EMPOWER North Dakota

COMPREHENSIVE 2008-2025 STATE ENERGY POLICY Legislative language for establishing EmPower ND 2007 Session Laws Chapter 204 § 6

SECTION 6. NORTH DAKOTA ENERGY INDEPENDENCE INITIATIVE - REPORT TO LEGISLATIVE COUNCIL. During the 2007-08 interim, the department of commerce shall convene an energy policy commission for the purpose of developing a comprehensive energy policy for the state that addresses:

1. The policy of this state to stimulate the development of renewable and traditional fossil-based energy within the state with the goal of providing secure, diverse, sustainable, and competitive energy supplies that can be produced and secured within the state to assist the nation in reducing its dependence on foreign energy sources.

2. The policy of this state to promote the development of new technologies, provide innovative opportunities, create additional employment and wealth that contributes to economic development, and decrease dependence on foreign energy supplies.

3. Growth of the fossil fuel and renewable energy industries within this state to encourage the state’s competitiveness for both the domestic and export markets.

4. The assistance the state provides in research, development, and marketing of North Dakota-produced energy sources, including , biomass, , ethanol, geothermal, hydroelectric, hydrogen, natural gas, oil, solar, and wind.

5. The need to:

a. Expand the use of existing energy resources such as coal, oil, gas, wind, and hydropower by supporting continued research and development of technologies designed to enhance the use of traditional fuels.

b. Examine ways to diversify the state’s energy resource base by encouraging the growth of renewable sources such as wind, biomass, geological, solar, and water.

c. Evaluate existing tax credits and incentives for all energy resources.

d. Modernize and expand the state’s energy infrastructure to ensure that energy supplies can be safely, reliably, and affordably transported to homes and businesses.

e. Examine potential innovations that will be necessary to improve environmental conditions through the use of new technologies designed to encourage the continued use of fossil fuel as well as renewable resources.

f. Review energy industry workforce and training needs and educational opportunities to enhance the future productivity of the energy industry.

g. Develop a strategy to maximize the state’s market opportunities in regional and global markets. TABLE OF CONTENTS

Executive Summary...... 1

Commissioners...... 3

EmPower ND Goals...... 4

Overall Policy Goals and Initiatives...... 5

Wind...... 6

Transmision...... 8

Lignite...... 10

Ethanol...... 13

Biodiesel...... 16

Biomass...... 18

Energy Efficiency...... 20

Refining...... 22

Oil & Gas...... 24

Natural Gas Processing...... 26

Petroleum Marketing...... 27

Solar, Geothermal, Hydrogen and Hydro Power...... 28

Workforce...... 29

Infrastructure...... 30

EXECUTIVE SUMMARY North Dakota is poised to be a model for America in the development of innovative, long-term energy resources to meet our nation’s growing demand for energy in a clean, environmentally friendly, and sustainable way.

North Dakota’s energy resources are more diverse than any other state in the nation. North Dakota: • Is home to the largest deposit of lignite coal in the world. • Is the 8th largest oil producing state in the nation. • Is the top producer of 16 different agricultural commodities. • Has great wind energy potential. • Boasts the nation’s only National Center for Hydrogen Technology. • Has a university system with world-class energy research and training programs. • Has a positive business climate and fair regulatory environment for energy development. • Has a talented workforce with a strong work ethic.

Recognizing the incredible potential of these energy assets, in 2001 Gov. John Hoeven initiated the development of the state’s first multi-resource state energy policy as part of his statewide economic development strategy.

Key ND Energy Policy Initiatives, 2001-2008 • Creation of a North Dakota Transmission Authority • Creation of Renewable Energy Development Fund to to promote new investment in transmission lines in promote North Dakota-produced energy. North Dakota. A property tax exemption for new or • A sales and use tax exemption for construction of expanded capacity electric transmission lines. co-generation power plants in conjunction with value • Continuation of the Lignite Vision 21 incentives added agriculture projects, and waste heat electric including up to $10 million in matching funds generating facilities. demonstration project. • The Governor’s Counter-cyclical Ethanol Production • Expanded funding for the Lignite Vision 21 program. Incentive makes up to $7.3 million available to ethanol • Creation of the Oil and Gas Research Fund to plants in the 2007-2009 biennium. stimulate the production and development of oil and • PACE and Biodiesel PACE programs to gas in North Dakota. provide interest buy-down for ethanol and biodiesel • A tax exemption for the first two years on any new facilities, livestock operations, renewable fuel pumps shallow natural gas well developed in North Dakota to and grain storage. stimulate the production of natural gas. • A property tax reduction for wind generation. • An expanded tax incentive for tertiary recovery of oil

11 and gas using CO2 gas. The incentive provides a use investments since 2005. and sales tax exemption for carbon dioxide that is used • The oil industry is producing 151,000 barrels a day as for enhanced oil recovery. of April 2008, a record production. • Creation of a Pipeline Authority to help private • Four years ago, North Dakota had only two small industry construct additional capacity to ship crude oil, ethanol facilities and no biodiesel facilities. Today, natural gas, carbon dioxide ethanol, biodiesel and other existing and planned facilities have the potential to energy products to market. produce a half billion gallons of ethanol and 85 million • Tax reduction for new drilling in the Bakken gallons of biodiesel. Formation. • A few years ago North Dakota produced less than 1 megawatt of wind power. Today, current and projected A New Approach projects will produce up to 1500 megawatt of wind Partnerships between traditional energy industries power. and the emerging renewable industries are a central • Three major projects are under construction or being component of North Dakota’s approach to energy planned as a result of the state’s Lignite Vision 21 development. This strategy recognizes that meeting our program. Construction has started on a combined-use nation’s long-term energy needs in an environmentally energy plant in Spiritwood and planning is occurring and sustainable way requires all players in the energy for a potential coal gasification plant in South Hearth industry to be engaged and successful. and a coal liquefaction facility in McLean County. • is implementing a coal-drying Examples abound of these partnerships at work in system at its power plant that North Dakota. Blue Flint Ethanol joined forces with promises to significantly increase the efficiency of Great River Energy to use waste energy from the coal- lignite and reduce emissions. fired power plant to produce ethanol. North Dakota oil • Basin Electric is undertaking a major CO2 capture and companies are interested in using captured CO2 from sequestration project in North Dakota. coal-fired facilities such as power plants, coal gasification • The oil and gas industry is constructing four new and liquefaction facilities and ethanol plants, to enhance natural gas processing plants. oil recovery. • Pipeline companies are planning to nearly double oil pipeline export capacity. North Dakota’s broad-based energy policies have helped trigger more than $5.1 billion in new energy-related

2 EmPower ND Commission The 2007 Legislature approved House Bill 1462 which established an energy policy commission to take a comprehensive look at the state’s energy industry with the goal of enhancing overall energy policy.

