Renergie

Why the Ethanol Import Tariff Should be Repealed

2009-08-23T07:47:00.006-04:00

Repeal Would Enable Ethanol Demand to Move Beyond Being Just a Blending Component in Gasoline to a Truer Transportation Fuel Alternative
By Brian J. Donovan
Renergie, Inc.

Gainesville, FL (Originally Published on August 3, 2008) – The question is whether the 54 cents per gallon tariff the United States places on imported ethanol should be eliminated when:

(a) U.S. farm acreage is being diverted from the production of food crops to energy crops and record high corn prices are impacting the agriculture, food and beverage industries;

(b) American families and businesses are paying record high prices for fuel;

(c) U.S. oil companies are using ethanol merely as a blending component in gasoline rather than a true alternative transportation fuel;

(d) The renewable fuels standard (“RFS”) requires that gasoline sold in the United States contains a renewable fuel, such as ethanol, and the expanded RFS specifically requires the use of an increasing amount of “advanced biofuels” – biofuels produced from feedstocks other than corn; and

(e) U.S. oil companies, due to a loophole in the Caribbean Basin Initiative, are currently allowed to import tens of thousands of barrels of ethanol every month without having to pay the 54 cents per gallon tariff.

The Ethanol Import Tariff of 1980
Since 1978, in order to stimulate an increase in U.S. ethanol production and consumption, producers of ethanol-blended gasoline have received a subsidy, or tax credit. This incentive, known as the Blender’s Tax Credit, is currently valued at 51 cents per gallon of pure ethanol used in blending.

Ethanol imported into the United States is subject to two customs duties: an ad valorem tariff rate of 2.5 percent and a secondary tariff of 54 cents per gallon. The Ethanol Import Tariff of 1980 imposed the 54 cents per gallon tariff on imported ethanol. A key motivation for the establishment of the tariff on imported ethanol was to offset the Blender’s Tax Credit incentive for ethanol-blended gasoline. Unless imports enter the United States duty-free, the tariff effectively negates the incentive for those imports.

Food Prices
Corn is used as the feedstock for approximately 98% of the ethanol produced in the United States. Brazil uses sugarcane as a feedstock, while China is focusing on using cassava and sweet potatoes as feedstocks for ethanol production. USDA estimates that 3.2 billion bushels of corn (or 24% of the 2007 corn crop) will be used to produce ethanol during the September 2007 to August 2008 corn marketing year. In January, 2002, the price for a bushel of corn was $1.98. In July, 2008, the price for a bushel of corn was $5.61.

Corn is a significant ingredient for meat, dairy, and egg production. However, while increased ethanol production is partially responsible for the increase in corn prices, the real factors driving up retail food prices are: rising demand for processed foods and meat in emerging markets such as China and India; droughts and adverse weather around the world; commodity market speculation; export restrictions by many exporting countries to reduce domestic food price inflation; the declining value of the dollar; and skyrocketing oil prices.

Record high prices for diesel fuel, gasoline, natural gas, and other forms of energy affect costs throughout the food production and marketing chain. Higher energy prices increase producers’ expenditures for fertilizer and fuel, driving up farm production costs and reducing the incentive for farmers to expand production in the face of record high prices. Higher energy prices also increase food processing, marketing, and retailing costs. In 2005, the most recent year for which data are available, direct energy costs and transportation costs accounted for roughly 8 percent of retail food costs. These higher costs, especially if maintained over a long period, tend to be passed on to consumers in the form of higher retail prices.

Increased demand for farm commodities could outstrip existing production capabilities, straining food supplies and boosting prices. Moreover, population growth and rising incomes are altering global food consumption patterns and boosting the demand for food, further supporting higher prices. Demand for bio-fuels, especially in the United States, has led to a decline in corn inventories, despite a record corn crop. This increase in U.S. corn acres limited the production of other crops.

Historically, food prices have surged during times of higher crude oil prices. Moreover, research shows that energy prices are quickly passed through to higher retail food prices, with retail prices rising 0.52 percent in the short-term for every 1 percent rise in energy prices. As a result, a 10 percent gain in energy prices could contribute 5.2 percent to retail food prices.

Fuel Prices
Gasoline is one of the major fuels consumed in the United States and the main product refined from crude oil. Consumption in 2007 was about 142 billion gallons, an average of about 390 million gallons per day and the equivalent of about 61% of all the energy used for transportation, 44% of all petroleum consumption, and 17% of total U.S. energy consumption.

In January, 2002, the price of oil was US$18.68 per barrel. As of the date of this article, the price of oil is US$125.10 per barrel. In January, 2002, the average U.S. retail price for a gallon of regular grade gasoline was US$1.11. As of the date of this article, the price for a gallon of regular grade gasoline is US$3.96.

The price of crude oil is set through the interaction of world demand and supply. The following factors are driving up crude oil and gasoline prices: (a) increased world demand for crude oil as witnessed by the sharp increase in imported crude oil by China and India; (b) instability in oil-producing regions, including Iraq and Nigeria’s delta region; (c) limited U.S. refinery capacity to supply gasoline; (d) a decline in the value of the dollar compared to other currencies has increased the dollar price of oil on futures markets; (e) the continuing possibility of a supply disruption from natural disasters like Hurricanes Katrina and Rita in 2005; (f) speculators, who have entered the commodity markets in large numbers looking for ways to increase their monetary investments rather than to trade in oil and oil products, are causing an unacceptable upward pressure on prices; and (g) governments in developing countries are subsidizing energy, blunting the incentive to conserve by keeping prices low. China is expected to spend about $40 billion this year in subsidies. Venezuela and Egypt are forecast to spend more than 5 percent of their total economic output on subsidies this year. As a result, while demand for oil in the developed world is expected to fall about 1 percent this year, consumption in emerging and developing countries is forecast to rise 3 percent, according to estimates by I.M.F. economists.

World demand for crude oil grew by 1.3% in 2007 to 86.0 mbd. It is forecast to grow by 1.5% to 87.3 mbd in 2008. World supply was 87.3 mbd in March 2008, leaving relatively little excess supply to draw on if the market were disrupted by natural or political disasters. When excess supply on the market is low, prices tend to rise and become more volatile.

Higher prices for crude oil tend to translate directly into higher prices for gasoline. Currently, crude oil accounts for about 72% of the cost of gasoline. Refining, distributing, and marketing account for about 16% of the cost of gasoline, and taxes account for about 13%. However, until recently crude oil’s share of the cost of gasoline has been more typically in the range of 45% to 55%. In May 2007, for example, with gasoline at $3.15 per gallon, crude oil contributed 46% of the cost; refining, distributing and marketing 41%; and taxes 13%.

On July 31, 2008, Exxon Mobil Corp. reported second-quarter earnings of $11.68 billion, the biggest quarterly profit ever by any U.S. corporation. On August 1, 2008, Chevron reported record oil prices drove second-quarter earnings up 11 percent to $5.98 billion, its highest-ever profit.

Imported petroleum does not pay a tariff, yet clean, renewable ethanol from our own hemisphere is assessed a 54 cent-per-gallon tariff.

Lack of Ethanol Infrastructure
U.S. oil companies are using ethanol merely as a blending component in gasoline (in the form of E10) rather than a true alternative transportation fuel. There is not an oversupply of ethanol. The major obstacle to widespread ethanol usage continues to be the lack of fueling infrastructure. Only 1,528 of the nearly 180,000 (or 8/10 of 1%) retail gasoline stations in the United States offer E85. These E85 fueling stations are located primarily in the Midwest.

While alleging an oversupply of corn ethanol, U.S. oil companies still import thousands of barrels of ethanol from foreign sources every month without having to pay the 54 cents per gallon import tariff. Can ethanol provide any relief at the pump to the U.S. driving public? Renergie, Inc. believes that ethanol can significantly lower the pump price if it is produced from a non-corn feedstock and marketed directly by the producer as E85. Ethanol must compete against, rather than be an inexpensive blending component in, gasoline.

Renergie’s “field-to-pump” strategy is to produce ethanol locally and market ethanol locally. The day of building 100 MGY corn-to-ethanol plants in the Midwest corn belt, for the sale of E10 to consumers on the U.S. East Coast and West Coast, is over! Renergie is focusing its efforts on locally growing ethanol demand beyond the 10% blend market. Initially, Renergie will directly market E85, a blend of 85 percent ethanol and 15 percent gasoline for use in FFVs, to local fuel retailers under the brand Renergie E85. Renergie’s unique strategy is to blend fuel-grade ethanol with gasoline at the gas station pump. Currently, ethanol providers blend E10 and E85 at their blending terminal and transport the already blended product to retail gas stations. Once state approval is received, Renergie’s variable blending pumps will be able to offer the consumer a choice of E10, E20, E30 and E85. A recent study, cosponsored by the U.S. Department of Energy and the American Coalition for Ethanol, found E20 and E30 ethanol blends outperform unleaded gasoline in fuel economy tests for certain autos. Via capturing the Blender’s Tax Credit, Renergie will be able to ensure that gas station owners are adequately compensated for each gallon of fuel-grade ethanol that is sold via Renergie’s variable blending pumps at their gas stations.

Renergie will further grow ethanol demand beyond the 10% blend market by being the first company to test hydrous ethanol blends in the U.S. As provided for in Act No. 382, the use of hydrous ethanol blends of E10, E20, E30, and E85 in motor vehicles specifically selected by Renergie for test purposes will be permitted on a trial basis in Louisiana until January 1, 2012. The hydrous blends will be tested for blend optimization with respect to fuel consumption and engine emissions. Preliminary tests conducted in Europe have proven that the use of hydrous ethanol, which eliminates the need for the hydrous-to-anhydrous dehydration processing step, results in an energy savings of between ten percent and forty-five percent during processing, a four percent product volume increase, higher mileage per gallon, a cleaner engine interior, and a reduction in greenhouse gas emissions.

Imported ethanol is especially important for coastal states since almost all domestic ethanol is produced in the Midwest and is costly to transport because it cannot be moved through a pipeline. Elimination of the ethanol import tariff would provide the U.S. with sufficient ethanol to: (a) move ethanol demand beyond being just a blending component in gasoline to a truer transportation fuel alternative; and (b) create the required fueling infrastructure.

Renewable Fuels Standard (“RFS”)
The Energy Policy Act of 2005 established the Renewable Fuels Standard (“RFS”) which directs that gasoline sold in the U.S. contain specified minimum volumes of renewable fuel. The Energy Independence and Security Act of 2007 (“H.R. 6”), which became law on December 19, 2007, sets a new RFS that starts at 9.0 billion gallons of renewable fuel in 2008 and rises to 36 billion gallons by 2022. Of the latter total, 21 billion gallons of renewable fuel in U.S. transportation fuel is required to be obtained from advanced biofuels. The term “advanced biofuel” means renewable fuel, other than ethanol derived from corn. Brazil uses sugarcane as a feedstock for its ethanol production.

The CBI Loophole
U.S. oil companies, due to a loophole in the Caribbean Basin Initiative (“CBI”), are currently allowed to import thousands of barrels of ethanol every month without having to pay the 54 cents per gallon tariff.

The CBI was established in 1983 to promote a stable political and economic climate in the Caribbean region. The CBI allows the imports of most products, including ethanol, duty-free. While many of these products are produced in CBI countries, ethanol entering the United States under the CBI is generally produced elsewhere and reprocessed in CBI countries for export to the United States. The U.S.-Central America Free Trade Agreement (CAFTA) would maintain this duty-free treatment and set specific allocations for imports from Costa Rica and El Salvador.

Duty-free treatment of CBI ethanol has raised concerns, especially as the market for ethanol has the potential for dramatic expansion under P.L. 109-58 and P.L. 110-140. In the United States, fuel ethanol is largely domestically produced. A value-added product of agricultural commodities, mainly corn, it is used primarily as a gasoline additive. To promote its use, ethanol-blended gasoline is granted a significant tax incentive. However, this incentive does not recognize point of origin, and there is a duty on most imported fuel ethanol to offset the exemption. But a limited amount of ethanol may be imported under the CBI duty-free, even if most of the steps in the production process were completed in other countries. This duty-free import of ethanol has raised concerns, especially as U.S. demand for ethanol has been growing. Further, duty-free imports from these countries, especially Costa Rica and El Salvador, have played a role in the development of the U.S.-Central America Free Trade Agreement (CAFTA).

The main steps to ethanol production in the U.S. are as follows:

a. The feedstock (e.g., corn) is processed to separate fermentable sugars.

b. Yeast is added to ferment the sugars.

c. The resulting alcohol is distilled.

d. Finally, the distilled alcohol is dehydrated to remove any remaining water.

This final step – dehydration – is at the heart of the issue over ethanol imports from the CBI, as discussed below.

According to the United States International Trade Commission, the majority of all fuel ethanol imports to the United States came through CBI countries between 1999 and 2003. In 2004, imports from Brazil to the United States grew dramatically, but in 2005, CBI imports again represented more than half of all U.S. ethanol imports. With an increase in ethanol demand in 2006 due to voluntary elimination of MTBE – a competitor for ethanol in gasoline blending – imports grew dramatically, roughly quadrupling imports in any previous year. Most of this increase was in direct imports from Brazil. Historically, imports have played a relatively small role in the U.S. ethanol market. Total ethanol consumption in 2005 was approximately 3.9 billion gallons, whereas imports totaled 135 million gallons, or about 4%. Imports from the CBI totaled approximately 2.6%. In 2006, total imports represented roughly 13% of the 5.0 billion gallons consumed in 2006; ethanol from CBI countries represented roughly 3.4%. In 2007, total imports represented roughly 6% of U.S. consumption (6.8 billion gallons); ethanol from CBI countries represented roughly 3.6%.

As part of the initiative, duty-free status is granted to a large array of products from beneficiary countries, including fuel ethanol under certain conditions. If produced from at least 50% local feedstocks (e.g., ethanol produced from sugarcane grown in the CBI beneficiary countries), ethanol may be imported duty-free. If the local feedstock content is lower, limitations apply on the quantity of duty-free ethanol. Nevertheless, up to 7% of the U.S. market may be supplied duty-free by CBI ethanol containing no local feedstock. In this case, hydrous (“wet”) ethanol produced in other countries, historically Brazil or European countries, can be shipped to a dehydration plant in a CBI country for reprocessing. After the ethanol is dehydrated, it is imported duty-free into the United States. Currently, imports of dehydrated ethanol under the CBI are far below the 7% cap (approximately 3% in 2006). For 2006, the cap was about 270 million gallons, whereas about 170 million gallons were imported under the CBI in that year.

Dehydration plants are currently operating in Jamaica, Costa Rica, El Salvador, Trinidad and Tobago, and the U.S. Virgin Islands. Jamaica and Costa Rica were the two largest exporters of fuel ethanol to the United States from 1999 to 2003. Despite criticisms in the U.S., new dehydration facilities began production in Trinidad and Tobago in 2005 and the U.S. Virgin Islands in 2007.

If there is such an over-abundant domestic supply of ethanol in the U.S., why are U.S. oil companies purchasing ethanol from foreign sources? As domestic ethanol consumption continues to grow, so will the volume of imported duty-free ethanol under this CBI loophole.

Conclusion
As discussed above, the Ethanol Import Tariff should be repealed for the following reasons:

(a) Record prices for gasoline are increasing the costs of producing, transporting, and processing food products. Research shows that energy prices are quickly passed through to higher retail food prices, with retail prices rising 0.52 percent in the short-term for every 1 percent rise in energy prices. As a result, a 10 percent gain in energy prices could contribute 5.2 percent to retail food prices.

(b) Imported petroleum does not pay a tariff, yet clean, renewable ethanol from our own hemisphere is assessed a 54 cent-per-gallon tariff.

(c) Elimination of the ethanol import tariff would provide the U.S. with sufficient ethanol to move ethanol demand beyond being just a blending component in gasoline to a truer fuel alternative and create the required fueling infrastructure.

(d) The Energy Independence and Security Act of 2007 sets a new RFS that starts at 9.0 billion gallons of renewable fuel in 2008 and rises to 36 billion gallons by 2022. Of the latter total, 21 billion gallons of renewable fuel in U.S. transportation fuel is required to be obtained from renewable fuel, other than ethanol derived from corn.

(e) U.S. oil companies, due to a loophole in the CBI, are currently allowed to import tens of thousands of barrels of ethanol every month without having to pay the 54 cents per gallon tariff.

At a time of record high gas prices, repeal of the 54 cents per gallon import tariff on foreign ethanol would create market competition by allowing U.S. blenders to purchase cheaper ethanol from foreign sources, which could help lower gas prices, increase the supply of ethanol to coastal markets, and ease the economic strain that is impacting the agriculture, food and beverage industries.

U.S. oil companies, corn farmers and fertilizer producers are benefiting from the 54 cents per gallon import tariff on foreign ethanol at the expense of the average American consumer. At a time when our own government’s Federal Reserve Chairman is saying food inflation and fuel costs are contributing to our dangerous economic condition, working toward eliminating this barrier to free market competition is more needed than ever.

Florida's "Port-to-Pump" Advanced Biofuel Initiative

2009-08-01T12:07:00.006-04:00

State's "Farm-to-Fuel" initiative lacks the political will to ensure fair and healthy competition in the marketing of ethanol blends.
By Brian J. Donovan
August 1, 2009

According to the U.S. Energy Information Administration, for the period from January 1, 2003 to January 1, 2009, the State of Florida consumed an average of approximately 23.1 million gallons of gasoline per day. This equates to an average of approximately 8.43 billion gallons of gasoline per year.

Beginning December 31, 2010, all gasoline sold or offered for sale in Florida by a terminal supplier, importer, blender, or wholesaler shall be blended gasoline. "Blended gasoline" means a mixture of 90 to 91 percent gasoline and 9 to 10 percent fuel ethanol, by volume, that meets the specifications as adopted by the Florida Department of Revenue. The fuel ethanol portion may be derived from any agricultural source.

For discussion purposes, let us assume Florida's average annual consumption of gasoline does not change. Beginning December 31, 2010, the State of Florida will require an annual supply of approximately 843 million gallons of fuel ethanol to meet its E10 mandate.

Ethanol Import Tariff
Ethanol imported into the United States is subject to two customs duties: an ad valorem tariff rate of 2.5 percent and a secondary tariff of 54 cents per gallon. The Ethanol Import Tariff of 1980 imposed the 54 cent-per-gallon tariff on imported ethanol. In many cases, this tariff negates lower production costs in other countries. For example, by some estimates, Brazilian ethanol production costs are roughly 50% lower than in the United States. A key motivation for the establishment of the tariff on imported ethanol was to offset the Blender’s Tax Credit incentive for ethanol-blended gasoline. Unless imports enter the United States duty-free, the tariff effectively negates the incentive for those imports.

Caribbean Basin Initiative
U.S. oil companies, due to a loophole in the Caribbean Basin Initiative (“CBI”), are currently allowed to import thousands of barrels of fuel ethanol every month without having to pay the 54-cent-per-gallon tariff.

The CBI was established in 1983 to promote a stable political and economic climate in the Caribbean region. As part of the initiative, duty-free status is granted to a large array of products from beneficiary countries, including fuel ethanol under certain conditions. If produced from at least 50% local feedstocks (e.g., ethanol produced from sugarcane grown in the CBI beneficiary countries), ethanol may be imported duty-free. If the local feedstock content is lower, limitations apply on the quantity of duty-free ethanol. Nevertheless, up to 7% of the U.S. market may be supplied duty-free by CBI ethanol containing no local feedstock. In this case, hydrous (“wet”) ethanol produced in other countries, historically Brazil or European countries, can be shipped to a dehydration plant in a CBI country for reprocessing. After the ethanol is dehydrated, it is imported duty-free into the United States. Currently, imports of dehydrated ethanol under the CBI are far below the 7% cap. CBI imports have the potential to increase significantly over the next few years, especially as the domestic market grows under the renewable fuels standard.

The issue is whether an oil company or refiner, or an affiliate of such oil company or refiner, that imports duty-free fuel ethanol from the Caribbean and subsequently blends the duty-free fuel ethanol with unblended gasoline in the State of Florida has an unfair competitive advantage in the marketing of motor fuel in the State of Florida.

Fair and Healthy Competition in the Marketing of Ethanol Blends
It was never the legislative intent of the U.S. Congress, nor the intent of the U.S. Environmental Protection Agency, to allow oil companies to be the sole beneficiaries of the blender’s tax credit. Section 6426 of the Internal Revenue Code creates a credit against the excise tax on taxable fuels. The excise tax credit is generally available to any person that blends alcohol or biodiesel with taxable fuel in a mixture. To qualify for the credit, a qualifying mixture must either be sold by the producer to a buyer for use by the buyer as a fuel or be used as a fuel in the trade or business of the producer.

Section 526.302 of the Florida Statutes clearly states the findings and intent of the Florida Legislature, “The Legislature finds that fair and healthy competition in the marketing of motor fuel provides maximum benefits to consumers in this state, and that certain marketing practices which impair such competition are contrary to the public interest. Predatory practices and, under certain conditions, discriminatory practices, are unfair trade practices and restraints which adversely affect motor fuel competition. It is the intent of the Legislature to encourage competition and promote the general welfare of citizens of this state by prohibiting such unfair practices.”

Section 526.203 of the Florida Statutes provides states:
“(2) FUEL STANDARD.--Beginning December 31, 2010, all gasoline sold or offered for sale in Florida by a terminal supplier, importer, blender, or wholesaler shall be blended gasoline.
(3) EXEMPTIONS.--The requirements of this act do not apply to the following:
(a) Fuel used in aircraft.
(b) Fuel sold for use in boats and similar watercraft.
(c) Fuel sold to a blender.”

Permitting oil companies to import relatively inexpensive duty-free foreign ethanol under the CBI and subsequently permitting only such oil companies and their affiliates to blend and receive the 45 cents-per-gallon blender’s tax credit impairs fair and healthy competition in the marketing of ethanol blends in the State of Florida. Independent ethanol producers in Florida clearly have the legal right, and must be assured the availability of unblended gasoline, to blend fuel ethanol and unblended gasoline to receive the 45 cents-per-gallon blender’s tax credit and be cost-competitive.

Florida: Leading Ethanol Producer or Leading Ethanol Importer?
Currently, not a single drop of fuel ethanol is produced in the State of Florida.

In November, 2007, Governor Charlie Crist led a five-day trade and economic development mission to São Paulo, Brazil. During the mission, coordinated by Enterprise Florida, Inc., Governor Crist was quoted as saying that he was determined to fight the U.S. tariff on ethanol, while making Florida a gateway for U.S. imports of the Brazilian biofuel.

As recently as January 30, 2009, the president of Gateway Florida, Brian C. Dean, traveled to the Dominican Republic and was quoted as saying that the State of Florida needs to find permanent suppliers of ethanol to cover a demand estimated at 786 million gallons starting next year, when it implements a norm calling for a 10% mix of that fuel in gasoline. Dean further stated, “Gateway Florida aims to get public policies implemented in Latin American and Caribbean countries to support the development of the ethanol and biofuels industry.”

Clearly, the ethanol import tariff should be repealed for the following reasons:
(a) Record prices for gasoline are increasing the costs of producing, transporting, and processing food products. Research shows that energy prices are quickly passed through to higher retail food prices, with retail prices rising 0.52 percent in the short-term for every 1 percent rise in energy prices. As a result, a 10 percent gain in energy prices could contribute 5.2 percent to retail food prices;

(b) Imported petroleum does not pay a tariff, yet clean, renewable ethanol from our own hemisphere is assessed a 54 cent-per-gallon tariff;

(c) Elimination of the ethanol import tariff would provide the U.S. with sufficient ethanol to move ethanol demand beyond being just a blending component in gasoline to a truer fuel alternative and create the required fueling infrastructure;

(d) The Energy Independence and Security Act of 2007 set a new RFS that starts at 9.0 billion gallons of renewable fuel in 2008 and rises to 36 billion gallons by 2022. Of the latter total, 21 billion gallons of renewable fuel in U.S. transportation fuel is required to be obtained from renewable fuel, other than ethanol derived from corn; and

(e) U.S. oil companies, due to a loophole in the CBI, are currently allowed to import thousands of barrels of ethanol every month without having to pay the 54 cents per gallon tariff.

Repeal of the 54 cent-per-gallon import tariff on foreign ethanol would create market competition by allowing U.S. blenders, not only oil companies, to purchase cheaper ethanol from foreign sources, which could help lower gas prices, increase the supply of ethanol to coastal markets, and ease the economic strain that is impacting the agriculture, food and beverage industries.

However, equally as clear:
(a) an oil company or refiner, or an affiliate of such oil company or refiner, that imports duty-free fuel ethanol from the Caribbean and subsequently blends the duty-free fuel ethanol with unblended gasoline in the State of Florida currently has an unfair competitive advantage in the marketing of motor fuel in the State of Florida; and

(b) an oil company or refiner, or an affiliate of such oil company or refiner, must not be allowed to have a monopoly on blending fuel ethanol with unblended gasoline when the fuel ethanol and unblended gasoline are blended in the State of Florida.

Currently, the sole beneficiaries of the duty-free import of fuel ethanol to Florida from the Dominican Republic, or any CBI nation, are the oil companies and refiners and their affiliates in Florida. These same oil companies and refiners and affiliates blend these duty-free ethanol imports with unblended gasoline in the State of Florida and capture the additional blender’s tax credit of 45 cents-per-gallon. As a result, the farmers/landowners and consumers never realize any benefit, rural economic development is ignored, and jobs are not created in Florida.

Rural Development and Job Creation
Beginning December 31, 2010, the State of Florida will need to import an annual supply of approximately 843 million gallons of fuel ethanol to meet its E10 mandate.

Let's calculate the Blender's Tax Credit:
(843 million gallons of imported ethanol per year)($0.45/gallon) = $379,350,000

This $379 million per year will go directly into the coffers of out-of-state oil companies. Not one cent of this $379 million per year will be made available for rural development and job creation in the State of Florida! I doubt this issue will be addressed at the 4th Annual Farm-to-Fuel Summit currently being held in Orlando.

The State of Florida has the resources to be the leading producer of advanced biofuel in the nation. At this point, the state merely lacks the political will to ensure fair and healthy competition in the marketing of ethanol blends.

Independent Ethanol Producers in Florida Have the Legal Right to Receive Blender's Tax Credit

2009-08-01T11:57:00.006-04:00

State's "Farm-to-Fuel" initiative lacks the political will to ensure fair and healthy competition in the marketing of ethanol blends.
By Brian J. Donovan
August 1, 2009

The issue is whether an independent ethanol producer that produces fuel ethanol in the State of Florida has a legal right to be a blender of fuel ethanol with unblended gasoline, and receive the $0.45 per gallon Blender's Tax Credit, when the fuel ethanol and unblended gasoline are blended in the State of Florida if such independent ethanol producer has been licensed or authorized by the Department of Revenue as a blender.

Relevant Federal Legislation
A. The American Jobs Creation Act of 2004
On October 22, 2004, President Bush signed into law the American Jobs Creation Act of 2004 (P.L. 108-357).

