With the president calling for an increase in alternative fuels use to 35 billion gallons within a decade and the farm bill up for consideration this year, both Congress and the administration are putting a major focus on the research and promotion of renewable fuels. During today's OnPoint, Bob Dineen, president of the Renewable Fuels Association, discusses the specifics of the administration's farm bill proposal and talks about whether or not it provides adequate funding to move beyond grain-based ethanol. Dineen discusses the difficulties of convincing retailers to sell E85 and talks about the future potential of creating an infrastructure to move E85 throughout the country.
Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Bob Dineen, president of the Renewable Fuels Association. Bob, thanks for coming on the show.
Bob Dineen: Thanks for the invitation.
Monica Trauzzi: Bob, we're seeing a huge amount of attention being paid to biofuels and renewables this year. Congress is certainly focusing on it, so is the president. President Bush has called on the country to expand its use of alternative fuels by 35 billion gallons within a decade. Is that a feasible mount?
Bob Dineen: Well, I think it is. I mean it's a great goal that the President has set out. And I think that 35 billion gallons of alternative fuels is clearly something that could be done. What he's done is he's motivated and inspired researchers to get moving on cellulosic ethanol. He's inspired the marketplace to invest in these new technologies. And you give Americans a goal and they can certainly meet it. Look what we've done with renewable fuel standards. A lot of people said that we wouldn't meet 7-and-a-half billion gallons by 2012. But a goal was established and we're going to meet that target with ethanol by the Fourth of July this year. So you give Americans a target, they have proven time and again that they can meet it. And I think it is a very feasible target.
Monica Trauzzi: The administration's farm bill proposal would include 50 million per year for bioenergy research, 15 million for new grants on biomass and cellulosic ethanol, and another 15 million per year for research on converting forest products to fuel. Is that proposal adequate?
Bob Dineen: I think it's certainly a step in the right direction. There's no question that the farm bill this year is going to include a lot of research dollars for cellulosic ethanol so that we can move forward with those new technologies and new feed stocks and meet the targets for renewable fuels that are being talked about. We're going to do great with corn and other grains with ethanol and we're going to continue to build those markets. But if you're going to be talking about 35 billion gallons or 60 billion gallons or more as some pieces of legislation are indeed envisioning, then you have to move beyond grain based ethanol. And we, as an industry, want to move beyond that. Not in replace of grain, grain is always going to be the foundation for renewable fuels and ethanol, but in addition to it.
Monica Trauzzi: So how much more money would be needed to do that?
Bob Dineen: Well, what they're talking about in the administration's farm bill is a good start. I do think you're probably going to need more resources if you're really going to crack the code and you're going to get people to invest in these newer technologies.
Monica Trauzzi: So if the farm bill is the big vehicle for cellulosic ethanol, what provisions in the farm bill will be needed specifically to get cellulosic to the forefront?
Bob Dineen: Well, the farm bill can be one of the vehicles. There may be others. There may be energy bills that will begin to move as well that will try to do other programs. But certainly the farm bill can be one of the vehicles to create programs and provide research dollars to move the agenda forward. It may not be just research and development; there may be programs within the CCC bioenergy program for example. USDA Secretary Johanns had talked about converting that program, which to this point has been grain based, and making that a cellulose based program. Providing farmers growing those feed stocks with revenue to grow those new feed stocks. So there may be programs as well as R&D that will be important to move this agenda forward.
Monica Trauzzi: Some are concerned that as the ethanol industry gains prominence the price of ethanol will go up and the prices of gas will go down. And as gas gets cheaper it's going to look better and better to Americans and they might actually switch back to gas. Is that a concern for you?
Bob Dineen: Well, we certainly hope that the price of energy in this country does begin to come down. And as you have significantly more volumes of ethanol we, hopefully, are going to continue to have a beneficial impact on consumer prices. But ethanol is going to have a value for refiners, for octane purposes, to meet Clean Air Act requirements, and just for volume. So we think that ethanol is going to continue to have a significantly important role as part of the fuel mix.
Monica Trauzzi: Increased use of ethanol could also drive up the price of food. It could become a major issue. We've already seen the price of corn go up. In Mexico the price of tortillas has gone up. Is that a concern for you at all?
Bob Dineen: Well, it's an issue. It's not really a concern. First of all, with respect to Mexico, Mexico uses white corn. We use yellow corn. There are some marketplace dynamics, but I think most analyses of that have shown that there are other marketplace factors at work other than the demand for grain for ethanol production. But ethanol is certainly driving up the feed prices today. But, quite frankly, the marketplace just got the signal to grow more corn last October. And by all accounts you're going to see a significant increase in acreage into corn this year and I think the marketplace will adapt. The American farmer absolutely has the ability to grow more corn, to provide sufficient quantities of grain for food, feed, and fuel usage. And you're going to see that.
Monica Trauzzi: But does it make sense to use the food supply for fuel?
Bob Dineen: Well, you're not using the food supply; you're using the starch from the grain. I'm probably the poster child for an example of we don't need more starch in our diet. We borrow the starch, what is left behind is a very high value, high-protein feed component that then goes to cattle markets and poultry markets. So it's not just taking food out of the mouths of babies. We are indeed going to be using significantly more grain, but the marketplace will adapt, both in terms of the amount of corn that's grown and how livestock farmers are using corn and DDG in their feed rations.