Governor Hoeven appointed the 14-member EmPower ND Commission, which includes representatives from all sectors of the energy industry. Shane Goettle, Commissioner of Commerce, chairs the committee.

EmPower ND Commission Members

Chairman Refining Industry Agriculture Industry Petroleum Marketers Biodiesel Industry Shane Goettle, Ron Day, Terry Goerger, Paul Goulding, Eric Mack, Commissioner of Tesoro Farmer Goulding’s Oil Archer Daniels Midland Commerce

Oil and Gas Industry Generation/Transmission Wind Industry Ethanol Industry Ron Ness, Electric Coops Mark Nisbet, Randy Schneider, North Dakota Curtis Jabs, Xcel Energy North Dakota Ethanol Petroleum Council Basin Electric Producer’s Association Power Cooperative

Investor-Owned Lignite Coal Industry Transmission Biomass Industry Ex officio member Utilities David Straley, Sandi Tabor, John Weeda, Chuck MacFarlane, Andrea Stomberg, North American Coal North Dakota Great River Energy Ottertail Power MDU Corporation Transmission Authority Company

The group held its first meeting in Bismarck in The EmPower ND Energy Policy includes 21 goals, 40 September 2007, and seven subsequent public meetings policy statements and 98 action items. The policy offers throughout the state. Developing this policy consisted of a balanced approach to encourage growth in all energy three phases: information gathering and public input as sectors, emphasizing energy efficiency, environmentally mentioned via the eight public meetings, analysis of the friendly policies and practices and strongly supporting information, and development of the policy. research and development of cleaner technologies. 3 EMPOWER ND GOALS In this document, the EmPower ND Commission outlines 40 policy statements that reflect positions the state needs to take in order to achieve these 21 energy goals. The action items provide a roadmap for getting there and include items that require immediate attention, issues that should be addressed in the 2009 Legislative session and long-term initiatives that may require further policy development and/or study. EmPower ND also makes recommendations for actions at the fed- eral level that will require attention from our state’s Congressional delegation.

1. Double North Dakota’s energy production from produce lignite-to-liquid fuels, hydrogen, and other all sources by the year 2025 to drive economic chemicals or natural gas. growth and help the nation achieve greater energy 13. Develop commercial biomass production and use independence. in North Dakota. This would include, but not 2. Support the nation’s 25X25 Initiative to derive be limited to, efforts in biomass for heating and at least 25 percent of all energy produced from processing, co-firing of biomass with coal and other renewable sources by 2025. fossil fuels, anaerobic digestion, landfill and other 3. Increase installed capacity of wind generation to waste gas recovery and perennial grass. 1,500 megawatts by 2020 assuming it is cost effective 14. Become a national leader in the development of to do so. economically viable, production-scale cellulosic 4. Increase North Dakota’s export capacity to 4,000 ethanol production facilities. megawatts. 15. Increase energy efficiency in North Dakota through 5. Build one, and possibly more, clean-coal electric education and promotion of energy savings best generation plants in North Dakota. practices and programs. 6. Produce 450 million gallons of ethanol by 2011 and 16. Exceed North Dakota’s 1984 historic peak develop both in-state and out-of-state markets for production of 148,000 barrels of oil a day by ethanol and associated byproducts. producing 175,000 barrels a day. 7. Build new biodiesel plants in North Dakota to 17. Sustain a level of oil production of at least 150,000 produce 135 million gallons by 2015. barrels a day for 10 years. 8. Encourage development of economically feasible 18. Support a market for all energy products driven by refining projects in North Dakota. consumer demand. 9. Be recognized as the 6th largest oil producing state 19. Attract a sufficient number of workers to fill energy nationally, up from current position as the 8th largest related jobs due to retirements, attrition and growth oil producing state. within the energy industries. 10. Increase the amount of natural gas processed in 20. Ensure adequate water, power, and infrastructure North Dakota by 64% to 75 billion cubic feet per for energy development and for the communities in year by 2012. which energy development exists. 11. Retrofit existing electric generation units to meet 21. Encourage research and development programs that new environmental standards. deal with solar, geothermal, hydrogen, hydro power, 12. Facilitate the development of new lignite pumped storage and other alternative energy sources. gasification/liquefaction facilities in North Dakota to

4 OVERALL POLICY GOALS AND INITIATIVES Goal: Double North Dakota’s energy production from all sources by the year 2025 to drive economic growth and help the nation achieve greater energy independence.

Goal: Support the nation’s 25X25 Initiative to derive at least 25 percent of all energy produced from renewable sources by 2025.

Policy: Educate the people of North Dakota and their representatives on the impact of the state’s energy industry.

n Develop aggregate impacts of each sector and the industry as a whole to serve as an education, marketing and recruitment tool for North Dakota.

n (Federal) Encourage Congress to base any legislation impacting North Dakota’s energy industries on sound science and sound economics.

n (Federal) Provide sufficient lead time for industry to adapt to new regulatory standards affecting production or product.

Policy: The EmPower ND Commission does not support state energy mandates.