Effective January 1, 2005, the American Jobs Creation Act of 2004 established a new system for federal taxation of ethanol blends. The major changes are as follows:

• Eliminates the reduced rate of excise tax for gasohol blends containing 10%, 7.7%, and 5.7% ethanol, and instead, provides a 51 cents-per-gallon excise tax credit for each gallon of ethanol blended with gasoline. The new excise tax credit system is called the “Volumetric Ethanol Excise Tax Credit” (VEETC). In January, 2009, the excise tax credit was reduced to 45 cents-per-gallon for each gallon of ethanol blended with gasoline.
• Requires blenders to pay the full rate of tax (18.4 cents per gallon) on each gallon of a gasoline-ethanol mixture, but currently provides a 45 cents-per-gallon tax credit or refund for each gallon of ethanol used in the mixture.
• Allows blenders having excise tax liability to apply the excise tax credit against the tax imposed on the gasoline-ethanol mixture. For blenders having limited or no motor fuel excise tax liability, a refund may be claimed. IRS is required to provide refunds within 45 days, or if a claim is filed electronically, the refund must be paid within 20 days, or interest will accrue.
• Deposits all gasohol excise taxes into the Highway Trust Fund, and pays for the credit out of the General Fund.

B. Internal Revenue Code
Excise Tax. Section 4081 of the Internal Revenue Code of 1986, as amended (the “Code”), imposes an excise tax on the removal of a taxable fuel from a refinery or terminal, entry of a taxable fuel into the United States, and sale of a taxable fuel, not previously taxed upon removal or entry. “Taxable fuel” for this purpose includes gasoline, diesel fuel and kerosene.

Excise Tax Credit. Section 6426 of the Code creates a credit against the excise tax on taxable fuels. The excise tax credit is generally available to any person that blends alcohol or biodiesel with taxable fuel in a mixture. To qualify for the credit, a qualifying mixture must either be sold by the producer to a buyer for use by the buyer as a fuel or be used as a fuel in the trade or business of the producer.

Relevant Florida Statutes
206.01 Definitions. - As used in this chapter:
(1) "Department" means the Department of Revenue.
(30) "Blender" means any person who blends any product with motor or diesel fuel and who has been licensed or authorized by the department as a blender.

286.29 Climate-friendly public business. - The Legislature recognizes the importance of leadership by state government in the area of energy efficiency and in reducing the greenhouse gas emissions of state government operations. The following shall pertain to all state agencies when conducting public business:
(5) All state agencies shall use ethanol and biodiesel blended fuels when available. State agencies administering central fueling operations for state-owned vehicles shall procure biofuels for fleet needs to the greatest extent practicable.

526.202 Legislative findings. - The Legislature finds it is vital to the public interest and to the state's economy to establish a market and the necessary infrastructure for renewable fuels in this state by requiring that all gasoline offered for sale in this state include a percentage of agriculturally derived, denatured ethanol. The Legislature further finds that the use of renewable fuel reduces greenhouse gas emissions and dependence on imports of foreign oil, improves the health and quality of life for Floridians, and stimulates economic development and the creation of a sustainable industry that combines agricultural production with state-of-the-art technology.

526.203 Renewable fuel standard. -
(1) DEFINITIONS. - As used in this act:
(a) "Blender," "importer," "terminal supplier," and "wholesaler" are defined as provided in s. 206.01.
(b) "Blended gasoline" means a mixture of 90 to 91 percent gasoline and 9 to 10 percent fuel ethanol, by volume, that meets the specifications as adopted by the department. The fuel ethanol portion may be derived from any agricultural source.
(c) "Fuel ethanol" means an anhydrous denatured alcohol produced by the conversion of carbohydrates that meets the specifications as adopted by the department.
(d) "Unblended gasoline" means gasoline that has not been blended with fuel ethanol and that meets the specifications as adopted by the department.
(2) FUEL STANDARD. - Beginning December 31, 2010, all gasoline sold or offered for sale in Florida by a terminal supplier, importer, blender, or wholesaler shall be blended gasoline.
(3) EXEMPTIONS. - The requirements of this act do not apply to the following:
(a) Fuel used in aircraft.
(b) Fuel sold for use in boats and similar watercraft.
(c) Fuel sold to a blender.

526.207 Studies and reports. -
(1) The Florida Energy and Climate Commission shall conduct a study to evaluate and recommend the life-cycle greenhouse gas emissions associated with all renewable fuels, including, but not limited to, biodiesel, renewable diesel, biobutanol, and ethanol derived from any source. In addition, the commission shall evaluate and recommend a requirement that all renewable fuels introduced into commerce in the state, as a result of the renewable fuel standard, shall reduce the life-cycle greenhouse gas emissions by an average percentage. The commission may also evaluate and recommend any benefits associated with the creation, banking, transfer, and sale of credits among fuel refiners, blenders, and importers.
(2) The Florida Energy and Climate Commission shall submit a report containing specific recommendations to the President of the Senate and the Speaker of the House of Representatives no later than December 31, 2010.

526.302 Legislative findings and intent. - The Legislature finds that fair and healthy competition in the marketing of motor fuel provides maximum benefits to consumers in this state, and that certain marketing practices which impair such competition are contrary to the public interest. Predatory practices and, under certain conditions, discriminatory practices, are unfair trade practices and restraints which adversely affect motor fuel competition. It is the intent of the Legislature to encourage competition and promote the general welfare of citizens of this state by prohibiting such unfair practices.

Market Reality
Currently, oil companies refuse to sell unblended gasoline to prospective independent ethanol producers in Florida. As a result, the sole beneficiaries of the 45 cents-per-gallon blender’s tax credit are the oil companies, blenders affiliated with oil companies, and oil company shareholders. The farmers/landowners, independent ethanol producers and consumers never realize any benefit from the blender’s tax credit; rural economic development is ignored; and U.S. jobs are not created.

Not a single drop of fuel ethanol is produced in the State of Florida. One reason for the lack of development of a fuel ethanol industry may be attributed to the fact that oil companies, or affiliates of oil companies, currently have a monopoly on blending fuel ethanol with unblended gasoline in Florida. This monopoly is apparently supported by the Florida Energy & Climate Commission (“FECC”) which recently rejected a proposal by an independent ethanol producer to use variable blending pumps in Florida.

If independent ethanol producers are able to be blenders of fuel ethanol and unblended gasoline, and thereby receive the 45 cents-per-gallon tax credit, small-capacity ethanol producers would be able to enter the market. The result would be fair and healthy competition in the marketing of ethanol blends, broad-based rural economic development and job creation for Floridians.

Independent ethanol producers in Florida clearly have the legal right, and must be assured the availability of unblended gasoline, to blend fuel ethanol and unblended gasoline to receive the 45 cents-per-gallon blender’s tax credit and be cost-competitive. The State of Florida has the resources to be the leading producer of advanced biofuel in the nation. At this point, the state merely lacks the political will to ensure fair and healthy competition in the marketing of ethanol blends.

Independent U.S. Ethanol Producers Will Not Survive as Price Takers

2009-07-28T06:26:00.009-04:00

Chicago Board of Trade Dictates Price of Corn and Oil Companies Control Price of Ethanol
By Brian J. Donovan
July 28, 2009

The issue is whether the proper development of an advanced biofuel industry in the United States is feasible when: (a) independent ethanol producers in the U.S. are at the mercy of volatile commodities markets for feedstock; and (b) the price of ethanol is controlled by the oil companies.

Commodity Market Volatility
The corn-to-ethanol business is highly dependent on corn prices. The price paid for corn is determined by taking the Chicago Board of Trade futures price minus the basis, which is the difference between the local cash price and the futures price. The more corn-to-ethanol contributes to our nation's energy supplies, the more it drives up corn feedstock prices and consequently its own cost. While increased ethanol production is partially responsible for the increase in corn prices, the main driving factors in the run-up in corn prices are: rising demand for processed foods and meat in emerging markets such as China and India, droughts and adverse weather around the world, a decrease in the responsiveness of consumers to price increases, export restrictions by many exporting countries to reduce domestic food price inflation, the declining value of the dollar, skyrocketing oil prices, and commodity market speculation. It is important to note that excessive speculation is not necessarily driving corn prices above fundamental values. Speculation can only be considered "excessive" relative to the level of hedging activity in the market.

The government's announcement that it would resurvey corn acreage in several U.S. states launched a rally in Chicago Board of Trade corn on July 23, 2009, giving life to a market that appeared to be sinking toward $3 a bushel. September corn ended up 19 cents to $3.27 a bushel and December corn ended up 19 1/2 cents to $3.38 3/4 a bushel. Traders see the market moving toward the $3.50-$3.75 a bushel range in the December contract. Ethanol futures were also higher. August ethanol ended up $0.065 to $1.597 a gallon and September ethanol ended up $0.064 to $1.555.

Dr. David J. Peters, Assistant Professor of Sociology - College of Agriculture and Life Sciences at Iowa State University, has developed a calculator to determine the long-term economic viability of proposed ethanol plants. Dr. Peters was surprised to learn how sensitive the bottom line is to small changes in corn and ethanol prices. According to Dr. Peters, a typical 100 MGY corn ethanol plant built in 2005 (financing 60 percent of its capital costs at 8 percent interest per annum for 10 years, with debt and depreciation costs of $0.20 per gallon of ethanol produced, and labor and taxes at a cost of $0.06 per gallon) will lose money in the current market:

At $3.25 corn, the ethanol break even price is $1.76 per gallon.
At $3.50 corn, the ethanol break even price is $1.82 per gallon.
At $3.75 corn, the ethanol break even price is $1.88 per gallon.
At $4.00 corn, the ethanol break even price is $1.94 per gallon.

Oil Company Monopoly
U.S. oil companies are using ethanol merely as a blending component in gasoline (in the form of E10) rather than a true alternative transportation fuel (in the form of E85). The major obstacle to widespread ethanol usage continues to be the lack of fueling infrastructure. Only 2,175 of the 161,768 retail gasoline stations in the United States (1.3%) offer E85. These E85 fueling stations are located primarily in the Midwest. According to the U.S. Department of Energy, each 2% increment of U.S. market share growth for E85 represents approximately 3 billion gallons per year of additional ethanol demand.

While alleging an oversupply of corn ethanol, U.S. oil companies, due to a loophole in the Caribbean Basin Initiative, are currently allowed to import thousands of barrels of advanced biofuel ("non-corn ethanol") every month without having to pay the 54-cent-per-gallon tariff.

Oil companies, or affiliates of oil companies, currently have a monopoly on blending fuel ethanol with unblended gasoline. Many states, e.g., Florida, allow only oil companies and their affiliates to blend and receive the 45 cents-per-gallon blender’s tax credit. This monopoly impairs fair and healthy competition in the marketing of ethanol blends. Independent U.S. ethanol producers have the legal right, and must be assured the availability of unblended gasoline, to blend fuel ethanol and unblended gasoline to receive the blender’s tax credit and be cost-competitive.

In short, independent U.S. ethanol producers do not have bargaining power on either end of the supply chain. Corn ethanol producers are price takers. A comprehensive advanced biofuel industry development initiative is required to disrupt the status quo and establish fair and healthy competition in the marketing of advanced biofuel blends in our nation.

The Louisiana Solution
Louisiana is the first state to enact alternative transportation fuel legislation that includes a variable blending pump pilot program and a hydrous advanced biofuel pilot program. On June 21, 2008, Louisiana Governor Bobby Jindal signed into law the Advanced Biofuel Industry Development Initiative ("Act 382"). Act 382, the most comprehensive and far-reaching state legislation in the U.S. enacted to develop a statewide advanced biofuel industry, is based upon the “Field-to-Pump” strategy.

It is the cost of the feedstock which ultimately determines the economic feasibility of an ethanol processing facility. “Field-to-Pump” does not allow an advanced biofuel producer to fall victim to rising feedstock costs. Non-corn feedstock is acquired under the terms of an agreement analogous to an oil & gas lease. It is not purchased as a commodity. A link exists between the cost of feedstock and ethanol market conditions. Farmers/landowners receive a lease payment for their acreage and a royalty payment based on a percentage of the gross revenue generated from the sale of advanced biofuel. “Field-to-Pump” marks the first time that farmers/landowners share risk-free in the profits realized from the sale of value-added products made from their crops.

Smaller is better. “Field-to-Pump” establishes the first commercially viable large-scale decentralized network of small advanced biofuel manufacturing facilities ("SABMFs") in the United States capable of operating 210 days out of the year. Each SABMF has a production capacity of 5 MGY. As with most industrial processes, large ethanol plants typically enjoy better process efficiencies and economies of scale when compared to smaller plants. However, large ethanol plants face greater supply risk than smaller plants. Each SABMF utilizes feedstock from acreage adjacent to the facility. The distributed nature of a SABMF network reduces feedstock supply risk, does not burden local water supplies and provides broad-based economic development. The sweet sorghum bagasse is used for the production of steam. Vinasse, the left over liquid after alcohol is removed, contains nutrients such as nitrogen, potash, phosphate, sucrose, and yeast. The vinasse is applied to the sweet sorghum acreage as a fertilizer.

Act 382 focuses on growing ethanol demand beyond the 10% blend market. Each SABMF produces advanced biofuel, transports the advanced biofuel by tanker trucks to its storage tanks at its local gas stations and, via blending pumps, blends the advanced biofuel with unblended gasoline to offer its customers a choice of E10, E20, E30 and E85. Each SABMF captures the blender’s tax credit of 45-cents-per-gallon to guarantee sufficient royalty payments to its farmers/landowners and be cost-competitive. In the U.S., the primary method for blending ethanol into gasoline is splash blending. The ethanol is “splashed” into the gasoline either in a tanker truck or sometimes into a storage tank of a retail station. The inaccuracy and manipulation of splash blending may be eliminated by precisely blending the advanced biofuel and unblended gasoline at the point of consumption, i.e., the point where the consumer puts E10, E20, E30 or E85 into his or her vehicle. A variable blending pump ensures the consumer that E10 means the fuel entering the fuel tank of the consumer’s vehicle is 10 percent ethanol (rather than the current arbitrary range of 4 percent ethanol to at least 24% ethanol that the splash blending method provides) and 90% gasoline. Moreover, a recent study, co-sponsored by the U.S. Department of Energy and the American Coalition for Ethanol, found E20 and E30 ethanol blends outperform unleaded gasoline in fuel economy tests for certain motor vehicles.

Hydrous advanced biofuel, which eliminates the need for the costly hydrous-to-anhydrous dehydration processing step, results in an energy savings of 35% during processing, a 4% product volume increase, higher mileage per gallon, a cleaner engine interior, and a reduction in greenhouse gas emissions. On February 24, 2009, the U.S. EPA granted a first-of-its-kind waiver for the purpose of testing hydrous E10, E20, E30 & E85 ethanol blends in non-flex-fuel vehicles and flex-fuel vehicles in Louisiana. Under the test program, variable blending pumps, not splash blending, will be used to precisely dispense hydrous ethanol blends of E10, E20, E30, and E85 to test vehicles for the purpose of testing for blend optimization with respect to fuel economy, engine emissions, and vehicle drivability. The Louisiana Department of Agriculture & Forestry Division of Weights and Measures will conduct the vehicle drivability phase of the test program. Fuel economy and engine emissions testing will be conducted by Louisiana State University in Baton Rouge, Louisiana. Sixty vehicles will be involved in the test program which will last for a period of 15 months.

Louisiana Act 382 ensures: (a) ethanol producers in the U.S. are no longer at the mercy of volatile commodities markets for feedstock; (b) farmers/landowners share risk-free in the profits realized from the sale of value-added products made from their crops (c) the price of ethanol is no longer controlled by the oil companies; (d) feedstock supply risk, the burden on local water supplies, and the amount of energy necessary to process advanced biofuel are minimized; and (e) rural development and job creation are maximized. Furthermore, due to the advantages of producing advanced biofuel from sweet sorghum juice, the use of sweet sorghum bagasse for the production of steam in the SABMF, and the energy savings of processing hydrous advanced biofuel, the Louisiana solution reduces field-to-wheel lifecycle GHG emissions by 100%.

Fill Up with Ethanol? One Obstacle is Big Oil: Rules Keep a Key Fuel Out of Some Stations; Car Makers Push Back

2009-07-27T14:39:00.010-04:00

By Laura Meckler
The Wall Street Journal
April 2, 2007

President Bush, domestic auto makers, farmers and others tout ethanol as a home-grown alternative to imported oil. Across the Midwest, plants that make the fuel out of corn are multiplying at a torrid pace. Yet so far, only a tiny fraction of U.S. service stations let a driver fill up with ethanol. There are a number of reasons, but one big one is resistance from oil companies.

Although some oil executives voice enthusiasm for alternative fuels, oil-company policies make it harder for many service stations to stock a fuel called E85, a blend of 85% ethanol and 15% gasoline.

These policies are hardly the only barrier to wider use of the ethanol fuel. Demand is limited by the small number of vehicles that can burn it -- only about 5% of those on the road in America. It can be slightly costlier to burn E85, even though it costs less per gallon, because a car doesn't go as far on a gallon of the ethanol fuel as on gasoline. These demand restraints would limit service-station owners' enthusiasm for spending on the equipment needed to offer E85 even if the policies of the oil companies were not a factor.

But those policies add a significant extra obstacle. Oil companies lose sales every time a driver chooses E85, and they employ a variety of tactics that help keep the fuel out of stations that bear the company name. For instance, franchises sometimes are required to purchase all the fuel they sell from the oil company. Since oil companies generally don't sell E85, the stations can't either, unless the company grants an exception and lets them buy from another supplier.

Contracts sometimes limit advertising of E85 and restrict the use of credit cards to pay for it. Some require that any E85 pump be on a separate island, not under the main canopy.

Oil companies say they will allow stations to sell E85, but they must have certain rules for the protection of customers and protection of their brand. They call the restrictions reasonable and in some cases necessary to make sure drivers don't fill up with E85 if their vehicle can't burn it.

Most of the U.S.'s 170,000 fuel stations aren't owned by oil companies but are either franchised from them or independent. Less than 1% stock E85. Some experts say that to really take hold and be seen as a viable alternative to gasoline, the fuel would have to be available at, roughly, 10% of stations.

Targeting Stations
Those pushing for ethanol are targeting two very different types of fuel stations: those run by big retailers like Kroger Co. and Wal-Mart Stores Inc., and independent ones owned by small businesses. These represent the biggest and smallest of businesses, but have one thing in common: They aren't under the thumb of the oil industry.

Nearly half of the gasoline sold in the U.S. does have some ethanol in it. Oil companies routinely use it as an additive, typically at 10% ethanol to 90% gasoline, because the corn-based fuel burns cleaner. The blending enables companies to meet government smog-reduction rules. They also add ethanol because of a federal mandate on the industry as a whole, requiring that it use a certain amount of "renewable" fuels in its products.

Among those pressing for wider use of E85 are domestic auto makers, especially Ford Motor Co. and General Motors Corp. Ethanol is one energy initiative where they're out in front of Japanese car makers. While Toyota Motor Corp. and Honda Motor Co. are known for their gasoline-electric hybrids, Detroit, which has been heavily criticized for its sales of gas guzzlers, is far ahead in making "flexible-fuel" vehicles that can burn either gasoline or ethanol.

In Dwight, Ill., Becker's BP on Interstate 55 is one of just a few dozen major-brand gasoline retailers in the U.S. that sell E85. Owner Phil Becker says the governor wanted the state's vehicles to use E85 and targeted his station as a popular stop for state workers. He says BP PLC let him get the fuel from a non-BP supplier, and the Illinois Corn Growers Association gave him $100,000 for new tanks and pumps that BP required.

"Because I've got E85 and we've advertised it, we've had four or five farmers that traded their trucks to get E85 vehicles," Mr. Becker says.

Exxon Mobil Corp.'s standard contract with Exxon stations bars them from buying fuel from anybody but itself, and it doesn't sell E85. A spokeswoman for Exxon Mobil says it makes exceptions case by case.

Even if one is granted, the station must follow rules including one that says E85 must be dispensed from its own unit, not part of an existing multihose dispenser. "This minimizes customer confusion around vehicle compatibility issues and maintains product quality integrity," says the spokeswoman, Prem Nair.

A ConocoPhillips memo to franchisees says the company doesn't allow E85 sales on the primary island, under the covered canopy where gasoline is sold. Stations must find another spot. As a result, it isn't quite as simple for a driver to decide on the spur of the moment to fill up with E85. ConocoPhillips declines to comment.

A Chevron Corp. agreement with franchisees also appears to discourage selling E85 under the main canopy. It says dealers offering alternative fuels cannot "deceive the public as to the source of the product," a phrase that some gas-station interests interpret to mean that E85 can't be sold under the main canopy. Chevron says it recommends, but doesn't require, that E85 pumps be outside the canopy.

Chevron says it requires Chevron- and Texaco-branded stations to keep "E85" off their primary signs listing fuel prices. To show the fuel's price, and alert approaching drivers that E85 is for sale, the stations have to erect a separate sign.

More Expensive
Another Chevron recommendation makes it much more expensive for a station to offer E85 at all. Stations usually have three tanks, for the three gasoline grades, regular, mid-grade and premium. The easiest way to offer E85 in addition to these three is to convert the mid-grade tank to E85. Such a station can still offer mid-grade gasoline, because a "blender pump" can mix some regular with some premium, and mid-grade will come out of the hose.

But Chevron's agreement with station owners recommends they install new pumps and tanks at their own expense if they want to stock E85. Doing so can cost more than $200,000 per station, according to a fuel-station trade group in Washington state called Automotive United Trades Organization. Chevron says it requires special tanks only if they're needed for safety.

Oil companies also require stations to stock all three grades, meaning stations may not simply replace a low-selling mid-grade with E85.

At BP, guidelines for stations that carry the company name bar any mention of E85 on signs on gasoline dispensers, perimeter signs or light poles. The stations also can't let buyers use pay-at-the-pump credit-card machines.

Selling E85 is "not impossible -- it's just that they really kind of hassle you to not put it in," says Ron Lamberty, who owns two stations in South Dakota, one a BP station. Mr. Lamberty doesn't sell E85, even though he is director of market development for the American Coalition for Ethanol. He says he is looking into adding the fuel to his BP station in Sioux Falls.

Mr. Lamberty mocks BP's "Beyond Petroleum" slogan: "It's 'beyond petroleum' but not so far beyond petroleum that it would contain anything but petroleum," he says.

BP says its guidelines are in place so customers realize the mostly ethanol fuel isn't a BP product. The company also bars stations from selling it under another brand name, such as VE85, the brand of a maker in Brookings, S.D., called VeraSun Energy Corp.

A BP spokesman, Scott Dean, says, "When you've got 97% of your customers unable to use the product, you want to be very, very sure it is very clearly advertised." He says BP bought 718 million gallons of ethanol last year to blend into U.S. gasoline in small amounts. "BP is one of the largest if not the largest purveyor of biofuels in the U.S. and the world," Mr. Dean says.

E85 also faces barriers having nothing to do with Big Oil, like the limited number of cars that can burn it. Domestic auto makers have vowed to double production of flex-fuel vehicles to about two million a year by 2010 and to make half of their new vehicles sold in America E85-capable by 2012.

While the fuel usually costs less, it can be costlier to drivers because they get about 25% fewer miles per gallon from ethanol than from gasoline. At a pro-ethanol group called the Iowa Renewable Fuels Association, Executive Director Monte Shaw estimates that E85 has to be at least 20 to 30 cents a gallon cheaper to compete with gasoline on price.

Iowa statewide average prices on a recent day were $2.18 a gallon for regular gasoline and $1.97 for E85, according to a Department of Energy Web site. Because E85 is less energy-intensive, the site said, it would cost the average owner of a big Chevy Tahoe SUV about $2,364 a year to fuel it with E85, and $1,935 to fuel it with regular gasoline.

Creating a Conflict
The price of ethanol has risen in the past year, partly because of demand from oil companies that want it for an additive. This usage creates something of a conflict for big ethanol producers like Archer-Daniels-Midland Co. Their main ethanol customers are the oil companies. Customers for E85 are far smaller and more fragmented.

ADM, whose yearly output of 1.1 billion gallons is more than 20% of the domestic ethanol market, says it is happy to sell E85 if someone wants it, but that is a "very small" part of its business. "Near term, we have focused more attention on the" additive side, says an ADM executive, Edward Harjehausen.

Even the main ethanol lobbying group in Washington, the Renewable Fuels Association, has focused mostly on developing the market for the fuel as an additive. "If you have a pump that sells E85 but you don't have customers pulling up to that pump, why do you want to bother?" says Bob Deneen, its chief lobbyist.

A few smaller producers do actively promote E85, such as VeraSun, which seeks to establish a branded E85. But even the smaller producers sell the bulk of their output for blending as a gasoline additive.

Because ethanol is more corrosive than gasoline, there's some concern it could leak out of a standard dispensing system and spark a fire. No E85 dispensing system -- nozzles, hoses, pumps -- has been certified by Underwriters Laboratories, the organization that tests the safety of products.

In October, UL suspended certification of parts that had been certified for use in E85 systems. Though there hadn't been any reports of problems, UL said it decided it needed to do its own safety research. Results aren't expected until late this year.

Among those trying to overcome obstacles to E85 are the domestic auto makers. They have built flex-fuel vehicles for years because doing so gives them "credits" in their efforts to meet federal fuel-economy standards. Without the credits, Ford and GM wouldn't have met mileage goals for light trucks in 2003, 2004 and 2005 and would have owed fines. The mileage goals pose a bigger challenge to Detroit because of its heavy reliance on large, thirsty vehicles. Foreign makers generally haven't resorted to building flex-fuel cars to meet the mileage goals.

For Detroit, the credits applied even if the flex-fuel cars they built never actually burned ethanol. For a long time, the auto makers said little about ethanol, and many owners of flex-fuel cars didn't know they had them. But when gasoline prices surged in 2005 and 2006, GM and Ford saw their flex-fuel cars as a way to counter their image as gas-guzzler makers.

Both began promotional campaigns, such as one in which GM gave buyers in Chicago and Minneapolis $1,000 gift cards good for E85. GM began to work with state officials to find grants to pay for installing pumping equipment. It has helped add E85 to 235 stations. Ford helped pay for installing 50 pumps so someone could drive from Chicago to Kansas City while filling up only with E85.

Among ethanol backers' recruits are two grocery chains. Kroger installed E85 at about 40 stations in Ohio and Texas. Privately held Meijer Inc. did the same in Michigan and Indiana.

Wal-Mart could provide a significant boost. It said last year it was considering selling E85 at its 388 company-owned stations but hasn't made a decision.

The U.S. tax code acts as a stimulus. Service-station owners can get a credit of up to $30,000 for their outlays to convert equipment to sell E85.

Some states have done their bit to spur the market. New York enacted a bill last year that barred oil companies from requiring stations to buy all of their fuel from the companies.

