Biofuels:

Advanced Ethanol Council's Coleman challenges NAS report

A new study by the National Academy of Sciences questions whether the cellulosic ethanol industry will successfully meet renewable fuels standard (RFS) targets. During today's OnPoint, Brooke Coleman, executive director of the Advanced Ethanol Council, makes the case for why he believes the industry will meet its targets and produce a commercially viable product. Coleman also explains what his industry will need from the government in order to ensure that targets are met.

Transcript

Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Brooke Coleman, executive director of the Advanced Ethanol Council. Brooke, thanks for coming on the show.

Brooke Coleman: Thanks for having me.

Monica Trauzzi: Brooke, a National Academy of Sciences panel just released a report saying the U.S. will fall short of its cellulosic biofuels targets that are laid out in the RFS. Has advancement in your sector been stifled and are you concerned about your ability, your industry's ability to meet these targets?

Brooke Coleman: Yeah, the industry is making good progress actually. What the report actually said was we may miss the targets and they actually didn't add whole lot new to the equation. They basically said absent new policy and technological innovation, we're going to have a hard time hitting the targets. We've been saying that for years. We have to have policies that complement the renewable fuel standard to get this done in much the same way that in the 20th century, in order to promote the oil industry, there were tax incentives, tax shelters that still exist today to incent that type of behavior, protect some of the risky investments that are going on in that space. And so that part of it is to be expected and this industry is putting steel in the ground right now. So, we're not too worried about it.

Monica Trauzzi: So, the report specifically highlights a lack of advancements, like you mentioned, as a key reason of why those targets might not be met. What are the key technological and supply breakthroughs that you're looking for in the coming years to help your industry meet those targets?

Brooke Coleman: Yeah, and so what the industry has been focusing on is bringing down the cost of producing the fuel at bench and demonstration scale. What we've actually seen, notwithstanding a lot of the noise in the space that want to see this industry not be as disruptive as it could be, a lot of it well-funded, is the cost of the fuel has come down significantly in the last couple of years. Simultaneously, we've started to put steel in the ground, concrete in the ground, you've seen plants come online. The biggest things for us, going right down the list, are we have to have a tax policy that allows an investor, and a strategic investor that wants to spend significant dollars, to look at our investment in the same light they look at an oil investment. Right now, we have tax shelters that encourage investors to spend a 100 or $200 million on a deepwater extraction rig in the Gulf rather than a bio refinery in the middle of this country. And what's happened in this space, and this is the conversation we're not having, is all of these energy-all of these new fuels need innovation, whether it's petroleum or biofuels or natural gas or electricity we need innovation, we need policy, and we need to incent those fuels. They're all expensive. They're all more expensive than light sweet crude. And so what we need to do is make incremental progress, and that's what we've done. Our progress is second to none in this space.

Monica Trauzzi: But what the panel was also pointing out was the fact that there are no commercially viable refineries available right now. So, if there aren't any right now, if the industry isn't making the product commercially viable at this point, then how will you meet those targets?

Brooke Coleman: So, the industry is getting to first commercial scale right now. So, what's not talked about in that report-one of our biggest criticisms in the report was we asked them to talk to the industry, to reach out to the industry. We're not exactly sure where they got a lot of this data. They made some pretty ridiculous conclusions about how we can't compete with $111 oil. That's not even in some of the IPO information that has been vetted, that's been out in the marketplace for some time. So, they're out of touch with regard to the cost of the fuel, but you're seeing specific plants start to go in. You're seeing a plant in southwest Kansas from Abengoa, a member of ours. They've just started construction there. You're seeing another plant in Florida, Mississippi. Another member of ours, Mascoma, will be building in Michigan. So, you're seeing this industry emerge and what's happening is, instead of looking at this industry in a reasonable way and say, hey, look, there's an energy space out there. There's not a whole lot of growth in any sector, but this sector is growing. What's happened is people look at the RFS and they say, well, if they're not producing-if they aren't displacing gasoline by the billions of gallons a year, then this is an industry that's not hitting the mark. And we are hitting the mark. I mean by any other standard we're hitting the mark. So it's an encouraging sign.

Monica Trauzzi: So, talk about government support. Are you receiving adequate support at this point and what exactly are you asking for in order to help you meet those targets?

