Legislators Rap Land Board Action to Move Forward with Biofuel Leases

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Efforts of the Board of Land and Natural Resources to carry out the wishes of the state Legislature have earned the displeasure of – well, legislators. At a hearing last month in Hilo, three members of the Senate Committee on Water, Land, Agriculture, and Hawaiian Affairs grilled Laura Thielen, chairperson of the Land Board, over last November’s approval in principle of leases of tens of thousands of acres of land along the Big Island’s Hamakua Coast to two biofuel companies, Hamakua Biomass Energy, LLC, and SunFuels Hawai`i, LLC. Hamakua Biomass is planning to burn eucalyptus to generate electricity, while SunFuels is proposing to convert biomass to biodiesel.

Clayton Hee, committee chairman, expressed concern that the expedited lease approval process employed by the Department of Land and Natural Resources was excluding other legitimate players in the bioenergy field, amounting to a “first come, first served” policy. Thielen strongly disagreed with that characterization: “It’s not first come, first served,” she replied. “Nothing prevents other companies from joining in the negotiations” that were made possible by the Land Board action on November 14, she said at the hearing held December 17 at the University of Hawai`i-Hilo.

When asked by Sen. Dwight Takamine, who represents the Hamakua area, why the Land Board members did not delay the vote until they could have a meeting in the area or at least until the Big Island board member was present, Thielen answered: “The Board of Land and Natural Resources – or my reason for my vote, I felt it was important to begin hard discussions about a more productive use of land through mixed use.” The Land Board, she added, indicated it would hold a meeting on the Big Island before any final decision.

Thielen clarified that the board’s action in no way meant that holders of existing leases would be forced off the land. “Leases are a contractual agreement,” she said. “Nobody is forcing anybody” to do anything, she added. Time and again, Thielen referred to a situation that developed in Kalepa, Kaua`i, where a biofuel company sought to use state lands encumbered to ranchers and farmers. The board sponsored negotiations between the company and the existing users, resulting in a “win-win” situation whereby existing users received improved infrastructure as compensation for ceding parts of their land to the biofuel company, which, she added, was now supplying about 10 percent of the electricity used on the island.

In any event, she said, the board was only doing what it was instructed to do by the Legislature itself when, in 2002, it passed amendments to Chapter 171-95, Hawai`i Revised Statutes. The main thrust of the amendments was to make it easier to put biofuel crops on state land by allowing the Land Board to lease those lands by direct negotiation with interested biofuel companies instead of putting them up for auction.

Joshua Strickler, an energy project facilitator with the Department of Business, Economic Development, and Tourism, was asked by Thielen to help the DLNR qualify the various proposals it was receiving from companies interested in using state lands for biomass production. At the Hilo hearing, Strickler did not hesitate to agree with Hee’s suggestion that the policy for awarding leases was “first in, first out.” “Those who waited are too late,” Strickler told Senators Hee, Takamine, and Russell Kokubun, the three committee members present. “We’re not here to award third or fourth place.” While other companies, including Hu Honua (which plans to revive an old coal-fired power plant in Pepe`ekeo to burn biofuels) and Tradewinds (which holds already a license to harvest eucalyptus from state forest reserve land, for use as lumber and veneer products) have since expressed their interest in obtaining the use of state lands for biomass projects, at the time that Strickler was asked to help the DLNR evaluate proposals, only SunFuels and Hamakua Biomass had come forward, he said.

“It came down to who was better prepared,” Strickler said. “Hamakua Biomass has a power purchase agreement and had started work obtaining clean air permits. What tilted it toward Hamakua Biomass was their preparation.”

Takamine asked Strickler what had been done to alert other companies to this opportunity.

“We contacted some companies,” Strickler replied. Hu Honua was firm that it “was not interested in being a land manager,” he said, and did not want leases. Tradewinds was “just a forestry company,” he said; “if old growth is available, we want them to get it,” adding that Tradewinds had indicated it was not interested in leasing large tracts of land for planting.

A Turnaround

Despite Thielen’s insistence that any and all interested in hopping on the biomass bandwagon were welcome to join in the negotiations, John Ray, general manager of SunFuels, said he would like to see the Land Board’s decision of November 14 rescinded. SunFuels’ proposal to grow biofuel crops on lands already under lease to ranchers and others was the lightning rod for much of the opposition to the Land Board action that ultimately led to the Senate committee hearing and the draft legislation proposed by Hee to amend Chapter 171-95, Hawai`i Revised Statutes.

“We never intended to take over existing leases,” Ray said. “We just wanted to talk with the lessees about more productive tree crops.”

Ray also disputed the notion that there was acreage enough to accommodate all potential biofuel producers in addition to farmers and ranchers. “It’s fair to say that this is a competitive situation,” he said, adding that no representative of any state agency had approached him about engaging in talks aimed at finding the best mix of uses for state lands.