In the Albany area, station owner Christian King has begun selling E85 at one of his three Mobil outlets and plans to do so at a second. He says Mobil's restrictions still mean he can't put the price of E85 on the main sign or let drivers charge it on their Mobil credit cards.

Adding E85 "is a personal thing," Mr. King says. "I'm trying to do anything I can to reduce our dependence on foreign oil. And if this thing kicks off, I'm in a position to benefit."

Write to Laura Meckler at laura.meckler@wsj.com

Oil Companies and Ethanol Plants: Slash, Burn and Buy

2009-07-25T09:46:00.005-04:00

RenewableEnergyWorld.com
by David Blume
February 26, 2009

With all of the corporate bailouts and economic disasters our country is facing at present, it really is easy to welcome the wallet-relief provided by currently low transportation and heating fuel prices. As the saying goes, “Why look a gift horse in the mouth?” It isn’t comfortable to consider that the relatively calm waters international oil prices present could be covering an insidious undertow that is quietly dragging our renewable and alcohol fuel industry down to the OPEC equivalent of Davey Jones’s Locker where it will lay submerged until the big oil pumps finally do run dry.

In some places around the country today we are paying US $1.89 a gallon for gas (or even less). However, it is important to point out that with that short term windfall comes the ominous realization that nearly 25% of our Alcohol fuel producing industry will be going belly-up soon. That is correct. Many investor-backed as well as entrepreneurially driven Alcohol plants currently producing in the US may be bankrupted by the end of February 2009.

It is very likely that 40 of the nearly 200 alcohol fuel plants we have working now will be victims of what I refer to as big oil’s slash, burn and buy strategy to collapse, consume and control our fledgling alcohol fuel industry.

The obvious poster child for this tragedy is VeraSun. Declaring bankruptcy recently in a federal court in Delaware, VeraSun represents a considerable failure for the alcohol fuel industry. Having fallen from the vanguard of ethanol plants funded by venture capital, its collapse is having a rip-tide effect through the investment (and sadly) the farming community as well. Once a mighty force for alcohol expansion VeraSun is now reduced in value to pennies on the dollar. [Editor's note, for more on the takeover bid, read RenewableEnergyWorld.com's story, Ethanol Industry Eyes Valero's Bid for Verasun.]

How did this happen? What is the sleight of hand big oil is using to lull us to sleep at the wheel, while it methodically implements the conquest and enslavement of America’s independent and sustainable energy future?

Here’s the answer. Oil companies are using the commodities futures trading system to artificially drive up the price of corn while depressing the price of alcohol, essentially gaming the futures market. The impact of artificially high corn prices is that plants like VeraSun (that aren’t built and supported by farm-owners, but rather by capital investors) had to pay high prices to compete with big oil to buy corn and make fuel. Meanwhile, the futures price of alcohol was driven down by big oil’s fuel monopoly-easy since they buy over 99% of alcohol fuel produced.

Although VeraSun recently named the company that has offered to buy it out of bankruptcy and as I had predicted, it’s an oil company. Big oil recently spent a billion dollars conducting a fictitious food vs. fuel campaign, contributing to devaluation of US $6 billion dollars’ worth of alcohol plants by more than 90%. Big oil is now quietly spending a fraction of the $125 billion they made in profit last year to buy up alcohol fuel plants for pennies on the dollar.

It is sad that VeraSun and some other independent distillery companies face bankruptcy, but the real market losers are our farmers. While oil companies bought futures contracts for corn at $6 a bushel, farmers were subjected to a quadrupling of prices for oil-based crop inputs such as fertilizer.

With the federal court ruling in the VeraSun bankruptcy, a legal precedence is being set that now allows plant owners to reject contract commitments for grain and corn purchases they have made with working farmers. For the first time ever for any company, there may be an escape from paying for the futures contracts that are bought. The problem with this is that farmers have of course already borrowed money (based on futures pricing) to pay for higher input costs in producing the supposedly higher-priced corn. Unlike the plant owners, they won’t get to avoid their debts and as that crunch goes on.

I think that there is a real chance that big oil will buy up the alcohol plants, reject the futures contracts, bankrupt the farmers and then be able to buy their land.

If the oil companies gain control of even a quarter of the alcohol production infrastructure and land for the crops, there will be no end to the disruption they can cause in markets, they could even potentially bankrupt the rest of the industry. If you think that it’s a nightmare that big oil controls our energy, think what life would be like if it controlled our land and food, as well.

Oh no, I hear another bailout in the makings! Unfortunately, I think that the only way to avoid this catastrophic scenario is for us to provide alcohol fuel plants with a bail-out plan. However, as I have recommended for the auto industry bailout, there should be conditions. While a number of initiatives should be addressed to ensure the alcohol fuel industry’s long-term growth, implementing these bailout conditions in the short term will make the ethanol business more secure and less likely to need any future assistance:

•All alcohol fuel plants should be required to install the equipment necessary to handle non-corn energy crops.
•By 2010 plants should be required to diversify their crop inputs, limiting corn to 50% of the total. This would insulate them from further manipulation by oil companies and start the country, especially the Midwest, on the path of sustainable agriculture.
•By 2011 all plants should be required to run at least 90% on renewable fuel, not fossil fuels. Corn Plus has already converted its plant to run on biomass, reporting a 6:1 energy return compared to the usual 1.5:1 of coal-based alcohol fuel plants.
•The bailout should include loans to provide energy to alcohol fuel plants using biomass-fired combined-heat-and-electricity facilities. This would reduce alcohol price volatility, since alcohol production would largely be decoupled from the prices of oil, coal, and natural gas.

Even though I am an advocate for smaller alcohol fuel plants for many reasons (security, local economy strength, true energy independence among others), the larger plants need to be protected for the health of the industry and the United States. Without an effective alcohol industry to compete with big oil, the sky would be the limit on gasoline prices.

I have already gone on record predicting that we can expect gas prices to rocket by March 2009. I have also stated that there will be a concerted effort to blame the new administration for this occurrence. This will happen because oil companies and OPEC are afraid that President Obama will carry out his campaign promises to reduce oil imports and address climate change.

There is already a big oil campaign going on to portray the oil companies as back in control of energy prices that somehow got out of control last summer due to “speculators.” You might have caught the 60 Minutes Infomercial they ran for OPEC and the Saudi family recently, (wow take a guess at what that cost to purchase and produce).

Big oil is already floating articles that say that putting money into alternative fuels will be a waste of taxpayer dollars and will raise rather than lower the price of auto fuel. Expect this chorus to become a propaganda flood during the first 60 to 90 days of President Obama’s administration, with the aim of discouraging Congress from doing anything substantial to cut our oil use via any alternatives not controlled by big oil (oil shale, tar sands, coal-to-gas).

It will be in the oil companies’ best interests to avoid attention until after the first round of legislation from the new administration. Traditionally, new presidents can get almost anything passed in the first 60 days or so. The oil companies would prefer to not have the gun sights of legislators trained on them during this period. Once the first flush of legislation is introduced, it will be autumn before another major bill could be introduced to interfere with the oil companies. They will hope to have the ethanol industry and enough legislators bought up by then.

I urge citizens everywhere to contact their Congressional representatives, the Department of Justice, Antitrust Division and the Federal Trade Commission, Bureau of Competition to express their concern regarding the Valero acquisition of Verasun and to help mandate protectionary and regulatory programs for the formation of a truly independent renewable energy and fuel producers market. (Note: email is not always secure. Mark confidential information “Confidential” and send it via postal mail).

David Blume is the executive director of the International Institute for Ecological Agriculture, (I.I.E.A.). He is a globally renowned permaculture and alcohol fuel expert and is author of the Amazon best-selling book Alcohol Can Be A Gas (www.alcoholcanbeagas.com). Mr. Blume is a leading advocate for alcohol fuel and the role of the American farmer in developing a truly sustainable energy and food policy for the post-oil era.

CBOT Corn Review: Rallies On USDA's Plan To Resurvey Acreage

2009-07-24T14:02:00.003-04:00

By Ian Berry
DOW JONES NEWSWIRES
July 23, 2009

CHICAGO (Dow Jones)--The government's announcement that it would resurvey corn acreage in several U.S. states launched a rally in Chicago Board of Trade corn Thursday, giving life to a market that to many appeared to be sinking toward $3 a bushel.

September corn ended up 19 cents to $3.27 a bushel and December corn ended up 19 1/2 cents to $3.38 3/4.

After recent weakness amid bearish weather and technical pressure, the market was "suddenly served with an input we weren't trading," a floor trader said. Prices opened about 10 cents higher and continued to climb throughout the day, ending at session highs. Funds bought an estimated 10,000 contracts.

The catalyst was the U.S. Department of Agriculture's announcement that it would be conducting more surveys and revising its planted acreage estimate in the August crop production report. With the USDA already having issued a large, bearish planted-acreage estimate in June, most analysts said the only direction for the corn acreage to go is down.

"We, and many in the market, are and remain skeptical that farmers planted 87 million acres of corn as reported in June," Morgan Stanley said in a report.

Traders said the news could have put a seasonal low in the market.

"I think they changed the rules of the game, and you have to adjust," a trader said. He sees the market moving toward the $3.50-$3.75 range in the December contract.

Strong weekly export sales added to the supportive tone and demonstrated that demand picked up on the recent break in prices, traders said. A generally bullish tone in commodities was also supportive, traders added.

Some analysts said an increase in acreage could not be ruled out. Gavin Maguire, a director of EHedger, said he expects an acreage cut, but said it could be offset by larger yields. Benign weather for weeks, with forecasts calling for more cool weather, has weighed on prices and fueled expectations of a bumper crop.

"Maybe we will lose a million acres, but we could see yields jump by 5, 6, 7 bushels per acre," Maguire said.

Farmer selling could provide a headwind for any rally, a trader said. Farmers are holding large amounts of grain after refusing to sell as prices dropped from about $4.50 to just above $3 in about a month.

Farmer selling also likely helped the September-December spread to widen, a trader said. The trader added that funds are primarily in the December contract, so short covering gave an added boost to that contract.

CBOT oats futures ended higher in a modest correction after a sharp drop the past couple of days. A trader said that corn provided support but that the rally was disappointing after two days of fund liquidation. September oats ended up 3 1/2 cents to $2.02 1/2 a bushel and December oats ended up 3 1/2 cents to $2.14 1/2.

Ethanol futures were higher. August ethanol ended up $0.065 to $1.597 a gallon and September ethanol ended up $0.064 to $1.555.

Big Oil Bets on Biofuels

2009-07-22T04:13:00.002-04:00

By Jennifer Kho
Renewable Energy World
July 21, 2009

At first glance, it might look like oil companies are pulling out of renewables. At the end of June, BP closed its alternative-energy headquarters. The oil company also has cut its alternative-energy budget and closed several solar factories in Spain. And that's after Shell sold off most of its solar business at the end of 2007. But while solar might not have been the best fit for the petroleum industry, analysts say that oil companies might be better-positioned in renewable fuels - and are seeing some obvious signs of movement into the area.

One of the biggest is ExxonMobil's announcement last week that it will invest more than $600 million in algae-based biofuels, with more than $300 million going to Synthetic Genomics. Of course, oil companies have previously invested at the research level, such as when BP announced it would invest $500 million - over a decade - in a research consortium led by the University of California at Berkeley in 2007. But Michael Butler, CEO of investment bank Cascadia Capital, said that starting last fall, about when the economic downturn began, he began seeing more activity in the business of renewable fuels as well.

Some examples? U.S. oil company Valero Energy Corp. in March won court approval to buy seven ethanol plants - and one partially completed plant - from VeraSun Energy Corp. Earlier this month, Redmond, Wash.-based Prometheus Energy, which converts waste methane into liquid natural gas, said it raised $20 million from the Shell Technology Ventures Fund and Black River Asset Management, a subsidiary of the agricultural giant Cargill. And in February, Conoco opened an ethanol fuel-blending station in Kansas in partnership with ICM, Poet and Crescent Oil. Conoco and Tyson Foods in May suspended plans for a plant that would have made biodiesel from animal fat, but DTN Research analyst Rick Kment said Conoco is considering buying a biofuel plant on the East Coast.

One reason for these investments is that the recession - along with the hard times for the ethanol and biodiesel industry - has led to great deals for biofuel assets, Kment said. Valero was able to acquire VeraSun assets for a mere 30 percent of the estimated cost of building the plants, and similar opportunities may be available. In February, Archer Daniel Midlands told analysts that nearly 21 percent of U.S. ethanol production capacity had been shut down, meaning that plenty of defunct assets could be up for grabs.

Kment said he expects to see more examples of oil companies buying ethanol and biofuel plants to meet that standard. After all, the renewable fuel standard calls for 36 billion gallons of biofuel to be blended into transportation fuels by 2022, up from 9 billion gallons last year. At today's low prices, it makes sense for blenders to buy biofuel assets as a hedge against higher prices in the future, Kment said. "At this point, companies are looking at this as economical and a good investment," he said. "The value of these plants are at nickels or dimes on the dollar, so [oil companies] have an opportunity to lock up a portion of their blending needs of biofuels ... and hedge their overall cost in case the overall supply becomes tighter in the future."

Kment sees oil companies spending more money at the asset-acquisition level than at the startup stage. But even those smaller startup investments represent a significant trend at a time when many venture capitalists and private-equity investors are pulling back, Butler said. "They're filling a void in the marketplace," he said. "Oil companies have the [technological expertise] to get really deep into this technology. So they can afford to take these bets and take on some of this risk."

Many renewable-fuel technologies have turned out to be harder to fully commercialize than startups expect. (It took Prometheus Energy, for example, an extra 1-plus year to get up and running. The company was delisted from the London AIM exchange last year, before scoring its funding round.) But even though financial investors have been burned by the significant amount of capital and secure distribution channels that it takes to make biofuels successful, those same factors could give oil companies an edge, Butler said. In fact, several of his clients are currently in discussions with big oil and gas companies. "It's just a natural fit," he said. "Big companies bring the distribution and [scale], and startups bring the technology and the innovation."

In any case, all the investments signify that the petroleum industry "really looks at biofuels as a stable part of the industry," Kment said. "Whether they like it or appreciate it or not, they see it as being part of the [fuels] industry and one of the things needed to [do business] in the United States."

Butler agrees that it's a milestone for biofuels. "My gut [feeling] is that oil companies understand that, at some point, they've got to get into renewables," he said. "I'm not really sure they're going to develop the products in their own companies, so it probably makes more sense for them to go outside. If the technology ends up working, this could be very, very synergistic."

The trend of oil companies expanding from buying to also producing biofuels could significantly grow the industry, analysts said. Renewable fuels is certainly a better fit for oil companies than solar power, said Ron Pernick, a principal at research firm Clean Edge. "They didn't know [solar] manufacturing, didn't have the distribution channels for something like a solar panel - it didn't fit their gestalt or their DNA," he said.

Alternative fuels could make far more sense because they tie more closely to oil and gas companies' core business, he added. "Here is a business where a lot of biofuel tech companies have tried and failed, and maybe that wasn't the right fit for them," he said. "I think if anyone can crack this nut, it's probably the chemical and oil and gas guys."

US Renewable Energy Grant Rules Exclude Private Equity

2009-07-20T12:37:00.003-04:00

By Yuliya Chernova
DOW JONES CLEAN TECHNOLOGY INSIGHT
July 20, 2009

A grant program introduced in the federal stimulus package passed earlier this year was intended to jump-start investment in renewable energy, but the rules of the program threaten to hobble it from the start by restricting private equity involvement in any projects the government backs.

The rules, published July 9, exclude from the program any projects with investors that have tax-exempt status. That was done because the grant program is intended to replace tax credits, which have become less widely used as taxable incomes have fallen. Tax-exempt investors wouldn't have been able to take advantage of tax credits so the intention is to bar them from the grant program too, according to industry participants.

However, most private equity firms receive backing from tax-exempt limited partners like endowments, pension funds and family trusts, excluding them from the program. Even if the tax-exempt entity holds just a 0.1% interest in the renewable energy project four tiers up the ownership structure, the entire project is disqualified, according to the rules published on the U.S. Treasury Department Web site and several attorneys and industry members. In a similar vein, if any of a project's ownership lands in the hands of a tax-exempt entity within five years of operation, the grant can be reclaimed by the government, according to the Treasury rules.

Projects backed by private equity can get around the ban by creating an extra layer of ownership, but this would force investors to pay more taxes.

The exclusion is "taking a huge piece of renewable energy off the table," said Greg Wetstone, vice president for government affairs at Terra-Gen Power LLC, a large solar, wind and geothermal project development company owned by private equity firm AcrLight Capital Partners.

Renewable energy industry groups estimate that this ban places more than $10 billion in new renewable energy development at risk, according to a letter seen by Clean Technology Insight that the groups sent to several members of the U.S. House of Representatives in June in response to their concerns about the program wording in the stimulus package. The groups sending the letter were the American Wind Energy Association, Geothermal Energy Association, Solar Energy Industries Association and Private Equity Council.

A Treasury official didn't respond to a request for comment.

When he announced the new guidelines, Energy Secretary Steven Chu said in a statement: "These payments will help spur major private sector investments in clean energy and create new jobs for America's workers. It is part of our broad effort to double our renewable energy capacity in the next few years and make sure that America leads the world in creating the new clean energy economy of the future."

But the letter from the industry groups counters that the ban included in the guidelines actually "has the effect of discouraging renewable energy investment by private equity funds."

The letter goes on to say: "it will be next to impossible to achieve the President's ambitious goal of doubling renewable energy production in the United States over the next three years. The participation of private equity is especially important in the current economic environment where renewable energy developers are having difficulty raising capital, development is being scaled back, it is difficult to borrow money, and there is a several billion dollar shortfall in the supply of tax equity."

Terra-Gen's Wetstone said that he and others in the industry are lobbying the government to change the rules before the Treasury starts taking applications Aug. 1. Wetstone declined to say whether Terra-Gen would apply for the grants if the rules don't change before the deadline.

The American Recovery and Reinvestment Act of 2009 authorized the Treasury to offer cash grants to renewable energy projects worth about 30% of their cost. The aim was to make up for the departure of tax-equity investors, a major source of capital for renewable energy in the past who backed projects and then used government tax credits to offset taxable income. At the same time, many in the industry looked to private equity as a new source of capital for projects that were being orphaned by banks.

As well as keeping the grants focused on tax-paying entities, the restriction in the program is also to ensure that entities eligible for another renewable energy incentive called Clean Renewable Energy Bonds don't also apply for the Treasury grants. Those issuing government-supported bonds are state, local and tribal governments, public power providers and electric cooperatives, according to the industry group letter.

Keith Martin, a partner at the law firm of Chadbourne & Parke LLP who works on renewable energy projects, described the restrictions on tax-exempt institutions as "like a nuclear bomb, when all that was needed was a fire cracker."

In order to circumvent the rules as they are, private equity firms would have to create "blocker" corporations that would be tax-paying entities. "Putting a blocker in the structure means the earnings from the project will be taxed at the blocker level at a 35% corporate tax rate," Martin said.

Some private equity firms intend to invest and apply for the Treasury grants even if the rules remain as they are.

"If there are transaction costs to be borne, so be it," said Neil Z. Auerbach, managing director at Hudson Clean Energy Partners, a clean technology focused private equity firm that holds controlling interests in two project-development companies, Recurrent Energy and Element Power. "I don't think there's any risk that the cost will outweigh the benefit. The benefit is huge," he said, adding "we are absolutely ready to operate within the system."

Even so, it's clear that projects that have private equity backers are at a disadvantage compared with those that don't. "Ironically, the stimulus [helped] the top tier of developers, but not the lower tiers that have had to turn to private equity funds to raise money," Martin said.

The issue hearkens to a broader discussion in the renewable energy world, according to Edwin Feo, partner at the law firm of Milbank Tweed Hadley & McCloy LLP, where he co-chairs the project finance and energy practice.

Feo said that all types of tax subsidies have unequal effect on industry members. So there's a school of thought, he said, that questions "why are we continuing to play the game of having subsidies through tax benefits that have these pernicious unequal effects versus direct pay subsidies that provide cash usable by anyone. That's the school of thought that's pushing feed in tariffs. And that's seeing traction at the state level."

Biofuel Fraud Case Could Leave the EPA Running on Fumes

2009-07-18T15:03:00.005-04:00

Cello Energy is unlikely to produce 70 million gallons of cellulosic biofuel next year, which means that the EPA will not meet its 2010 target of 100 million gallons
By Brendan Borrell
Scientific American

Grassoline it ain't. After a jury ordered a leading cellulosic biofuel company to pony up millions for defrauding investors, the U.S. Environmental Protection Agency will likely come in 60 million gallons shy of its 100 million gallon target next year.

Late last month, a federal court in Mobile ordered Cello Energy of Bay Minette, Ala., to pay $10.4 million in punitive damages for fraudulently claiming it could produce cheap diesellike fuel from hay, wood pulp and other waste.

Cello's owner, Jack Boykin, allegedly built a sham facility and lured pulp producer Parsons & Whittemore Enterprises to invest $2.5 million in an ownership stake in 2007. In court, Parsons & Whitmore CEO George Landegger said he was unimpressed with the company's facilities, and a string of expert witnesses testified that fuel samples were derived from petroleum sources.

Neither Boykin nor his attorney, Forrest Latta, returned calls for comment, but in statements to the press following the trial, Latta has indicated that Cello's technology has "global potential." Another defendant, Khosla Ventures, a California firm that invested $12.5 million in Cello in 2007, was unavailable to comment.

Although it's no surprise that investors might be dazzled in the rush to hop on board the biofuels bandwagon, the EPA appears to have been duped as well.

Cellulosic biofuel technology is still in its infancy, and the agency and Congress required gasoline blenders to purchase and sell just 100 million gallons next year, less than 1 percent of the nation's proposed renewable fuel mandates. To encourage biofuel producers to meet that demand, the government would establish a credit scheme to set a floor on the wholesale price of $3.00 per gallon—about twice that of corn-based ethanol—if production fails to reach the 100 million gallon mark.

But David Woodburn, an analyst at ThinkEquity Partners in Chicago says that the agency had pinned its hopes on Cello and has not put in place the cellulosic biofuel credit system required to maintain that price point. "EPA was supposed to have prepared it in late June," he says, "In the EPA's eyes, they only need to implement that system if they see a shortfall coming.... Up to now on paper they've totally ignored this credit system."

As reported in earth2tech, Woodburn first realized the EPA would fall short of its target when it released its draft regulatory impact analysis in May. This document listed firms that were to make cellulosic biofuel, and most were on the hook to produce one million or two million gallons by the end of 2010. Cello Energy, however, claimed that its Bay Minette facility would pump out 20 million gallons. The agency also had Cello down for new plants that would produce another 50 million gallons. Woodburn says he grew skeptical of the company after calls and e-mails to the company for verification were never returned.

EPA spokeswoman Cathy Milbourn says Cello estimates were "derived based on commercialization plans from the company. They never gave us volume—only size of the facilities and planned timeline."

So, what's the chance that Cello can still meet its target? "It seemed extremely unlikely three weeks ago before this jury verdict," Woodburn says. "It seems extremely unlikely today. How can you create three additional plants and have them producing in 2010 when ground hasn't been broken yet?"

Woodburn adds that Cello also faces another hurdle, which is that it has no distribution agreements: in other words, no one has promised to buy their biofuel. In the best-case scenario, he says, the nation will produce 39 million gallons of cellulosic biofuel next year and blenders will be on the hook to pay the government a $600 million or more for biofuel credits through a program that still does not exist.

Alternatively, the EPA could lower the cellulosic biofuel target when it finalizes the contentious renewable fuel standards in the fall, a decision that would defeat the whole idea of the goal in the first place.

Milbourn says the EPA is "continuing to assess the viability of not only Cello, but also the various other technologies and companies in supplying cellulosic biofuel."

For George Huber, the University of Massachusetts Amherst chemical engineering professor who wrote Scientific American's July cover story about cellulosic biofuels, Cello is a lesson to be learned. "There are no magic processes for conversion of biomass into liquid fuels," he says, "If something sounds too good to be true, it probably is not true."

Biofuel Development a Burning Priority for Obama Camp

2009-07-18T09:19:00.004-04:00

By Greg Burns
Chicago Tribune
July 9, 2009

Even with new rules in the offing that would slap handcuffs on oil traders, a prospect that sent shares of Chicago-based CME Group tumbling, the feds are more eager than ever to promote oil-free gasohol. They especially love the stuff brewed from wood chips, corn cobs, switch grass and other forms of cellulose.

Yet cellulosic ethanol, as it's called, remains more of a promise than a reality. So far, no one has produced it on a mass commercial scale at a price that would rival ethanol made from corn or sugar cane.

For a shining moment, the fuel-from-sawdust movement attracted a fortune in private investment, before venture capital funds dried up across the globe. Now, however, at least a few of those bucks are being clawed back the hard way.

The wood chips hit the shredder in Alabama at the end of June, when a federal jury ordered a cellulosic energy company and its executives to pay $10.4 million in a fraud suit brought by an unhappy investor. It's a complex case focused on allegations of bad-faith business practices that involved Silicon Valley visionary Vinod Khosla, whose firm denied any wrongdoing.

But the case also highlighted a once-eager convert's loss of faith in cellulosic fuel.

"This was supposedly a breakthrough technology," said investor George Landegger, who runs the privately held pulp producer Parsons & Whittemore Inc. "This particular one is worthless."

Will any live up to the hype? The potential for scaling up beyond a lab or pilot program "has yet to be proven," he said.

For its part, Cello Energy LLC vowed to continue fighting the legal case and moving ahead with its plant startup.

"It would be wrong to read the lawsuit as any kind of scientific referendum on the ultimate success or failure of the cellulosic fuel process," the company said in a statement.

The fight between Landegger and Cello has a bigger dimension. Government officials were counting on the Alabama-based company to meet 50 percent of the bio-requirement under the nation's motor-fuel standards for next year.

That's not happening, said David Woodburn, research analyst at ThinkEquity LLC in Chicago.

Counting all the demonstration projects, pilot plants and one or two bigger ventures, then assuming that all perform at maximum advertised capacity, only 39 million gallons of a required 100 million will be produced in 2010, he calculates. That's a tiny fraction of the fuel used by U.S. cars and trucks in a year. In 2011, the requirement rises to 250 million, but production to no more than 82 million.

Federal officials may delay imposing the standards, and the production shortfall may in turn trigger further incentives for development.

Certainly, the government shows no sign of backing off. Announcing an additional $787 million for biofuel research and commercialization in May, Chu reportedly sounded an optimistic note: Corn-based ethanol was "a good start," he said, but "research will lead the way to give us much better options."

Landegger worries those research dollars could be wasted. By the time he severed ties with Cello, he said, "It was no longer a biofuel enterprise. It was a grant-requesting enterprise."

BP Exits Jatropha Biofuel Project to Focus on Ethanol

2009-07-18T08:04:00.002-04:00

Bloomberg News
July 17, 2009,

BP Plc, Europe's second-largest oil company, will exit its jatropha biofuel project with D1 Oils Plc to focus on production of ethanol in Brazil and the U.S. and advance biobutanol development.