Brooke Coleman: Yeah and so one of the things that the report did well is it identified the fact that uncertainty, policy uncertainty is undercutting investments in this space. And so if someone wants to spend 100 or $200 million and they think the rules of the game are going to change right after they've spent the money, they're going to go find a sector where that's not going to happen. And so the biggest thing we need from Congress is don't mess with what we have. These recent efforts to overturn the renewable fuel standard are not helpful. Uncertainty and even bills proposed at the lowest levels to open up the RFS, even if they're couched in positive sort of level playing field language, that's not helpful. What we need is Congress to stand by its commitment to do the renewable fuel standard. Part and parcel of that, and there's two additional elements here that are critical, we need a level playing field with regard to tax. The renewable fuel standard is looking north right now and we have a tax policy that's still facing south, i.e. back to the 20th century when all we really cared about was making cheap oil and pulling cheap oil out of the ground and making sure people invested. That's a big part of it. So we need to actually level the playing field and create a competitive marketplace. The last piece is we've got to open up the marketplace. We have a vertically integrated, highly consolidated, noncompetitive liquid fuel marketplace in this country. What Congress should focus on, instead of, well, this fuel versus that fuel, they should get into the game of leveling the playing field in the marketplace, getting at the bottlenecks in the marketplace that keep all these fuels out, that allow ethanol to get in with flex fuel vehicles, with blender pumps, but also a portfolio of fuels with natural gas and some of these other-and let all these fuels come into the marketplace and then let the consumer decide whether they're going to buy fuel for $2.85 or $2.95 or $3.10.

Monica Trauzzi: But we're dealing with a climate right now where tax incentives might not be easy to come by. So, what happens to your industry then if you don't get the tax breaks that you're hoping for?

Brooke Coleman: Well, I think you're right. I think asking the government for money right now is very tricky. But, at the same time, the good news is that the super committee and other committees that are advising the super committee are looking at ways to balance the budget. And one of the things you can do is take a holistic look at how we do energy taxes in this country and you're going to be able to, if you look at oil and biofuels and natural gas and look at all the new fuels that we need to compete in a world where light sweet crude is no longer available to us, it's incredibly expensive and we're basically financing-I don't know if you saw that OPEC is going to pocket 1 trillion-OPEC members are going to pocket $1 trillion this year, somewhere in that vicinity. And they're using that money to finance social services in all these countries and build infrastructure and create jobs and do all the things everybody talks about around here, but they're doing it in the Middle East with our money. And so if you're going to balance the budget, you should look at all these energy options holistically and you're going to be able to glean savings out of that conversation. And if you level the playing field I think you'll do better for the federal budget.

Monica Trauzzi: But the politics of energy are so heated right now, the likelihood of the super committee even touching this is unlikely.

Brooke Coleman: They have to find savings somewhere and so what we're saying is, you know, you've got to look at tax. They're looking at the farm bill. They're looking at all sorts of different programs. You know, I'm still optimistic that this committee will look at some of these things. We've had some conversations about oil subsidies and that's really the place to start.

Monica Trauzzi: How much of a shift has your industry seen as a result of the economic downturn and is it fair to say that it may continue on this slowed track if the economy doesn't pick up?

Brooke Coleman: The economy has a role to play. We're talking about project finance, right? So, we have to go and get somebody to lend us-a strategic investor, a bank to lend us money to build a plant. The oil industry, just by comparison, hasn't built a refinery in this country since 1976. The biofuels industry, at a time when this country was exporting jobs and capital to places like India and China at an alarming rate over the last 20 years, has built 200 bio refineries across this country. And so we've seen this industry explode during tough times and what we just need to do is keep faith in the next generation, many of whom are going to rely on these existing structures, these existing plants to do feedstock diversification, to implement technological innovation, to increase yield of corn, to bring in cellulose and switch grass. You know, I think if we're in a bad economy it won't help, but, again, what we're doing right now is we're putting steel in the ground when no one else is building, during a recession. And so that's, you know, that's a story that's not being told and that's the one we're going to tell.

Monica Trauzzi: All right, we'll end it there. Thank you for coming on the show. Nice to see you.

Brooke Coleman: Thank you very much.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]

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