Senate lawmakers want to use 8 billion gallons of ethanol in the nation's gasoline supply in coming years, which they say will cut U.S. dependence on oil imports. Will the House agree to that plan? What does this mean for gas prices? Can congressional leaders find a way around the MTBE impasse this time around? During today's OnPoint, Bob Dinneen, president of the Renewable Fuels Association, weighs in on the future for ethanol and describes how the industry will respond to the new mandate.
Brian Stempeck: Hello and welcome to OnPoint. I'm Brian Stempeck. Joining us today is Bob Dinneen, president and CEO of the Renewable Fuels Association. Bob thanks for being here.
Bob Dinneen: Thank you very much Brian for inviting me.
Brian Stempeck: The Senate, earlier this week, approved their 8 billion gallon ethanol mandate. It's a big victory for your organization and also, basically we saw a major compromise right here between Senator Inhofe and Senator Domenici. How did these two sides get from the earlier 6 billion mandate up to the 8 billion gallon mandate?
Bob Dinneen: Well I think we've been showing progress as people have recognized that our growing dependence on imported oil has gotten way out of hand and we need to do something dramatic about it. We need to make a statement about it. Earlier this year, with the leadership of Senator John Thune from South Dakota, the Environment and Public Works Committee marked up a renewable fuel standard of 6 billion gallons as you say. The momentum continued to grow and shortly after that there was a bipartisan group of some 20 plus senators that introduced legislation creating an 8 billion gallon RFS. Everybody was looking for, you know, what's the right number? We want to make a bold important statement about US energy independence, about our ability to supply our own energy, about using our own domestic renewable products. The ethanol industry has grown tremendously over the past couple of years and I think as people looked at our record of growth, look at the success of the past couple years, they recognize that hey, we can do more. We can ask more of America's farmers than five or six billion gallons. Eight billion gallons will essentially double the size of the industry by 2012. It's clearly something that we can do. We've been growing at about 20 to 25 percent a year. So this is not going to be something that will be difficult for us to meet and I think the Congress is saying, hey, look, this is a time we have 130,000 troops in the Middle East, at least in part because of our dependence on oil from that part of the world.
Brian Stempeck: Right.
Bob Dinneen: We're importing more oil and finished gasoline than we ever have before. Gasoline prices are at near record levels. Natural gas demand is up and creating more problems for the economy. It's time for the country to make a statement. A statement about our own abilities and we're not going to be as dependent as we are. We are going to rely more on domestic renewables like ethanol and the 8 billion gallon RFS does that.
Brian Stempeck: Explain how the deal got done. Senator Inhofe and Senator Domenici had some differences. How was Senator Domenici able to get this deal done with Senator Inhofe? Where were the concessions he had to make?
Bob Dinneen: The differences were really just about jurisdiction and the Environment and Public Works Committee has jurisdiction over the Clean Air Act. This is a program that is going to be run out of the Environmental Protection Agency, but more importantly, there were components of the overall agreement, because the RFS is going to replace an existing Clean Air Act program which refiners are required to use some percentage of oxygen in their fuel.
Brian Stempeck: Sure.
Bob Dinneen: And replace it with this more flexible renewable fuel standard that won't require refiners to use ethanol in any particular city or any particular state or any particular region, but use ethanol and biodiesel where it makes the most economic sense. The energy committee didn't have the jurisdiction to address those particular components of the overall agreement. So what EPW brought to the table was on the Clean Air Act side. The energy committee brought to the table the renewable fuels standard and the energy security benefits of this whole package and they had to be melded together with the leadership of Majority Leader Bill Frist, a strong supporter of an 8 billion gallon RFS. We were able to sort of work these two committee products together and come up with a product that accomplishes all of the changes to the Clean Air Act that need to be made as well as the more aggressive renewable fuel standard that the energy committee wanted to create.
Brian Stempeck: Now assuming that the Senate is able to finish their energy bill by the end of next week, how do you see this as going to conference with the House? They also have a smaller mandate and don't seem quite as willing as members of the Senate did in terms of getting to a bigger mandate. How do you see that working out with the House when this goes to conference?
