Alternative Fuel:

Advanced Biofuels Association's McAdams says industry bracing for fuels standard battle

As the alternative fuels industry's ability to reach Renewable Fuels Standard targets remains in question, what is the state of investments for advanced biofuels technologies? During today's OnPoint, Michael McAdams, president of the Advanced Biofuels Association, explains why his industry expects a difficult road ahead for the RFS. He also weighs in on U.S. EPA's handling of fraud cases relating to renewable fuels credits.


Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Michael McAdams, president of the Advanced Biofuels Association. Michael, it's nice to see you again.

Michael McAdams: Nice to see you, Monica. It's nice to be here.

Monica Trauzzi: Michael, you testified this week before the House Energy and Commerce Committee Subcommittee on Energy and Power on the issue of the future of alternative fuels. Many folks on the Hill and in the industry consider the RFS to be a failure. Do the blending requirements makes sense at this point for consumers? Is it a fair game?

Michael McAdams: Well, I just want to say I think the RFS has been the single most successful policy in U.S. history for the renewable transportation's pool. We have about 290 billion gallons of fuels we use in this country, about 140 billion gallons of gasoline, about 50 billion gallons of diesel. When you look at the history of the renewable fuels effort in the United States you can go all the way back to 1978 with President Carter when we started trying to encourage the use of ethanol. It took 20 years to deliver the first 2 billion gallons of ethanol. And following the passage of EPAC 2005, which created the first RFS, we saw an explosion of fuels. So where Brazil had been for years the number one producer of renewable fuels in the world, the United States today, following the passage of the RFS, is 48 percent of all the biofuels in the world produced right here in the United States.

Monica Trauzzi: But with all that said, does it sort of overextend and overreach the industry a bit? And can you guarantee that the targets that are set out in it are actually going to be met?

Michael McAdams: Well, you know, first of all, I think the RFS is a document-it was a political document with stretch targets. And it came at a time with some of the worst financial challenges to building new plants, from 2008 to 2010, that this country has seen since the Great Depression. The great thing about what we saw in the corn ethanol industry, which I think you'll see replicated in the cellulosic industry, which is the one pool, by the way, there are four pools. There's only one pool that's been falling short and the statute was written cleverly enough to give EPA the flexibility to adjust it. But I think you'll see, once you get these first plants built, these first innovative plants, then plants two through five come online pretty quickly. I will tell you, I have two members that already have a billion dollars' worth of capital set aside. They've done their design. They've done their engineering. They've bought their land. They're ready to go. So you're going to begin to see these major sophisticated entities begin to put steel in the ground and, better than that, I've already seen a number of my entities in the other pools, the biomass-based diesel pool and the advanced pool building real significant gallons. So you're actually going to see this year, in the biomass pool, you're going to actually see us exceed the billion gallon target. You'll see us exceed it.

Monica Trauzzi: So, from where you sit now, you're gearing up for what in terms of a debate on the RFS?

Michael McAdams: Oh, there's no question, you know, this is-there's a lot of disagreement and yesterday's hearing was probably one of the more challenging things that I've done in quite some time. But the great thing about that hearing yesterday was it told me that the industry that I represent and the colleagues that represent various components of this industry, we need to do a better job educating. Because there's a lot of sincere misunderstanding of what fuels go where, how many different molecules are going to come into the market, how the RFS is really structured and worked, what it includes and what it doesn't include. There were a lot of fundamental questions yesterday from both sides of the aisle and I would say this is not a partisan issue. Renewable fuels is a national energy security issue, not a partisan issue. So we're going to come under some challenge. There will be people with different opinions about what role the government should have. There were a lot of questions yesterday about what is the right role for government in terms of funding, creating a mandate. Is it really a mandate? There are some folks in the environmental community that are disappointed with some of the environmental performance. They're going to literally oppose the RFS. There are some folks in the livestock industry that feel like this has driven up the price of corn. They're going to challenge it. There are some coalitions out there that are ready to go and are going to spend significant dollars to repeal-to attempt to repeal or reform the RFS. And so the Advanced Biofuels Association and other associations here in town are working very closely together to defend the RFS because it's the bedrock for renewable fuels in the United States.