“To ensure the success of these investments, BP is concentrating new business development in these areas and will no longer be directly involved in the jatropha as a biofuel feedstock,” Sheila Williams, a London-based company spokeswoman, said today in an e-mail.

D1 Oils said today it agreed to acquire BP's 50 percent interest in their joint D1-BP Fuel Crops Ltd. venture, set up in June 2007 to develop jatropha, a drought-resistant tree whose seeds contain oil used mainly in biodiesel production.

BP and D1 Oils had failed to find a third investor for the project. They began talks this year on dissolving the venture and bringing planting and plant-science operations under D1's control. London-based D1 said last month it would be able to maintain the business at lower cost until market conditions allowed the injection of new capital.

The partners had planned to plant 1 million hectares of jatropha over four years, of which 220,000 hectares had been planted by April.

BP Alternative Energy has earmarked $8 billion for project investment in the decade through 2015. BP, which expects biofuels to account for 11 percent to 19 percent of the world's transport-fuel market by 2030, supplied about 10 percent of global biofuels last year, according to company estimates.

The British oil producer is cooperating with U.S. universities to spend about $500 million over 10 years on biofuels research. It's also working with DuPont Co., the third- largest U.S. chemicals maker, to develop biobutanol, a gasoline- like fuel made from biomass.

BP last year agreed to invest in Brazilian ethanol venture Tropical BioEnergia SA and plans to spend $5 billion to $6 billion to boost production over 5 to 10 years. Brazil's Santelisa Vale SA and Grupo Maeda Ltda each hold 25 percent of Tropical BioEnergia, while BP has 50 percent.

“We believe that biofuels will make a major contribution to road transport fuels, reducing carbon emissions and diversifying supply,” Williams said.

BP and the U.S.'s Verenium Corp. agreed in February to set up a venture to produce cellulosic ethanol, which, unlike sugar- cane ethanol, is derived from non-food crops such as switchgrass, corn cobs and wood waste.

Last year, BP teamed up with Associated British Foods Plc and DuPont to start building a $450 million wheat-based ethanol plant in Hull, northeast England. The partners may complete construction in the second or third quarter of next year, Philip New, head of biofuels at BP, said on March 17.

Europe's largest oil company is Royal Dutch Shell Plc.

Proposed Ethanol Pipeline to Extend into South Dakota

2009-07-18T07:59:00.003-04:00

By DIRK LAMMERS
July 17, 2009

The nation's largest biofuels producer and a Tulsa-Okla.-based pipeline company are expanding the route of a proposed $3.5 billion dedicated ethanol pipeline into South Dakota, the companies said Friday.

Poet LLC and Magellan Midstream Partners LP are studying the feasibility of the 1,800-mile pipeline, which is dependent upon studies addressing technical issues and Congress revising the U.S. Department of Energy's loan guarantee program, the companies say.

If built, the route would begin in Davison County, S.D. -- further west than O'Brien County, Iowa, as originally planned -- and deliver the alternative fuel from plants in Iowa, South Dakota, Minnesota, Illinois, Indiana and Ohio to distribution terminals in the northeastern United States.

"With South Dakota being in the top five of ethanol producing states and having almost a billion gallons of production capacity, that just made sense," said Poet spokesman Nathan Schock.

Magellan has been working with the Association of Oil Pipe Lines for years on how to transport ethanol through a pipeline, said spokesman Bruce Heine.

Heine said the biggest challenge is stress corrosion cracking, in which ethanol tends to cause internal cracking of carbon steel pipe more so than gasoline or diesel.

Magellan thinks the solution will be a combination of potential additives to help protect the pipe and the use of different welding techniques.

"We believe the combination of these factors would allow us to reliably, safely and cost effectively transport ethanol from the Midwest to the East Coast," Heine said.

Poet, based in Sioux Falls S.D., is the nation's largest ethanol producer with more than 1.5 billion gallons of annual production from 26 ethanol plants.

Magellan Midstream Partners LP transports, stores and distributes refined petroleum products.

Schock said Poet is taking the lead on market analysis for the project, while Magellan is addressing technical and issues. The two are working together on legislative challenges.

A positive assessment would allow one or both partners to enter into an agreement to construct an ethanol pipeline, but any project would take several years to complete.

Schock said he hopes for a decision on whether to move forward by the end of year or early 2010.

Energetic Debate: Senate Grapples with Clean Energy and Jobs

2009-07-17T09:19:00.004-04:00

The Wall Street Journal
Environmental Capital Blog
July 16, 2009

Well, the Senate is still trying to sort out whether the clean-energy push is a good thing or a bad thing for job creation.

The basic thrust goes like this: Venture capitalists, such as John Doerr, and clean-tech corporate types, such as General Electric’s John Krenicki, warned that countries such as China are stealing a lead in the clean-energy race thanks to lagging U.S. policies, which will leave the U.S. at a disadvantage in the next big industry. Sen. Barbara Boxer agreed.

Mr. Doerr noted that only one of the top five wind-turbine companies in the U.S. is actually American (it’s GE). “That’s simply not acceptable,” he said.

So much talk about wind turbines exhausted the patience of Tennessee’s Lamar Alexander, who again called for a nuclear solution to America’s energy woes. “Is nuclear power renewable energy?” he asked Mr. Doerr.

“Well, it’s low-carbon energy,” the veteran venture capitalist replied. But nuclear power’s long lead times work against it, he added: “If we wait a decade, we’re out of the race.” Later, he said, referring to America’s place in the clean-energy race, “We barely got a dog in the fight, we’re barely in the game right now.”

Lingering behind all the exchanges was the fundamental tension: How can China be poised for clean-energy leadership when the country planning greenhouse-gas limits is the U.S.?

Julian Wong of the Center for American Progress cut to the chase: “We need to separate the rhetoric of the international climate process from what is actually happening on the ground.” And China, he stressed, is moving rapidly with both stimulus money and ambitious renewable-energy targets (not to mention a stiff dose of protectionism.)

Which would seem to lend credence to the idea that cleaning up the energy system is more important than setting goals for eventually reducing carbon emissions. For China, at least.

That might explain why 34 Nobel Prize winners today sent President Obama a letter asking him to live up to his campaign pledge to spend $15 billion promoting clean energy, a promise that has been gutted by the horse-trading in the Congressional fight over the climate bill.

Sweet Harvest

2009-07-15T10:08:00.004-04:00

By Timothy Charles Holmseth
Ethanol Producer Magazine
July 2008 Issue

One hundred and fifty years ago sweet sorghum plants could be found swaying in the winds across southeastern United States. A U.S. patent officer brought the plant to the United States in 1853, according to the National Sweet Sorghum Producers and Processors Association. The plant was of interest as a substitute for sugarcane, but extracting dry sugar from the syrup proved to be too difficult. Sorghum production peaked in the 1880s and declined as it faced competition from sugarcane and sugar beets.

Today, sweet sorghum is making its second debut as a versatile feedstock that can be used for food, fuel and animal feed. “It is the only crop that can save the United States,” says Ismail Dweikat, an associate professor at the University of Nebraska-Lincoln. An agronomy and horticulture expert, Dweikat says the speed bumps, headaches, economical and political challenges the nation presently faces as it attempts to wean itself from foreign oil could be avoided if we would focus on using the sugar from this 18-foot-tall energy crop to produce ethanol. “Despite controversy, support for nonpetroleum fuels remains strong,” he says.

Dweikat spoke to attendees at the 13th annual National Ethanol Conference in February in Orlando using this quote from George Washington Carver to kick off his presentation: “I believe that the great Creator has put ores and oils on this earth to give us a breathing spell. As we exhaust them, we must be prepared to fall back on our farms, which is God’s true storehouse and can never be exhausted. We can learn to synthesize material for every human need from things that grow.”

Dweikat believes that sweet sorghum can do the job of producing ethanol for the nation, and he’s giving it his personal letter of recommendation. Sweet sorghum is appealing on several fronts, he explains. “It doesn’t need additional irrigation so you can save money on irrigation,” he says. “It doesn’t need as much nitrogen as corn—50 to 60 pounds of nitrogen will give you a full crop of sweet sorghum,” he says, noting that one pound of nitrogen is required for each bushel of corn produced.

Dweikat explains that the total biomass stover from corn is 4 to 5 tons per acre plus 150 to 180 bushels of grain per acre. Sweet sorghum trumps corn when produced and sold to cellulosic ethanol plants. Sweet sorghum typically yields 14 tons of biomass per acre. “If you are selling it for $40 a ton, that’s about $560 per acre. That would out-produce corn, with less output,” he says, noting they both go for about $40 per ton.

“Sweet sorghum requires half the amount of water that sugarcane needs,” Dweikat says. “It has more sugar on a plant than sugarcane. “On a one crop basis, sweet sorghum out-produces sugarcane because sweet sorghum matures within 100 to 120 days, while it takes the first sugarcane crop one year to mature. Also on a volume basis, sweet sorghum has a higher sugar content than sugarcane. As sweet sorghum requires less water (one-third less than sugarcane) and has a higher fermentable sugar content than sugarcane (which contains more crystallizable sugars), it is better suited for ethanol production. Also, sweet sorghum-based ethanol is sulfur-free and cleaner than molasses-based ethanol, when mixed with gasoline,” he explains.

Sizing it all up, Dweikat says quite plainly, “The more sugar, the more ethanol.” The net energy ratios of sugarcane and sweet sorghum are similar, with 1 input rendering 8 outputs, he says. “In corn … [the ratio] is 1:1.25,” he adds.

David Cukierman, president and chief executive officer of Ethano Peru LLC in Houston, also finds that sweet sorghum is a better ethanol feedstock compared with corn. “The average corn yield in the U.S. is about 150 bushels per acre. The average ethanol yield per bushel is 2.8 gallons per bushel,” he explains. “That equates to an average production rate of 420 gallons per acre.” And it looks even better in certain areas of the country that have optimal growing conditions. The average sweet sorghum yield in the United States corresponds with two cuttings per year, in comparison to the four cuttings it renders in Peru, Cukierman explains. They are planning to test their hybrids in the South Texas Valley near the Rio Grande, he says, adding that cuttings are determined by global longitude and latitude and three annual cuttings are expected in that region. “[Ethano Peru] strongly believes that sweet sorghum is the future and the answer to the food-versus-fuel controversy based on tests with our own hybrids in Peru,” Cukierman says.

Sweet sorghum also wouldn’t interfere with food production because it can be grown on marginal land, Dweikat explains. “You don’t have to use your best land,” he says. It’s also drought tolerant, he says describing that the plant behaves much like a camel. “It is more drought-tolerant than corn,” Dweikat says.

Testing and Investing
Most commonly grown in Texas, Louisiana, Oklahoma, Nebraska, Florida, Kansas and Iowa, sweet sorghum has garnered some attention, and significant money has been invested to advance its growth. “In Florida, they have just approved a $54 million ethanol plant based on sweet sorghum ethanol,” Dweikat says. “In Louisiana, they are going to plant 750 acres this year to replace sugarcane because it requires less irrigation.” Testing is also underway in Nebraska and Texas, he notes.

The crop has proven to be durable under the relentless heat of the Texas plains, where corn doesn’t thrive as well. “The Southeast grows pretty crappy corn,” says Juerg Blumenthal, associate professor and state sorghum cropping specialist at Texas A&M University. “One-hundred-bushel corn is common.” Biomass sorghum can endure periods of stress much better than grain sorghum or corn, he says.

Although sweet sorghum can be grown a little further north, it has some issues with the cold winters, Dweikat explains. “The problem in the Midwest is that it gets killed by the freeze so you have to re-plant it every year, like corn” he says. “That’s one of the limitations here in the United States.” However, continuous testing and hybrids are being pursued to address the plants’ tolerance for cold. “We are trying to make sweet sorghum a cold-tolerant plant by introducing a rhizome to it,” Dweikat notes.

He says indicators of sweet sorghum’s viability can be found across the globe where much testing is taking place. “In terms of acreage, the premier country that is using [sweet sorghum] now for ethanol is India,” Dweikat says.

Belum Reddy, the principal sorghum breeder for the International Crops Research Institute for the Semi-Arid Tropics in Andhra Pradesh, India, says a future exists for this plant. “In the past 35 years, the ICRISAT has been doing continuous research to develop improved sorghum hybrid parents, varieties and hybrids,” he says. The crop is especially of interest because it can be used for food, animal feed and ethanol. “Farmers can harvest the grain for their food and then sell the surplus in the market,” he says. “The stalks of the sweet sorghum plants have sugar-rich juice in them. They can be crushed and used by a distillery to produce ethanol. The crushed stalk, after the juice is extracted [and the stripped leaves], can also be used as animal feed.”

At a distillery not far from ICRISAT, sweet sorghum juice is being converted into ethanol at a rate of 10,000 gallons per day, Reddy says. “Ethanol can also be produced from grain sorghum,” he says, although ICRISAT encourages farmers to sell sorghum grain for ethanol only after all their food needs are met.

With testing underway on several continents, sweet sorghum production is being observed in a variety of climactic conditions. With 750 acres of testing grounds on the coast of Peru, Cukierman says his company is rapidly discovering methods that will lead to sweet sorghum’s production as an ethanol feedstock on a worldwide basis.

One issue producers face is finding seed, but research into corn hybrids is being used to remedy that situation. “In their native countries, seed is saved from sorghum plants by farmers to plant the next generation crop,” Cukierman says. Over time plant breeders discovered and applied hybrid vigor to corn that rendered a higher yield than either parent, and the concept eventually reached sorghum. “It involves producing and maintaining a male and a female line,” he says.

Ethano Peru’s experimentation with hybrid seeds for sweet sorghum has shown promising results. “Hybrids of sweet sorghum for Peru are very fast growers,” Cukierman explains. The cycle for one crop is 90 days to harvest. With that short of a growing cycle, four crops per year could be produced.

Although the cost involved in breeding, producing, storing and marketing hybrid seed makes the cost of production relatively high, that cost is not prohibitive because the performance of the seeds is so high and more gallons of ethanol are produced with sweet sorghum, Cukierman says.

Dweikat points to Brazil and its research advances over the past 30 years using sugarcane to prove that energy independence can be obtained. “[Brazil] announced last year that they soon expect to be oil free,” he says.

A Viable Biomass Alternative
How does sweet sorghum fare in the viability arena? Dweikat says the plant meets or exceeds expectations. The criteria for determining the viability of biomass use for biofuels centers on four general areas: energy balance, materiality, sustainability and economics, he observes. “Does it yield more energy than is required to produce it?” he asks rhetorically, pointing out that sweet sorghum does. “Can it be produced at a large enough scale to be meaningful in terms of fuel supply?” he continues, stating that sweet sorghum certainly can. “The U.S. is capable of producing 1 billion dry tons of biomass annually—enough for 60 billion gallons of ethanol per year, [which is] 30 percent of today’s transportation fuel usage,” Dweikat explains, noting the numbers include agricultural and forestry wastes, grains and perennial bioenergy crops. He says the country can produce at that level “and continue to meet food, feed and export demands.”

Is sweet sorghum a solution to the food-versus-fuel issue? Dweikat, Cukierman, Reddy and Blumenthal believe it because it’s not raised for human consumption. Sweet sorghum experiences a short vegetative period at a very high photosynthesis rate, which is why it can produce more sugar than any other crop. It has low water requirements, grows on marginal land, experiences little disease or pest attacks, and produces good cash flow at a low investment per acre. “[It has a] high conversion to alcohol, and therefore to ethanol,” Cukierman says.

Florida Governor's Style is to Encourage Ethanol Imports Rather Than Local Production of Ethanol

2009-07-14T09:55:00.010-04:00

Florida Governor to Lobby for Ethanol
By Inae Riveras
Reuters
November 6, 2007

SAO PAULO (Reuters) - Florida Gov. Charlie Crist said on Monday he will encourage Congress members to lobby for more ethanol use and a reduction in the 54-cent-a-gallon tariff on Brazilian imports of the biofuel.

The use of more cane-based ethanol is seen as a way to curb greenhouse gas emissions in the state, which is aiming to reduce them to 1990 levels by 2015.

"My style is to encourage (ethanol imports) and I have great friends in the Florida delegation in Washington, senator Mel Martinez, also senator Bill Nelson...I will encourage them to do exactly that," Crist told Brazilian and U.S. businessmen.

"We are a gateway (for ethanol to the United States) and we're all about reducing taxes," Crist said a meeting at Sao Paulo's Industry Federation (Fiesp).

As the tariff is in force at least until 2009, any possible change would take place beyond that.

Crist came to Brazil along with about 200 delegates on a mission to improve bilateral trade. Brazil is already Florida's leading partner, with two-way trade worth at around $11 billion per year.

Crist also will visit an ethanol mill in Sao Paulo and Brazil's state oil company Petrobras' headquarters.

Florida next year will discuss ways to reduce gas emissions. The adoption of a 10 percent mix of ethanol into gasoline is an option, said Michael Sole, Florida's secretary of Environmental Protection, who also attended the event.

He said a recommendation to the government should be made by October 2008.

"Florida will be a tremendous ethanol market, which is going to grow, and would be an important gateway," said Marcos Jank, president of Brazil's Sugar Cane Industry Union (Unica).

Florida demands 8.6 billion gallons of gasoline per year and currently does not produce any of the biofuel.

Logistics problems to get corn-based ethanol from the Midwest to Florida are seen as an advantage to Brazilian imports.

Brazil currently exports minimal amounts of ethanol to Florida, all through the Caribbean, where the Brazilian product is reprocessed and re-exported to the U.S. market exempt of the tariff, through the Caribbean Basin Initiative (CBI) trade pact.

Brazil and the United States signed a broad agreement to work together to advance biofuels technology, help spread ethanol production and set common standards for ethanol trade, when President George W. Bush visited the country in March.

The accord did not include changes in the tariff despite a direct appeal to Bush by Brazilian President Luiz Inacio Lula da Silva on the matter.

Ethanol Production May Consume Too Much Water

2009-07-13T18:23:00.004-04:00

By Cynthia Barnett
Florida Trend
July 1, 2009

From agricultural and energy company boardrooms to university laboratories, excitement is building over the potential for large-scale biofuel production in Florida. But a new study by forestry researchers at the University of Florida raises an important question: Does the state have enough water to supply thirsty energy crops?

Matthew Cohen, a professor in UF’s School of Forest Resources and Conservation, and post-doctoral researcher Jason Evans in the Department of Wildlife Ecology and Conservation analyzed energy and water impacts for four ethanol crops — corn, sugarcane, sweet sorghum and pine — in Florida and Georgia. Their study, published in Global Change Biology, found that all four yielded net energy; meaning they are viable for replacing fossil fuels. But it also concluded that ramping up production enough to meet U.S. Energy Independence and Security Act mandates for renewable fuels by 2022 “would have significant impacts on both land use and water resources.”

Estimated water requirements for sweet sorghum, the most water-efficient crop in the study, “would increase by almost 25% total freshwater withdrawals for all human uses reported in Florida and Georgia for 2000,” Cohen and Evans write. “Corn and sugarcane would require well over twice this water volume.” While pine is not irrigated, the study says large-scale pine biofuel production could have a critical impact on regional water supplies available for humans and nature because of accelerated evaporation.

Cohen says the message for Florida policy-makers is that “any debate about biofuels should be explicitly coupled with strategies for water and energy conservation.”

Florida Eyes Dominican Sugarcane for Clean Fuel Mandate

2009-07-13T18:14:00.005-04:00

SANTO DOMINGO. - The State of Florida needs to find permanent suppliers of ethanol to cover a demand estimated at 786 million gallons starting next year, when it implements a norm calling for a 10% mix of that fuel in gasoline.

Florida Gateway president Brian C. Dean, interviewed by newspaper Listin Diario on the conference “Establishing a hemispherical biofuels market” dictated in Santo Domingo, said Florida has taken on the development and use of biofuels “very seriously.”

He said that state must look for an ethanol exporter in the region, for which Dominican Republic, with its experience in sugar cane and sufficient lands, could be a key ally to reach part of its objective.

Dean, invited to the country by the National Energy Commission (CNE), said Gateway Florida aims to get public policies implemented in Latin American and Caribbean countries to support the development of the ethanol and biofuels industry.

In the Dominican case, the executive said in addition to sugar cane, piñon jatropha, higuereta and other plants that have yielded good results could also be used to produce ethanol.

He added that within the Lula-Bush initiative and the biofuels development agreement, Dominican Republic is among the first four countries eligible for funding to develop clean energy projects.

One Year After Oil’s Price Peak: Volatility

2009-07-10T10:44:00.003-04:00

By Jad Mouawad
The New York Times
July 10, 2009

A year ago this weekend, oil prices reached a trading record of $147.29 a barrel. That peak followed months of speculation that oil prices would zoom past $200 or $250 a barrel — predictions often made by people with a major stake in seeing that happen, even as experts said they were puzzled that prices could rise so high, so fast.

Within weeks of the July highs, prices collapsed as the mortgage crisis in the United States morphed into a full-fledged economic and financial meltdown around the world.

Oil demand has dropped by nearly 1.5 million barrels a day since last year, and OPEC producers are now sitting on five or six millions of barrels of daily idle capacity. As the world confronted its worst economic crisis in over 50 years, oil fell to around $33 a barrel by December.

But prices remain as volatile as ever.

With oil rising above $70 a barrel, I wrote on Monday about big swings in the oil markets over the past 18 months (which also included this neat graphic).

The story ran a day before the Commodities Futures Trading Commission, the Federal government agency in charge of commodity markets, said it was considering regulating “speculation” in commodity markets.

Oil is now headed below $60 a barrel, and some major banks like J.P. Morgan Chase see prices headed to the low $50-range in coming weeks. The reason? While investors pushed up oil prices earlier this year in anticipation of a global economic rebound, reality seems to have set back in, and most people now expect a slow recovery.

But the volatility in the energy markets is unlikely to end soon. While one trader told me this week he was bearish for oil in the short term, he said that long term he was “extremely” bullish for oil. Most of the reasons that have pushed up prices in the past years — tight supplies, geopolitical risk in major producing countries, declining production in major oil basins like the North Sea and Mexico, as well as strong demand growth — have not disappeared.

____________

A note of clarification for statistical sticklers: The July 11 record of $147.29 a barrel was the highest trading level ever reached by oil. But in print, we typically refer to the highest settlement price at the closing of a trading session on the New York Mercantile Exchange. That was set on July 3, 2008, at $145.29 a barrel.

A Rough Year for High Ethanol Blends

2009-07-10T10:33:00.003-04:00

By Kate Galbraith
The New York Times
July 10, 2009

Far fewer people have been refueling with high ethanol blends this year in parts of the Midwest.

In North Dakota, sales of E85 — gasoline blended with 85 percent ethanol — were down by more than 60 percent this year from January to May, compared with a year earlier, according to the state’s Department of Commerce.

Minnesota has also seen a severe dip in E85 sales, according to the Minneapolis Star Tribune. Around 1.5 million gallons were sold in May — which is almost 1 million less than a year earlier, the paper reports.

National figures are not tallied by the Energy Department.

“It’s all about price, price and price,” said Phil Lambert, the vice-president for market development at Growth Energy, an ethanol lobby group. He noted that consumption of regular gasoline has also fallen across the country.

E85 can be used in “flex-fuel” vehicles, which can also take regular gasoline. Mr. Lambert said that there were slightly more than 8 million such vehicles in the United States today, or less than 3 percent of all vehicles.

Because ethanol has a lower energy content than gasoline, ideally it should be priced 15 to 20 percent lower than regular unleaded to make it worthwhile on a cost-for-energy basis, according to Mr. Lambert. Consumers, he said, should “never, ever, ever buy E85 when it is priced higher than gasoline.”

But the price was higher, at least briefly, in Iowa, according to Monte Shaw, the executive director of the Iowa Renewble Fuels Association, in the wake of plunging gasoline prices last year.

In Fargo, N.D., E85 was retailing for up to 20 cents above regular gasoline prices this spring, according to Julie Fedorchak, the communications manager for the state’s Department of Commerce — and the town of Harvey, N.D. even put bags over its E85 pumps for a time.

Recent months have brought better news for the industry. Harvey has taken the bags off its pumps, and several states report a pick-up in demand as prices return to a more viable level.

Growth Energy has a calculator on its E85 Web site suggesting that the fuel is currently priced 15 percent below regular gasoline, although there is substantial local variation.

Mr. Shaw of Iowa said that he had recently filled up at a pump where E85 was at least 70 cents cheaper than gasoline. “That’s very attractive,” he said.

The Cellulosic Ceiling

2009-07-09T21:17:00.004-04:00

By Ryan C. Christiansen
Ethanol Producer Magazine
From the August 2009 Issue

The renewable fuel standard calls for 100 MMgy of cellulosic biofuel to be blended into the nation’s fuel in 2010, ramping up to 16 billion gallons per year in 2022. Will the U.S. produce enough to satisfy the mandate?

By 2022, the U.S. EPA expects the domestic biofuels industry to produce more than 32 billion gallons per year of renewable fuel. However, less than half of that fuel is expected to be corn-based ethanol. The majority, 16 billion gallons, will be cellulosic biofuel. The Energy Independence and Security Act of 2007 defines cellulosic biofuel as renewable fuel produced from any cellulose, hemicelluloses, or lignin that is derived from renewable biomass and has life-cycle greenhouse gas (GHG) emissions that are at least 60 percent less than the baseline life-cycle GHG emissions. The EPA predicts that, in the long run, those 16 billion gallons of cellulosic biofuel will be cellulosic ethanol. However, EISA’s definition for cellulosic biofuel leaves open the possibility that the mandate can be met by other fuels.

Federal Investments
The goal of ultimately producing billions of gallons of cellulosic biofuel has a hefty price tag. Between 2002 and 2008, the U.S. DOE’s Energy Efficiency and Renewable Energy Biomass Program, established to develop and demonstrate biomass feedstock and conversion technologies for integrated biorefineries and to ensure cellulosic ethanol can be produced cost-effectively by 2012, was allocated more than $800 million in federal funding. Since 2007, the DOE has announced more than $1 billion in multi-year investments in cellulosic biorefineries and since 2006 the USDA has invested almost $600 million to develop biofuel technology.

The bulk of the DOE’s investments began in February 2007 when it announced plans to invest $385 million in six biorefinery projects over four years for a total cellulosic ethanol production capacity of 131 MMgy. Combined with the industry cost share, the projects equated to more than $1.2 billion in investments. Projects identified for funding included an 11 MMgy Abengoa Bioenergy SA plant in Kansas, a 14 MMgy Alico Inc. plant in Florida, a 19 MMgy BlueFire Ethanol Fuels Inc. facility in California, a 30 MMgy Poet LLC plant in Iowa, an 18 MMgy Iogen Corp. plant in Idaho, and a 40 MMgy Range Fuels Inc. plant in Georgia.

