The state's economic development arm is leveraging a significant tool it has into a proposed $700 million renewable diesel refinery in north Louisiana, with hopes that it will become a multibillion-dollar green diesel hub over the next decade.
Louisiana's economic development department and Gov. John Bel Edwards support the first round of a $200 million tax-free bond allocation with potentially much more for the Louisiana Green Fuels project.
The board for the Louisiana Local Government Environmental Facilities and Community Development Authority, which was created to assist political subdivisions for economic development projects, approved a resolution to file an application with the Louisiana State Bond Commission in November 2020, records show.
The process for this type of bond is that is was a pre-approval and would go before the bond commission itself then back to the Louisiana Government Environmental Facilities and Community Development Authority to issue the bonds on the behalf of Louisiana Green Fuels project owners.
Ultimately, the privately-held company Strategic Biofuels, would be responsible to repay the debt. The state is essentially lending its tax-exempt bond status to the for-profit business which could mean a substantial savings went the bonds are issued as tax exempt bonds are at "historic lows", according to the agency's leadership Ty Carlos.
The first tranche, which is akin to a round of bonds issued, could be $200 million of tax-exempt private activity bonds for the project. Citigroup Global Markets was tapped as the underwriter for the potential series of 30-year 7% fixed or floating rate interest solid waste disposal facility revenue bonds up to $830 million.
"It has to go through a lengthy process, LED is involved and we provide a specialty in access to the (bond) market," Carlos said. "This kind of kicks off the project."
Just because the company has approval for up to $830 million that doesn't mean all those bonds would be sold, it all depends on market conditions and final approval through the bond commission.
The economic incentive "substantially advances the financing for this project," said Paul Schubert, chief executive officer of Strategic Biofuels LLC.
These so-called "green bonds" would be sold on the public bond market to institutional investors such as pension and 401(k) funds looking to help finance renewable energy projects around the globe. General appetite among investors for green bonds has grown significantly, and these bonds are often oversubscribed, which means that there are more investors wanting to buy a slice of the bond than is for sale.
For example, Hong Kong recently raised $1 billion in its first green bond, which attracted $4 billion from investors, according to Reuters. In the U.S., the North American Development Bank, a binational institution which underwrites loans and grants for renewable energy projects and clean water plants along the U.S.-Mexico border, issued $126.4 million in green bonds in 2018 that have since been snapped up by investors.
Louisiana is using a similar bond issuance through a different quasi-public agency to help finance a company trying to reuse red mud pond waste in St. James Parish, which is what is left over during the extraction of alumina from raw bauxite that is smelted to draw out the raw material used to make aluminum.
Strategic Biofuels plans to recycle waste-wood from harvesting and thinning in the forestry industry and transform it into "green diesel," a synthetic form of the product that doesn't require vehicle manufacturers to change engines before using it. When mixed with traditional petroleum-derived diesel fuel, it releases less greenhouse gases into the atmosphere. It could produce 32 million gallons of green diesel each year, or 2,087 barrels of renewable diesel 'oil barrels' each day which is a very small scale plant.
The project is proposed for construction on a 75-acre tract inside of the 171-acre Port of Columbia site in Caldwell Parish. A final financing decision for the project is expected by late 2022, but it has raised 85% of "early stage" financing from local investors in north Louisiana and the remainder from the surrounding states. The hub of refineries also could potentially produce renewable aviation fuel someday.
It would create at least 76 new jobs for individuals to run the refinery and wood scrap yard. The average pay would be $68,000 plus benefits, which is significantly higher than the median salary earned in the otherwise rural region just south of Monroe. About 450 construction jobs would be supported over a 30-month period.
Louisiana Economic Development began negotiating about the Louisiana Green Fuels project in July 2020 during the height of the coronavirus pandemic and its related economic recession. Once the company makes a final investment decision, the state would offer economic incentives to make the project feasible.
A refinery of this scale, since it would be a manufacturer, could potentially qualify for the Industrial Tax Exemption program and up to 80% property tax abatement up to 10 years, pending local approval. there could be others incentives as well, like the state's Quality Jobs program. It provides a cash rebate to companies up to 6% for no more than 10 years in addition to state sales and use tax rebate on capital expenditures. Another economic incentive program the state could offer is the Enterprise Zone program, which is a tax credit of either $3,500 one-time or $1,000 for each new job in addition to a rebate of state sales and use taxes on materials such as machinery or equipment or 1.5% refundable investment tax credit on the total value of the capital investment.
Editors note: A previous version of this story inaccurately described which quasi-public entity would be responsible for the bonds.
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