Monica Trauzzi: So, really this week's hearing is a preview of what likely will ...

Michael McAdams: It's the kickoff.

Monica Trauzzi: Be happening next year. I mean this year we're not really going to see a whole lot, but you're anticipating next year a full-fledged fight over the RFS.

Michael McAdams: I'm anticipating a healthy, challenging debate, yes.

Monica Trauzzi: OK, let's talk about investments. What's the state of investments in your industry right now?

Michael McAdams: All right, so I would-well, for instance, we just built and turned on-last September we built a plant in Geismar, Louisiana. Tyson and Syntroleum, their partnership called Dynamic Fuels just built a 75 million gallon plant. They're making a million gallons a day of renewable diesel. That is a drop-in fuel exactly as if it came out of a barrel of oil through a refinery, totally fungible, totally usable in all of the engines. Also it can be tweaked into a jet fuel. We've flown fighter jets from the Navy and Air Force on these fuels already. We just flew last week a fuel made by Gevo in Colorado that is an alcoholic jet fuel. Again, making a hydrocarbon drop-in molecule. We have plants going up in Florida, plants going up in Nebraska, Kansas, Iowa. There are additional plants and some of those plans are cellulosic plants that will begin to bring those gallons. American Process Energy is building one along with Mascom in Michigan. So what I told the committee yesterday, which frankly I got quite a bit of surprise about, was I started listing the number of plants that already had steel in the ground, when their gallons were coming on, Keyor in Mississippi is 11 million gallons.

Monica Trauzzi: So, is there too much focus on cellulosic and some of the failures that we've seen on cellulosic?

Michael McAdams: I think that the people that are unhappy with the RFS like to talk about two things. So if you have an opposition to the RFS, and I think it's fair to say the American Fuels-what is it, AFPM, has not been very supportive of the RFS. I think Mr. Drevna, their president, called for repeal. That's natural for them, because they're now at 82 percent utilization. They used to be at 94. They're the American refining guys and so we're actually helping create a more robust market of fuels for American consumers by adding to what they had. And their two arguments are that you're not making cellulosic gallons. Well, that argument is about to be dealt with because these gallons are coming and, oh, by the way, under the statutory authority the EPA already waived 95 percent of the requirement in 2011 and 2012. The EPA just rejected their waiver petition and now there are seven or eight associations who have all joined to intervene in the lawsuit that they have filed to try to overturn the 6 million gallon mandate in '11. So those are the two pieces.

Monica Trauzzi: I want to jump in here with one final question, sort of switching gears a bit.

Michael McAdams: Good.

Monica Trauzzi: There's a big story about these fraudulent fuel credits, big case that's being discussed on the Hill now. How devastating is it for the industry and who's really liable at this point?

Michael McAdams: Well, let's talk about where the problem is first. The problem is an isolated problem. At this moment it's in the-pardon the vernacular, it's in the D4 RIN pool. It's in the biomass-based diesel pool. And you had three people that were bad apples. You had three people that went on to the EPA EMTA system and sold gallons they didn't make. And I'll tell you, to a man, all of the folks in our industry want to see them wear the little orange suits, because we want to stand behind the fuels we're making in the future and we want to work with the American Petroleum Institute and others to make sure that we have a solid, verified fuel market and that we have liquidity in that market and people can bank on those RINs.

Monica Trauzzi: Is EPA doing enough at this point to address these things?

Michael McAdams: We're working actively in a coalition with all the other trades with EPA. EPA has been very open and transparent and engaged with this and I'm hopeful that in the short term we're going to come up with some things that help address this problem and solidify the market for all those little guys that have suffered. I lost five-five guys of my association had to shut down as result of this RIN problem.

Monica Trauzzi: All right, so it's a big deal. We'll end it there. Thank you for coming on the show.

Michael McAdams: Thank you, Monica.

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

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