In May 2007, the DOE announced it would provide up to $200 million over five years to support the development of small-scale cellulosic biorefineries. The first $114 million was allotted in January 2008 for four projects. The companies identified for funding included ICM Inc., Lignol Energy Corp., Pacific Ethanol Inc., and Stora Enso Oyj. The remaining $86 million was allotted to RSE Pulp & Chemical LLC, Mascoma Corp. and Ecofin LLC in April 2008. In July 2008, the DOE announced an additional $40 million investment for two more companies - Flambeau River Biofuels LLC for its project in Wisconsin and Verenium Corp. for its demonstration-scale facility in Louisiana. Seven of the nine plants were funded for cellulosic ethanol and two for cellulosic diesel.

On the research side, both the DOE and the USDA also provided funding to companies and universities. In March 2007, the DOE invested $23 million in five projects to develop highly efficient fermentative organisms to convert biomass material to ethanol; the companies and organizations identified for funding included Cargill Inc., Verenium, E. I. du Pont de Nemours and Co., Mascoma, and Purdue University. In June 2007, the DOE and USDA together awarded $8.3 million to 10 universities for biomass genomic research. During that month, the DOE also announced a $375 million investment in three new bioenergy research centers, including the DOE BioEnergy Science Center, the DOE Great Lakes Bioenergy Research Center, and the DOE Joint BioEnergy Institute.

To close out the year, the DOE awarded $7.7 million in December 2007 to four projects to demonstrate the thermochemical conversion process of biomass-to-biofuels. Then, in February 2008, the DOE invested $33.8 million in four projects to develop improved enzyme systems to convert cellulosic material into sugars suitable for the production of biofuels. The companies identified for funding included DSM Innovation Center Inc. (a partner with Abengoa), Genencor, a division of Danisco A/S, Novozymes A/S, and Verenium.

In March 2008, the DOE and USDA awarded $18 million to 18 universities and research institutes to develop biomass-based products, including biofuels.

To meet renewable fuel standard targets, the U.S. EPA says cellulosic ethanol plant startups must begin in earnest with a few small plants during 2010-'11 and must continue at an increasing pace thereafter with larger plants. The EPA says the rate of growth for the cellulosic ethanol industry should be similar to that of the corn starch-based ethanol industry in recent years.
SOURCE: U.S. EPA

Finally, in May 2009, the DOE announced that it would provide $786.5 million from the American Recovery and Reinvestment Act to accelerate advanced biofuels research and development and to provide additional funding for commercial-scale biorefinery demonstration projects. Of the total, $480 million will be distributed among 10 to 20 projects for pilot- or demonstration-scale integrated biorefineries that produce advanced biofuels, bioproducts, and heat and power in an integrated system, which must be operational within three years. In addition, $176.5 million will be used to increase the federal funding ceiling on two or more demonstration- or commercial-scale biorefinery projects that were selected and awarded funds within the past two years. Also, $110 million will be used to support new research. Finally, $20 million has been set aside for optimizing flexible fuel vehicle technology, evaluating the impact of higher ethanol blends on conventional vehicles, and upgrading refueling stations to be compatible with ethanol blends up to E85.

Scaling up
To meet renewable fuel standard targets, the EPA says cellulosic ethanol plant start-ups must begin in earnest with a few small plants during 2010-'11, increasing pace thereafter with larger plants. The EPA says the rate of growth for the cellulosic ethanol industry should be similar to that of the corn starch-based ethanol industry in recent years, beginning with 40 MMgy plants from 2010-'13, increasing to 80 MMgy during 2014-'17 and 100 MMgy and upwards during 2018 and beyond. The EPA projects that approximately two billion gallons per year of new plant construction will need to come online between 2018 and 2022. In total, approximately 180 plants will need to be completed by 2022.

However, with only a few months to go before petroleum blenders must begin to use cellulosic biofuels, there are no commercial-scale plants ready to deliver the fuel. Since the DOE’s initial February 2007 funding announcement, very little money has actually been distributed to selected projects. Two of the first six companies to be awarded DOE money - Alico and Iogen - have dropped their applications. Lignol announced in February that it was discontinuing its project as a result of instable energy prices, capital market uncertainty and general market malaise. Meanwhile, subsidiaries of Pacific Ethanol filed for bankruptcy in May.

Abengoa and Poet say they are on track to begin production, but not until 2011. Only Range Fuels, which received an additional $80 million loan guarantee from the USDA in January (the first-ever USDA loan guarantee for a commercial-scale cellulosic ethanol plant), expects to begin producing at near-commercial scale during 2010, with plans to complete the first phase of its planned 40 MMgy facility in Soperton, Ga., early next year.

According to Range Fuels CEO David Aldous, the plant is expected to be mechanically complete during the first quarter of 2010 and commissioning will begin soon thereafter. The plant will produce ethanol from wood chips, he says, and will be scaled up gradually from an initial 20 MMgy capacity. The EPA is predicting that Range Fuels will supply 10 million gallons of cellulosic ethanol toward the cellulosic biofuels mandate in 2010.

Aldous says Range Fuels’ technology is unique. “It is proprietary technology,” he says. “There are a lot of companies that are doing thermal front-end processes, whether they are pyrolysis or gasification, and there are a lot of other companies using different kinds of back-ends, converting the syngas into ethanol, (but) we use a proprietary catalyst on the back end and we use a proprietary technology on the front end.” Prior to leading Range Fuels, Aldous was executive vice president for strategy and portfolio at Royal Dutch Shell plc and also served as president of Shell Canada Products. He is also the former CEO for the Shell Group’s catalyst company, CRI/Criterion Inc.

Meeting the Mandate
To help meet the 100 MMgy cellulosic biofuels target for 2010, the EPA says there will be 24 pilot- or demonstration- scale plants and seven commercial- scale plants producing cellulosic ethanol or cellulosic diesel in 2010. However, ethanol will satisfy only 28 percent of the total cellulosic biofuels mandate. The EPA says the only companies that will produce more than one million gallons of cellulosic ethanol during 2010 are Verenium, Western Biomass Energy LLC, Fulcrum Bioenergy Inc., RSE, Southeast Renewable Fuels LLC, and Range Fuels.

The majority of the cellulosic biofuels volume (72 percent), the EPA says, is projected to come from cellulosic diesel. A small portion (3 million gallons) will be produced by Flambeau River Biofuels at its 6 MMgy plant in Park Falls, Wis., while the majority of all cellulosic biofuels that will be produced, the EPA says, will be cellulosic diesel from Cello Energy (pronounced “sell-oh”), which has a 20 MMgy plant in Bay Minette, Ala. The EPA says to expect 20 million gallons from the Bay Minette plant, as well as 16.67 million gallons from each of three future 50 MMgy plants, which are expected to be swiftly built—two in Alabama and one in Georgia—at locations to be determined.

Feedstock for Cello Energy’s operation can include plant biomass, waste wood, and other organic materials, as well as plastics and used tires. The company uses a catalytic depolymerization technology, the EPA says, to convert the feedstock into short-chain hydrocarbons that are polymerized to produce diesel fuel that meets ASTM standards at a cost between 50 cents and $1 per gallon. The process is reported to be 82 percent efficient and the only energy input is electricity. Allen Boykin, president of Cello Energy, told EPM that the catalyst used by the company is a proprietary catalyst that takes approximately 22 to 25 minutes to convert garbage into fuel oil using a continuous process.

Boykin says Cello Energy’s technology has been in the making for 12 to 15 years. His father, Dr. Jack Boykin, a chemical engineer who served as a Lieutenant in the U.S. Navy from 1961 to 1965, is CEO of Cello Energy and has been conducting the research. Allen says he became involved in 2002 to help bring the system to commercial-scale. Allen says bench-and pilot-scale testing was previously conducted in Prichard, Ala.

Imports to Meet Targets
The EPA admits that because cellulosic ethanol production technology is still developing, production plants will be considerably more complex and expensive to build than corn starch-based ethanol plants, thus requiring much more capital funding as well as design and construction resources. “Although technologies needed to convert cellulosic feedstocks into ethanol (and diesel) are becoming more and more understood, there are still a number of efficiency improvements that need to occur before cellulosic biofuel production can compete in today’s marketplace,” the EPA renewable fuel standard report says. “Additionally, because cellulosic biofuel production has not yet been proven on a commercial level, financing of these projects has primarily been through venture capital and similar funding mechanisms, as opposed to conventional bank loans.”

Alternatively, the EPA suggests that usage targets might be met using cellulosic biofuel that is produced internationally, for example, from feedstocks such as bagasse or straw.

Indeed, as much as 21 billion gallons per year of cellulosic biofuel might be produced outside the U.S. by 2017, the EPA says, the majority from bagasse, but also from forest products, and mostly from Brazil.

A recent report from Novozymes describes how Brazil might produce more than two billion gallons of cellulosic biofuel from bagasse by 2020, which would represent an additional $4 billion in export revenue for that country. Like in the U.S., the development of cellulosic biofuels in Brazil will depend on the industry’s ability to attract the needed investments and political support, Novozymes says.

Despite a slow start for cellulosic biofuels in the U.S., some in the industry are bullish about the future. “Advanced biofuel companies are ready to deploy their technology and begin meeting the requirements of the [RFS],” says Brent Erickson, executive vice president of the Biotechnology Industry Organization’s Industrial and Environmental Section. “Now that the rules of the program are finally moving forward and the Obama administration has demonstrated a firm commitment to the industry, companies are prepared to build the next generation of biorefineries.”

Ryan C. Christiansen is the assistant editor of Ethanol Producer Magazine. Reach him at rchristiansen@bbiinternational.com or (701) 373-8042.

Refiners Face Shakeout in Coming Years - Deloitte

2009-07-09T19:12:00.004-04:00

By Erwin Seba
Reuters
Jul 9, 2009

U.S. refiners face a shakeout due to pending environmental regulations in the coming years that could shrink national refining capacity by up to 2 million barrels per day (bpd), according to a study issued on Thursday by financial consultant Deloitte.

"As the impact of the new regulations is realized over the next several years, up to 2 million bpd of crude processing capacity in this country may be eliminated," according to the study.

The Deloitte study follows similar research issued throughout the year that temporary reductions in U.S. refining capacity because of the recession would likely become permanent in the next 10 years as new vehicle efficiency standards and requirements for renewable fuels cut the need for motor fuels made from crude oil.

Refiners have temporarily shuttered refineries and individual processing units throughout the year as the economic downturn crushed demand for motor fuels.

Valero Energy Corp (VLO.N: Quote, Profile, Research, Stock Buzz) said on Thursday it had turned off the first units in a sequential plantwide shutdown that could last up to three months at its 235,000-bpd Aruba refinery, which supplies the U.S. market.

On Wednesday, the U.S. Energy Information Administration said U.S. refinery utilization was running at 86.8 percent of national capacity of 17.67 million bpd. [EIA/S]

Refiners that have invested heavily in the past decade to shift their plants to run cheaper heavy, sour crude oil grades will likely face new hurdles in rules to limit carbon emissions expected to take effect within 10 years.

"The added processing needed to turn this more challenging feedstock into clean fuels consumes more energy than refining light, sweet crude," the study said. "With the advent of caps on carbon emissions, what once looked like a cheap feedstock may now mean a costly carbon footprint."

Some refiners are already adapting to the new challenges their industry will face, according to the study.

"Valero and Sunoco Inc (SUN.N: Quote, Profile, Research, Stock Buzz) have recently announced significant acquisitions of ethanol manufacturing plants from distressed sellers," the study said.

Refiners are also seeking ways to produce biofuels in addition to adding ethanol facilities.

"The future of a refinery will depend on whether it is a low-cost operator, the sort of competition it faces, and whether its profits justify the cost to comply with regulatory changes," according to the study.

Latin America Ramps-up Ethanol Production

2009-07-09T17:38:00.003-04:00

By Ryan C. Christiansen
Ethanol Producer Magazine
From the August 2009 Issue

Latin American countries are ramping up ethanol production despite the fact that many people in countries outside of Brazil are not aware of ethanol as a fuel.

In Central America, Guatemala is the number one producer of high-yield sugarcane and produces over 44 percent of Central America’s sugarcane-based ethanol. According to Karla Tay, agricultural specialist for the USDA, five of Guatemala’s 14 sugar mills produced approximately 64 MMgy of dehydrated ethanol from sugarcane in 2008, up from 42 MMgy in 2007 and 18 MMgy in 2006. Most of Guatemala’s ethanol was exported to the U.S. and Europe. Production for 2009 is expected to be approximately 93 MMgy. Having eight of Central America’s top 13 processing plants, Guatemala is expected to produce approximately 130 MMgy of ethanol by 2010. Guatemala’s largest ethanol producer is Bio-Ethanol SA, which has a 13 MMgy plant and is expected to triple its capacity by the end of 2010. Meanwhile, ethanol producer La Union SA operates a 7 MMgy ethanol plant. Guatemala is the fourth-largest producer of sugarcane in all of Latin America with 530,000 planted acres and the potential for 870,000 acres.

In South America, Colombia, which began producing ethanol from sugarcane in 2005, is the world’s second-largest sugarcane-ethanol producer with an approximate capacity of 64 MMgy from five plants in the Cauca River Valley in southwestern Colombia. According to Leonardo Pinzon, agricultural specialist for the USDA, Colombia has a mandate to use E10 by 2010 and current production can supply 85 percent of the requirement. In March, the Colombian government issued a decree that, beginning in 2012, all new vehicles sold in the country must be flexible fuel vehicles. Ethanol production dropped 6.1 percent in 2008 due to a sugarcane workers strike, but production is expected to increase to a record high in 2009. The government is sponsoring research and feasibility studies for new feedstocks for ethanol production, including sugar beets and yucca.

In Uruguay, new investments in ethanol production are expected to bear fruit in 2009, with approximately 1.5 MMgy of ethanol expected to be produced this year from molasses, sugarcane, and sweet sorghum, according to Ken Joseph, agricultural specialist for the USDA. Two additional projects, one backed by a French company and another by a U.S. company, are expected to be complete within five years to produce approximately 25 MMgy of ethanol each from sweet sorghum. Ethanol produced in Uruguay is expected to be exported to Brazil and Venezuela.

Meanwhile, according to a recent Gallup poll, citizens in only a handful of countries in the Caribbean and Latin America have heard of ethanol, and only 47 percent of all poll respondents in the region have heard of ethanol. In eight countries, including Brazil, Costa Rica, Nicaragua, Uruguay, Paraguay, Colombia, the Dominican Republic, and Panama, the majority of respondents have heard of ethanol; however, in Peru, Ecuador, Bolivia, and Mexico, less than 40 percent of poll respondents have heard of the fuel.

Senate Ag Panel's Members Look to Stake Major Claim in Climate Bill

2009-07-09T17:33:00.003-04:00

By ALLISON WINTER of ClimateWire
The New York Times
July 9, 2009

Powerful members of the Senate Agriculture Committee are angling to include even more farm and ethanol-friendly provisions to their chamber's energy and climate legislation than the House added to its bill last month.

Chairman Tom Harkin (D-Iowa) and other members of his panel say they want to ensure any effort at wide-ranging climate legislation in the Senate will include all of the provisions that House Agriculture Chairman Collin Peterson (D-Minn.) brokered for the House cap-and-trade bill, H.R. 2454 (pdf). With the hard-fought Peterson deal as their starting point, the farm state lawmakers could have leverage to capture additional benefits for farmers and ranchers.

As Senate leadership aims to advance the bill this fall, agricultural interests could form a formidable coalition. Several key fence-sitters on the bill sit on the Agriculture Committee, and farm interests have wide appeal in the Senate. Each senator has some farm interests in his or her state -- unlike the House, which has more representatives from urban and suburban areas.

"You're going to see more interest in agriculture on the Senate side, I think," Sen. Saxby Chambliss (R-Ga.), the ranking member of the Agriculture Committee, said this week of the climate bill.

House leaders compromised with Peterson and included a raft of changes he suggested for the cap-and-trade bill in order to win his and other key votes for the bill. The changes were a major victory for farm groups, but a disappointment to many environmentalists who are concerned it could weaken efforts to cut down on emissions.

Harkin said yesterday that he would like to repeat all of Peterson's language in the Senate bill and potentially build on it further. He had his first meeting last night with Senate Environment and Public Works Chairwoman Barbara Boxer (D-Calif.), leadership and other Senate committee leaders and the top White House energy adviser, Carol Browner.

The much-publicized deal that Peterson brokered on the House side put the Agriculture Department, rather than U.S. EPA, as overseer of programs that would offset emissions with conservation efforts on farms, ranches and forests. Peterson's language also allowed "early actors," farmers who have been doing such conservation practices for years, to participate in the program.

Peterson also included a raft of provisions friendly to corn-based ethanol, another important issue for farm states. His language would temporarily block EPA from calculating a fuel's total worldwide carbon footprint before determining whether it qualifies as a biofuel eligible for incentives. The language in the bill that passed the House bars EPA for five years from including emissions from indirect land-use changes abroad.

"If it's like the House bill, I'll be reasonably happy," Harkin told E&E. "We want no indirect land use, things like that in there -- there is no scientific basis for that."

But the provisions from Peterson were not welcome additions for many environmental groups. In testimony this week to the Environment and Public Works Committee, Dave Hawkins of the Natural Resources Defense Council said he hopes the Senate will weed out some of the language. "These amendments run the risk of creating a subprime market in both offsets and biofuels," said Hawkins. "They seriously damage the environmental integrity of the bill, and they will undermine public confidence in the markets for both products."

Harkin wants to build on the Peterson language with "a little bit of other stuff," including more expansive offsets for sequestration and the ability for farmers to "stack" benefits -- using land enrolled in farm bill conservation programs to also gain carbon offsets. He admitted that he has been more concerned with work on health care legislation but said his committee would hold a hearing on the issue July 22, and he would expect to work on more legislative language in the fall.

"I don't think it will bother Senator Boxer or anybody at all," Harkin said.

The Iowa Democrat, a major advocate for ethanol, also wants to expand opportunities for the corn-based version of the fuel. He said he would like to include language that would raise the amount of ethanol that can be blended into gasoline from 10 percent to 15 percent -- a change the ethanol industry has been lobbying for but auto manufacturers have been hesitant to embrace and environmental groups have balked at.

"EPA's got to get over their absolute rejection of ethanol. They've just got to get over it," Harkin said. "And we're going to force them to get over it."

The Peterson amendment also has the support of Sen. Amy Klobuchar (D-Minn.), who sits on both the Agriculture and EPW committees. "I'm very hopeful that those changes will be included," Klobuchar said yesterday. "I'm not concerned we're going to see any backtracking."

Fence-sitters remain on fence
Attempts to broaden opportunities for farmers and corn-based ethanol could lose some support for the bill from environmental groups, which have been critical of the fuel for the land, pesticides and water pollution involved in its use.

But at least some concessions for agriculture may be necessary to secure the bill's passage. The Senate Agriculture Committee includes some key members that Boxer will need to win over if she is to get the crucial 60 votes needed to pass the bill, including fence-sitters on the bill like Sens. Kent Conrad (D-N.D.), Blanche Lincoln (D-Ark.) and Debbie Stabenow (D-Mich.).

Lincoln said this week that she has "a lot of concerns" with how the bill would affect Arkansas -- noting that her commitment is to represent the people of her state, not necessarily to help the caucus get to 60 votes. "I have great concerns with what the House has done, but I haven't seen it on this side," Lincoln said.

Meanwhile, Conrad said he has started to meet with key members of the EPW Committee in an attempt to make sure agricultural concerns are addressed early on -- not late in the negotiation stages as they were in the House. The Budget Committee chairman is a key voice for agricultural interests -- he showed himself a tough negotiator on the farm bill and frequently got his way on provisions large and small. Conrad said this week he wants the Senate climate bill to include something "very much on the same lines" as Peterson's amendments in the House.

But even with those farm-friendly provisions, Conrad said he is still on the fence about the bill -- since he must also think about his state as the nation's fifth-largest oil producer and a major consumer of coal for electricity. He said more allocations or offsets might help encourage him to vote for the measure.

"In North Dakota we have more than agriculture concerns, we're a major energy state as well," Conrad said. "So we've got a lot of concerns ... they've certainly improved substantially from where it was last year by what they did in the House, but it has a ways to go before I can vote for it."

And Sen. Ben Nelson (D-Neb.) said that to win his support, the bill will have to ensure it does not raise utilities rates or include "anything that would adversely impact agriculture." He said he has discussed the bill with Sen. John Kerry (D-Mass.) and passed on some of his concerns to Boxer.

Ag groups weigh in
Farm groups, which were divided on the House climate bill, have not started heavy lobbying in the Senate. Influential groups like the American Farm Bureau Federation and the National Pork Producers Council did not support the House-passed measure.

But farmland conservation groups and the National Farmers Union, a left-leaning group active in organizing farmers to sequester carbon, eventually endorsed the bill. Those groups came out against the version of the bill that cleared the House Energy and Commerce Committee but rallied behind the cap-and-trade effort after Peterson included his changes.

The farmers union, considered very influential among Democrats, is planning to circulate letters on the climate bill in the Senate within the next week. NFU spokeswoman Liz Friedlander said they want to be sure any Senate bill puts USDA at the helm for offsets and allows for the inclusion of "early actors," but she said her group is not seeking anything beyond the House provisions "at this time."

The American Farm Bureau Federation, on the other hand, opposes the House bill but is not making direct requests to senators for things they could do to improve it. The group is concerned that higher costs for fertilizer and fuels would outweigh any benefits from the legislation, especially as U.S. farmers have to compete with producers in China and India.

Richard Krause, the farm bureau's director of congressional relations, said his group would be talking to members about their concerns about the bill, but said they do not have a list of particular changes that could be made to gain their support.

"Right now our opposition still remains and it probably will unless something changes our mind, and I'm not sure how that will be," said Krause. "It would take a lot to change our minds, I won't say it can't be done but at this point, I don't see it."

Corn Ethanol Has Little Effect on Food Prices

2009-07-06T17:13:00.004-04:00

By Jim Nussle
Agweek
July 6, 2009

WASHINGTON — A new report from the Congressional Budget Office confirms what hundreds of economists and industry experts have stated for months: Using corn for ethanol has little impact on the price of food. Rather, the main culprits driving the higher cost of food are energy costs, excessive unregulated speculation in the commodities future market and a weak dollar.

The CBO analysis says ethanol was only responsible for 0.5 percent to 0.8 percent of the rise in food prices.

For far too long, the ethanol industry has been the scapegoat for last year’s dramatic increase in food prices. As former director of the Office of Management and Budget and former chairman of the House Budget Committee, I recognize the unbiased credibility of the recent CBO report and hope that it will serve as the final nail in the coffin of the half-baked theory that ethanol was somehow to blame for high food prices. The evidence is in — ethanol is not to blame.

Big Food
The average cost of food increased 5.1 percent last year — again, less than 1 percent was attributed to ethanol, according to the CBO. Big food corporations posted big gains in profits during this time, yet tried to blame ethanol for higher food prices while the price of corn was at record highs. Now that prices for both corn and energy have fallen, excessive speculation has been curbed, the dollar strengthened and exports plummeted, why haven’t food prices come down?

It’s been more than 150 days since Growth Energy has called on Big Food to stop the finger-pointing and lower their prices so that millions of struggling Americans can put food on the table. They have yet to do it and have yet to be held responsible to ask the tough question why they haven’t come down. Maybe it’s time Congress got involved.

Despite the overall good news that ethanol was not the significant cause of higher food prices, CBO’s analysis used outdated information regarding the benefits to the environment of today’s modern ethanol. The latest ethanol study published in Yale’s Journal of Industrial Ecology demonstrates that U.S.-produced ethanol reduces greenhouse gas emissions by up to 59 percent compared with gasoline.

If Congress is serious about reducing the nation’s dependence on foreign oil, creating jobs that can’t be outsourced and trimming our environmental impact, it should stand with ethanol. As the only existing alternative to foreign oil that is ready today, ethanol already has saved Americans billions at the gas pump.

Outdated Rules
Now that we can stop pointing the finger of blame at ethanol, it’s time to figure out how we can let it meet its true potential. A 30-year-old government mandate requires 90 percent of fuel be gasoline as opposed to an arbitrary cap that 10 percent be ethanol. By increasing blend levels from 10 percent to 15 percent, we can create more than 136,000 new green-collar jobs, inject $24.4 billion into the U.S. economy and displace 7 billion gallons of imported gasoline each year. We’ll also reduce greenhouse gas emissions by another 20 million tons per year — about the same as removing 3.5 million cars from the roads.

Increasing blend levels to 15 percent creates domestic demand for farm commodities and saves taxpayers money by reducing federal outlays for the federal farm safety net program. Consumers benefited at the pump as ethanol production reduced gas prices by 29 cents to 40 cents per gallon in 2008. The science behind ethanol speaks for itself. We need to ignore those who are looking to protect the status quo and instead continue to invest in this homegrown resource. The government should continue to show its support by raising blend levels up to 15 percent.

Overall, the development and use of ethanol saves money for taxpayers, benefits consumers, reduces our dependence on foreign oil, creates green jobs, revitalizes our rural communities and reduces our environmental impact. This is good for America, good for our national security, good for our national energy strategy and frankly, is something that should have been done long ago.

Editor’s Note: Nussle served as director of the Office of Management and Budget from 2007 to ’09. A former eight-term member of Congress from Iowa, he now serves as special adviser to Growth Energy’s board of directors.

GM Thrives in Latin America

2009-07-06T08:29:00.003-04:00

Fuel-efficient Vehicles from its Brazil Unit and Strong Sales in Latin America Look Promising for the Battered Carmaker's Future
By Chris Kraul and Ken Bensinger
The Los Angeles Times
July 4, 2009

Reporting from Bogota, Colombia, and Los Angeles — For all its miscues at home, General Motors Corp. has built a powerhouse operation in Latin America, where its fuel-efficient vehicles could play a crucial role in returning the battered company to health.

Since it filed for bankruptcy a month ago, the automaker has been striking deals to shed much of its operations, including its Hummer, Saturn and Saab brands and its Opel division in Europe. GM is closing more North American factories, laying off workers and slashing its U.S. dealership ranks.

But despite rumors this spring, GM's thriving Latin America operations are likely to escape the ax, analysts said.

The region is an important, low-cost manufacturing platform for the U.S. market. And to Latin American consumers, GM remains a respected brand with the highest market share -- 21% -- of any carmaker, said Guido Vildozo, an auto analyst with IHS Global Insight in Waltham, Mass. While GM's sales declined 23% last year in the U.S., they rose 3% in Latin America, and thanks to some timely government support, this year's sales are on track to match 2008's.

The automaker has been in the region for decades, opening its first factory in Argentina in 1925. It has kept ahead by continuing to invest billions of dollars, including on a new assembly plant in San Luis Potosi, Mexico, and a design center in Sao Jose dos Campos, Brazil, that the automaker hopes will become a source of cutting-edge know-how for gas-sipping cars it may someday sell in the United States.

"Latin America will keep its strategic role in the new GM," said Michel Pardal, chief Latin America market forecaster for J.D. Power and Associates in Troy, Mich. "GM has a good image, has been there for many years, and their engineers' capabilities are impressive."