5 WIND Opportunities: North Dakota’s wind resources have North Dakota’s wind resources been documented as the most abundant in the nation. are among the most abundant Advantages for growing this industry include: in the nation. • Unlimited, carbon-free energy source that does not energy fact energy require water. • The presence of experienced manufacturers of wind • Lack of dispatchability, due to variability of the generation equipment and potential to expand this resource, and limited ability to store the energy. manufacturing niche. • Long distance to markets where demand is • The presence of experienced wind farm construction strong, requiring costly high-voltage transmission companies in the state. infrastructure. • Abundant land, receptive landowners, and public • Inconsistent incentives affect demand and development support for wind development. rate. • Opportunities to form diverse coalitions by combining • Siting issues including: aesthetics, environmental wind development with other energy (hydrogen) or impacts, equity among landowners, and cultural issues. economic development projects. • Economics don’t support large scale transmission • Attractive state incentives. development. • Job and industrial growth through spin off industries. • Focus on wind energy for electric generation may limit the vision for using wind energy for other purposes. Challenges: Despite all the opportunities and • Federal Production Tax Credit requires corporate strengths of wind energy development, the industry faces ownership, which limits opportunities for locally investment hurdles, transmission and export challenges, owned projects that build wealth in the state. and questions concerning the economic viability of the industry without government support. Other challenges: Goal: Increase installed capacity of wind generation to • Short window of opportunity (three-four years) to 1,500 megawatts by 2020 assuming it is cost effective to take advantage of market conditions to secure a wind do so. generation equipment manufacturing base in North Dakota. Policy: Maintain a fair regulatory environment for wind • High demand for components is restricting their development that encourages companies to transform availability and limiting construction of new wind the state’s extensive wind resources into energy in a way farms. that protects the state’s scenic beauty and the rights of • Variability of resource. property owners.

6 n The state should address boundary issues and n Extend the 15 percent income tax credit (3 percent property owner’s rights (wind wake issues). for first five years for a total of 15 percent) on the costs associated with installing a wind, biomass, n Review siting standards for transmission lines to geothermal, or solar energy device until 2015 and encourage growth of transmission infrastructure. extend the income tax credit carry forward from five to ten years. The income tax credit is currently set to Policy: Maximize the availability of research dollars to expire in 2011. The proposed extension of the carry be a leader in cutting edge wind harnessing technology. forward is supported assuming that the sellable tax credit provisions for wind will sunset in 2011. n Support sufficient funding for the Renewable Energy Development Program to leverage private sector dollars for wind research including using wind for alternative energy uses such as converting wind to hydrogen or compressed air.

Policy: Support sensible, effective incentives to encourage investment in renewable wind resources that can play a vital role in addressing our nation’s energy needs.

n (Federal) Support the extension of the wind energy production tax credit.

n Study the property taxation of wind farms based upon installed capacity and production.

n Study the use and effectiveness of existing incentives and the costs associated with proposed tax incentives.

n Extend the reduction of taxable value to 1 ½ percent for wind generating units until 2015. This action is only applicable if the above action, capacity/ production based taxation, is not accepted before the 2009 legislative session.

n Make permanent the sales and use tax exemptions for building materials, production equipment, and other tangible personal property used in the construction of a wind-powered facility. 7 8 in itsin favor: nation, North Dakota some positive has factors working challenges surrounding the transmission our in state and Renewable project developers must consider the • No solutions exist for addressing the intermittent• and Renewable development occurring is areas in with • Exporting additional generation demand will • Challenges: Funding capability,• Renewable Portfolio Energy Standards neighboring• in Reasonable landowners. • Proximity to markets where demand high. is energy • Favorable terrain for• transmission new lines. Favorable regulatory environment.• Reliable and adequate transmission system for serving • Opportunities: infrastructure. cost interconnection or timing of to transmission largely uncontrollable naturegeneration. wind of limited access to markets. South Dakota, Montana, Minnesota and Wisconsin. jurisdictional authorities including North Dakota, systems across acomplicated network multi- of enhancements and/or transmission expansion of states (driving demand). current load. TRANSMISSION Despite the significant needs and e.g. tax-exempt bonds.

to 4,000megawatts. Policy: Goal: Public other in policy states may inhibit the ability to • Transfer of • Dakota. coordinate transmission new initiatives to benefit North n n site transmission new facilities. operating systems North in Dakota expensive. is The (Federal) Encourage Congress to support atax Commission (FERC). System and (IS) Federal Regulatory Energy Independent System Operators (MISO), Integrated working with regional transmission owners, Midwest the North Dakota exempt status for state issued revenue bonds issued by energy fact Constructing newtransmissionlines Increase North Dakota’s export capacity energy Transmission The electricity between MISOand non-MISO Transmission $500,000 permile. is estimatedtocost Transmission Authority take an active will role in

Authority facilitate will and Authority. n The Transmission Authority will assess the value of any regional transmission initiative and support those that will actually benefit North Dakota.

Policy: The Transmission Authority should encourage cooperation between energy producers and transmission owners about the future of transmission.

n The Transmission Authority will facilitate discussions between energy developers and transmission owners about transmission issues by initiating round table meetings.

Policy: State policy makers must monitor how costs of building new transmission facilities are allocated and the impact on system reliability.

n The Transmission Authority will continue to work with regional transmission owners, MISO, IS and FERC on cost allocation issues.

9 10 markets. that high in demand is and located near high-growth economical, reliable domestic and fuel source energy of lignite reserves,of the largest the in world, that offer an coal-based power generation. that increase costs will and jeopardize existing and future pressures from environmental and emission standards Challenges: Favorable incentives, tax • Progress being made is on CO2 management and joint • Strong public and political support for existing• CO2 Enhanced oil recovery offers astrong, • Geologic formations North in Dakota offer strategic• Existence of • Research and development (coal drying, • Theindustryapositive has environmental record • Opportunities: environment for business. and cooperative state officials create positive a regulations, and favorable state regulatory environment, (PCO2R). projects through Plains CO2 Reduction partnership research and development. for captured CO2. from CO2 producers advantages for CO2 storage and are ashort distance between lignite and industries. oil and gas Council (public-private partnership) and cooperation North Dakota Pipeline and creating for uses new lignite and its byproducts. reducing environmental footprint, improving efficiency (CO2) sequestration, saline aquifer storage, etc.) is mercury, sulfur dioxide and flyash. developingand history clean of coal technologies, e.g. LIGNITE North Dakota North Dakota’s lignite industry faces North Dakota an 800-year has supply Authority, proactive state CO2 Transmission the Lignite Research in-state market carbon dioxide Authority,