Bob Dinneen: Well there will be vigorous debates about the size of the RFS when it gets to conference. I quite frankly think that a 70 to 26 vote, in the United States Senate, in support of an 8 billion gallon RFS across regional lines, across party lines clearly shows where the Senate is. The House has not really had a debate as yet on that level of an RFS, but there's support over there as well. There's been an 8 billion gallon RFS introduced over there. It's not a bill that the energy committee chair, Joe Barton from Texas, thinks is a high priority, but I believe he recognizes that some RFS has to be a part of this final energy bill in order to pass it and we're really just talking about the number now. They will bring other components of the energy debate to the table. The question of methyl tertiary butyl ether and liability protection for MTBE will certainly be on the table as well and I suspect that at some point the White House is going to sit down with the House and Senate and they will work out a flexible and appropriate fuels program that addresses all of these issues.
Brian Stempeck: I was going to ask about that. That was my next question for you, was MTBE. It basically killed the energy bill the last time around and it was close to passage. Where do you see the middle ground here? I mean it seems like the Senate is saying, once again, we don't really support this. Is it some kind of trust fund? Where do you see as a path forward that can get them out of the logjam they sat on a couple years ago?
Bob Dinneen: My area of expertise is on ethanol.
Brian Stempeck: Right.
Bob Dinneen: I don't pretend to be an expert on MTBE or MTBE liability, however I want this package done and I clearly believe that addressing the MTBE industry's concerns has got to be a part of this package. Most of the concerns that have been raised about providing liability protection to MTBE manufacturers is really focused on who pays. You don't want to let the cities and towns and municipalities that have suffered MTBE water contamination holding the bill, you know having to pay for that contamination.
Brian Stempeck: Sure.
Bob Dinneen: So if there is some way to create a fund that these communities can go to so that they're not just putting this unfunded mandate on these cities and towns, I think that would go a long way to addressing many of the real concerns that are out there about how to resolve this issue. At the end of the day, there has to be a resolution and I believe that there are people smart enough in this town to figure out what is the appropriate recourse.
Brian Stempeck: During the 2004 elections you lost a major ethanol supporter when Senator Daschle was defeated. Who are some of the people who really pushed for ethanol in the Senate bill this time around, were the major supporters, they're basically stepping up and filling the shoes of Senator Daschle?
Bob Dinneen: Well Senator Daschle was certainly a strong proponent of ethanol as you say, but you know what, there have been a number of strong advocates for domestic renewable fuels across the Senate and the House for many, many years. The person who replaced Tom Daschle, John Thune has been a strong, strong proponent of ethanol. In fact, he was one of the leaders in EPW that got the ball rolling on a more robust RFS. He was an original cosponsor of the 8 billion gallon bill and one of the leaders on the floor to get the 8 billion gallon bill passed this week. But, Senator Talent, Senator Grassley, Senator Harkin, Senator Coleman, Senator Durbin, Senator Obama, I could keep on going if you want, Senator Dorgan, Senator Connor --
Brian Stempeck: But overall do you think that losing Senator Daschle, was that actually a loss? I mean a lot of people say that he was one of the people who blocked the energy bill. During the campaign against him Thune's people were all saying he was an obstructionist. How do you see the overall loss of Tom Daschle? You had the Senate minority leader, basically one of the most pro ethanol people in the Senate, on your side. Does it hurt to lose him or have the rest of these senators that you mentioned, have they stepped up?
Bob Dinneen: I think there's not been a void created by the loss of Tom Daschle. I think the world of him. He was a great senator, a great advocate for ethanol, but there have been so many other people that have been stepping up and saying "We think this is a priority as well," that there really has not been any loss of support in the United States Senate because Tom Daschle is not there.
Brian Stempeck: OK. I want to turn to another part of the energy bill that affects the ethanol industry, which of course is the tax section. Senator Grassley is working on this right now. What are the tax credits for ethanol in the bill and how do you see those moving forward as they shape the rest of the legislation?
Bob Dinneen: Well there really aren't any tax incentives in this bill for ethanol. There's a tax incentive under current law that exists for refiners.
Brian Stempeck: Right.
Bob Dinneen: That blend ethanol and that was extended in the jobs bill last fall. There may be some provisions in here to encourage small ethanol producers, farmer owned ethanol plants, to have some kind of a tax credit as well. Senator Grassley is marking up the tax component today and I believe Senator Lincoln has an amendment that will likely be included that will address some of those issues, but there really is not a very large tax component to this program.
Brian Stempeck: Compared to the corporate tax bill.
Bob Dinneen: Correct.
Brian Stempeck: Talking more about the small producers. A lot of critics of the ethanol industry will say this is basically just giving more subsidies to Archer Daniels Midland and the five companies that control about 60 percent of the ethanol market. Besides just the tax credits, how do you ensure that a lot of these small producers, these farmer cooperatives in the Midwest, aren't going to lose out to these huge multinational corporations that control most of the ethanol?