In May, Italian automaker Fiat was said to be in negotiations to acquire GM's operations in the region as part of its bid to buy Opel. Fiat ended up gaining control of Chrysler -- and has plans to expand that automaker's undersized reach in South America -- but did not haul in Opel or GM's Latin America unit.

Perhaps because of those rumors, however, GM Brazil chief Jaime Ardila took the trouble last month to assure employees that not only would the unit remain part of GM, but slated investments totaling $1.5 billion would also go forward. Much of that money is going into a flex-fuel motor plant under construction in the southern state of Santa Catarina.

GM's Brazil operation, second only to its China outfit in foreign unit sales, has helped keep Detroit afloat. The company has "repatriated" annual profits of up to $800 million in some years this decade, at a time when GM's U.S. operations were bleeding cash, informed sources said.

Brazil has become a crucial stop on the career paths of company brass. GM Chief Executive Fritz Henderson and his predecessor Rick Wagoner both headed operations there earlier in their careers, and both have said that because of the region's size, complexity and importance, it's an invaluable training ground.

"The Brazilian operation of GM is one of the most successful in the world," said Alexandre Andrade, an economist at Tendencias, a Sao Paulo think tank.

Analysts expect GM to make Brazil, a world leader in vehicles that use ethanol and other biofuels, a key element of its survival plan, particularly in light of new fuel efficiency requirements being laid down by the U.S. government.

The first flex-fuel car model developed at the Sao Jose dos Campos research center is called the Prisma and will soon be in showrooms in Brazil. It is also slated for export, although GM has not said where. GM's Brazilian cars, including the Chevrolet Astra and Corsa models, are exported to Mexico and other Latin countries, though not to the United States. But with low labor costs compared with North America's despite a unionized workforce, that could change before long, analysts said.

"The Brazilian government wants its car industry to become a global exporter of 1 million cars a year and is working toward that goal," IHS Global Insight's Vildozo said. Overall exports from Brazil peaked at nearly 900,000 cars in 2005.

One element of uncertainty is that GM's Brazil operation has licensed the right to produce several small car models from the company's Opel unit, which was recently sold to a consortium of bidders led by Canadian auto parts maker Magna International Inc.

But because GM will retain 35% of Opel and is likely to retain control over much of the intellectual property developed at the European division, the Brazilian operation will probably still have the right to those designs, said Jeff Schuster, J.D. Power's global forecasting director.

GM has also invested big in Mexico, where it has 13,000 employees and four assembly plants. The newest is the $1-billion facility that opened in San Luis Potosi last year, which makes the Chevy Aveo subcompact for the Latin American market.

GM's Mexican division is a major supplier of cars and trucks to the U.S. market The unit exported just over 387,000 vehicles last year, most of which ended up in U.S. showrooms. Most of the automaker's Mexican exports are SUVs and trucks, including the Saturn Vue, Chevy Suburban, Cadillac Escalade, Chevy Yukon, Chevy Silverado and GMC Sierra.

Those vehicles aren't selling well at present, and exports this year have plunged. But analysts said they don't believe that GM's Mexican operations are vulnerable to sale or closure.

On the contrary, analysts said that with their low wages, high productivity and proximity to the U.S. market, those facilities stand to gain production lost in the United States.

Ethanol Bankruptcy Filing a Blow to Biofuels Industry

2009-07-05T15:23:00.003-04:00

Bumpy Road for Ethanol
By BRETT CLANTON
Houston Chronicle
May 11, 2009

The bankruptcy filing last week by Texas’ largest ethanol producer deals yet another blow to the state’s struggling biofuels sector and is part of a broader industry downturn that analysts say may claim other victims before it is done.

Dallas-based White Energy said a Chapter 11 filing became necessary after high raw material costs coupled with low ethanol prices led to “minimal or nonexistent profit margins.” It also blamed significant debt payments and an inability to raise capital from frozen equity markets.

The move comes just three years after the privately held firm entered the business and on the heels of bankruptcy filings by ethanol powerhouse VeraSun Energy Corp. and Dallas-based Panda Energy, which in January placed its plant near Amarillo in Chapter 11.

“It’s clearly a challenging environment,” said Bob Thompson, partner in the Kansas City law office of Bryan Cave, who advises companies investing in renewable fuel and energy projects. “But the reality is that most of these ethanol producers are dealing with are problems that were created last year.”

In recent months, the industry has been pummeled by volatile corn and oil prices, seen funding dry up for new projects and watched demand stall as slowing gasoline consumption and lower pump prices reduce the incentive for blending the fuel with gasoline. Some producers have stayed afloat by cutting output or idling plants.

About 16 percent of the nation’s 12.6 billion gallons of corn ethanol production capacity is currently shut down, according to the Renewable Fuels Association, an ethanol trade group.

Two Out of Four
Among Texas’ four plants, just two are operating, while one is temporarily shut and another still under construction.

In January, White Energy halted production at its 100- million-gallon-per-year plant in Plainview, citing poor market conditions, but has continued production at a plant of similar size in Hereford and a 45-million-gallon-per-year plant in Kansas.

White officials did not return calls seeking comment but said in court papers filed Thursday that they intend to continue normal business operations in Chapter 11.

In its bankruptcy filing, the company listed assets and liabilities in the range of $100 million to $500 million and said its operations produced over $500 million in revenue in 2008.

In the U.S., ethanol is blended with gasoline to help reduce dependence on oil and improve air quality in densely populated areas like Houston and Dallas.

Slow Growth Expected
The Energy Independence and Security Act of 2007 requires greater usage of ethanol and other biofuels in coming years, growing to 36 billion gallons in 2022 — or about 25 percent of the 140 billion gallons of gasoline U.S. drivers now consume annually. This year, the law requires 10.5 billion gallons of grain ethanol in the fuel supply.

But the U.S. Energy Information Administration expects the growth in U.S. ethanol plant capacity and production over the last few years to slow dramatically in 2009 as lower gasoline prices depress ethanol production profits, and financial market constraints impede construction plans and bring plant shutdowns.

Thompson said the tough conditions will likely mean more ethanol company bankruptcies, but he believes the industry is about to stabilize.

Currently, the ethanol industry is pushing hard to raise the federal limit on the amount of ethanol that can be blended in gasoline from 10 percent to 15 percent.

Such a move would create a bigger market for the fuel, but critics argue higher blends could harm engines, which the ethanol industry disputes.

The industry is also challenging a decision last week by the EPA to enact the first-ever greenhouse gas performance standards for biofuels. The standards would take into account all emissions created in the process of making ethanol, rather than just emissions from burning the fuel.

But the industry has taken issue with how the government measures emissions under the proposed program.

NREL Report (October, 2008) – EFFECTS OF INTERMEDIATE ETHANOL BLENDS ON LEGACY VEHICLES AND SMALL NON-ROAD ENGINES

2009-07-04T18:05:00.003-04:00

News Media Contact(s):
Jennifer Scoggins, (202) 586-4940
For Immediate Release
October 7, 2008

Fact Sheet: Effects of Intermediate Ethanol Blends

In August 2007, the U.S. Department of Energy (DOE) initiated a test program to assess the potential impacts of higher intermediate ethanol blends on conventional vehicles and other engines that rely on gasoline. The test program focuses specifically on the effects of intermediate blends of E15 and E20—gasoline blended with 15 and 20 percent ethanol, respectively—on emissions, catalyst and engine durability, drivability or operability, and materials associated with these vehicles and engines. This DOE test program includes technical expertise from DOE’s National Renewable Energy Laboratory (NREL) and Oak Ridge National Laboratory.This preliminary report, the first in a series of peer-reviewed reports that will summarize the results of intermediate ethanol blends, provides results from testing E15 and E20 on 13 popular late-model vehicles and 28 small non-road engines, including lawn equipment and generators.Vehicle results include the following when E15 and E20 were compared with traditional gasoline:

•Tailpipe emissions were similar;
•Under normal operations, catalyst temperatures in the 13 cars were largely unchanged;
•When tested under full-throttle conditions, about half of the cars exhibited slightly increased catalyst temperatures with E15 and E20, compared to traditional gasoline; and,
•Based on informal observations during testing, drivability was unchanged.

Small non-road engine results include the following when E15 and E20 were compared with traditional gasoline:

•As ethanol content increased:
◦Regulated emissions generally stayed within allowed limits,
◦Engine and exhaust temperatures increased;
•Commercial engines, as well as larger non-handheld residential engines in this limited study, exhibited no particular sensitivity to ethanol from a durability perspective; and,
•The effect of E15 and E20 on the durability of smaller, less-expensive handheld residential engines was not clear.

The full intermediate blend report is now available.

U.S. Department of Energy, Office of Public Affairs, Washington, D.C.

We’ll Never Pump Enough Oil

2009-07-04T17:03:00.003-04:00

BY GAL LUFT
Miami Herald
June 13, 2009

This week America transitioned from analog to digital television broadcasts, ushering what could be described as an open standard for television. This means that consumers will have a choice between buying a digital set or signing up to cable or satellite service and keeping their old antenna by installing a signal-dumbing converter box which allows them to get analog signal.

Without the converter, an analog TV began showing snow on the screen starting as of Friday morning. Regardless of whether the shift is a good idea or not — it probably is as it allows better spectrum usage — it is sad commentary of our priorities as a society. Strategic as Congress may imagine television is in our lives, it is not nearly as important as transportation.

Yet, the same Congress that mandated consumer choice in television reception modes denies us choice in transportation fuels: our cars, trucks, ships and planes can run on nothing but petroleum.

Such choice at the pump is neither more difficult nor more costly to achieve than choice at the screen. In Brazil, more than 80 percent of the new cars are flex fuel vehicles capable of running on any combination of gasoline and alcohols like ethanol and methanol. To make a new car flex fuel costs an automaker an extra $100 or less.

All that is needed is a chip and corrosion resistant fuel line. To convert our television, Congress has already allocated nearly $2 billion in taxpayer money to provide $80 worth of coupons per household to subsidize conversion boxes. Brazilians may not have as sophisticated television system but they can choose among fuels.

Last year, when oil prices were at their three-digit level more alcohol was sold in Brazil than gasoline, and the Brazilian economy was hardly touched by the oil crisis. At the same time, with no such fuel choice Americans shelled out hundreds of billions of dollars for foreign oil, a monumental loss of national wealth that popped the mortgage bubble and brought the United States to the brink of economic collapse.

Brazil’s success story hasn’t escaped the eyes of our leaders. President Obama pledged numerous times to pass a law that would mandate flex-fuel engines in all automobiles in order to break oil’s virtual monopoly over transporation fuel. Secretary of Interior Ken Salazar, while still in the Senate, was the lead sponsor of legislation that would have ensured new cars sold in the United States offer fuel flexibility. Energy Secretary Steven Chu has also spoken on the merits of this policy. But judging from its recent actions Congress is not on board. What seems to be the signature energy legislation of the 111th Congress, the American Clean Energy and Security Act, (also known as the Waxman-Markey cap-and-trade bill) does almost nothing to break oil’s monopoly in transportation fuels and provide Americans the kind of choice they have in choosing a television set, a cup of coffee or any other consumer product.

A provision that could have made a difference, an Open Fuel Standard to ensure 50 percent of new cars are flexible-fuel capable of running on any blend of alcohol and gasoline was watered down to meaninglessness by the House Energy and Commerce Committee. Such a standard which could enable consumers to choose a fuel alternative at the pump next time gasoline prices rise to $5 a gallon was rejected by Chairman Henry Waxman due to pressure by the automakers.

The same distressed GM and Ford that, time after time, appeared before Congress asking for taxpayer money and promising that they would make 50 percent of their cars flex-fuel vehicles by 2012, ordered their lobbyists to scuttle any legislation that would require them to do just that.

Oil prices are rising, and pain will again be felt at the pump. Saudi Arabia’s oil minister Ali Naimi has recently predicted $150-a-barrel oil within three years.

Yet, as if nothing was learned from the previous oil shock of last summer, we continue to roll onto our roads 10 million new cars annually that can run on nothing but petroleum each with an average street life of 16 years. We are in for a shock, and when it comes we’ll again be able to view Americans’ vulnerability contrasted with Brazilians’ resiliency.

Only this time, we’ll be watching on our digital sets.

Gal Luft is executive director of the Institute for the Analysis of Global Security (IAGS). He is co-author of Energy Security Challenges for the 21st Century (2009).

Breaking Oil’s Monopoly in the Transportation Sector

2009-07-03T19:53:00.002-04:00

Breaking Oil’s Monopoly in the Transportation Sector
By Gal Luft
August 22, 2008

Ten years ago, Osama bin Laden set a target price for oil at $144 a barrel. At the time, crude oil prices stood at $12 a barrel and his figure, aimed to compensate the Muslims for what he called “the biggest theft in the history of the world,” sounded delusional.

Four years ago, just prior to the U.S. elections, when oil prices stood at $38, bin Laden explained his economic warfare strategy: “We bled Russia for ten years until it went bankrupt and forced to withdraw in defeat. We are continuing the same policy to make America bleed profusely to the point of bankruptcy.” Reputable energy analysis outfits held a completely opposite view on the future of oil. A 2005 report by Cambridge Energy Research Associates (CERA) held that by 2010 global oil supply would rise by as much as 16 million barrels per day (mbd). “We expect supply to outstrip demand growth in the next few years, which would take the pressure off prices around 2007-2008,” wrote the report’s authors. As we know, this never happened.

World oil production has been flat since 2005 and $144 might soon become a fond memory. Today, with oil prices above bin Laden’s stated goal, his economic warfare strategy seems like a resounding success. At a time al-Qaeda is on the run, $144 oil is a major morale booster and the best birthday present for its 20th anniversary next month. There is no need to elaborate on the implications of such a victory in terms of loss of U.S. prestige and our ability to prevail in the Long War of the 21st century. Furthermore, at current price level, the U.S. will spend over $600 billion on imported oil this year, more than our defense budget, and much of that money will flow into the coffers of those who wish us ill. It has long been clear that our oil dependence forces us to pay for both sides of the war on terrorism. In light of this year’s figures, we are paying the other side more than we invest in our own defense.

A cartel married to a monopoly
In order to chart the road to energy security, we must first understand why we are where we are. There are many reasons for the current oil crisis. Strong demand in developing Asia, speculation, geological decline, and malevolent disruptions have all contributed their share. But by far, the main culprit is OPEC’s reluctance to ramp up production. The cartel owns 78 percent of the world’s proven reserves and produces about 40 percent of its oil production. In 1973, OPEC produced 30mbd, while non-OPEC produced 25mbd. Today, OPEC produces 32mbd while non-OPEC production is close to 45mbd. In other words, OPEC today produces almost as much oil as it did 35 years ago while the world global demand for oil has nearly doubled.

Clearly it is not in OPEC’s interest to provide relief to the struggling global economy. The cartel enjoys a vertical monopoly of the world vehicle fuel supply, and it is currently at the receiving end of the biggest transfer of wealth in human history. To understand the magnitude of the forces in play it is instructive to visualize the scale of OPEC’s wealth in comparison to that of consuming countries: imagine that OPEC members are corporations and a barrel of oil is a share. At $125 oil, OPEC’s market capitalization based on its proven reserves stands today at roughly $137 trillion. This is roughly equivalent to the value of the world’s total financial assets--stocks, bonds, other equities, government and corporate debt and bank deposits--or roughly three times the market capitalization of all the companies traded in the world’s top 27 stock markets. Such monumental wealth potential will translate into unprecedented buying power for the oil countries. For demonstration sake, at $200 oil OPEC could potentially buy Bank of America in one month worth of production, Apple Computers in a week and General Motors in just 3 days. It would take less than two years of production for OPEC to own a 20 percent stake (which essentially ensures a voting block in most corporations) in every S&P 500 company.

OPEC’s reluctance to increase production is today the main factor contributing to global poverty. While we in the U.S., which enjoys a per capita income of over $40,000 a year, are feeling the sharp pinch of high oil prices, we should all consider the impact of these prices on the world’s poor. People throughout the world who live on $2 a day are being now looted by OPEC price fixing. This has profound implications for global security, driving regional unrest, increasing poverty, and nipping in the bud progress towards democracy.

Beware of perpetuation of the petroleum standard
The unique strategic importance of oil to the modern economy—beyond that of any other commodity today—stems from the fact that the global economy’s very enabler, the transportation sector, is utterly dependent on it, with 220 million cars and trucks in the United States alone (today, contrary to popular belief, only 2 percent of U.S. electricity is generated from oil, and conversely only about 2 percent of U.S. oil demand is due to electricity generation.) With 97 percent of U.S. transportation energy based on petroleum, oil is the lifeblood of America’s economy. America is poor in oil relative to its need. It consumes one of every four gallons in the world but has barely 3 percent of the world’s proven reserves of conventional oil. The United States now imports over 60 percent of its oil, more than twice the ratio of imports before the 1973–74 Arab oil embargo.

Neither efforts to expand petroleum supply nor those to crimp petroleum demand through increased CAFE standards will be enough to reduce America’s strategic vulnerability anytime soon. On the contrary, as the graph from OPEC’s own statistics shows, when we drill more, they drill less. Such policies at best buy us a few more years of complacency, while ensuring a much worse dependence down the road when America's conventional oil reserves are even more depleted.

Rather than focusing on solutions that perpetuate the petroleum standard, we should invest in transformational policies that aim to diminish the strategic importance of oil by breaking its monopoly in transportation.

Real energy security can be achieved only through fuel choice and competition. That competition cannot take place as long as we continue to put 16 million new cars that run only on petroleum on our roads every year, each with an average street life of 16.8 years -- thereby locking ourselves into decades more of petroleum dependence.

Barring a significant change, a senator elected in 2008 will witness the introduction of 102 million gasoline only cars during his or her 6-year term. I cannot think about something more detrimental to America’s security than Congress letting this happen.

When in a hole, stop digging
The first thing we must do is to ensure that the cars rolling onto America’s roads are platforms on which fuels can compete. For a cost of less than $100 extra as compared to a gasoline-only vehicle, automakers can make virtually any car a flex fuel vehicle, capable of running on any combination of gasoline and a variety of alcohols such as ethanol and methanol, made from a variety of feedstocks, from agricultural material, to waste, to coal. (Alcohol does not just mean ethanol, and ethanol does not just mean corn.) Flex fuel vehicles let consumers and the market choose the winning fuels and feedstocks based on economics. In Brazil, where ethanol is widely used, the share of flex fuel vehicles in new car sales rose from 4 percent to 90 percent in under five years. These cars are manufactured by the same automakers that sell to the U.S. market and entail no size, power, or safety compromise by consumers. The proliferation of flex fuel vehicles in Brazil has driven fuel competition at the pump to the point where the Brazilian oil industry has had to keep gasoline prices sufficiently low to compete with ethanol in order not to lose more market share, so low that it actually just received a government subsidy to do so. Indeed, in Brazil, ethanol will become this year an alternative fuel.

Expanding U.S. fuel choice to include biofuels imported from developing countries has significant geopolitical benefits at a time when U.S. global standing is eroding. Sugar, from which ethanol can be cheaply and efficiently produced, is now grown in one hundred countries, many of which are poor and on the receiving end of U.S. development aid. Encouraging these countries to increase their output and become fuel suppliers, opening our fuel market to them by removing the protectionist 54 cent a gallon ethanol tariff, could have far-reaching implications for their economic development. By creating economic interdependence with biomass-producing countries in Africa, Asia, and the Western Hemisphere, the United States can strengthen its position in the developing world and provide significant help in reducing poverty.

At this point, the fallacy that increased use of biofuels in general, and corn ethanol in particular, is driving world hunger must be addressed. The primary drivers of price increases for food commodities spanning the spectrum from fish to rice (neither of which are used to make fuel) and beyond are the massive increases in oil prices -- raising the cost of distribution, labor, packaging and so forth; commodity speculation driven by a weak dollar and increased calorie demand from hundreds of millions of people in China and India who have risen out of poverty and bare subsistence. Further, despite corn ethanol production, the U.S. corn food and feed product has increased 34 percent over the last five years, and U.S. food exports overall have increased 23 percent on the year. America is clearly doing its share to feed the world.

Furthermore, the International Energy Agency has reiterated that biofuels are key to keeping the lid on an overheated transportation fuel market. According to Merrill Lynch, without the increase in biofuels production, oil prices would have been 15 percent higher, which at current oil prices translates into a savings of over $80 billion a year to the U.S. economy. The much derided biofuels program which has facilitated this $80 billion saving, costs the taxpayer $4 billion a year. By any reasonable standard it is a far better deal to send money to America’s farmers than to various petro-dictators.

Methanol
True flex fuel cars should also accommodate another important fuel called methanol. China has embraced this alcohol fuel. Several provinces in China already blend their gasoline with methanol and scores of methanol plants are currently under construction there. The Chinese auto industry has already begun to produce flex-fuel models that can run on methanol. Methanol packs less energy per gallon and is more corrosive than ethanol. But it is cheaper and far easier to produce in bulk. While ethanol can be made only from agricultural products such as corn and sugar cane, methanol can be made from agricultural waste, natural gas, coal, industrial garbage and even recycled carbon dioxide captured from power stations' smokestacks -- an elegant way to reduce greenhouse gas emissions.

Electricity
Since we hardly generate any electricity from oil, using electricity as a transportation fuel enables the full spectrum of electricity sources to compete with petroleum. Plug in hybrid electric vehicles (PHEVs) can reach oil economy levels of 100 miles per gallon of gasoline without compromising the size, safety, or power of a vehicle. If a PHEV is also a flexiblefuel vehicle powered by 85 percent alcohol and 15 percent gasoline, oil economy could reach over 500 miles per gallon of gasoline. Ideally, plug-in hybrids would be charged at night in home or apartment garages, when electric utilities have significant reserve capacity. The Department of Energy estimates that over 70 percent of the U.S. vehicle market could shift to plug-in hybrids without needing to install additional baseload electricity-generating capacity. In addition, the U.S. is the world’s biggest potential market for electric cars which can be sold as second or third family car. Thirty one percent of America’s households own two cars and additional 35% own three or more vehicles. There are over 75 million households in the US that own more than one vehicle and that can potentially replace one or more gasoline only cars with cars powered with made-in-America electricity.

A nationwide deployment of flex-fuel cars, flex fuel plug-in hybrids, and alternative fuels could take place within two decades. But such a transformation will not occur by itself. Every year that passes without Congressional action to ensure that new cars sold in America are flex fuel vehicles is another year in which 16 million gasoline-only cars start their 17-year life on U.S. roads, further binding us to foreign oil. On the grounds of national security and in the interest of stemming the hemorrhaging of our economy, Congress should take swift action to require that new vehicles sold in the United States are flexible fuel vehicles through an Open Fuel Standard. Such an Open Fuel Standard would level the playing field and promote free competition among diverse energy suppliers. A few years ago Congress passed an open standard for television mandating that as of February 2009 every television sold in the U.S. must be digital enabled. Further, Congress allocated coupons in the amount of $80 per household to allow Americans to convert their analog TV to digital transmission. One would hope we consider our transportation sector at least as strategic as television watching.

I realize that many are opposed to any government interference in the market. Indeed, in a perfect world, government would not need to intervene in the energy market, but in a time of war, the United States is taking an unacceptable risk by leaving the problem to be solved by the invisible hand. This is especially true since the energy market is anything but free. It is manipulated by a cartel, heavily rigged in favor of the status quo, and, as the case of the ethanol tariff shows, riddled with protectionism.

Choosing not to embrace an Open Fuel Standard, is choosing to preserve oil’s monopoly in the transportation sector, and with it OPEC’s growing stranglehold over the global economy and in essence guaranteeing continuous economic and strategic decline.

Gal Luft is the Executive Director of the Institute for the Analysis of Global Security (IAGS) and Co-Founder of the Set America Free Coalition.

Some Fear Biofuel Production Will Dry Up Water Supplies

2009-07-03T19:32:00.001-04:00

Some Fear Biofuel Production Will Dry Up Water Supplies
www.redorbit.com
April 14, 2009

As corn farmers in the U.S. begin readying their crops, many critics claim that increased pressure to produce large portions of crops for biofuels is robbing the public’s water resources.

Kansas corn farmer Merl “Buck” Rexford told Reuters he hopes to produce more than 150 bushels an acre with this year’s crop. Like many American corn farmers, a large portion of Rexford’s crop will go to an ethanol production plant.

Backers of biofuels like corn-based ethanol say it reduces dangerous greenhouse gas emissions, which have been linked to global warming, and it is a valuable substitute that will lead the nation in a direction away from dependence on foreign oil.

“We really have to ask ourselves, do we want to be driving with renewable fuels or with gasoline made from petroleum resources,” Brent Erickson, executive vice president at the Biotechnology Industry Organization, which backs ethanol, told Reuters.

But critics say increased biofuel production is coming at a high cost for Americans, as increased demand for biofuels is leading to a larger demand for water.

Additionally, it takes a substantial amount of energy to create corn-based ethanol, which could prove to be counterproductive, critics claim.

“Biofuels are off the charts in water consumption. We’re definitely looking at something where the cure may be worse than the disease,” said Brooke Barton, a manager of corporate accountability for CERES, a group backed by institutional investors focused on the financial risks of climate change.

According to Reuters, corn plants require about 20 inches of soil moisture per acre to grow a good crop, but most farmers rely on rain rather than irrigation. Manufacturing plants that convert corn’s starch into fuel have a larger thirst for public water supplies.

A typical plant uses about 4.2 gallons of water to make one gallon of ethanol, according to the Institute for Agriculture and Trade Policy. That’s about 3 gallons of water for every one gallon of fuel, according to the ethanol industry.

As legislators continue to push for the use of ethanol and federal mandates are being put in place, many groups are voicing their concerns that population growth and increased demand for energy will lead to a global drought.

“We’re headed in the wrong direction and this problem is not going away,” Mark Muller, program director at the Institute for Agriculture and Trade Policy, told Reuters.

“This water issue is like the financial crisis… and I’m afraid something awful is going to happen.”

“Water use could be a limiting factor (for ethanol) if we don’t introduce and support more water-saving technologies, ” added the Institute’s Jim Kleinschmit.

Those in support of ethanol will not deny the large amount of water that goes into production, but they claim that the corn crop relies primarily on rain rather than ground water.

In January 2009, there were 170 ethanol plants operating in the United States and 24 more new or expanding plants, according to Reuters.

Freshwater demand for consumption is expected to increase 25 percent by 2030 globally as the world population expands from 6.6 billion to about 8 billion and more than 9 billion in 2050, according to Ceres.