generation plants North in Dakota. environmentalnew standards. Production costs increase due will to parasitic power • Construction of • Limited growth for in-state electric demand. • Thetiming of • North Dakota low lignite has BTU value and high • Goal: Goal: Uncertain federal regulatory environment. • Low public awareness or support about CO2and uses • Lackof • CO2 capture and storage technologies are infancy in • requirements associated with CO2 capture equipment and legally challenging. meet the standards. new synchronized with the availability technology to of kilowattper hour than higher grade . moisture content resulting higher in CO2 emissions liabilities. long-termunknown risks of storage and associated transport it CO2 and sequestration lack of regulations. technology to capture CO2, infrastructure lack of to significant. stage –cost to sequester, transport or capture are Technology for nitrogen oxides. and increasingly lower Best energy fact Build one, and possibly more, clean-coal electric Retrofit existing electric generationunits to meet commercially viable and economically feasible climate change legislation not is an 800-yearsupply coal-powered new plants expensive is of lignitereserves. North Dakotahas Available Control Goal: Facilitate the development of new lignite cost/benefits of retro-fitting an existing lignite-fired gasification/liquefaction facilities in North Dakota to electric generating plant. produce lignite-to-liquid fuels, hydrogen, and other chemicals or natural gas. Policy: Support legislation for legal and regulatory statutes regarding long term CO2 sequestration and for Policy: Promote public education on energy policy programs that encourage the use of CO2. including CO2 sequestration. n (Federal) Support a regional demonstration approach n Incorporate the tools already created by the Energy to CO2 sequestration that can help prove the viability and Environmental Research Center (EERC) and the of CO2 sequestration across multiple states. North Dakota CO2 Storage Work Group.

Policy: CO2 legislation should be based on sound science and the capacity of current technology.

n (Federal) Encourage Congress to oppose any cap and trade legislation that fails to recognize the need to time the implementation of law with the development of cost-effective and deployable CO2 capture and sequestration technology.

n (Federal) Encourage Congress to support pre-emption of state and local regulation of CO2 emissions.

n (Federal) Encourage Congress to support legislative solutions to global climate change that include equitable funding for each coal type to encourage research, development, demonstration and deployment of CO2 capture and sequestration technologies.

n Examine the opportunity and funding mechanism for a carbon capture and storage technical fund.

n Support state legislation to direct a portion of any allowances allocated to the state under a federal cap and trade program to the lignite research program.

n Seek state financial support to conduct an analysis of the cost/benefits of building a synfuels plant and the

11 n Conduct an evaluation of the traditional tax Basic Photosynthesis framework for lignite and electric generation projects and determine which incentives should be expanded to provide for new projects that allow for the future growth of the lignite industry.

n Make the tertiary extraction tax exemption permanent on any projects using CO2 for enhanced oil recovery. The sunset may create a disincentive to continue injecting CO2 in the long run when the tax rate increases in the future.

n Support the long-term sequestration proposals The Carbon Cycle developed by the North Dakota CO2 Storage Workgroup.

n Support efforts of PCO2R to expedite research efforts on the long-term impacts associated with CO2 sequestration.

n Continue to engage political leaders in other states in discussions regarding the regional economic impact of generation standards on the North Dakota lignite industry and consumers of lignite-based electric generations. n Ensure the coal conversion tax addresses hybrid plants (plants that may be comprised of more than Policy: Ensure beneficiated coal is subject to the same one type of coal conversion facility). tax treatment as traditional coal, i.e. tax incentives, sales tax exemptions, etc. by taking the following actions: n Draft state legislation so these new industries/ technologies have “certainty” in tax legislation. Current n Draft legislation to clean up the definition of coal in statutes need to clarify how these new processes statute to address the changes in uses of coal. will be taxed they can build their business plans and provide a clear financial picture to potential investors. n Draft legislation to amend the current coal severance tax exemption to include beneficiated coal that Policy: Address state taxation issues regarding ultimately is used in North Dakota agricultural repowering generation plants. commodity processing facilities. n Support state legislation that will address tax issues Policy: Define and incorporate coal to liquids and other for repowering generation facilities due to new emerging technologies into the tax code. environmental changes.

12 With current technology,• World• demand continues to drive up the price of both North in Dakota and globally. ethanol industry faces ongoing anumber of challenges In order to take advantage these opportunities, of the Challenges: As the industry matures, • Distribution innovations withinthe industry promise • State incentives tax help encourage ethanol production.• TheFederal Renewable Fuel Standards• requiring the There are more than 29,000flex fuel vehicles currently• Advantages for producing ethanol North in Dakota are: contribute to thesecurityof energy States, ethanol created has sufficient criticalmass to As the first widely renewable used fuelthe in United Opportunities: in Northin Dakota and throughout the Midwest struggle transported existing in pipelines ethanol so producers production. corn, fuel and other critical components ethanol of opportunityindustries. for high value spin-off more innovative producing byproducts that provide stations to blend and directly sell at the pump. and the development blender pumps of that allow gas higher ethanol blends (E20, of fuels E-25, and E-30) to increase ethanol. the sale and of use include These under construction. current North Dakota ethanol plants those well as as providewill strong demand for ethanol produced by biofuelproduction by 36billion 2022 gallonsof of thein state. ETHANOL facilities are becoming ethanol cannot be the United States.

for ethanol production. policies to remain acompetitive and attractive location ethanol and associated byproducts. and develop both in-state and out-of-state markets for Potential ethanol new pipelines the in Midwest• are too Policy: Goal: A • Thefederal government not does currently provide• Themultiple blends of • n offer greatestthe marketpotential. to move their product to urban population centers that public perception and acceptance ethanol. of distribution infrastructure. effective support forimproving the blending and retailers. local ethanol industry at alogistical disadvantage. great adistance from North Dakota put andthe will Request the North Dakota Tax Department address: industries. associated spin-off Specific issues to encourage growth the ethanol of industry and to analyze existing state credits tax intended to major final challenge facing the ethanol industry is

