Can the corn ethanol industry thrive without federal subsidies? During today's OnPoint, retired four-star Gen. Wesley Clark, now co-chairman at the ethanol lobbying group Growth Energy, explains how subsidies should be reconfigured to address infrastructure needs. He also discusses the impact of next-generation biofuels on corn ethanol.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is retired General Wesley Clark, cochairman of Growth Energy. General, thanks for coming on the show.
Wesley Clark: Nice to be with you, Monica.
Monica Trauzzi: General, the debate over corn ethanol subsidies is heating up yet again here in Washington. Does the corn ethanol industry still need the subsidies that it's getting from the federal government?
Wesley Clark: Well, we've proposed over a year ago that we would take a look at reforming these subsidies and I think it's very constructive now that we have people like Senator Coburn talking about oil subsidies and all the rest of the subsidies, Congressman Boehner, Speaker Boehner has thrown those on the table. I think all the subsidies in the energy area should be addressed.
Monica Trauzzi: So, when you talk about reforming subsidies, does that mean just completely taking them away from corn ethanol or putting them somewhere else that might help?
Wesley Clark: I think you could certainly take them away from the oil industry because it's an extremely profitable industry right now. I understand why they were there. It was to encourage domestic oil exploration and to keep our lead in this very strategic industry. But we've been very successful in that. So those subsidies probably could be eliminated in my view. In the case of ethanol, what we've proposed is a reform of what we're doing. You know, the current subsidies, actually, we say it's a subsidy, it's really a tax credit and it really goes to the blender. By mandate in the United States, a motorist must buy 90 percent of his fuel as gasoline, 10 percent is ethanol, to mandated 90 percent gasoline. We're paying line $400 billion a year as a country to import that gasoline. So why wouldn't we want to make biofuels like ethanol more competitive that are produced here, homegrown, keep that money in America? But to do that, we've got to have the infrastructure for it. A motorist has to go to the filling station and be able to buy ethanol at 20 or 30 percent of a gallon of gasoline if he wants it. You can't do that now in most places in the United States. So when we say reform, what we're saying is take that money, it doesn't need to go to the -- necessarily, you know in the long-term, to these blenders. These are big oil companies. Put it into the infrastructure, let the service station operator have a chance to make the American fuels market competitive.
Monica Trauzzi: How much longer will corn ethanol be around before it becomes obsolete?
Wesley Clark: You know, it's an amazing thing about this industry. Now, I've been with it about three years now and I had studied it for years, really, since it started to emerge in the 1970s. It is an incredibly adaptive energy industry. If you look for, for example, at refining technology, been on the boards of oil refineries and you can go back in the refinery and you can find stuff from the 1930s. We were working on one refinery, we took the pumps apart and they had swastikas on them. They were purchased in Germany in the 1930s. They were still there and some of them were still functional. It's not that way with corn ethanol. This is a very dynamic industry. It's gotten increasingly efficient in terms of its use of energy, in terms of its use of the corn itself to extract more ethanol from the corn in terms of what is done with the residue after the starch is converted into ethanol that goes back into the fuel system, in terms of its fuel system, in terms of its use of water. It's just an incredibly dynamic industry. So I would say that for a long, long time we'll probably be using corn in ethanol.
Monica Trauzzi: But the second-generation folks are putting a lot of money into creating technologies that will displace corn ethanol.
Wesley Clark: Well, it depends on how good those technologies are. You know, these are the kinds of issues that have to be worked out in the marketplace. But to get them into the marketplace you've got to have an opportunity to compete. And so we're behind in cellulosic because we've been artificially constrained in the fuels market, first by the EPA blend wall at 10 percent, which meant there was no market for cellulosic. And then secondly then by the lack of infrastructure to be able to actually go out to the service agent and say, hey, I want to try 20 to 30 percent ethanol blend. You know, our own personal research is that American cars that are flex-fuel cars, they work really great at 20 and 30 percent ethanol. And sometimes you get a falloff in mileage at 85 percent because the motor is not really tuned to use the ethanol. But at 20 and 30 percent, in some of these models, there's no falloff and you're saving. When you use ethanol today, the price differential for a gallon of ethanol and a gallon of gasoline sometimes is as much as $0.50 at the wholesale level.