___________

On the Net:
•CERES
•Biotechnology Industry Organization
•Institute for Agriculture and Trade Policy
___________

About Renergie
Renergie was formed by Ms. Meaghan M. Donovan on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten ethanol plants in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita. Each ethanol plant will have a production capacity of five million gallons per year (5 MGY) of fuel-grade ethanol. Renergie’s “field-to-pump” strategy is to produce non-corn ethanol locally and directly market non-corn ethanol locally. On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida Department of Environmental Protection’s Renewable Energy Technologies Grants Program. Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice. On April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector. On January 20, 2009, Florida Energy & Climate Commission amended RET Grant Agreement S0386 to increase Renergie’s funding from $1,500,483 to $2,500,000. By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is renewable, more economical, cleaner, and more efficient than unleaded gasoline. Moreover, the Renergie project will mark the first time that Louisiana farmers will share in the profits realized from the sale of value-added products made from their crops.

Don’t Sink Energy Independence by Crimping Biofuels

2009-07-03T19:27:00.001-04:00

Don’t Sink Energy Independence by Crimping Biofuels
By Gal Luft
The Detroit News
April 20, 2009

This week, the California Air Resources Board, or CARB — the same agency that only five years ago gained notoriety for its role in “killing” the electric car — could be in a position to deliver another crippling blow to the United States’ effort to achieve energy independence.

As part of California’s strategy to reduce greenhouse gas emissions from transportation fuels, CARB is pushing for the enactment of a low-carbon fuel standard, or LCFS, that aims to regulate the emissions level of petroleum refiners, biofuels producers and others that produce or import the transportation fuels used in California. The credit or penalty would be assessed according to both the direct and indirect greenhouse gas emissions associated with each of the steps in the fuel’s life cycle, including production, transport and tailpipe emissions.

Such “cradle to grave” accounting sounds logical only if it allows all fuels to compete on an equal footing. But this is what the fuel standard in its current version fails to do.

At a time when the U.S. is charting its way out of its debilitating — and growing — oil dependence, CARB’s plan puts biofuels at a comparative disadvantage against petroleum. It does so by requiring that indirect greenhouse gas-emitting activities, such as deforestation and plowing up grasslands — which are often associated with increased use of biofuels — be considered, while failing to account for indirect carbon-emitting activities related to petroleum production. CARB’s explanation: “No other significant indirect effects that result in large greenhouse gas emissions have been identified.”

That statement may be true for roughly half of California’s oil, which is either drilled in the state or imported from Alaska, but certainly not for the half coming from distant places such as Saudi Arabia, Iraq or Colombia. Some of the direct carbon-intensive activities that CARB’s staff prefer to ignore are: pumping seawater into the wells of Saudi Arabia to increase reservoir pressure, transporting the crude to processing facilities where sulfur and other impurities are removed, and powering a tanker during a long voyage across two oceans.

But what makes their model truly discriminatory is the failure to account for the environmental impact of indirect activities, such as the military operations related to our oil use. The jets, tanks, ships and Humvees patrolling the Persian Gulf or used by the Special Forces protecting the oil pipelines in Colombia don’t run on vegetable oil, and the electricity powering military bases dedicated to protecting our access to oil is not made in wind farms. Ignoring those factors while speculating about the role of deforestation (much deforestation has nothing to do with biofuels but with the logging industry) is intellectually dishonest.

Recent studies have shown that the amount of fossil fuel needed to make gasoline is nearly twice the amount needed for corn ethanol production and more than 10 times that for cellulosic ethanol (made from switchgrass and other non-food plants). Further, there is a net reduction in greenhouse gas emissions as a result of using ethanol as fuel. The Argonne National Laboratory found that, on a per-gallon basis, even the most inefficient form of biofuel — corn ethanol — reduces greenhouse gas emissions by 18 percent to 29 percent compared with gasoline; sugar-cane ethanol reduces emissions by 56 percent, and cellulosic ethanol has an even greater benefit with a more than 80 percent reduction.

A 2009 report commissioned by the International Energy Agency reached similar conclusions. Despite these clear benefits to the environment, CARB is bent on singling out biofuels as enemies of the planet.

Putting aside the bureaucratic nightmare the state of California would have to endure in analyzing the carbon footprint of each step in the pathway for each gallon of fuel sold in the state, the indirect carbon accounting could have a chilling effect on new investment and the development of new technologies — all at a time when the nascent biofuels industry is already challenged by the economic downturn. This is all too unfortunate because scientific advancement is exactly what is needed to advance biofuels from corn to ultra-low carbon sources such as switchgrass, forestry residues, urban waste or algae.

The proposed standard is not simply a scientific or environmental issue. It is a matter of national security, which is threatened by our reliance on oil. With hundreds of billions of dollars leaving our economy annually to finance our oil dependence, it is also a matter of economic security.

It is often the case that as California goes, so goes the country. Gov. Arnold Schwarzenegger should realize that implementing the fuel standard as proposed would only cement oil’s virtual monopoly in the transportation sector and dial back the progress made toward energy independence.

Gal Luft, executive director of the Institute for the Analysis of Global Security and co-founder of the Set America Free Coalition, is a coauthor of “Energy Security Challenges for the 21st Century” and “Turning Oil into Salt: How Breaking the Oil Monopoly Can Make Us Prosper Again.” Originally published in the Los Angeles Times.

About Renergie
Renergie was formed by Ms. Meaghan M. Donovan on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten ethanol plants in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita. Each ethanol plant will have a production capacity of five million gallons per year (5 MGY) of fuel-grade ethanol. Renergie’s “field-to-pump” strategy is to produce non-corn ethanol locally and directly market non-corn ethanol locally. On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida Department of Environmental Protection’s Renewable Energy Technologies Grants Program. Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice. On April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector. On January 20, 2009, Florida Energy & Climate Commission amended RET Grant Agreement S0386 to increase Renergie’s funding from $1,500,483 to $2,500,000. By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is renewable, more economical, cleaner, and more efficient than unleaded gasoline. Moreover, the Renergie project will mark the first time that Louisiana farmers will share in the profits realized from the sale of value-added products made from their crops.

Biofuel Production And Water Scarcity: A Drink-Or-Drive Issue?

2009-07-03T19:22:00.001-04:00

Biofuel Production And Water Scarcity: A Drink-Or-Drive Issue?

ScienceDaily (May 11, 2009) — Federal requirements to increase the production of ethanol has developed into a “drink-or-drive issue” in the Midwest as a result of biofuel production’s impact on water supplies and water quality, says an environmental engineering researcher at Missouri University of Science and Technology in the latest issue of the journal Environmental Science & Technology.

In an analysis of the water required to produce ethanol from various crops, Dr. Joel G. Burken, a professor of environmental engineering at Missouri S&T, and colleagues from Rice University and Clarkson University find that ethanol could become a costly proposition in terms of “gallons per mile” and other water quality issues. They describe the Midwest’s water needs and impacts as the ’water footprint’ in their cover feature for the May 1 issue of Environmental Science & Technology.

The researchers report that ethanol derived from corn grown in Nebraska, for example, would require 50 gallons of water per mile driven, when all the water needed in irrigation of crops and processing into ethanol is considered. Fuel derived from irrigated sorghum grown in that state would require even more water to produce – as much as 115 gallons per mile.

Moreover, increasing production of biofuels from row crops will likely result in more water pollution due to soil erosion and the increased use of pesticides to grow enough crops to meet federal mandates for more ethanol, the researchers say. The mandated production using the current technology has driven the use of ethanol production from corn and biodiesel from soybeans as these are the currently available technologies.

In their Environmental Science & Technology article, the researchers suggest that federal regulators take a closer look at how a push for bioenergy will affect water resources.

“Developing a sustainable national biofuels program requires careful consideration of logistical concerns … and of unintended environmental impacts,” write Burken and his co-authors, Rosa Dominguez-Faus and Dr. Pedro J. Alvarez of Rice University and Dr. Susan E. Powers of Clarkson University, in their article, “The Water Footprint of Biofuels: A Drink or Drive Issue?”

To arrive at their gallons-per-mile figures, the researchers first looked at the amount of water required to produce a single gallon of ethanol. In Nebraska, for example, it takes 800 gallons of water – from crop irrigation through final processing into ethanol – to create a single gallon of the corn-derived transportation fuel. Divide that by an average mileage of 16 miles per gallon (or two-thirds the average for gasoline-powered cars, a standard average for ethanol-powered vehicles), and the result is 50 gallons of water per mile.

While previous studies have examined biofuel production’s impact on air quality, land use and net energy value, “the effect of increased biofuel production on water security has not been subjected to the same scrutiny,” the researchers write. The main focus of previous studies looked at environmental trade-offs to fossil-fuel usage and not other aspects of biofuel production, according to the researchers.

“The overall water footprint associated with biofuels must recognize the impact of increased agricultural activity on water quality as well as water consumption,” they write. With the federal Energy Independence and Security Act (EISA) of 2007 calling for a dramatic ramp-up in ethanol production by 2015, Burken and his colleagues foresee additional water quality problems due to “increased agricultural activity such as tilling more land for row crops and higher fertilizer and agrichemical application.”

The Energy Independence and Security Act requires the United States to produce 15 billion gallons of corn-derived ethanol annually by 2015 and 16 billion gallons of fuel from cellulosic crops, such as switchgrass, by 2016. The researchers note that 44 percent of all the corn produced in the United States from 2007 would be required for ethanol production to meet the 2015 goal.

“The decision to mandate ethanol production may look great initially as we all like the concept of biofuels,” Burken says, “but really our difficult energy position and reliance on foreign oil is the result of our lack of an energy policy and investing a decade ago in biofuel technologies. Biofuel production is part of our energy future, but it needs to be considered as part of a portfolio of energy sources and technologies.”

While it’s unlikely the EISA will be repealed, Burken hopes lawmakers and regulators at the state and federal levels “consider a life-cycle analysis before implementing future mandates” for energy sources. Lawmakers and regulators need to consider all of the economic and environmental trade-offs – not just reducing greenhouse gas emissions, for instance. “Otherwise, we may be thinking we’re addressing one environmental issue while in fact sacrificing another,” Burken says.

Burken and his colleagues suggest that “drought-tolerant, high-yield plants grown on little irrigation water” would have less impact on water resources. One such crop, Burken says, is miscanthus, a fast-growing perennial grass that “grows so dense you can’t walk through it and grows about 9-10 feet a year.” Currently, however, no technology is available to convert the cellulosic biomass and produce it in large quantities. Once alternative biofuel production crops and processes are developed, selecting the best crop for individual settings will help to optimize biofuel production and minimize the environmental impacts of the production, Burken says.

“Developing the crops and distribution of crop production took about 100 years to get to where it was a few years ago,” Burken says. “Redeveloping this production with the goal of biofuel production will take time and effort of farmers and engineers. While miscanthus may or may not be a part of our biofuels future, we at least need a little time and investment to develop the best solutions for our future.”

Quoting Texas oilman T. Boone Pickens, whom Burken met on April 22 during the Missouri Energy Summit, Burken says, “The best time to plant a tree was 20 years ago, but the next best time if you didn’t is today.”

--------------------------------------------------------------------------------
Journal reference:

1.Dominguez-Faus et al. The Water Footprint of Biofuels: A Drink or Drive Issue? Environmental Science & Technology, 2009; 43 (9): 3005 DOI: 10.1021/es802162x

Missouri University of Science and Technology (2009, May 11). Biofuel Production And Water Scarcity: A Drink-Or-Drive Issue?. ScienceDaily. Retrieved May 11, 2009, from http://www.sciencedaily.com /releases/2009/05/090501204627.htm

House Climate Bill Wouldn’t Cut U.S. Oil Dependence Much

2009-07-03T17:41:00.001-04:00

Climate Bill Wouldn’t Cut U.S. Oil Dependence Much
By Renee Schoof
McClatchy Newspapers
July 3, 2009

WASHINGTON — Despite its title as the “American Clean Energy and Security Act,” the energy and climate bill that the House of Representatives passed recently takes only a modest step toward reducing U.S. dependence on foreign oil.

Two studies project that the legislation would cut oil use in the future, but not enough to make much of a dent in dependence on oil from unstable or unfriendly foreign suppliers. Some experts say that other steps will be needed to cut U.S. oil use significantly.

The nonprofit American Council for an Energy-Efficient Economy examined the bill’s efficiency provisions and concluded that they would save 1.4 million barrels of oil per day in 2030. That’s roughly 10% of the projected use of 14.3 million barrels a day in that year, according to the government’s Energy Information Administration.

The Environmental Protection Agency put the oil savings at 700,000 barrels a day by 2030. The EPA looked mainly at the bill’s terms that would put a declining cap on the amount of emissions of heat-trapping gases allowed each year and create a pollution-permit trading system.

EPA’s analysis showed only a modest decrease because the bill would have little impact on the price of gasoline — and thus little impact on people’s driving behavior and choice of cars. EPA estimated that gasoline prices would go up about 25 cents a gallon in 2030 as a result of the bill.

EPA also projected that U.S. oil use would hold fairly steady from now to 2050.

The House-passed climate legislation focuses primarily on electricity generation. Its backers said they sought the quickest and cheapest ways to bring down U.S. emissions to 83% below 2005 levels by 2050.

U.S. electricity generation is half from coal and the rest mostly from nuclear energy, hydro and renewable energy. Only about 2% is from oil.

House Speaker Nancy Pelosi’s office said that the bill, when combined with the 2007 energy bill and the president’s fuel efficiency plan, would cut the use of oil by 5 million barrels a day in 2030.

The Rocky Mountain Institute, a nonprofit energy policy center, has argued that the climate bill would help establish clean sources of electricity, but wouldn’t solve the problem of U.S. oil dependence.

Amory Lovins, an energy expert who leads RMI, said he didn’t object to the House bill’s focus on climate, but he argued that other policies are needed to break dependence on oil. And a reduction of oil use would sharply reduce greenhouse gas emissions, he added.

“We just want to make sure the policy apparatus can walk and chew gum at the same time — that by focusing on climate, which is an urgent issue, it does not delay similarly urgent consideration of breaking oil dependence,” he said.

Lovins argues that energy efficiency and greater use of natural gas and biofuels not related to food could displace much U.S. oil use.

A move away from oil could be sped up with policies like “feebates” for cars: People who buy inefficient cars would pay a fee, and those who buy more efficient ones would get a rebate. Lovins said such a program in France has been a “stunning success” in getting people to buy fuel-efficient cars.

The Obama administration has shifted U.S. energy policy’s emphasis to efficiency and renewable energy “to a much greater extent than we’ve seen previously,” Lovins added. “I think that ultimately will bear fruit for getting us off oil as well as reducing carbon emissions. But this does take a more specific focus on oil dependence than what we’ve gotten in the climate bill.”

A gathering of energy, security and environmental experts brought together by RMI and the Brookings Institution in December produced some consensus ideas for how to cut U.S. oil use.

They said that the United States should reduce the use of cars through increased funding for public transit and other measures; increase the fuel-efficiency of cars; reduce the amount of fuel needed to move freight; and encourage development of alternative sources of energy for transportation.

Anne Korin of Set America Free, an alliance that promotes ways to reduce dependence on foreign oil, argued that the climate bill does very little to increase energy security. She argues that Congress should require all new cars to be equipped to run on ethanol as a way to help break the near total dependence of U.S. transportation on oil.

A recent report by Environment America, an advocacy group, tallied the costs of continued U.S. dependence on oil and other fossil fuels.

The report, based on an analysis of government energy data, found that by 2030, the United States is expected to spend $360 billion more per year on fossil fuels than the $921 billion it spent in 2006. If oil prices rise, the spending increase could soar to $750 billion more per year, the group estimated.

More than 70% of fossil fuel spending each year is for oil, and oil prices are expected to rise much more than coal prices.

“The United States cannot afford to wait to break our dependence on fossil fuels,” the report concluded. “The cost of fossil fuels to our economy and our environment will continue to mount in the years to come unless the nation takes bold steps now to embrace the benefits of a clean energy future.”

Why the Ethanol Import Tariff Should be Repealed

2009-07-03T17:15:00.001-04:00

Repeal Would Enable Ethanol Demand to Move Beyond Being Just a Blending Component in Gasoline to a Truer Transportation Fuel Alternative
By Brian J. Donovan
Renergie, Inc.

Gainesville, FL (August 3, 2008) – The question is whether the 54 cents per gallon tariff the United States places on imported ethanol should be eliminated when:

(a) U.S. farm acreage is being diverted from the production of food crops to energy crops and record high corn prices are impacting the agriculture, food and beverage industries;

(b) American families and businesses are paying record high prices for fuel;

(c) U.S. oil companies are using ethanol merely as a blending component in gasoline rather than a true alternative transportation fuel;

(d) The renewable fuels standard (“RFS”) requires that gasoline sold in the United States contains a renewable fuel, such as ethanol, and the expanded RFS specifically requires the use of an increasing amount of “advanced biofuels” – biofuels produced from feedstocks other than corn; and

(e) U.S. oil companies, due to a loophole in the Caribbean Basin Initiative, are currently allowed to import thousands of barrels of ethanol every month without having to pay the 54 cents per gallon tariff.

The Ethanol Import Tariff of 1980
Since 1978, in order to stimulate an increase in U.S. ethanol production and consumption, producers of ethanol-blended gasoline have received a subsidy, or tax credit. This incentive, known as the Blender’s Tax Credit, is currently valued at 51 cents per gallon of pure ethanol used in blending.

Ethanol imported into the United States is subject to two customs duties: an ad valorem tariff rate of 2.5 percent and a secondary tariff of 54 cents per gallon. The Ethanol Import Tariff of 1980 imposed the 54 cents per gallon tariff on imported ethanol. A key motivation for the establishment of the tariff on imported ethanol was to offset the Blender’s Tax Credit incentive for ethanol-blended gasoline. Unless imports enter the United States duty-free, the tariff effectively negates the incentive for those imports.

Food Prices
Corn is used as the feedstock for approximately 98% of the ethanol produced in the United States. Brazil uses sugarcane as a feedstock, while China is focusing on using cassava and sweet potatoes as feedstocks for ethanol production. USDA estimates that 3.2 billion bushels of corn (or 24% of the 2007 corn crop) will be used to produce ethanol during the September 2007 to August 2008 corn marketing year. In January, 2002, the price for a bushel of corn was $1.98. In July, 2008, the price for a bushel of corn was $5.61.

Corn is a significant ingredient for meat, dairy, and egg production. However, while increased ethanol production is partially responsible for the increase in corn prices, the real factors driving up retail food prices are: rising demand for processed foods and meat in emerging markets such as China and India; droughts and adverse weather around the world; commodity market speculation; export restrictions by many exporting countries to reduce domestic food price inflation; the declining value of the dollar; and skyrocketing oil prices.

Record high prices for diesel fuel, gasoline, natural gas, and other forms of energy affect costs throughout the food production and marketing chain. Higher energy prices increase producers’ expenditures for fertilizer and fuel, driving up farm production costs and reducing the incentive for farmers to expand production in the face of record high prices. Higher energy prices also increase food processing, marketing, and retailing costs. In 2005, the most recent year for which data are available, direct energy costs and transportation costs accounted for roughly 8 percent of retail food costs. These higher costs, especially if maintained over a long period, tend to be passed on to consumers in the form of higher retail prices.

Increased demand for farm commodities could outstrip existing production capabilities, straining food supplies and boosting prices. Moreover, population growth and rising incomes are altering global food consumption patterns and boosting the demand for food, further supporting higher prices. Demand for bio-fuels, especially in the United States, has led to a decline in corn inventories, despite a record corn crop. This increase in U.S. corn acres limited the production of other crops.

Historically, food prices have surged during times of higher crude oil prices. Moreover, research shows that energy prices are quickly passed through to higher retail food prices, with retail prices rising 0.52 percent in the short-term for every 1 percent rise in energy prices. As a result, a 10 percent gain in energy prices could contribute 5.2 percent to retail food prices.

Fuel Prices
Gasoline is one of the major fuels consumed in the United States and the main product refined from crude oil. Consumption in 2007 was about 142 billion gallons, an average of about 390 million gallons per day and the equivalent of about 61% of all the energy used for transportation, 44% of all petroleum consumption, and 17% of total U.S. energy consumption.

In January, 2002, the price of oil was US$18.68 per barrel. As of the date of this article, the price of oil is US$125.10 per barrel. In January, 2002, the average U.S. retail price for a gallon of regular grade gasoline was US$1.11. As of the date of this article, the price for a gallon of regular grade gasoline is US$3.96.

The price of crude oil is set through the interaction of world demand and supply. The following factors are driving up crude oil and gasoline prices: (a) increased world demand for crude oil as witnessed by the sharp increase in imported crude oil by China and India; (b) instability in oil-producing regions, including Iraq and Nigeria’s delta region; (c) limited U.S. refinery capacity to supply gasoline; (d) a decline in the value of the dollar compared to other currencies has increased the dollar price of oil on futures markets; (e) the continuing possibility of a supply disruption from natural disasters like Hurricanes Katrina and Rita in 2005; (f) speculators, who have entered the commodity markets in large numbers looking for ways to increase their monetary investments rather than to trade in oil and oil products, are causing an unacceptable upward pressure on prices; and (g) governments in developing countries are subsidizing energy, blunting the incentive to conserve by keeping prices low. China is expected to spend about $40 billion this year in subsidies. Venezuela and Egypt are forecast to spend more than 5 percent of their total economic output on subsidies this year. As a result, while demand for oil in the developed world is expected to fall about 1 percent this year, consumption in emerging and developing countries is forecast to rise 3 percent, according to estimates by I.M.F. economists.

World demand for crude oil grew by 1.3% in 2007 to 86.0 mbd. It is forecast to grow by 1.5% to 87.3 mbd in 2008. World supply was 87.3 mbd in March 2008, leaving relatively little excess supply to draw on if the market were disrupted by natural or political disasters. When excess supply on the market is low, prices tend to rise and become more volatile.

Higher prices for crude oil tend to translate directly into higher prices for gasoline. Currently, crude oil accounts for about 72% of the cost of gasoline. Refining, distributing, and marketing account for about 16% of the cost of gasoline, and taxes account for about 13%. However, until recently crude oil’s share of the cost of gasoline has been more typically in the range of 45% to 55%. In May 2007, for example, with gasoline at $3.15 per gallon, crude oil contributed 46% of the cost; refining, distributing and marketing 41%; and taxes 13%.

On July 31, 2008, Exxon Mobil Corp. reported second-quarter earnings of $11.68 billion, the biggest quarterly profit ever by any U.S. corporation. On August 1, 2008, Chevron reported record oil prices drove second-quarter earnings up 11 percent to $5.98 billion, its highest-ever profit.

Imported petroleum does not pay a tariff, yet clean, renewable ethanol from our own hemisphere is assessed a 54 cent-per-gallon tariff.

Lack of Ethanol Infrastructure
U.S. oil companies are using ethanol merely as a blending component in gasoline (in the form of E10) rather than a true alternative transportation fuel. There is not an oversupply of ethanol. The major obstacle to widespread ethanol usage continues to be the lack of fueling infrastructure. Only 1,528 of the nearly 180,000 (or 8/10 of 1%) retail gasoline stations in the United States offer E85. These E85 fueling stations are located primarily in the Midwest.

While alleging an oversupply of corn ethanol, U.S. oil companies still import thousands of barrels of ethanol from foreign sources every month without having to pay the 54 cents per gallon import tariff. Can ethanol provide any relief at the pump to the U.S. driving public? Renergie, Inc. believes that ethanol can significantly lower the pump price if it is produced from a non-corn feedstock and marketed directly by the producer as E85. Ethanol must compete against, rather than be an inexpensive blending component in, gasoline.

Renergie’s “field-to-pump” strategy is to produce ethanol locally and market ethanol locally. The day of building 100 MGY corn-to-ethanol plants in the Midwest corn belt, for the sale of E10 to consumers on the U.S. East Coast and West Coast, is over! Renergie is focusing its efforts on locally growing ethanol demand beyond the 10% blend market. Initially, Renergie will directly market E85, a blend of 85 percent ethanol and 15 percent gasoline for use in FFVs, to local fuel retailers under the brand Renergie E85. Renergie’s unique strategy is to blend fuel-grade ethanol with gasoline at the gas station pump. Currently, ethanol providers blend E10 and E85 at their blending terminal and transport the already blended product to retail gas stations. Once state approval is received, Renergie’s variable blending pumps will be able to offer the consumer a choice of E10, E20, E30 and E85. A recent study, cosponsored by the U.S. Department of Energy and the American Coalition for Ethanol, found E20 and E30 ethanol blends outperform unleaded gasoline in fuel economy tests for certain autos. Via capturing the Blender’s Tax Credit, Renergie will be able to ensure that gas station owners are adequately compensated for each gallon of fuel-grade ethanol that is sold via Renergie’s variable blending pumps at their gas stations.

Renergie will further grow ethanol demand beyond the 10% blend market by being the first company to test hydrous ethanol blends in the U.S. As provided for in Act No. 382, the use of hydrous ethanol blends of E10, E20, E30, and E85 in motor vehicles specifically selected by Renergie for test purposes will be permitted on a trial basis in Louisiana until January 1, 2012. The hydrous blends will be tested for blend optimization with respect to fuel consumption and engine emissions. Preliminary tests conducted in Europe have proven that the use of hydrous ethanol, which eliminates the need for the hydrous-to-anhydrous dehydration processing step, results in an energy savings of between ten percent and forty-five percent during processing, a four percent product volume increase, higher mileage per gallon, a cleaner engine interior, and a reduction in greenhouse gas emissions.

Imported ethanol is especially important for coastal states since almost all domestic ethanol is produced in the Midwest and is costly to transport because it cannot be moved through a pipeline. Elimination of the ethanol import tariff would provide the U.S. with sufficient ethanol to: (a) move ethanol demand beyond being just a blending component in gasoline to a truer transportation fuel alternative; and (b) create the required fueling infrastructure.

Renewable Fuels Standard (“RFS”)
The Energy Policy Act of 2005 established the Renewable Fuels Standard (“RFS”) which directs that gasoline sold in the U.S. contain specified minimum volumes of renewable fuel. The Energy Independence and Security Act of 2007 (“H.R. 6”), which became law on December 19, 2007, sets a new RFS that starts at 9.0 billion gallons of renewable fuel in 2008 and rises to 36 billion gallons by 2022. Of the latter total, 21 billion gallons of renewable fuel in U.S. transportation fuel is required to be obtained from advanced biofuels. The term “advanced biofuel” means renewable fuel, other than ethanol derived from corn. Brazil uses sugarcane as a feedstock for its ethanol production.

The CBI Loophole
U.S. oil companies, due to a loophole in the Caribbean Basin Initiative (“CBI”), are currently allowed to import thousands of barrels of ethanol every month without having to pay the 54 cents per gallon tariff.

The CBI was established in 1983 to promote a stable political and economic climate in the Caribbean region. The CBI allows the imports of most products, including ethanol, duty-free. While many of these products are produced in CBI countries, ethanol entering the United States under the CBI is generally produced elsewhere and reprocessed in CBI countries for export to the United States. The U.S.-Central America Free Trade Agreement (CAFTA) would maintain this duty-free treatment and set specific allocations for imports from Costa Rica and El Salvador.