1. energy fact Produce ethanol gallonsof 450million by 2011 Identify which incentives are being effectivelyused Maintain abalanced incentives package of and currently inNorthDakota. 29,000 flexfuelvehicles There aremorethan ethanol problems pose for

13 to encourage the production and consumption of n (Federal) If the federal government establishes ethanol. national renewable fuel standards, those standards 2. Analyze the livestock investment tax credits and need to be consistent and have clearly identified other applicable business tax credits to determine timeframes that allow industry, including the refinery if they have been used effectively. industry which operates on a 10-year capital plan, 3. Recommend changes in tax policy to improve the to make the infrastructure investments needed to state’s overall ethanol incentive package. support the standards.

n Maintain continuing appropriations for the state’s n Establish a North Dakota Ethanol Utilization innovative Counter-Cyclical Ethanol Production Council for ethanol promotion funded by check-off Incentive program that helps producers during dollars from ethanol plants. adverse times when ethanol prices Motor Vehicle Fuel Taxable Gallons are unusually low and/or corn prices are unusually high. (The program experienced its first payout in Q4 of 2007 in the amount of $468,000.)

Policy: Support initiatives to improve the marketing, distribution and use of ethanol.

n (Federal) Advocate for/support federal legislation that standardizes the labeling of pumps so consumers can clearly identify gasoline that includes ethanol.

14 n Provide cost-sharing grants for retailers to install new pumps (i.e. E85 pumps, blender pumps, etc.) for new kinds of fuels that come into the market.

Policy: Examine and improve state and federal programs for developing infrastructure to transport and blend ethanol.

n (Federal) Support continuation of the federal blender’s credit that is set to expire December 31, 2010.

n (Federal) Encourage the building of blending facilities on the East and West Coast to significantly expand the markets for selling ethanol in population-dense areas.

n (Federal) Support increased federal research to improve the transportation of ethanol via pipeline and ensure that North Dakota secures access to ethanol pipelines.

Policy: Support research to improve the use of ethanol byproducts.

n State institutions should increase research into potential products derived from ethanol byproducts.

n Study the permitting process for livestock feeding facilities to evaluate ways to streamline the permitting process and consider ways to expand the use of byproducts from ethanol production as a feedstock.

Policy: Support research for ethanol production technology and feedstocks development.

15 16 New diesel technology bringing is increased efficiency • Industry supported is by diverse interest groups• Promoting clean airand reducing carbon emissions. • Engine manufacturers warranties cover of use • Availability of • Stabilizing production agriculture. • Creating value-added new agriculture opportunities in • Reducing U.S. • Federal government mandate Bill (1 2007Energy in • New federal renewable standards fuels stabilize will • Good North Dakota incentives tax for business new • advantages include: the state well to aleading be producer biodiesel. of Other feedstockvariety of produced North in Dakota positions favorable emissions and carbon foot print.wide The Biodiesel an environmentally is friendly fuel with a Opportunities: for diesel engines which may increase diesel engine use. (industry, environmentalists, politicians and farmers.) quality biodiesel blend. build North Dakota’s livestock and feed industry. rural areas. biodiesel by 2012) billion gallonsof demand. ventures. BIODIESEL high-value co-products which can help dependence on foreign oil.

ASTM produce at least gallonsby 135 million 2015. state Some production incentives are limited, • Low utilization of • Need for more education of • Lackof • High feed stock costs can create negative margins. • Challenges: Goal: Difficulty obtaining methanol. • Inappropriate of use • Competition for acres to for used be feedstock. • Federal incentives offer short-term• guarantee. Lackof • Inconsistent quality.• Lackof • incentives offeredin other states. questionable benefit and as notattractive as production issues and storage properties. infrastructure. produced biodiesel. standard imperative. (ASTMD6751)is energy fact Build biodiesel new plants North in Dakota to adequate distribution and blending markets North in Dakota for meal co-product. North Dakota state certified lab. leading producerofbiodisiel. Wide varietyoffeedstocks position thestateasa existing production capacity. Meeting the industry quality biodiesel credits tax by foreign cold temperature flow

of

Policy: Improve tax policy and incentives for producing, consuming, blending and transporting biodiesel.

n Initiate a Tax Department analysis of the use of biodiesel tax credits to determine their effectiveness.

n Develop tax incentives to encourage the purchase of biodiesel by North Dakota consumers.

n Evaluate and develop alternative incentive programs instead of income tax credits to support infrastructure for blending and transport, retail, and production facilities.

n Continue the sales tax exemption on biodiesel equipment.

n Develop a Biodiesel Counter Cyclical Production Incentive, similar to the Ethanol Counter Cyclical Production Incentive, to provide a safety net for the producers.

n (Federal) Lengthen the time-span on federal incentives to provide long-term security for investors in the industry. Support the continuation of the blender’s tax credit at the federal level, and the continuation of the Commodity Credit Corporation (CCC) program in the farm bill.

n (Federal) Eliminate the loophole that allows foreign produced biodiesel to take advantage of the domestic biodiesel tax credit.