Monica Trauzzi: But talking about the marketplace, Japanese automakers don't really see ethanol as a viable option and they're focusing on other things like electric cars, hydrogen. Does that concern you at all when it comes to expanding the reach of ethanol when you have major automakers not even giving it a second look?
Wesley Clark: Well, first of all, these automakers are competing in the Brazil market and they are producing flex-fuel vehicles and vehicles that are very -- it's the same automobiles. Nissan and others that are selling into Brazil, they don't say, hey, we're not going to sell into that big Brazil market because they make them use ethanol. No, they adapt to what the market demands and in Brazil they've had a very farsighted policy from their government dating back over 30 years that said, you know, Brazil, at that time, wasn't producing any oil to speak of, said we can't grow our economy if we spend billions of dollars every year importing oil from elsewhere. So they put in place the policies to encourage the use of ethanol. Automobile makers have complied. Now, in the energy business, there's probably no silver bullet solution to anything. And I'm a fan of electric automobiles and have been for a long time. I work in that industry, but if you were to rely on electric automobiles to solve the problem of importing oil in the United States we would spend between nine and $12 trillion over the next 20 years on imported oil. Why do that to our economy and our employment and our young people when we have a viable alternative today in ethanol? All we've got to do is give them a chance to compete in the marketplace.
Monica Trauzzi: What's your take on how the Obama administration has been handling and treating the ethanol industry compared to the last administration? Is there enough of an emphasis or do you see more of an emphasis on things like electric cars?
Wesley Clark: Well, we've been very pleased with the president's commitment to biofuels in general and to ethanol in particular. You know, when he was running for office he said he could see 60 billion gallons a year of ethanol in this marketplace. He made this statement on the campaign swing in Iowa and some people say, well, what you say in Iowa doesn't really count. But actually President Obama has tried really hard to live up to these campaign promises and I think his administration has been very sensitive to this issue. They know, look, in the $14 to $15 trillion economy like the American economy, you cannot generate jobs if you are sending $400 billion a year, every year, abroad. It's like a tax on the American people and that's what our oil companies are -- put a tiger in our tank and they look all-American, but they're actually -- they're dollar extraction mechanisms. And the friendly service station operator there that some of them we've grown up with, they're actually -- it's like a $1200 year tax on every man, woman, and child in America so we can import foreign oil. So, you know, if we're going to grow this economy, we've got to take charge of our own future and ethanol and biofuels in general are the way to do that.
Monica Trauzzi: Is corn ethanol being produced at the expense of other biofuels?
Wesley Clark: No, I don't think it's being produced at the expense of biofuels. This is market demand driven. Look, corn is a crop that people have learned to be increasingly innovative in growing. I mean the yield grows up -- goes an average of maybe three, 4 percent per year, per annum. I mean year after year after year. So the United States is -- we realized like 162 bushels per acre. Now China is down in the 90 bushel per acre. But we were down there too, not too long ago. Every year, on average, the American agricultural community gets more efficient at growing corn and when they look at it and they look at the versatility of the crop, the fact that you store it, you use it for seed, you can use it for fuel, use it for cattle food and poultry. I mean it's a very versatile crop, that's why it's the largest grown row crop in America.
Monica Trauzzi: Going back to the tax credit, will Congress reach a compromise?
Wesley Clark: I think Congress will reach a compromise, yeah, on the overall issues that are confronting the economy. We've got to do something about the budget. We know we've got to deal with a long-term deficit and I think the common sense will prevail that we cannot pay $400 billion a year indefinitely to countries like Saudi Arabia and Nigeria and Angola and Venezuela and Mexico. I'm unhappy with our Canadian friends, because we're also giving them a lot of money and, you know, we need to keep that money in America. We need jobs in this country and we need tax returns and we need to build our communities here. That $400 billion is a huge whack out of the American economy and I think that when we get right down to it and look at it, we balance off these subsidies, people are going to say, as you know, we've done a lot for the domestic oil industry. It's very profitable. Natural gas, they're doing fine and we really appreciate the natural gas industry, but we need a competitive fuels market in America and we should take that existing structure of these tax credits that have been going to the blenders, principally big oil companies, we should take that money and we should get that money out into infrastructure and let fuel compete in the marketplace. That's the American way.
Monica Trauzzi: OK, we'll end it right there on that note. Thank you for coming on the show. Nice to see you.
Wesley Clark: Thank you, Monica.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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