Enzyme supplier discusses impact of RFS waiver on development of advanced fuels

Will the biofuels industry roll back investments in advanced fuels if the proposed renewable fuel standard waiver is granted? During today's OnPoint, Adam Monroe, president of Novozymes North America, the largest supplier of enzymes used in biofuels, discusses ethanol production projections following this summer's drought. He explains how his industry has been affected by high corn prices and talks about what an RFS waiver could mean for advanced biofuels investments.


Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Adam Monroe, president of Novozymes, North America. Adam, thanks for coming on the show.

Adam Monroe: Glad to be here.

Monica Trauzzi: Adam, as the largest supplier of enzymes used in biofuels, how have your operations been impacted by this summer's drought and sort of the backlash that we've seen against corn ethanol as a result of that?

Adam Monroe: Well, as many people know, the drought is awful and it has affected not only the livestock industry, but it has affected the biofuels industry. The biofuels industry has brought down capacity by about 15 percent, so there's some plants that have shut down, some plants that are idled and that certainly has affected our business. No doubt about that. One of the important things about that though is that in the future and what we're working on now, what we're commercializing now, we'll be able to take advantage of that crop that's lost. So the leftover corn stover and the cobs and these kind of things that we can't use now due to the drought, we'll be turning that into valuable products with the commercialization of what we're doing today.

Monica Trauzzi: It's a pretty serious drought. It's the worst in 60 years and there's a strong argument there for an RFS waiver, but you guys would argue against that because you think it could sort of have a trickle-down effect for the future.

Adam Monroe: We would. You know, acts of God and the drought and things like this, we can't bring the corn back from what we're going to lose. But what we're doing in the industry and what it has provided for the country, I'd hate to see us throw that out with the drought. Because what we're doing today is we're now launching commercially the advanced biofuels that are going to take place. And what concerns us as business people is that if a drought is going to take away -- or an RFS amendment of some kind or a waiver, that sends all kinds of uncertainty signals to business people. We spent billions of dollars doing a good thing, I think, for the country and for the nation and getting ourselves off of foreign oil. And it's had a big impact in biofuels.

Monica Trauzzi: But when the RFS was created, there was a stipulation put in there that if there was any kind of severe environmental or economic catastrophe, that it could be waivered. So why doesn't this qualify as that?

Adam Monroe: I think the reason for that is that, you know, it looks at economic harm and there's been plenty of it. It's been plenty of economic in the ethanol -- harm in the ethanol industry as well. But, you know, I know that the EPA will take a look at that and do what they do. And I don't want to see a situation where one year is going to take away jobs for the future and the things that we're trying to do. So, the signals that it sends to us is if we put that amount of money in investment and created all those jobs, for what we've created so far, if you can open that up now, well, then why should we invest in what we are thinking about and what we're doing today? We just opened a $200 million facility in Nebraska. I don't want to see a situation in the future where I'm having to say, well, guys, we're not going to produce enzymes this year, because we had a drought and because we're talking about different things with the waiver.

Monica Trauzzi: So, essentially, lack of certainty. You want the certainty to be from now until ...

Adam Monroe: Right.

Monica Trauzzi: Yeah, keep the RFS.

Adam Monroe: That's correct.

Monica Trauzzi: So corn ethanol has really taken the most heat. The rhetoric is against corn ethanol. Talk about the interplay between the corn ethanol industry and the advanced biofuels industry and whether advanced biofuels are sort of taking a hit as a result of what's happening with the corn industry. And is it unnecessary or unfair for the advanced guys to be taking that hit?

Adam Monroe: Yeah, I think it is unfair in many ways, because a lot of the technologies that have been developed in the corn ethanol industry will be taking advantage of those technologies in the advanced biofuels industry. And you have a lot of models where today where we have the corn stalks and these kind of things that are leftover, particularly when you have a drought, we can take advantage of that at the same facilities were we make grain-based ethanol today. And there's a lot of technical synergy with that. So some of the energy that we generate by using those corn stalks can actually generate the power for the total plant and these kind of things. So there's a direct linkage there. I do think advanced biofuels is taking a hit because of that and people don't understand why they have to be linked, but we see it as a linkage, because in the future we'll be able to take advantage of those corn stalks.

Monica Trauzzi: Is there friction between the two industries then?

Adam Monroe: Not at all, there's really not. In the past, as there can be in any policy, people want to talk about different tweaks and that. But I'm here to tell you that the policy we have has put us and other companies in a situation where we've invested billions of dollars, private money, employed hundreds of people, thousands of people and it's been a great thing. And in the future, that's exactly what we're going to do and we don't need the policy to change. We don't need any tweaks or anything else.

Monica Trauzzi: So, Novozymes is part of the Biofuels Leadership Coalition, it's a new coalition of companies. Why the need for another group supporting biofuels and ethanol? It seems like there are so many different voices out there right now.

Adam Monroe: Right, well, just to make that clear, we're just five private companies -- or public companies, big ones, DuPont, BP, Abengoa, us, POET, and we've collectively invested a billion dollars into this industry. This is not government money. And what we want to get out is the fact that we're commercializing now. There's a plant going in in Kansas. We just opened a $200 million facility in Nebraska. BP is opening a facility in Texas and in Florida. DuPont is building a facility in Iowa. So this huge wave of commercialization -- steel is going in the ground at all of these locations and I don't think people know that. I don't think people realize that we're ready to employ another billion dollars as we're putting this deal into the ground. And we'd hate to have something happen that gives us pause as to why we shouldn't do that.

Monica Trauzzi: So, you're basically hanging a billion dollars in front of the government and saying if you waiver the RFS, we're not investing.

Adam Monroe: What we are saying is we have billions invested and we're investing a billion dollars more. It's not like we're waving it in front of them. We have and are investing a billion. We just opened a $200 million facility. We spent $200 million and what we're saying is, as you guys talk about amendments, that gives us pause, because what is that going to mean for us in the future? If misperception about a lot of things, a simple example is how much corn is used to run grain-based ethanol, if a simple misperception can create the kind of things that you hear today about policy, it gives us pause about, well, what will they come up with next? And I just think that's a shame, considering the huge potential this country has. I just want to tell you something. I was personally involved in deciding where we put this $200 million plant that we just opened, with 100 new zymers as we like to call them. We looked all over the world, the best place to put it was in the United States. And we are going to commercialize these fuels over the next 18 months. I'd hate to see anything that detracts our confidence that that would be a great thing to do.

Monica Trauzzi: Do the Obama administration's new fuel efficiency standards detract from that at all?

Adam Monroe: No, actually we see that as a positive. We see the value of ethanol and what it can do for miles per gallon and the octane benefit has a tremendous opportunity with miles per gallon standards and these kind of things.

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

Adam Monroe: Thank you.

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

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