17 18 Biomass offers promising value-added new agriculture • A • North Dakota’s• lignite power plants and extensive North Dakota an excellent has research• and suitable Land for biomass crops available is in • Bill mandates The2007Energy production of • biomass development. naturalThese resources offer a huge opportunity for for perennial and grass other dedicated crops. energy identified been also greatbeingas a potential producer differentagricultural commodities. North Dakota has includes leading the country the in production 16 of North Dakota adiverse has agricultural system that Opportunities: – – – – opportunities for rural areas that can help expand biomass development exists: biomass. of generation that can significantlyimprove the economics lignite resources offer opportunities for co-firing/co- fuel technologies, including demonstration projects. development for base developing biomass new crop and abundance North in Dakota. cellulosic-basedbillion ethanol gallonsof by 2022. $3 million Renewable$3 million Development Energy Program. program$2 million for biomass development Carbon neutral or renewable fuel premiums. Programs promoting green power diverse package of BIOMASS state and federal incentives for 16 Thenegative carbon footprint of • Biomass development garners strong support from the• Biomass crops offer environmental and economic • State and federal incentives are limited and• the Current economics don’t• support the significant Significant technological advancements are necessary• to Challenges: According to the Farm • Service creates the possibility for carbon the sale credits of public, political and conservation groups. wildlife habitat. of suitability for land marginal and CRP, and the creation advantages including extremely low input costs, necessary to develop biomass technology. private sector not is currently investing the in research infrastructure investments required for biomass. make biomass fuel production economically feasible. contractout of by September 30, 2009. Northof Dakota’s CRPacres 3million are to set come the base. tax businesses, create jobs, grow population, and expand energy fact abundance oflandavailable North Dakotahasan for biomasscrops. Agency, perennial grasses 544,000(18%) • North Dakota has a short growing season, dry climate, n (Federal) Encourage Congress to authorize the inhospitable climate for trees, and is remote from major Secretary of Agriculture to allow Conservation markets. Reserve Program (CRP) lands to be harvested for • Premium lands are used for higher return food crops biomass, including the possibility of planting new, limiting biomass crops to marginal lands. perennial grasses in CRP land for future biomass feedstock. Goal: Develop commercial biomass production and use in North Dakota. This would include, but not be limited n (Federal) Continue Clean Renewable Energy Bonds to, efforts in biomass for heating and processing, co-firing for biomass. of biomass with coal and other fossil fuels, anaerobic digestion, landfill and other waste gas recovery and perennial grass.

Goal: Become a national leader in the development of economically viable production scale production facilities.

Policy: Support increased funding for state and federal biomass research and development programs.

n (Federal and State) Continue federal and state programs that promote biomass energy development.

n Increase funding for the Renewable Energy Development Fund and the Biomass Incentive Research Fund.

n Encourage market studies on the development possibilities of biomass.

Policy: Support policies aimed at improving the long- term economic feasibility of biomass production.

n Ensure language in the North Dakota Century Code includes cellulosic ethanol in existing ethanol tax incentives.

19 20 North Dakota ranked on last the nationwide• efficiencyoften is Energy not considered ahigh priority • Challenges: Existing measures at state facilities provide positive • Vocational training• programs seeopportunity Modifications regulatory in structure remove will • allow efficiency North will Energy Dakota businesses • efficiencythe is Energy most cost effective method • Increasing the efficiency of • Opportunities: energy efficiency energy scorecard. Council for Efficient an Energy Economy (ACEEE) relatively energy. low-cost due to the state’s abundant supply and ahistory of of government to lead by example. efficiency benefitsexamples energy and allow of state procedures into their curriculums. incorporatingin efficiency energy practices and effective efficiency actions. energy disincentives for regulated utilities to pursue cost- to more be competitive national in and world markets. production. reducingof the environmental energy effect of Dakota. costsenergy on families, farms and businesses North in cost effective methodreducing of risingtheimpact of ENERGY EFFICIENCY the is use most energy American increase energy efficiency.increase energy practices and programs. through education and promotion savings best energy of Goal: North Dakota’s• low population density the limits Theupfront cost of • State and federal funding for efficiency and low- energy • Thestate building code energy should reviewed. be • Policy: n n n effectiveness transportation. mass of high. income home weatherization programs limited. is Promote public the of transportation. use Develop aNorth Dakota state government carpooling Develop astate building code. energy program. energy fact Increase efficiency in energy North Dakota of reducingtheenvironmentaleffect Initiate state policies that encourage and most cost-effectivemethod Energy efficiencyisthe of energyproduction. efficiency measures energy can be Policy: Create incentives and education programs that n (Federal) Continue and enhance federal programs that promote energy efficiency. promote energy efficiency and increase federal energy efficiency tax incentives. n Recommend that the Resource Trust Fund, originally created for water and energy conservation projects, be used to promote energy conservation while maintaining a priority for water projects. Today this fund is used only for water projects. To preserve the priority for water, perhaps a trigger could be placed on the balance of the fund such that water projects receive 100% of the fund below the trigger, and a split allocation of the fund above the trigger.

n Initiate a statewide education plan to teach consumers how to save energy and consider providing financial incentives for businesses and individuals who adapt successful energy efficiency efforts.

n Promote energy efficiency education in high school and higher education construction programs.

n Recommend the Public Service Commission secure the necessary authority to approve energy efficiency programs that are cost effective and initiated by the utilities. The plan should include cost recovery and a return on investment comparable to supply side investment.

n Consider putting the North Dakota geothermal tax credit on the ND-1 short form.

21 22 pipeline infrastructure for transporting refined product operates on extremely tight and requires margins new significant capitalinvestments, or new expanded capacity refining. However, the refining industry requires reserves create the potential development for additional Increasing oil production the in • Availability of • include: Competitive strengths for refiningin North Dakota Northwest Refining near • Three • American Lignite Energy, • Tesoro• expansion Mandan: in Dakota: currently under consideration or development North in to growing markets. Opportunities: product. producingof 50,000-100,000barrels refined aday of Commission allocated to funds study afacility capable Canadian syntheticday of crude. Engineering and Design study. (FEED) considering whether to move forward with aFront End refinedfuelper day. gallonsof 1.38 million Currently production capacity being considered. is Affiliated REFINING high qualitycrude and vast coal reserves. North Dakota’s vast oil and coal Tribes near Makoti: Four possible refining projects are Williston: coal liquefaction:

An increase in Williston Basin. TheIndustrial 15,000barrels per Possible Profit refining in margins are cyclical and historically • economies Obtaining of • High crude oil prices and volatility.• Challenges: Excellent environmental performance of • Significant community support for refinery expansions • Lackof • North Dakota currently produces• more refined Not crude all are oils of • Development of • Expansion of • competitiveness and sustainability. refineries. and development. product than it consumes. Dakota’s existing refining facility). Northof Dakota’s crude cannot processed be North in requirements and timeframes. capacity requires asubstantial capital investment. tight. energy fact pipeline infrastructure for transporting has acrudeoilcapacityof Mandan TesoroRefinery 60,000 barrelsperday. existing refining capacity beyond current refineries new have significant capital the same quality(40percent scale to realize long-term existing to growing retail markets inhibits expansion and development. • Significant refining expansions are occurring in North Dakota’s key export markets. • Market uncertainty and uncertain growth potential due to federal energy policy and surrounding state mandates.

