The Synthetic Fuels Corporation's Progress in Aiding Synthetic Fuels Development

In response to a congressional request, GAO reviewed: (1) the Synthetic Fuels Corporation's progress in meeting the objectives of the Energy Security Act; (2) the Corporation's success in encouraging private sponsor participation; (3) the reasons project sponsors have dropped specific projects; (4) whether other available financing options under the act would have been more effective than those used; (5) the effect of the Tax Equity and Fiscal Responsibility Act on the economic viability of synthetic fuels projects; (6) what factors need to be considered by Congress in any reevaluation of the Corporation's funding needs; and (7) industry views on the potential effects of reductions in the fossil fuels research and development budget on the Corporation's commercialization activities.

It has been difficult for the Corporation to make progress toward the goals of the Energy Security Act due to the changing economic and energy conditions since the act's passage. By making only minimum progress toward its production goals, the Corporation will contribute only marginally toward the act's goals of encouraging private capital investment, improving the balance of payments, and fostering greater energy security. Two financial assistance awards have resulted in private sponsors' contributing $349 million in equity, and other projects are under consideration for financial assistance. Industry has abandoned or postponed synthetic fuels projects primarily as a result of changes in the world energy situation which caused many projects to not be economically feasible. Private industry decisionmakers stated that the Corporation offers the most effective financial tools authorized under the act. The Tax Equity and Fiscal Responsibility Act significantly reduces the after-tax return on major construction projects, including synthetic fuels projects. Any reevaluation of future funding needs is dependent upon what Congress decides are acceptable levels of synthetic fuels production and diversity of technologies. Some industry officials feel that sufficient mature technologies are currently available to construct commercial-scale projects. Others feel that the Department of Energy should fund intermediate-scale projects of less mature technologies so that a wider variety of proven technologies will be available.