Biofuels:

POET's Lautt discusses industry's messaging on RFS waiver, future of advanced fuels

After a week of Capitol Hill meetings, does the biofuels industry have the support of lawmakers to maintain the renewable fuel standard? During today's OnPoint, Jeff Lautt, CEO of POET, explains why he believes this year's historic drought does not qualify for an RFS waiver. Lautt also explains how any change to current policy could negatively affect investments in advanced biofuels.

Transcript

Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Jeff Lautt, CEO of POET. Jeff, thanks for coming on the show.

Jeff Lautt: Glad to be here, Monica, thanks.

Monica Trauzzi: Jeff, as the corn ethanol industry continues to get negative attention resulting from this year's drought, you've pointed to the fact that this is only a one-year problem. But doesn't that sort of brush aside the magnitude of the issue and also the fact that we might see prolonged effects as a result of this historic drought?

Jeff Lautt: No, I mean the reality is droughts are a short-term issue. Mother Nature has shown us in the past that she replenishes the moisture and we get into a new growing season and stocks get replenished. So, what that doesn't mean is during that time that there isn't some pain felt by all demand users of corn and that's the case this year as well. So, whether you're a livestock user, whether you're an industrial user of corn or a biofuels producer like us, everyone is feeling some pain and is making the necessary market adjustments as a result of the drought.

Monica Trauzzi: The RFS is a long-term policy, but there are provisions built into it that allow for a waiver in case of an economic or environmental catastrophe. Why doesn't this drought, the most serious drought in 60 years, qualify under those provisions?

Jeff Lautt: Well, it certainly does qualify as a review, but I think what we're very confident is that the answer is going to come back is that it's not necessary. I think what's commonly misunderstood is that there's already flexibility within the RFS, such as the carryover RINS, such as the deficit that the blenders can take into the next year and, as a result, the ethanol industry is down 15 percent year to date, just like other industries that are users of corn are down as well. So, there's already flexibility and I think when you look at the current projection of carryout in production by the USDA, it shows that the market is going to find a way to make its adjustments and to get to the next crop season.

Monica Trauzzi: So, when you talk to folks on the Hill, what's the sense? Are they seeing your perspective or the farmers' perspective?

Jeff Lautt: Well, I think our perspective is also we farmers' perspective, so if you think about this industry created a whole new demand sector for farmers and, as result, several new acres of production of corn were grown that would not have grown had there not been a biofuels industry. And if we take a key market away from farmers or if the government starts to manipulate a long-term policy, it sends a very unsettling message to farmers, who, when they make their planning decisions next spring, we think is a poor time to create some uncertainty when they've had this drought that they've had to deal with.

Monica Trauzzi: Does this all highlight the fact that the industry isn't moving quite fast enough with the commercialization of the next generation of biofuels? I mean what's the holdup at this point?

Jeff Lautt: Well, I think the industry has had tremendous success. I mean one of the key goals when the RFS was put in place in 2007 was to lower the country's energy independence. We've gone from 60 percent of imported oil to 45 percent and that has been led by the biofuels growth, which has been directed under the RFS. And we're just on the cusp of commercialization of second-generation. In fact, our company has a commercial-scale cellulosic plant in Iowa that's going to be completed by the end of next year and I think, again, another reason to not tinker with the RFS is it sends a very poor message to private investors like our companies and others who are investing heavily in the second-generation fuels to continue to meet the RFS needs.

Monica Trauzzi: But are you going to meet those targets within the RFS for cellulosic ethanol in the short term?

Jeff Lautt: Well, currently the -- what was originally laid out in the schedule, you know, when the ramp-up of second-generation or cellulosic, it was a projection and the technology was still in its developmental stages. So, it's currently a little bit behind that, but we're confident that once these commercial facilities come online, the technology gets validated, that there will be a catch-up or a fairly large ramp-up period.

Monica Trauzzi: Do you think that there is a clear concise message coming out of the industry right now? It seems like there are so many biofuels related trade groups, industry organizations, lots of different voices out there, does the message need to be a little more focused?

Jeff Lautt: Yeah, there's a lot of voices, but I think what I'm hearing is the message is pretty consistent. It's that the RFS has been very successful. We've largely met or exceeded the vision that was set by Congress in 2007 when the RFS was implemented. And we don't need a government fix right now. We don't need a tinkering of that. I think what you're seeing is the unfortunate aspects of the drought and big food companies coming in and using that as a smokescreen, quite frankly, to get what they want so that they can have a method or an avenue to raise prices to consumers. All the while, once we get past the drought and things settle down, consumers will see higher food prices and they won't see that relax.

Monica Trauzzi: Last week it was reported that several biofuels groups have hired the Glover Park Group to work public relations for them. Glover Park worked against the industry back in 2008. Does it strike you as odd that this group was hired and do you think that there's a conflict of interest there when groups like RFA are reaching out to Glover Park?

Jeff Lautt: Well, I think what I've seen in my time is that there are some people who maybe take a position at some point in time, who once later become more informed on the facts, are able to reverse their decision or their opinion on something. And I think maybe that's the case here. But, you know, we're very supportive of groups that are going to do the right thing and get the right facts out, because one thing we're very comfortable with is we have the facts at our side. We have a lot of myths that circulate amongst policy decision-makers that we're going to work very hard and we're going to support those, whether that's through associations, whether that's through coalitions or whether that's through POET on its own.

Monica Trauzzi: Does the advanced biofuels industry unfairly take the heat from the backlash that we see associated with corn ethanol?

Jeff Lautt: Well, absolutely. I think, you know, one of the common myths that you hear is that the biofuels industry is consuming 40 percent of the corn crop. And the reality is when you -- they never talk about the feed that's produced and it's now the largest feed ingredients here in the U.S. and it's very important to all feeders, whether it's swine, poultry, dairy, beef cattle. And if you net out that benefit, it's actually the biofuels industry is consuming about 16 percent. But what you like to hear from our opponents is that it's nearly half the corn crop and it's not. It's 16 percent.

Monica Trauzzi: Let's talk about investments. Through the Biofuels Leadership Coalition you've said that you, along with some other industry groups, are essentially sitting on some money that could be used for investments in the future, but if there is any tinkering with the RFS or some uncertainty on policy, you won't be able to invest that money. Is that essentially a threat saying we're not investing this billion dollars if we see any waiver to the RFS?

Jeff Lautt: Well, I think, you know, what I would say to that is that the first-generation biofuels industry not only met, but exceeded the requirements each year. So, they met -- they exceeded the vision of the government through the RFS. If we start tinkering with the RFS, there is the second-generation, which, as I said earlier, is just getting ready to go commercial. I think it's going to send a message and potentially slow down, maybe even stop investment from companies like ourselves and others who are making significant risk investment in developing that second-generation of biofuels for the industry.

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

Jeff Lautt: Yes, thank you.

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

[End of Audio]

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