Duty-free treatment of CBI ethanol has raised concerns, especially as the market for ethanol has the potential for dramatic expansion under P.L. 109-58 and P.L. 110-140. In the United States, fuel ethanol is largely domestically produced. A value-added product of agricultural commodities, mainly corn, it is used primarily as a gasoline additive. To promote its use, ethanol-blended gasoline is granted a significant tax incentive. However, this incentive does not recognize point of origin, and there is a duty on most imported fuel ethanol to offset the exemption. But a limited amount of ethanol may be imported under the CBI duty-free, even if most of the steps in the production process were completed in other countries. This duty-free import of ethanol has raised concerns, especially as U.S. demand for ethanol has been growing. Further, duty-free imports from these countries, especially Costa Rica and El Salvador, have played a role in the development of the U.S.-Central America Free Trade Agreement (CAFTA).

The main steps to ethanol production in the U.S. are as follows:

a. The feedstock (e.g., corn) is processed to separate fermentable sugars.

b. Yeast is added to ferment the sugars.

c. The resulting alcohol is distilled.

d. Finally, the distilled alcohol is dehydrated to remove any remaining water.

This final step – dehydration – is at the heart of the issue over ethanol imports from the CBI, as discussed below.

According to the United States International Trade Commission, the majority of all fuel ethanol imports to the United States came through CBI countries between 1999 and 2003. In 2004, imports from Brazil to the United States grew dramatically, but in 2005, CBI imports again represented more than half of all U.S. ethanol imports. With an increase in ethanol demand in 2006 due to voluntary elimination of MTBE – a competitor for ethanol in gasoline blending – imports grew dramatically, roughly quadrupling imports in any previous year. Most of this increase was in direct imports from Brazil. Historically, imports have played a relatively small role in the U.S. ethanol market. Total ethanol consumption in 2005 was approximately 3.9 billion gallons, whereas imports totaled 135 million gallons, or about 4%. Imports from the CBI totaled approximately 2.6%. In 2006, total imports represented roughly 13% of the 5.0 billion gallons consumed in 2006; ethanol from CBI countries represented roughly 3.4%. In 2007, total imports represented roughly 6% of U.S. consumption (6.8 billion gallons); ethanol from CBI countries represented roughly 3.6%.

As part of the initiative, duty-free status is granted to a large array of products from beneficiary countries, including fuel ethanol under certain conditions. If produced from at least 50% local feedstocks (e.g., ethanol produced from sugarcane grown in the CBI beneficiary countries), ethanol may be imported duty-free. If the local feedstock content is lower, limitations apply on the quantity of duty-free ethanol. Nevertheless, up to 7% of the U.S. market may be supplied duty-free by CBI ethanol containing no local feedstock. In this case, hydrous (“wet”) ethanol produced in other countries, historically Brazil or European countries, can be shipped to a dehydration plant in a CBI country for reprocessing. After the ethanol is dehydrated, it is imported duty-free into the United States. Currently, imports of dehydrated ethanol under the CBI are far below the 7% cap (approximately 3% in 2006). For 2006, the cap was about 270 million gallons, whereas about 170 million gallons were imported under the CBI in that year.

Dehydration plants are currently operating in Jamaica, Costa Rica, El Salvador, Trinidad and Tobago, and the U.S. Virgin Islands. Jamaica and Costa Rica were the two largest exporters of fuel ethanol to the United States from 1999 to 2003. Despite criticisms in the U.S., new dehydration facilities began production in Trinidad and Tobago in 2005 and the U.S. Virgin Islands in 2007.

If there is such an over-abundant domestic supply of ethanol in the U.S., why are U.S. oil companies purchasing ethanol from foreign sources? As domestic ethanol consumption continues to grow, so will the volume of imported duty-free ethanol under this CBI loophole.

Conclusion
As discussed above, the Ethanol Import Tariff should be repealed for the following reasons:

(a) Record prices for gasoline are increasing the costs of producing, transporting, and processing food products. Research shows that energy prices are quickly passed through to higher retail food prices, with retail prices rising 0.52 percent in the short-term for every 1 percent rise in energy prices. As a result, a 10 percent gain in energy prices could contribute 5.2 percent to retail food prices.

(b) Imported petroleum does not pay a tariff, yet clean, renewable ethanol from our own hemisphere is assessed a 54 cent-per-gallon tariff.

(c) Elimination of the ethanol import tariff would provide the U.S. with sufficient ethanol to move ethanol demand beyond being just a blending component in gasoline to a truer fuel alternative and create the required fueling infrastructure.

(d) The Energy Independence and Security Act of 2007 sets a new RFS that starts at 9.0 billion gallons of renewable fuel in 2008 and rises to 36 billion gallons by 2022. Of the latter total, 21 billion gallons of renewable fuel in U.S. transportation fuel is required to be obtained from renewable fuel, other than ethanol derived from corn.

(e) U.S. oil companies, due to a loophole in the CBI, are currently allowed to import thousands of barrels of ethanol every month without having to pay the 54 cents per gallon tariff.

At a time of record high gas prices, repeal of the 54 cents per gallon import tariff on foreign ethanol would create market competition by allowing U.S. blenders to purchase cheaper ethanol from foreign sources, which could help lower gas prices, increase the supply of ethanol to coastal markets, and ease the economic strain that is impacting the agriculture, food and beverage industries.

U.S. oil companies, corn farmers and fertilizer producers are benefiting from the 54 cents per gallon import tariff on foreign ethanol at the expense of the average American consumer. At a time when our own government’s Federal Reserve Chairman is saying food inflation and fuel costs are contributing to our dangerous economic condition, working toward eliminating this barrier to free market competition is more needed than ever.

Tennessee Lawmakers Pass Biofuels Bill After Compromise

2009-07-03T17:11:00.001-04:00

Tennessee Lawmakers Pass Biofuels Bill After Compromise
By George Orwel
DTN Ethanol Center
June 16, 2009

NEW YORK (DTN) — The Tennessee legislature passed legislation that compels refiners and other fuel suppliers in the state to make available to wholesalers unblended gasoline and gasoline blending stock so they can blend it themselves with ethanol.

The legislation was passed by Tennessee’s House of Representatives on June 9 and the state senate on June 12. The legislation awaits the signature of Gov. Phil Bredesen to become law, said Lee Harrell, a legislative aide for Speaker Pro Tempore of the Senate Jamie Woodson.

The bill also forces refiners and suppliers to make available to wholesalers diesel that is suitable for blending with biodiesel.

The passage of the bill came after Tennessee state lawmakers last month worked out a compromise between Valero Energy Corp and Tennessee fuel wholesalers over the bill.

Valero had threatened to shut down its 195,000 bpd refinery in Memphis if lawmakers advanced the bill into law. The refinery employs about 310 people, according the company’s Web site, and so a shutdown of the plant would mean job losses.

Valero appealed to Bredesen to intervene, arguing the proposal to require the refinery to allow “our wholesale customers to blend ethanol into gasoline made at the refinery” would require capital expenditures of between $130 million and $150 million.

“Coupled with the current economic downturn, this makes no economic sense for the refinery, and the expenditure would cause Valero to seriously consider closing the plant,” company spokesman Bill Day told DTN at the time.

Day added that in order to make gasoline on demand for wholesalers to do their own blending, the Memphis refinery would need to have separate storage and pipeline systems for ethanol-blended fuels and conventional unblended fuels.

Soon after, Tennessee House Speaker Kent Williams brought together representatives from both Valero and the wholesalers to work out a compromise. Both sides reached a deal that allowed the bill to proceed into law.

Emily LeRoy, a spokeswoman for Tennessee Fuel and Convenience Store Association, which represents wholesalers, told DTN that the compromise offered Valero some leeway, but the refiner would still have to provide unblended gasoline and diesel to wholesalers.

The version of the bill passed by the state’s congress, a copy of which was made available to DTN, protects refiners and suppliers from any liability in lawsuits arising from downstream blending.

That’s what Valero got out of the compromise, LeRoy said Tuesday.

The legislation also provides a fine of $5,000 per day for noncompliance, and gives the state commissioner of agriculture the authority to inspect refinery premises to ensure compliance. Refiners are also required to keep business records and to make them available to inspectors charged with enforcing the law.

Fuel Feud Brewing

2009-07-03T17:06:00.001-04:00

Battle Over Who Can Blend Ethanol Might Impact Consumers at the Pump
By Ken Whitehouse
www.nashvillepost.com
April 20, 2009

Legislation winding its way through the Tennessee General Assembly could have a big impact on you at the gas pump.

The bill (SB 1931/HB 1517) requires all oil refiners to make unblended products available to distributors or retailers who wish to blend their own ethanol fuel. What could be the basis of the fight? One side says it is about competition and the other says it’s about product integrity.

But the real reason could be that there is a federal tax credit that is now 51 cents for every gallon of ethanol that is blended with gasoline.

State Sen. Jamie Woodson (R-Knoxville) is one of the main sponsors of the bill, which she says will create competition in the marketplace. Woodson said she was made aware of the issue by the Tennessee Fuel and Convenience Store Association.

“Instead of eight companies doing the blending,” Woodson said, “there could literally be 20 different companies. That competition is good for consumers and prevents Tennessee farmers from being shut out of the process of ethanol production.”

Mike Williams, a former state representative now representing the Tennessee Petroleum Council, says the legislation is completely out of bounds.

“We strongly oppose this unneeded and unnecessary legislation,” Williams said. “Among the many problems we have with the bill is that it is in violation of the Lanham Act.”

The Lanham Act defines the statutory and common law boundaries to trademarks and service marks.

Williams warned that consumers would feel the impact if the legislation passes, noting that, “prices are set by supply and demand and rarely do you raise costs to a company that are not passed along and impact the consumer.”

There is a lawsuit that both sides of this debate will be watching closely. The National Petroleum Institute and the National Petrochemical and Refiners Association have filed suit against the state of North Carolina, where legislators enacted similar legislation into law last year.

They contend that the North Carolina statute conflicts with at least three federal laws, stating in their lawsuit that it is “contrary to the federal renewable fuel program” that “expressly leaves to refiners the choice of whether and how to blend gasoline with ethanol.”

Their lawsuit also contends that the North Carolina law is “contrary to federal trademark law because it forces refiners to cede control over the manufacturing of their trademarked products to distributors and retailers” and that it “removes a valid basis – product adulteration – for terminating or non-renewing a franchise agreement.”

Asked about how the North Carolina case might impact her bill, Woodson said “This legislation will meet all judicial tests.”

Petroleum Marketers, Refiners Battle Over Ethanol in Southeast

2009-07-03T17:01:00.001-04:00

Petroleum Marketers, Refiners Battle Over Ethanol in Southeast
By Ryan C. Christiansen
Ethanol Producer Magazine
July, 2009

Petroleum marketers in the southeastern U.S. are supporting efforts to force oil refiners to supply them with unblended gasoline so that the marketers can choose to blend ethanol into the gasoline themselves.

According to petroleum marketing groups, their inability to obtain unblended gasoline from refiners is a growing problem. “It’s being clamped down,” said Sherri Cabrera, vice president of the Petroleum Marketers Association of America, a federation of 47 state and regional trade associations representing approximately 8,000 independent petroleum marketers nationwide. “We’re seeing just more and more refiners offering [unblended gasoline] less and less.”

The issue so far appears to be most prevalent in the southeastern U.S., where North Carolina, South Carolina, Tennessee and Georgia have all either pursued legislation or passed laws to address the issue.

In South Carolina, legislators passed a law in June 2008 which required oil refiners to supply marketers with unblended gasoline. The law was bundled with provisions for sales tax exemptions for energy efficient products and for a sales tax holiday for firearms. The American Petroleum Institute and BP Products North America Inc. sued, claiming the law violated the “one subject” provision in the state constitution which states that “every act or resolution having the force of law shall relate to but one subject, and that shall be expressed in the title.” The state’s Supreme Court agreed. In May 2009, the court repealed the law.

Meanwhile, legislators in Tennessee pursued similar legislation this spring. Petroleum refiner and marketer Valero Energy Corp. reacted by threatening to shut down its Memphis, Tenn., refinery, claiming the company would need to spend up to $150 million over two years for new equipment to comply with the proposed law.

In North Carolina, the National Petrochemical & Refiners Association, a lobbying group of which Valero is a also a member, sued the state for passing a law that requires refiners to sell unblended gasoline to marketers, allowing marketers to be “blenders of record” and obtain federal tax credits for blending ethanol into gasoline. The NPRA said North Carolina’s law “conflicts with federal law by preventing entities with a federal obligation to blend renewable fuels from doing so, and by requiring them to sell unblended fuel to entities that are not obliged by federal or state law to use renewable fuels.”

Cabrera said petroleum marketers have a lot invested in tanks and infrastructure for blending ethanol with gasoline. “Refiners have tried to lock their business partners—petroleum marketers—out of the option to do that,” she said. “So some states have come in to say to refiners, ‘we’re going to make you do the right thing and work with your marketer business partners.’”

The ethanol industry is supportive of petroleum marketers and their efforts to secure ethanol blending opportunities. “In the history of ethanol, there have always been a number of petroleum marketers that want to do their own splash blending,” said Greg Krissek, board member of industry group Growth Energy. “Where this is an issue for petroleum marketers, we would be supportive of them wanting to have the clear, unblended streams.”

Krissek said the ethanol industry can be a partner in the effort to ensure marketers continue to have ethanol blending opportunities. “In a number of states, you have plants that have good relationships with the petroleum marketing organizations,” he said, “and this is an area where we can probably work together.”

Why Big Oil Should Not be Allowed to Monopolize the Blender’s Tax Credit

2009-07-03T16:55:00.001-04:00

Tampa, FL (April 20, 2009) - The issue is whether state legislatures should allow oil companies, or affiliates of oil companies, to have a monopoly on blending fuel ethanol with unblended gasoline.

The American Jobs Creation Act of 2004 established the Volumetric Ethanol Excise Tax Credit (“VEETC”), also known as the “Blender’s Tax Credit.” Excise taxes on highway fuels have been a dedicated source of funding for the Federal Highway Trust Fund since its creation in 1956. The Federal Government levies a tax of 18.4 cents per gallon on domestic gasoline sales. The blender’s tax credit provides a credit against federal gasoline taxes that is worth 45 cents for every gallon of ethanol blended into the gasoline pool.

The excise tax credit is fully refundable. To receive a refund, a blender must first apply the excise tax credit against any excise tax liability for a particular taxable year. To the extent the blender has any excise tax credit remaining after applying the credit against its excise tax liability, the blender may request a refund of the excess credit or may apply the excess credit against its income tax liability.

It was never the legislative intent of the U.S. Congress, nor the intent of the U.S. Environmental Protection Agency, to allow oil companies to be the sole beneficiaries of the blender’s tax credit. Section 6426 of the Internal Revenue Code creates a credit against the excise tax on taxable fuels. The excise tax credit is generally available to any person that blends alcohol or biodiesel with taxable fuel in a mixture. To qualify for the credit, a qualifying mixture must either be sold by the producer to a buyer for use by the buyer as a fuel or be used as a fuel in the trade or business of the producer.

If U.S. ethanol producers are able to be blenders of fuel ethanol and unblended gasoline, and thereby receive the 45 cents-per-gallon tax credit, small-capacity ethanol producers would be able to enter the market. The result would be fair and healthy competition in the marketing of ethanol blends.

The benefits of allowing ethanol producers to blend and directly market ethanol blends to the consumer are the following:

(a) Rural economic development and job creation would be maximized. Increased investments in plants and equipment would stimulate the local economy by providing construction jobs initially and the chance for full-time employment after the plant is completed. On average, an ethanol plant supports 45 full-time jobs and nearly 700 jobs throughout the entire economy;

(b) The resulting increase in local and state tax revenues would provide funds for improvements to the community and to the region; and

(c) Federal and state renewable energy technology grants for ethanol would not be required. The blender’s tax credit and the market would reward the ethanol producer/blender.

In 2008, ExxonMobil reported the largest annual profit in U.S. history. ExxonMobil’s annual profit jumped 11%, or $5.2 billion, to $45.2 billion on the back of record oil prices. ExxonMobil returns most of its profit to shareholders, distributing about $40 billion in 2008 in the form of share buybacks and dividends. Chevron was also up more than $5 billion for the year, to $23.9 billion. A substantial portion of Chevron’s increase came in a fourth-quarter jump in its profits for refining and marketing of gasoline and other fuels.

Currently, oil companies are refusing to sell unblended gasoline to ethanol producers. The sole beneficiaries of the 45 cents-per-gallon blender’s tax credit are the oil companies, blenders affiliated with oil companies, and oil company shareholders. As a result, the farmers/landowners, ethanol producers and consumers never realize any benefit from the blender’s tax credit; rural economic development is ignored; and U.S. jobs are not created.

State legislatures should not permit only oil companies and their affiliates to blend and receive the 45 cents-per-gallon blender’s tax credit. This monopoly impairs fair and healthy competition in the marketing of ethanol blends. U.S. ethanol producers have the legal right, and must be assured the availability of unblended gasoline, to blend fuel ethanol and unblended gasoline to receive the blender’s tax credit and be cost-competitive.

Rural development and job creation, not the maximization of oil company annual profits, should be the focus of our state legislatures.

U.S. Environmental Protection Agency Grants First-of-its-Kind Testing Exemption to Renergie

2009-07-03T16:43:00.001-04:00

Renergie to Test Hydrous E10, E20, E30 & E85 Ethanol Blends in Non-Flex-Fuel Vehicles and Flex-Fuel Vehicles in Louisiana

Gainesville, FL (February 11, 2009) – The U.S. Environmental Protection Agency has granted a testing exemption to Renergie, Inc. Under the test program, the first of its kind in the U.S., Renergie will use variable blending pumps, not splash blending, to precisely dispense hydrous ethanol blends of E10, E20, E30, and E85 to test vehicles for the purpose of testing for blend optimization with respect to fuel economy, engine emissions, and vehicle drivability. Sixty vehicles will be involved in the test program which will last for a period of 15 months.

Hydrous Ethanol
Preliminary tests conducted in Europe have proven that the use of hydrous ethanol, which eliminates the need for the hydrous-to-anhydrous dehydration processing step, results in an energy savings of between ten percent and forty-five percent during processing, a four percent product volume increase, higher mileage per gallon, a cleaner engine interior, and a reduction in greenhouse gas emissions.

Variable Blending Pump
In the U.S., the primary method for blending ethanol into gasoline is splash blending. The ethanol is “splashed” into the gasoline either in a tanker truck or sometimes into a storage tank of a retail station. Renergie believes the inaccuracy and manipulation of splash blending may be eliminated by precisely blending the ethanol and unleaded gasoline at the point of consumption, i.e., the point where the consumer puts E10, E20, E30 or E85 into his or her vehicle. A variable blending pump would ensure the consumer that E10 means the fuel entering the fuel tank of the consumer’s vehicle is 10 percent ethanol (rather than the current arbitrary range of 4 percent ethanol to at least 24% ethanol that the splash blending method provides) and 90% gasoline.

Team Approach
“On June 21, 2008, Governor Bobby Jindal signed into law the Advanced Biofuel Industry Development Initiative (“Act 382”), the most comprehensive and far-reaching state legislation in the nation enacted to develop a statewide advanced biofuel industry. Act 382 is based upon the “Field-to-Pump” strategy developed by Renergie. Louisiana is the first state to enact alternative transportation fuel legislation that includes a variable blending pump pilot program and a hydrous ethanol pilot program,” said Meaghan M. Donovan, founder of Renergie, Inc. “We are excited and proud that Renergie, the Louisiana Department of Agriculture & Forestry, the Louisiana Department of Environmental Quality, and the U.S. Environmental Protection Agency are acting as a unified team to develop a network of small advanced biofuel manufacturing facilities and the necessary fueling infrastructure throughout Louisiana. Representative Jonathan W. Perry (R – District 47), Senator Nick Gautreaux (D – District 26), and Dr. Mike Strain, Commissioner of the Louisiana Department of Agriculture and Forestry, should be praised for their leadership on this issue. Renergie’s decentralized network of small advanced biofuel manufacturing facilities reduces Renergie’s feedstock supply risk, maximizes rural economic development, maximizes job creation in the state and does not burden local water supplies. The legislature and governor of the great State of Louisiana have chosen to lead the nation in moving ethanol beyond being just a blending component in gasoline. By blending fuel-grade ethanol with gasoline, via blending pumps at its gas stations, Renergie will offer the consumer a fuel that is renewable, competitively-priced, cleaner, and more efficient than unleaded gasoline in the form E10, E20, E30 and E85.”

Louisiana Enacts the Most Comprehensive Advanced Biofuel Legislation in the Nation

2009-07-03T16:17:00.001-04:00

Baton Rouge, LA (July 26, 2008) – Governor Bobby Jindal has signed into law the Advanced Biofuel Industry Development Initiative, the most comprehensive and far-reaching state legislation in the nation enacted to develop a statewide advanced biofuel industry. Louisiana is the first state to enact alternative transportation fuel legislation that includes a variable blending pump pilot program and a hydrous ethanol pilot program.

Field-to-Pump Strategy
The legislature found that the proper development of an advanced biofuel industry in Louisiana requires implementation of the following comprehensive “field-to-pump” strategy developed by Renergie, Inc.:

(1) Feedstock Other Than Corn
(a) derived solely from Louisiana harvested crops;
(b) capable of an annual yield of at least 600 gallons of ethanol per acre;
(c) requiring no more than one-half of the water required to grow corn;
(d) tolerant to high temperature and waterlogging;
(e) resistant to drought and saline-alkaline soils;
(f) capable of being grown in marginal soils, ranging from heavy clay to light sand;
(g) requiring no more than one-third of the nitrogen required to grow corn, thereby reducing the risk of contamination of the waters of the state; and
(h) requiring no more than one-half of the energy necessary to convert corn into ethanol.

(2) Decentralized Network of Small Advanced Biofuel Manufacturing Facilities
Smaller is better. The distributed nature of a small advanced biofuel manufacturing facility network reduces feedstock supply risk, does not burden local water supplies and provides for broader based economic development. Each advanced biofuel manufacturing facility operating in Louisiana will produce no less than 5 million gallons of advanced biofuel per year and no more than 15 million gallons of advanced biofuel per year.

(3) Market Expansion
Advanced biofuel supply and demand shall be expanded beyond the 10% blend market by blending fuel-grade anhydrous ethanol with gasoline at the gas station pump. Variable blending pumps, directly installed and operated at local gas stations by a qualified small advanced biofuel manufacturing facility, shall offer the consumer a less expensive substitute for unleaded gasoline in the form of E10, E20, E30 and E85.

Pilot Programs
(1) Advanced Biofuel Variable Blending Pumps – The blending of fuels with advanced biofuel percentages between 10 percent and 85 percent will be permitted on a trial basis until January 1, 2012. During this period the Louisiana Department of Agriculture and Forestry Division of Weights & Measures will monitor the equipment used to dispense the ethanol blends to ascertain that the equipment is suitable and capable of producing an accurate measurement.

(2) Hydrous Ethanol – The use of hydrous ethanol blends of E10, E20, E30 and E85 in motor vehicles specifically selected for test purposes will be permitted on a trial basis until January 1, 2012. During this period the Louisiana Department of Agriculture and Forestry Division of Weights & Measures will monitor the performance of the motor vehicles. The hydrous blends will be tested for blend optimization with respect to fuel consumption and engine emissions. Preliminary tests conducted in Europe have proven that the use of hydrous ethanol, which eliminates the need for the hydrous-to-anhydrous dehydration processing step, results in an energy savings of between ten percent and forty-five percent during processing, a four percent product volume increase, higher mileage per gallon, a cleaner engine interior, and a reduction in greenhouse gas emissions.

HB 1270, entitled “The Advanced Biofuel Industry Development Initiative,” was co-authored by 27 members of the Legislature. The original bill was drafted by Renergie, Inc. Representative Jonathan W. Perry (R – District 47), with the support of Senator Nick Gautreaux (D – District 26), was the primary author of the bill. Reflecting on the signing of HB1270 into law, Brian J. Donovan, CEO of Renergie, Inc. said, “I am pleased that the legislature and governor of the great State of Louisiana have chosen to lead the nation in moving ethanol beyond being just a blending component in gasoline to a fuel that is more economical, cleaner, renewable, and more efficient than unleaded gasoline. The two pilot programs, providing for an advanced biofuel variable blending pump trial and a hydrous ethanol trial, established by the State of Louisiana should be adopted by each and every state in our country.”

State Agencies Must Purchase or Lease Vehicles That Use Alternative Fuels
Louisiana’s Advanced Biofuel Industry Development Initiative further states, “The commissioner of administration shall not purchase or lease any motor vehicle for use by any state agency unless that vehicle is capable of and equipped for using an alternative fuel that results in lower emissions of oxides of nitrogen, volatile organic compounds, carbon monoxide, or particulates or any combination thereof that meet or exceed federal Clean Air Act standards.”

Advanced Biofuel Price Preference for State Agencies
Louisiana’s Advanced Biofuel Industry Development Initiative provides that a governmental body, state educational institution, or instrumentality of the state that performs essential governmental functions on a statewide or local basis is entitled to purchase E20, E30 or E85 advanced biofuel at a price equal to fifteen percent (15%) less per gallon than the price of unleaded gasoline for use in any motor vehicle.

Economic Benefits
The development of an advanced biofuel industry will help rebuild the local and regional economies devastated as a result of hurricanes Katrina and Rita by providing:
(1) increased value to the feedstock crops which will benefit local farmers and provide more revenue to the local community;
(2) increased investments in plants and equipment which will stimulate the local economy by providing construction jobs initially and the chance for full-time employment after the plant is completed;
(3) secondary employment as associated industries develop due to plant co-products becoming available at a competitive price; and
(4) increased local and state revenues collected from plant operations will stimulate local and state tax revenues and provide funds for improvements to the community and to the region.

“Representative Perry and Senator Gautreaux have worked tirelessly to craft comprehensive advanced biofuel legislation which will maximize rural development, benefit consumers, farmers and gas station owners while also protecting the environment and reducing the burden on local water supplies,” said Donovan. “Representative Perry, Senator Gautreaux, and Dr. Strain, Commissioner of the Louisiana Department of Agriculture and Forestry, should be praised for their leadership on this issue.”

About Renergie
Renergie was formed by Ms. Meaghan M. Donovan on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten ethanol plants in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita. Each ethanol plant will have a production capacity of five million gallons per year (5 MGY) of fuel-grade ethanol. Renergie’s “field-to-pump” strategy is to produce non-corn ethanol locally and directly market non-corn ethanol locally. On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida Department of Environmental Protection’s Renewable Energy Technologies Grants Program. Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice. On April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector. On January 20, 2009, Florida Energy & Climate Commission amended RET Grant Agreement S0386 to increase Renergie’s funding from $1,500,483 to $2,500,000. By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is renewable, more economical, cleaner, and more efficient than unleaded gasoline. Moreover, the Renergie project will mark the first time that Louisiana farmers will share in the profits realized from the sale of value-added products made from their crops.