Dan KenKnight of Hu Honua contradicted statements made by Strickler that his company was not interested in state lands or that Hamakua Biomass was further along with its permits than other entities. Saying he was certain it was an “honest mistake,” KenKnight informed the senators that he had never been told that “all state lands in Hamakua would be taken up in the non-bid process. We’re in competition for that, as well as seeking private lands.”

When Strickler approached him in September, KenKnight said, “we told him we were working with the Hawai`i Agriculture Research Corporation on a sustainable biomass plan.”

“We assumed, maybe naively, that you’d need a specific plan,” he said, something more than just, “grow eucalyptus.”

“We didn’t think all the land would be gone” by the time his company was ready to go, he said.

Alarmed Ranchers

Earlier in the day of December 17, the three senators met separately with ranchers and other holders of state leases in the Hamakua area. The ranchers were also well represented at the evening hearing.

Most of them had been alarmed by the Land Board action, which they had understood to be more of a commitment than Thielen had described. Several denounced the Land Board for past actions that diminished the size of their leases in order to provide habitat for palila as part of the mitigation required to build the Saddle Road.

But if the ranchers were operating under a misconception, so, too, apparently was Senator Hee – himself a rancher. In a press release to announce the Hilo hearing, Hee stated, “I firmly believe that the staff recommendation of DLNR was improper because it recommended leasing lands to a business entity that are already under State lease to farmers and ranchers. This is just one reason why state lands productively used for agriculture are diminishing.”

The Hamakua community as a whole also seemed to think the board action had in some way usurped the rights of lessees. At the community meeting of December 18 in Honoka`a, sponsored by County Councilmember Dominic Yagong, Thielen’s announcement that the board “did not issue any leases” drew enthusiastic applause from the crowd that filled the Honoka`a People’s Theater. Referring again to the Kalepa, Kaua`i, example, Thielen noted that the bioenergy company that had sought to use state lands entered into separate sublease agreements with some of the leaseholders, resulting in more revenue to ranchers as well as the improved infrastructure, allowing them to increase their productivity on lands not used to grow biofuel crops.

Tim Mann, president of the Hamakua-North Hilo Farmers Cooperative, wanted to see the list of parties involved in negotiations expanded to include not just the holders of leased lands and the biofuel companies, but “all groups,” including farmers. The goal would be to “identify the best use of available lands,” he suggested, and work out a lease policy on that basis.

One of the few disinterested parties to testify at the Senate committee hearing was Jeff Choi, a former deputy attorney general and retired district judge. “I saw the way the ethanol decision was made,” Choi said, referring to the state’s decision a decade ago to promote the use and manufacture of ethanol. “It was bad.” Now, he added, all the talk about biomass and bioenergy reminded him of that decision. “Renewable energy are magic words,” he said. And as for the Land Board’s efforts to negotiate direct leases with biofuel companies, he concluded, “all I see as a lawyer is a potential lawsuit. This screams lawsuit.”

* * *
Algae Energy Advances

The board of directors of the Natural Energy Laboratory of Hawai`i Authority gave its approval “in concept” to the plan of BioEnergy Hawai`i to build a waste-to-energy facility on state land managed by NELHA. Carbon dioxide from the stack would be captured and used to feed algae, which would then be converted into biodiesel to run the trucks of Pacific Waste, Inc., a large commercial waste hauler in West Hawai`i that is owned by many of the same parties proposing the incinerator.

Last spring, the NELHA board gave the project “approval in concept” the first time (see the July 2008 issue of Environment Hawai`i). In October, it approved a non-binding letter of intent – described as nothing more than “an agreement to negotiate” a lease – but without a draft sublease attached. Last month’s “approval in concept” differed in that it was attached to a draft sublease. BioEnergy Hawai`i attorney Francis Jung insisted that the draft sublease and the letter of intent his client was seeking were “totally non-binding.”

“The problem is, in today’s credit market, if you’re going before any committee to raise money, they have to know there’s some substance to what you’re proposing… [This] gives us a starting point to raise funds and financing,” Jung said.

Initially, the algae component was presented as an optional add-on, but in the documents approved by the board, it is included as an essential element of the BEH proposal. Early estimates of the cost to build the plant were on the order of $70 million. At the NELHA meeting in December, NELHA executive director Ron Baird said the company would need “up to $100 million.”

Much of the discussion centered on whether the board’s action was tantamount to a commitment or could be construed as a reservation or option on some 25 acres of NELHA land for the proposal. Board members gave their approval only after receiving assurances that their action was neither.

Should BioEnergy Hawai`i get its financing in place, the next step is preparing an environmental impact statement. This, company representatives said, could take up to two years.

— Patricia Tummons

Volume 19, Number 7 January 2009

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