As ethanol faces a supply glut, how is the industry managing challenges and what is the forecast for growth in 2013? During today's OnPoint, Tom Buis, CEO of Growth Energy, discusses the latest round of hurdles facing the industry, including dumping charges from the European market and the legislative priorities of the 113th Congress.
Monica Trauzzi: Hello, and welcome to On Point. I'm Monica Trauzzi. Joining me today is Tom Buis, CEO of Growth Energy. Tom, thanks for coming back on the show. Nice to see you.
Tom Buis: Thank you for having me. Yeah.
Monica Trauzzi: Tom, last time you were on the show, we were talking about the drought, high corn prices. There is now an ethanol supply glut. How is the industry handling this?
Tom Buis: Well, it's been difficult. It's been a difficult year. You know, we had all the so-called fear-mongering about the drought, and I think last time I was on here, we discussed it, and I said, you know, people shouldn't panic. At the end of the day, the markets will adjust, and they have. Corn's less than $6 a bushel today. Nobody quit doing anything. We had to make some adjustments, and the market always adjusts. But we do have a glut, and we have a glut because we have the blend wall. We're up against the 10 percent maximum you can put into the fuel, because there have been a number of regulatory and legal hurdles erected by the critics of ethanol to prevent E15 to getting into the marketplace in a sufficient quantity. And until that happens, we're going to have overproduction capabilities. It's going to stifle investment in next generation biofuels, because investors aren't going to want to product a commodity that's already in surplus. And so that market access is really the key, Monica.
Monica Trauzzi: But the first term of the Obama administration was seen as largely favorable to your industry.
Tom Buis: Absolutely.
Monica Trauzzi: Would you disagree with that at all?
Tom Buis: No, not at all. They've been very supportive of the industry. The President understands the advantages of biofuels, what it does for our nation, reducing our dependence on foreign oil, creating jobs, jobs right here in the United States that can't be outsourced, revitalizing rural communities. I mean, the rural economy is in better shape probably than any sector of our economy, and has been for two or three years, and the biofuels has helped it. And it also saves consumers at the pump and improves the environment, so all the facts are still there to support biofuels. We're just under some very intense attacks by vested interests who don't benefit from increased biofuels use.
Monica Trauzzi: All right. And there's some, have been some questions about the role that U.S. producers are playing in the European market, and whether there's some dumping happening there. How big of a market is Europe to U.S. producers, and what exactly is happening there?
Tom Buis: Well, it's not been a big market, except last year it was a big market, because, a couple of reasons. One, Brazil didn't have enough product to export to fill the European market, and the U.S. ethanol industry fulfilled that. This year, it's been pretty non-existent. It's way down. The E.U. filed antisubsidy case investigation, which proved negative. They dropped that. And they filed an anti-dumping case, and that is still working its way through the process. It's not been formally applied yet.
Monica Trauzzi: How would a dumping tariff change the game for you guys?
Tom Buis: Well, any time they add any type of tariff on it, it makes our product less competitive with others, and we're still contesting that. We don't think there's been dumping, and we certainly hope in the end of the day that we succeed.
Monica Trauzzi: So the fiscal cliff legislation that was signed into law earlier this month includes a credit that will cover 30 percent of the cost of alternative fuel vehicle refueling stations. What does that mean for the industry moving forward?
Tom Buis: Well, it's good, it's good news. It primarily just covers the infrastructure fueling needs for E85, the full 30 percent. We've suggested, and obviously a lot of people agree with this, but when they do a tax extenders policy, they usually just change the dates; they don't change the policy, that that same credit apply to flex pumps. Flex pumps are better for the retailer because they can provide up to five or six different products on that same pump. It gives them maximum flexibility. And, you know, E85 is just one dedicated pump. So if the market's good for E85, the retailer can make money. If it's not, they don't. And we've suggested those changes. We haven't given up on it. We hope this next Congress, which hopefully is more productive than the previous one, takes up some of these issues on energy reform.
Monica Trauzzi: And does this credit do anything for E15 or the potential for blending?
Tom Buis: Well, flex pump qualifies, but only for the amount of E85 that gets pumped through that flex pump. So let's assume it's ten percent. Only that portion of the credit would apply. That's what we've been trying to change. That law and that tax credit was written long before you had that flexibility of pumps that could deliver up to five or six different products.
Monica Trauzzi: So in this law, there's also a cellulosic biofuel producer credit and a biodiesel credit. Are we seeing any favoritism happening from the government when it comes to these types of incentives, and sort of promoting the more advanced forms of biofuels?
Tom Buis: Well, you know, a couple of years ago, Monica, we actually came out and suggested getting rid of the tax credit for blending in the industry. It was no longer needed. We didn't receive it directly. It was good in the beginning. And I think that's the same case for all the next generation stuff. You need some incubation of those industries to help get started, till their competitive. In the first generation cornstarch-based ethanol, we're competitive. We're cheaper than gasoline. Our challenge is not getting a tax credit. Our challenge is getting access to the marketplace, especially when our competition controls the distribution to the consumer, to you. So that's the big key, and that's why flex pumps, that's why higher blends, that's why keeping the RFS, which gives you market access, as a necessity, are so important.
Monica Trauzzi: EPA administrator Lisa Jackson has announced she's leaving the agency, and she's been a supporter throughout her reign at EPA for the RFS, higher blends of ethanol and gasoline. What does her departure mean for your industry, and who do you think would make for a good replacement?
Tom Buis: Well, what are you doing here in the future? No, Lisa Jackson has done a fantastic job from our industry's perspective. She understands the value of biofuels, as does the President and his entire administration. I don't know who's going to be the replacement. Certainly there's a lot of names floated out there, but we'll just have to see. You know, I've used this line forever here in town. You read the speculative lists and the so-called short lists and stuff, but my experience has been the people talking don't know, and the people who know aren't talking. And we'll just have to wait to see, but, you know, I would imagine the President picks someone who is favorable to renewable energy. He's stated repeatedly his support for it.
Monica Trauzzi: You suggested that you hope the 113th Congress is a little more productive than the 112th. Where does ethanol sit on the legislative agenda, do you think, for this new Congress, and specifically what types of legislation are you hoping to see?
Tom Buis: Well, I think the most you'll see are attacks on ethanol, again. Big Oil has decided that they don't want to see the blend wall cracked, and so if you don't crack the blend wall, there's no need for the RFS above ten percent. And that seems to be their play. I think we'll succeed in defending it, so it's going to be very defensive from our standpoint. If Congress decides to do some energy policy, some, which, you know, it's very rare that they do, and even more rare in the previous Congress that they did anything, or do anything, that's where we'll have our opportunities to weigh in on things like markets access and regulation or legislation that makes good regulatory decisions for people to be innovative and be able to compete. You know, we're on the cusp of the next generation of biofuels production. What we need now is that market access and that signal that federal policy is going to remain certain for those people to invest in that and move forward.
Monica Trauzzi: All right. Everybody wants some certainty. We'll end it there. Thank you for coming on the show.
Tom Buis: Thank you, Monica.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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