The Hagstrom Report

Agriculture News As It Happens

Ethanol industry set to fight over renewable fuels standard


Texas Gov. Rick Perry’s Republican presidential candidacy and President Barack Obama’s comments on ethanol have thrown the corn-based ethanol industry into turmoil as it struggles to convince Congress to provide assistance to build blender pumps.

Perry led a group of governors in asking the Environmental Protection Agency for a waiver from the renewable fuels standard, noted Brian Jennings, executive vice president of the American Coalition for Ethanol, in a speech to Minnesota Corn, a growers’ group, on Tuesday in Minnesota.

Perry argued that the ethanol mandate places a burden on consumers and livestock producers.

In a broader discussion of ethanol policy, Jennings said corn growers and ethanol producers have to be ready for a fight over the renewable fuels standard, known in the industry as RFS2. He said his South Dakota-based group expects another effort to convince EPA to waive the requirement, but noted that one advantage the ethanol industry has is that EPA's decision-making process is “a fact-finding mission.”

Noting EPA’s repeated decisions to reduce the targets for cellulosic ethanol production because it has proven so difficult to commercialize, Jennings said that could also lead to effort to change the renewable fuels standard.

"Our waterloo is the RFS2," Jennings said. "We need to be ready for an RFS shortfall strategy."

Geoff Cooper, a vice president of research and analysis for the Renewable Fuels Association, told the Minnesota corn growers that he expects to see another waiver request this year or next year, but noted that EPA Administrator Lisa Jackson “has sent strong signals that EPA is not interested in initiating a waiver action” on its own.

Cooper noted that some producers have proposed asking Congress to reopen the RFS to make corn-based ethanol an advanced biofuel. But "asking Congress to reopen the RFS is dangerous," he said, because some senators would use the bill to oppose renewable fuels while others would try to limit it to fuels made from algae and other materials besides corn.

Jennings said it will be "an uphill battle" to convince Congress to pass a bill that would end the ethanol tax credit before it expires in December and use some of the savings to pay for blender pump construction.

He noted that Senate Budget Committee Chairman Kent Conrad, D-N.D., and Sen. Charles Grassley, R-Iowa, had written a bill to reform the tax credit and start an ethanol infrastructure program, but that it proved to be “too much for this Congress” in the midst of budget constraints.

The bill developed by Sens. Amy Klobuchar, D-Minn., John Thune, R-S.D., and Dianne Feinstein, D-Calif., that would repeal the tax credit early, use two thirds of the money for budget savings and one third for blender pumps, didn't make it into the debt ceiling-deficit reduction bill because the bill included no tax measures.

As each month goes by until the tax credit expires at the end of December, the value of the savings diminishes, Jennings noted.

When the tax credit expires, small ethanol producers that have used the tax credit could suffer and the economics of blending in general could "get tough" depending on gas and corn prices, he said. Blending economics on E10 are "not bad," but "get really ugly on E85," he said.

But he said the industry should "gin up" for any tax measures that come up in 2012.

Ethanol groups need also to work on state measures to help the industry, said John Fuher, director of government affairs at Growth Energy.

Meanwhile, President Obama’s announcement Tuesday that the Agriculture, Energy and Navy departments will cooperate on a $510 million plan to encourage construction of plants to produce advanced biofuels for aviation and marine military and commercial use provoked a negative reaction from House Agriculture Committee ranking member Collin Peterson, D-Minn.

“I think that is a big a problem,” Peterson said in an interview with the _Duluth Tribune_. “It is just another competition for us in ethanol that we don’t need, really.”

But Agriculture Secretary Tom Vilsack told reporters today that he believes once Peterson learns more about the program "he will learn it is not a threat to the ethanol facilities in his state" because it will create fuel for aviation use.

Matt Hartwig, a spokesman for the Renewable Fuels Association, said his group supports all types of renewable fuels.

“But let’s remember that President Obama could not have made such an announcement when he first took office,” Hartwig said. “It has been the foundation built by existing biofuel technologies that is making these new, previously unattainable renewable fuel technologies possible. We must be careful as we continue to build out the renewable fuel house that the foundation upon which it sits is sound. That means more ethanol infrastructure and market access, an aggressive implementation of the RFS, and investment in new technologies."

The Biotechnology Industry Organization praised the administration’s biofuel announcement.

“The White House Biofuels Interagency Work Group has done a thoughtful job of recognizing how important biofuels production is for national defense,” stated Brent Erickson, executive vice president of BIO’s Industrial & Environmental Section. “Energy independence is indeed a national security issue.”

“Our nation’s military is as much at the mercy of high oil and gasoline prices as the average consumer,” Erickson said.

“In addition, it is imperative that our services have access to domestically produced fuel in order to avoid supply disruptions. Drop in advanced biofuels produced in small, strategically located biorefineries can be an important ‘force multiplier’ by increasing the military’s ability to operate where needed and reducing the costs and the number of combat forces necessary to protect energy supply lines.”

Finally, Obama's response to a question from a young attendee at a town hall in Atkinson, Ill., Wednesday elicited a negative response from the Renewable Fuels Association.

The 11-year-old boy said his grandfather is a farmer and owns part of the local ethanol plant, and he asked Obama, “What are you going to do to keep the ethanol plant running?”

Obama noted that he has been “a strong supporter of biofuels” since he was an Illinois state senator and a U.S. senator, but the rest of his answer demonstrated how much the politics of ethanol have changed as food prices have risen.

"The more we see the science, the more we want to find ways to diversify our biofuels so that we’re not just reliant on corn-based ethanol," Obama said.

"Now, we can do more to make corn-based ethanol more efficient than it is, and that’s where the research comes in,” the president said. “And there are some wonderful research facilities in our own University of Illinois system that have done a lot to advance the science on this."

"But the key going forward is going to be, can we create biofuels out of switchgrass and wood chips and other materials that right now are considered waste materials? And part of the reason that’s important is because, as I think most farmers here know, particularly if you’re in livestock farming, right now the costs of feed keep on going up and the costs of food as a consequence are also going up."

"Only about 4 percent of that is accounted for by corn being diverted into ethanol, but as you see more and more demand placed on our food supplies around the world — as folks in China and folks in India start wanting to eat more meat and commodity prices start going up, it’s going to be important for us to figure out how can we make biofuels out of things that don’t involve our food chain."

Obama told the boy, "Hopefully your grandfather, with his ethanol plant, is starting to work with our Department of Agriculture to find new approaches to the biofuel industry. But this is a huge area of support. This is another example of where we’ve got to make sure that our budget continues to invest in basic research, and that costs money. And if all we’re doing is cutting and we’re not thinking about investments, then over time we’re going to fall behind to countries like Brazil, where they’ve already got a third, I think, of their auto fleet operates on biofuels."

Obama concluded, "There’s no reason why we should fall behind a country like Brazil when it comes to developing alternative energy. I want to be number one in alternative energy, and that’s good for the farm economy."

The Renewable Fuels Association responded in a statement late Wednesday that the group agrees with Obama that, "We need to make room for new ethanol and renewable fuel technologies by walking away from our addiction and continued subsidizing of oil."

But RFA added, "An issue raised at the president’s event revolved around existing ethanol production and grain supplies. Put simply, the existing ethanol industry has not ‘diverted’ grain away from other uses. Rather, annual grain supplies have grown large enough to satisfy increased demand from all end users."

"The current ethanol industry's feedstock demands have had only trivial effects on consumer food prices," the RFA stated. "Moreover, any negligible increase in consumer food prices that might be attributable to ethanol is more than offset by ethanol's ability to substantially reduce the average American family's yearly gasoline bill."