BOARD TALK: Energy Proposals in the Balance: Thumbs Up for Palm Oil, Albizia Plan Is Deferred

posted in: Board Talk, January 2008 | 0

Imperium Renewables, LLC, a company based in Washington state, has been granted a 35-year lease at O`ahu’s Kalaeloa Harbor, where it plans to produce some 100 million gallons of biodiesel each year. Once it completes its processing facility in 2009, Imperium plans to sell the fuel to Hawaiian Electric Company, which announced last year plans to wean its power plants off fossil fuels.

At public hearings held statewide, many environmentalists objected to HECO’s choice of palm oil – which has a reputation for being unsustainable – as an initial source and were critical of the company’s claims that its decision to use only biofuels will jumpstart the industry in Hawai`i.

These same concerns were raised on November 16, when the state Board of Land and Natural Resources met to decide on Imperium’s request for a lease. Representatives of Life of the Land and the Windward Ahupua`a Alliance opposed the lease in large part because Imperium plans to make its biodiesel from palm oil imported from Malaysia, where rainforests have been burned and indigenous people have been displaced for palm plantations.

Life of the Land executive director Henry Curtis had requested a contested case hearing on the lease in October, when the proposal first came to the board. At the November meeting, however, the board found that he did not have standing and was therefore not entitled to a contested case hearing.

Even so, Curtis discouraged the board from making any decision that would lead to Hawai`i becoming the first place in the world to use palm oil to produce electricity.

“It was proposed in Europe and after enormous community pressure and scientific analysis, the proposal was withdrawn….And palm oil, if you look at the Wall Street Journal, the UN, the FAO, the World Bank, OXFAM, all of them say there is a major problem with this,” he said.

The Maui group of the Sierra Club of Hawai`i also expressed concerns over the use of imported palm oil. In testimony submitted on November 14, group members Karen Chun and Kallie Keith-Agaran wrote, “Imperium espouses the laudable goal of using palm oil certified by the Round Table on Sustainable Palm Oil (RSPO). In reading the RSPO guidelines, it is clear that this is an industry organization established to counter the worldwide criticism being directed at biodiesel generated from palm oil.

“For instance, the Wilmar Group [an Imperium contractor], one of the largest growers and suppliers of RSPO palm oil…states that it does zero burning. However, they stand accused of continuing to fire-clear rainforest, of violating Indonesian environmental law, of not obtaining the required permits, and taking of indigenous people’s land without their permission. All of these are practices that RSPO certification is supposed to prevent, but is clearly ineffective in doing so.”

They also noted that Oregon has banned imported palm oil from being counted toward sustainability goals.

“It is likely that legislation in most states will soon follow Oregon’s lead. The Hawai`i Legislature recently put a condition on a bond for the BlueEarth biodiesel plant in Maui, prohibiting it from the use of unsustainably produced palm oil as a feedstock. It is likely that the Legislature will soon prohibit any biodiesel plant in the state from relying on palm oil for meeting the goal of supplying 20% of our power from sustainable sources,” they wrote.

Although he did not directly address criticisms about the efficacy and enforceability of the RSPO standards, Imperium chief operating officer David Leonard told the Land Board that his company would not buy any palm oil that was not RSPO-certified. He said the standards address sustainable agricultural practices, child labor issues, and indigenous people’s rights, and he pointed out that the World Wildlife Fund and other environmental groups are members of the round table. In response to concerns that burning forests to grow palm generates huge amounts of greenhouse gas and threatens biodiversity, Leonard said that the RSPO “prohibits, with a very limited exception, burning to create land to grow palm.”

Next Steps
In their testimonies before the Land Board, both Imperium and the Sierra Club acknowledged the need for more research on new feedstocks.

Citing the Hawai`i Biofuel Briefing Book of 2006, Chun and Keith-Agaran noted that only 19,500 acres have been identified as potential bio-crop land on O`ahu (about 140,000 acres have been identified statewide). Based on yield estimates by the state Department of Agriculture, they calculated that 19,500 acres could produce only 750,000 gallons of feedstock a year using jatropha or kukui, less then one percent of the Imperium facility’s capacity.

Unless the plant were downsized, “efficient plant operation would be dependent on the development of algae or other as yet unknown bio-crop technologies,” they wrote.

They also asked the board to impose a schedule on Imperium to foster the transition from palm oil to more sustainable feedstock. They proposed that by the end of the third year of the lease, 10 percent of the biofuel should be generated from O`ahu-grown feedstock. Over the term of the lease, that percentage would increase every three years until, by the end of year 11, 90 percent of the fuel would come from O`ahu grown feedstock. Requiring the use of O`ahu feedstock would “help avoid the highly undesirable situation in which a plant located on a given island might compete with plants on another for feedstock generated on that island,” they wrote.

Although Leonard defended the size of the proposed facility – noting that 100 million gallons of biodiesel a year is equivalent to less than five percent of what’s produced by Hawai`i’s Chevron and Tesoro refineries – he acknowledged that tests are continuing on what could be the ideal crops.