Monica Trauzzi: There is though a limit to the amount of fuel that can be produced through corn. And cellulosic ethanol is down the line, it's in the future. Why are we focusing so heavily then on corn based ethanol if maybe in 10 years it's going to be obsolete?
Bob Dineen: Oh, corn is never going to be obsolete. And I don't think that we are focused so heavily on corn. Quite frankly, there's not an ethanol producer I represent that doesn't have a cellulose to ethanol research program underway because they all realize they'd get cellulose coming into the plant. They all realize if ethanol is going to grow beyond the limitations of what we are going to be able to get from grain, which most analysis right now suggests around 15 or 16 billion gallons of ethanol from grain, if we're going to get beyond that you have to do it with cellulose. So we're investing in ethanol today. We're very focused on those technologies so that we can grow beyond the limitations of grain. But corn is never going to be obsolete. It is a critically important component of the farm economy today. Ethanol is the single most important value added market for farmers. You see how it is revitalizing rural communities across this country. And it is important to make sure that in the effort to promote cellulose that we don't lose the rural economic benefits that we are currently getting from grain derived ethanol.
Monica Trauzzi: So are you saying that there would be no effect on corn producers when cellulosic ethanol is implemented?
Bob Dineen: Many of those corn producers might be the ones growing the cellulose. And I believe that the grain based ethanol is going to continue to be there as the foundation for a larger, more diverse industry that is also going to be producing ethanol from cellulosic materials.
Monica Trauzzi: What's your take on Energy Secretary Bodman's assertion that the ethanol import tariff should be lifted?
Bob Dineen: Well, he has since clarified those comments and he has since indicated that the administration is not going to support repealing the tariff and will work with the Congress when it is coming up for renewal in 2009 and I think that's an appropriate position to take. The tariff issue has been one that's been largely misunderstood. It is not there to protect the US industry. It's not there as a barrier to entry. We, in fact, imported about 400 million gallons of ethanol from Brazil last year. The tariff is there to assure that US taxpayers aren't subsidizing already subsidized imported ethanol. Brazil has done a terrific job building its industry through 30 years of producer payments, market mandates, incentives for vehicles. They built an infrastructure. They've had export enhancements, all of which has done a terrific job of building their industry. If then Brazilian product is coming to the United States, gaining the benefit of the tax incentives that is available here for refiners utilizing ethanol, whether that product is imported or domestic, that means US taxpayers are being asked to subsidize their product as well and we don't need to do that. They've done a fine job on their own.
Monica Trauzzi: Let's talk infrastructure. Will, at some point, the ethanol industry need to create an infrastructure for moving the fuel through the country?
Bob Dineen: Potentially, I mean look, we've got a pretty effective infrastructure today. Ethanol is sold today virtually coast-to-coast and border to border. We are blended in 46 percent of the nation's fuel. And the infrastructure to move that product to where it needs to be is very effective and growing and becoming more efficient.
Monica Trauzzi: But it's expensive when you have to drive the ethanol places instead of moving it through the pipeline.
Bob Dineen: Well, we're not driving it. We're shipping it by barge. We're shipping it on uni-trains. We are, in fact, very cost-effectively moving a product to where it needs to be. Now if you're talking about moving beyond a blend component in gasoline, moving beyond the 14 or 15 billion gallons that would saturate the blend market in this country, and you're talking about 30, 40, 50, 60 billion gallons of ethanol where it is being used much more as E85 and as an alternative fuel, then a different infrastructure will certainly have to develop. But, I say different, I don't say you necessarily need to impose the existing infrastructure on top of our industry. Oil today, gasoline today is largely produced in the Gulf Coast and is very centralized there. And it moves out from there on pipelines to the rest of the country. As the ethanol industry will develop it is likely to develop in a far more dispersed way. You're likely to see cellulosic ethanol being produced in the Northeast, in the Northwest, in the Southwest, all across the country. And so a single pipeline may not be the most efficient way to move that product. A different infrastructure will have to develop and I think we'll be a lot smarter as to what the infrastructure needs are going to be in the future once there is a better appreciation for how the industry is going to develop.
Monica Trauzzi: Final question, how do you convince retailers to sell E85?
Bob Dineen: Well, in today's marketplace it's not an easy sell. In today's marketplace, where less than 2 percent of the gasoline retailer's consumer has a flexible fuel vehicle capable of running on E85, it's awfully difficult to convince the gasoline marketer to put in a pump for that small a percentage of his marketplace. General Motors and Ford have been a tremendous job with committing to increasing the numbers of flexible fuel vehicles on the road. And in a White House meeting a couple of months ago they committed to the President of the United States to produce as many as 50 percent of their vehicles as FFEs by 2012. When that begins to happen, when you have many more vehicles on the road capable of running on E85, it's going to be much easier to convince the gasoline retailer, hey, your consumers can use this product. Your consumers want to use this product. And I believe at that time the infrastructure will certainly develop.
Monica Trauzzi: OK, we will end it there. Thanks for coming on the show.
Bob Dineen: Thank you very much Monica.
Monica Trauzzi: This is OnPoint. I'm Monica Trauzzi. Thanks for watching.
[End of Audio]