Goal: Encourage development of economically feasible refining projects in North Dakota.

Policy: The state’s role in the development of future refining capacity through Industrial Commission programs is to cost-share in feasibility and FEED studies and to support and fund research and development.

n Continue sufficient funding for the Industrial Commission research programs.

Policy: Maintain North Dakota’s existing tax and regulatory structure that supports refining growth.

n Continue the sales tax exemption for new or expanded refining capacity.

n Continue the sales tax exemption for environmental upgrades.

Policy: Support and assist in pipeline infrastructure development through the North Dakota Pipeline Authority.

23 24 formations the in state more productive. technology new the has potentialof to make many other recoverable using current technology. In addition, the use 2.1 billion the barrelsoil in Bakken of formation that is continuous oil deposit the in lower 48states, estimated at Good working relationships with other players energy • Availability of • Favorable business climate for• low-volume wells Potential to expand oil activity/production with the• Widespread of use • Increasing the domestic supply of • Increasing the state and and local base collections. tax • Significantly increasing populations western in North• Producing considerable wealth new for mineral• and industrysignificant Theoil and has gas and sustainable • Opportunities: oil recovery. ethanol plants that potentially is available for enhanced (stripper) that add stable employment. completion technologies. development and application drilling new and of environmental impact. Dakota. surface owners. and generating good-paying thousands jobs. of major outside investments for exploration oil and gas long-term growth possibilities. It currently is attracting

OIL ANDGAS CO2 from coal-fired power plants and North Dakota the has biggest technology new that minimizes crude oil.

Lackof • Challenges: Significant • Industry under is increased scrutiny and criticism from • Rapidly increasing development costs for drilling, • Need better public understanding of • of base Large • Thestate’s structure oil tax to difficult • is understand. development. growth oil production in could restrict surging oil resources. releasedgas by drilling and reduce thenatural loss of industry.energy to create synergies withinthe win-win state’s overall regulatory groups. services, steel, leases, and wages. the actual surface development. impact of are sensitive to changes policy. tax in 9.3-9.5 percent. effectivetax rate on all productionis estimated at The top ratepercentis 11.5 gross profit. of The overall energy fact sufficient pipeline capacity for continued biggest continuousoildeposit opportunities low-rate production stripper wells that in thelower48states. North Dakotahasthe to capture more the industry and of

the natural

• Federal legislation seems intent on shrinking the n Clarify the sales tax exemption (HB 1462) to include industry with policies such as the proposed windfall gas gathering systems from oil wells in order to profit tax and restricted access to federal land. encourage the connection of more gas and eliminate • Drilling and production in the Bakken formation is flaring. expensive, requiring higher crude prices to make it economically feasible. Policy: Support policies and research that maximize the extraction of all the state’s oil resources. Goal: Exceed North Dakota’s historic 1984 peak production of 148,000 barrels a day by producing n Examine the impact of the Bakken formation tax 175,000 barrels a day. incentive on the first 75,000 barrels produced during the first 18 months. This exemption expires July 1, Goal: Sustain a level of oil production of at least 2008. 150,000 barrels a day for 10 years. n Consider the value of this type of exemption to Goal: Be recognized as the 6th largest oil producing stimulate new wells in any underperforming areas of state nationally, up from current position as the 8th the state. largest oil producing state. n Maintain the state’s stripper well tax provisions as Policy: Maintain a regulatory and business environment vital to the long-term health of the industry. that supports and encourages oil exploration. n Support research of horizontal drilling, completion n Examine the taxation of the oil and gas industry and and production techniques through the Oil and Gas consider a flatter tax that is more competitive on the research fund. high-end and provides more revenue to the state on the low end. Any new tax structure should provide Policy: Support funding for research and development for stability, predictable state revenue, a competitive of new or expanding refining infrastructure. business climate, and help sustain long-term oil development in North Dakota. A flatter tax structure n Consider raising the biennial cap on the Oil and might include fewer rates ranging between 7% to 9.5% Gas Research Fund. Additional funds could be used rather than the current range of 5% to 11.5% and to develop a public education program to increase would make budgeting and planning easier for both understanding of oil and gas exploration and the industry and the state. refining; how oil and gas gets to markets; and the barriers involved in the process. Additional funds n Streamline the permitting process for upgrading oil could also be used to create an Oil and Gas program and gas pipelines to eliminate the need for completing similar to the Lignite Vision 21 program to advance a full-scale permitting or siting process on an upgrade economically feasible projects. of an existing facility.

25 26 PROCESSING processing. Opportunities include: to significantlyincrease natural productiongas and and oil exploration, North Dakota the has opportunity billion cubic natural feet of gas. With increased drilling Infrastructure and resources limitations: • Limited availability of • Challenges: Natural being wasted is gas by flaring due to lack of • Stranded could gas connected be to commercial • Theindustryan excellent has environmental record, • Eastern North Dakota contains shallow reservoirs gas • Existing production growth created has interest in • High natural (NGL) liquids gas content. • Excess capacity on the export pipelines. • • Strong natural prices, gas Opportunities: – – – – NGL and sulfur take away. infrastructure.gas-gathering economical power source. or value-added agriculture facilities to provide an highly skilled people rural in areas. a significanttax payer and offersgood-paying jobs for that could have production potential. processing facilities. expanding existing and building natural new gas production.gas New equipment delivery delays. additional natural volumes. gas Limited pipeline/compressor capacities to sell infrastructure. Bakken wells are farther than east existing gas No ethane high-end NGL pipeline infrastructure. NATURAL GAS In 2007, North Dakota produced 70.7 rail car and truck for services demand and growing natural