“The current generation is soy, canola, and palm… The next generation is jatropha [an inedible crop that has been grown in India to make biodiesel], and jatropha has great promise for Hawai`i to grow on marginal land with very little water… The third generation, the holy grail of the industry, is algae,” he said. Ideally, an algae farm co-located next to a power plant would consume carbon dioxide and then be used to make biodiesel.

“We’re trying to move as fast as possible to non-food, local feedstocks that are more sustainable than the current generation, but canola and soy and palm are what we have now,” he said.

Land Board member Samuel Gon asked Leonard whether Imperium had a timetable to transition from imported palm oil to locally grown sources.

Leonard said that Imperium is working with the Hawai`i Agricultural Research Center on O`ahu and with Big Island groups that are growing jatropha and African oil palm, two species that have been identified as having good oil producing potential. He said that jatropha can start producing oil within two years and that African oil palms take five to eight years.

HARC has estimated that the entire state can produce a maximum of 150 million gallons of local feedstock a year, he added.

Pressed by Maui board member Jerry Edlao to provide more specifics on a transition schedule, Leonard kept it vague, saying it was difficult to predict what the world vegetable oil commodity market will be like when the plant begins running in 2009.

He said that generating enough local feedstock to meet the island’s energy needs is a big job, and to help, Imperium recently donated a jatropha oil extraction machine to HARC. Also, U.S. Sen. Daniel Akaka recently gave a grant to the Hawai`i County Economic Development Council of $677,000 for jatropha development, he said. Leonard added that in Imperium’s contract with HECO, “there is a pricing preference for local feedstock.”

Hawai`i island board member Rob Pacheco was still not satisfied. “I can’t believe you don’t have some kind of forecast, a best-case scenario,” he said.

Finally, Leonard explained that because Imperium has recently filed for an IPO (initial public offering, where a private company first offers its stock to the public), he could only tell the board what has been made public in the company’s Securities and Exchange Commission filings. He conceded that Imperium’s research facility is working on second and third generation crops and has given a grant to UH-Hilo to experiment on Costa Rican hybrids of African oil palms. He added that research on algae seems promising but is still “very experimental.”

Imperium is also working with HARC to assemble a working group of local agricultural researchers, landowners, and consumers of biodiesel to pool money for feedstock research, he said.

Conditions
With Imperium either unwilling or unable to suggest a time frame for switching from imported palm oil to local or non-food feedstock, the Land Board seemed inclined to set one itself. But when Gon suggested that the best way to ensure a transition would be to impose a time constraint on the lease – for example, a ten-year deadline to reach certain a target – Imperium’s attorney Raymond Iwamoto argued against it.

Iwamoto explained that the facility will cost $97 million to build and that if Imperium’s lease requires the use of local sources by a certain deadline when there is no guarantee that the deadline can be met, the company may not be able to secure financing.

While Imperium’s contract with HECO encourages the use of locally grown feedstock, it does not require it. Iwamoto said the contract states local feedstock must be used when it is available on a “cost-effective, market-driven basis.” (The arrangement between HECO and Imperium must still be approved by the Public Utilities Commission, which has opened a docket on the matter.) Leonard also invoked the commerce clause in the U.S. Constitution, which he said would preclude a state from giving preference to its own production and supplies over another.

In the end, the Land Board approved the lease with two additional conditions requiring Imperium to 1) make “commercially reasonable best efforts” to use second or third generation or local feedstocks as they become available, with a goal of at least 10 percent local feedstock use by the end of the first decade, and 2) work with government and private entities to develop Hawai`i’s feedstock supply and contribute no less than $100,000 a year to research on local feedstocks.

Competition
Before the board’s vote, U.S. Biodiesel Group II, LLC, a competitor of Imperium, asked the Land Board to auction the lease instead of issuing it directly to Imperium. U.S. Biodiesel attorney Gerald Sumida said that in early October the company had formally sought a seven- to eight-acre lease at Kalaeloa Harbor for its own processing facility, but was told by the Department of Transportation that nothing that size was available. Sumida argued that state law requires the board to auction the lease if there are two or more interested parties. State deputy attorney general Michael Lau disagreed, arguing that state law allows direct leases to be issued for a maritime-related use. He said Imperium’s facility qualifies as such a use because the oil for the facility will arrive by ship. He added that U.S. Biodiesel requested land so much later than Imperium that it could not be considered a competitor.

DOT representative Mike Formby stated that his department has identified a 4.3-acre parcel for U.S. Biodiesel, but that the company wants the Imperium parcel. “It’s not like we’re trying to exclude anybody, but in the planning process, you have to make commitments, you have to proceed forward and do your best to accommodate everybody that you can,” he said.

* * *
Board Defers On Plan to Grow Albizia for Fuel

A Kaua`i energy company’s proposal to grow invasive trees to produce electricity seemed to many like a non-starter. But despite calls from farming groups and environmentalists to reject the project, the Land Board voted on November 16 to keep the request alive, although it deferred action on the request of Green Energy Team, LLC, for a revocable permit for 2,160 acres of former Lihu`e Plantation land in Wailua. Instead, the board decided to revisit the matter at its first meeting in January and directed the various parties involved to try to iron out their differences in the meantime.

