But the Energy Department stresses that its loan programs are supporting a $34.4 billion portfolio of more than 30 projects, including nuclear and cellulosic ethanol plants, with only about 2 percent in losses. Most recently, Tesla Motors repaid the remaining balance on its $465 million loan nine years ahead of schedule.

Moniz, who took office six weeks ago, defended the Energy Department’s track record on Tuesday but conceded that some failures are inevitable: “Clearly when we are talking about leading-edge technology, not every loan is going to succeed.”