is resources. refining anddistribution morethe state’s of of natural gas Policy: Support policies that encourage the capture, Dakota by 64%to 75billion cubic feet year per by 2012. Goal: Low-volume natural wells cost gas too much to connect • n n n n to existing pipelines. Clarify the Clarify sales exemption tax 1462)to (HB include Encourage research and development through the Streamline the permitting process for upgrading Continue to promote and provide incentives tax for flaring. encourage the connection more and eliminate of gas gatheringgas systems from oil wellsorder in to or farms for heating in use homes or facilities. plants, to other commercial facilities, or communities Possibilities include connecting wells to ethanol exploration and production Eastern in North Dakota. Oil and Gas Research Council for shallow natural gas doesn’t change. on an upgrade when the footprint infrastructure of need for completing apermitting or siting process petroleum and natural pipelines to gas eliminate the production.shallow-well gas energy fact Increase the natural processed gas North in North Dakotaproduced of naturalgasin2007. 70.7 billioncubicfeet MARKETING address challenges. energy blends that benefit the environment and help nationour to apartner be delivering in alternative and fuels fuel North Dakota’s petroleum marketing industry poised is gallons (46percent) included some ethanol. blend of North Dakota. the total sold, gasoline Of 165million diesel were andgasoline gallonsof 466million sold in standards. investments needed to support the industry to make the infrastructure clearly identified timeframes that allow standards need to consistent be and have establishes national fuel standards, those products driven by consumer demand. Policy: Goal: Consolidation the in oil industry (i.e. • Increasing government mandates and • Low return on investment compared to• the risk Public perception that petroleum marketers• are Lackof • Challenges: Thestate’s growing economy• offers growth potential for North Dakota petroleum marketers• have an excellent Steady • North Dakota petroleum marketers• are locally owned, Opportunities: fewer brands). number of regulation. involved. responsible for the high price fuel. of the industry. environmental record. Dakotans. civic minded businesses. Support amarket for energy all If theIf federal government employment consistent fuel supply. PETROLEUM In 2007, gallonsof 362million is provided

for thousands

of Regular Gasoline What We PayForInAGallon

North

consumers make informed fuel purchase decisions. Policy: Support education energy programs that help become available. infrastructure needed to the sell fuel varietiesthat new of Policy: n n Provide grants for retailers to infrastructure install for Consider authorizing legislation to allow petroleum new kinds of fuels that fuels come of kinds new into the market. and education. tofunds enhance innovation safety, in environment, marketing to access Industrial Commission research energy fact of dieselwereDakota. soldinNorth gasoline and466milliongallons In 2007,362milliongallonsof Encourage retailers to invest the in new Source: Energy InformationSource: Energy Administration Diesel (April2008) 27 28 POWER HYDROGEN ANDHYDRO solar, geothermal, and hydro power. pumped storage and other alternative resources. energy that deal with solar, geothermal, hydrogen, hydro power, Policy: Goal: development the in state the in near future. the state. Thereisn’t expected be anyto new hydroelectric which helped has to attract hydrogen business based to aCenters in million Excellence of project at the EERC, The state of North Dakota already has invested $2.5 Encourage research and development programs Continue any existing incentives that affect SOLAR, GEOTHERMAL,

energy fact the nation’sonlyNationalCenter for HydrogenTechnology. North Dakotaishometo information, and job training programs. regarding relocation issues such housing, as community that match their and skills directs them to resources job seekers that helps them identify opportunities Northneeds of Dakota’s industry. energy international talent poolsto the serve extraordinary and marketing strategy to include other states and Policy: Policy: growth withintheindustries. energy relatedenergy jobs due to retirements, attrition and Goal: n n n n n Develop an industry-led force task to recommend (Federal) Simplify and streamline requirements for Consider increased funding for workforce marketing Support the continued development and (Federal) Simplify and streamline requirements for improvement to state workforce recruitment strategies recruiting international workers. effortsin the next biennium. Interim Workforce Committee. strategy, including potential recommendations the of implementation acomprehensive of state workforce tools. states to provide the necessary workforce marketing Attract asufficient number of Create an all-encompassing resource for Expand the state’s workforce recruitment WORKFORCE workers to fill among teachers and career counselors. improving awareness career energy opportunities of connections between industry and education and industry research and energy jobs by building stronger Policy: n n n n Continue, enhance and fund demand-driven Continue, enhance and fund Operation Intern. Continue, enhance and fund state career promotion Support federal and state funding for the secondary institutions. education and training programs at two-year post- degree programs. efforts thatdirect students bothto vocational and workforce recruitment tools. establishment and maintenance of dynamic of and streamline jobsnd.com process for related energy jobs. energy fact are neededinthepetroleumindustry Attract and train more students into energy replacements, andretirements. Nearly 12,000newemployees in NorthDakotaby2010 to accomodategrowth, 29 30 having on North Dakota’s water and power supplies. which development energy exists. for development energy and for the communities in energy industry.energy off-set theinfrastructure costs related growthto in the Policy: Policy: Goal: n n n Direct the State Water Commission and the Update the formula for used Impact Energy Grants Support initiatives to provide economic tools water supply to support future growth. energy thisto impact minimize andthe maximize available Dakota’s water resources and to recommend ways the development effect energy is having on North EmPower North Dakota Commission to study infrastructure. that enhance the related development energy of and equipment for being used oil development. to reflect newer technologies suchas heavier trucks Ensure adequate water, power, and infrastructure Increase state funding for local to jurisdictions Evaluate the development impact energy is INFRASTRUCTURE n n Establish afund managed by the Emergency Create an up-front funding mechanism for roads and be tobe fill thefunding gap until taxes oil revenues are road repair funds. thefund The purpose would of up-front infrastructure needs and better correlate on current drilling activities the to alleviate some of Commission to appropriate to funds counties based development theindustry. other in energy segments of other infrastructure needs associated with energy fund. in, those revenues would to used be replenish the received by the local governments. energy fact The increaseinenergyproduction infrastructure investments. will requiresignificant

As oil taxes come ENERGY FACTS

Wind energy is the fastest growing segment

of all renewable energy sources.

World coal consumption is more than 5.3 billion tons annually

of which three quarters are used for generating electricity.

Oil together with coal and natural gas supply

about 88 % of the world’s energy needs.

The manufacturing related to biomass is going to happen

where biomass occurs. Biomass occurs in rural areas

meaning more manufacturing jobs in rural areas.

Biodiesel is currently available at around

300 filling stations across the United States.

There are 6 million flex fuel vehicles on

America’s highways that can run on up to 85 percent ethanol (E85). 2008-2025