According to the Department of Land and Natural Resources’ Land Division, Green Energy’s proposal to use wood chips to make electricity is in line with the state’s efforts to increase renewable energy production to 20 percent by 2020. According to the division’s report to the Land Board, the project has received support from various state and county officials, private executives, community leaders, and agricultural associations.

Under a 20-year power purchase agreement between Green Energy and the Kaua`i Island Utility Cooperative signed last March, Green Energy must start providing the utility with electricity by the end of 2008. While the company has its own land to build a 6.4 megawatt gasification plant to process the trees, it lacks sufficient acreage to grow them.

In early October, Green Energy unveiled its proposal to use a portion of a 6,700-acre state parcel known as Parcel 20 that is currently occupied by 13 farmers and ranchers informally organized as the Kalepa Koalition. The land is irrigated by the old East Kaua`i irrigation system, which is operated by the East Kaua`i Water Users’ Cooperative under a revocable permit issued by the Land Board in 2002.

In 2005, the Department of Land and Natural Resources proposed transferring the parcel and the irrigation system to the state Agribusiness Development Corporation, which manages the Waiahole Ditch system on O`ahu and the Kekaha system in West Kaua`i. Although the Land Board never approved the transfer because of a contested case hearing request by the Office of Hawaiian Affairs and disputes over transferring portions of the water system, co-op members believed that the ADC would one day take over management of the lands and that they would eventually receive long-term leases.

In an October 22 letter to Land Board chair Laura Thielen, co-op president Jerry Ornellas expressed his dismay at the proposal and his surprise at claims by Green Energy and DLNR staff that they were unaware the 6,700-acre parcel was already encumbered by several revocable permits.

“When Green Energy met with nearly the entire Kalepa Koalition on October 17, hardly ten days after anyone on Kaua`i first heard of the project, they were met with strenuous objections from the seven parcel holders [for the affected 2,100 acres] about to be evicted….I and dozens of East Kaua`i residents have worked for years to secure the water system and acquire the individual parcels of former sugar cane land. For the first time in nearly a century, decent, farmable land has become available to the ordinary person. Now the state is planning not only to take this land away from the ranchers and farmers and potentially ruin it with vast stands of abandoned albezia [sic], but to do so for a speculative project of unproven economic value,” he wrote.

Despite their distaste for the project, the farmers and Green Energy drafted a proposal at the October meeting that would allow the current permittees and Green Energy’s plantation to co-exist. Under the plans, permittees who gave up a portion of their parcels to tree production would be eligible for long-term leases under legislation proposed for the 2008 session. Those who chose not to would be kept on month-to-month revocable permits.

After meeting on their own to discuss the matter further, however, the farmers backed off from the proposal when some of them realized how difficult it would be to actually co-exist with a tree farm. The cattle ranchers in particular worried that the increased shade created by an albizia canopy reduce the nutrient content of the grasses.

In letters submitted to the Land Board in November, the Hawai`i Farm Bureau, the ADC, the Kaua`i County Farm Bureau, the East Kaua`i Soil and Water Conservation District, and other farmers all denounced the use of prime agricultural lands for energy production.

In addition to the concerns raised by the agricultural community, environmentalists, as well as DLNR employees, criticized Green Energy’s choice of albizia.

In his report to the Land Board, land agent Gary Martin acknowledged that albizia was an invasive tree, but stated that there are already 500 acres of albizia on the subject parcel and millions of trees on the island.

“By using the albizia as a biomass fuel and fertilizer, what is now an invasive species will become a product having commercial value and also create agricultural jobs for Kaua`i,” Martin wrote.

Division of Forestry and Wildlife administrator Paul Conry, however, took a different view. In a November 16 letter to the Land Board, Conry warned that albizia is “a fast growing and emergent canopy tree that shades out and displaces understory species and modifies native forests.” Although albizia is common in the area, Conry stated that “the use and planting of additional acreage of this species will potentially result in the expanded cultivation and spread of this species.”

He wrote that DOFAW could support the harvesting of existing stands of albizia during the first ten years, but stated that any new plantings should be with a non-invasive species. He suggested that a Eucalyptus species or Ear Pod (Enterlobium cyclocarpum) would be comparable in quality to albizia.

Hawai`i Invasive Species Council coordinator Chris Buddenhagen, testifying as an individual, told the board that he would hate for the state to create a demand for an invasive species.

A number of Land Board members agreed and Kaua`i member Ron Agor all but ordered Green Energy to find another species to plant. Despite all the negative comments on the project, Land Board chair Thielen was not ready to reject the proposal and suggested that the Kalepa Koalition, Green Energy, the ADC and the state Department of Agriculture work together on a more agriculturally sound co-existence plan.

When the board finally voted to defer the matter until January, at-large member Tim Johns suggested that in addition to working on a co-existence plan, the Land Division should revisit its decision to exempt the project from environmental review in light of the Hawai`i Supreme Court’s recent decision overturning the Department of Transportation’s decision to exempt harbor improvements to accommodate Hawai`i Superferry. The control of invasive species could be addressed in an environmental assessment, he said.

— Teresa Dawson

Volume 18, Number 7 — January 2008

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