Bob Dinneen: Well in fact, the single largest ethanol producer in the country today is not Archer Daniels Mid. Taken as a whole it's the farmer owned ethanol plant. The critics that want to say, "Oh, this is just an industry that's controlled by large agribusiness," haven't been paying attention. All of the growth, over the past five or ten years, has been in farmer owned ethanol plants. ADM, today's market share is less than 30 percent, 40 percent or more of the ethanol production out there is owned by farmers. So I think there's going to be continued growth in the ethanol industry. I clearly think it's going to continue to be in farmer owned ethanol plants as farmers themselves come together, recognize that here's an opportunity to take more direct advantage of the value added benefits of ethanol. I've been at plant openings and groundbreakings for the past four years as I've watched this industry double in size and I can tell you Brian there's nothing more exciting than standing in a flatbed truck at a groundbreaking in front of a thousand farmers, each of whom has invested their own money and are looking for the opportunity to not just deliver a $2.50 bushel of corn to a grain elevator, but taking their corn to their own ethanol plant and turning that $2.50 bushel of corn into more than $7.00 of food, feed and fiber products.
Brian Stempeck: Isn't there a danger though that some of these farmers, I mean there was a story in the Washington Journal a few months ago where they talked about some of these farmer owned cooperatives are basically building, maybe building too many plants. There might be an oversupply and you have people like ADM and other companies who are looking at this market and saying, "Well, maybe it's time to cut back on the amount of supply we're going to create here." Isn't there a danger that some of these cooperatives stand to lose a lot of money if indeed the ethanol market doesn't live up to the hype?
Bob Dinneen: Well that's not been the record so far as we've doubled in size and I think one of the important benefits of passing an 8 billion gallon RFS is it's going to create the marketplace so that these farmer owned ethanol plants can continue to thrive. So that's our hope and that's why we're working so hard to create this marketplace.
Brian Stempeck: I want to touch on another issue. The EPA recently rejected California's request, which they've had for years now, that the state doesn't want to be forced to use ethanol in its gasoline supply. Give us your take on the EPA decision and why shouldn't states be allowed to opt out of this program if it doesn't make sense for them to do so?
Bob Dinneen: Well, the EPA decision was the right decision based on the science and the law and we certainly support it, but look, ethanol is going to be used in California and in the Northeast no matter what. I believe that their focus on trying to eliminate the oxygenate requirement has been misguided for some time. Ethanol represents a huge opportunity in California for their own agricultural feed stocks to be processed into ethanol to replace some of the toxic components of gasoline that continue to be used. Without ethanol in California today their gas prices would be much, much higher, their air would not be as clean and there wouldn't be the opportunity for indigenous production of ethanol in the state of California. Ethanol has been a benefit to the state and I think they will come to realize that over time. Now, the bill that is moving through the Congress that was passed by the floor of the Senate just this week eliminates the oxygenate requirement, will give California the flexibility that they are seeking, but do so in a way that makes sure that as oxygenate, as ethanol comes out of gasoline, the air quality benefits of the program are maintained and creates other marketplace opportunities for ethanol that we believe are critically important.
Brian Stempeck: Now one of the ways that California is going to try to use more ethanol is some of the cellulosic ethanol, basically talking about the type of fuel that comes from other crops and products besides corn, switchgrass, talking about soy for biodiesel, things like that. What do you see as the path forward there? A lot of analysts have come out and said we think this might be even be a better path than corn based ethanol when you start talking about these other crops and really increases the amount you can produce. Also, what does the energy bill do for that kind of ethanol?
Bob Dinneen: Well the energy bill creates incentives for the production and use of cellulosic derived ethanol and we think that's a good thing. Look, I represent the ethanol industry. I don't represent corn ethanol. We see a future in which corn ethanol, grain ethanol is going to continue to thrive and a cellulosic derived ethanol industry is going to be created. The upper bounds of ethanol production from grain is probably in the 10 to 12 billion gallon range. We clearly believe that for ethanol to be a true alternative to gasoline you have to move beyond grain. We look forward to the time when cellulosic derived ethanol is competitive with grain and we believe that there is going to be a future in which both cellulose and grain derived ethanol are competing in the marketplace and providing consumers with clean burning alternatives to gasoline.
Brian Stempeck: All right Bob, last question for you. On the question of flexible fuel vehicles, basically you have millions of cars and trucks that GM and Ford and other companies are already making that can run on a really high amount of ethanol. They can take 80, 85 percent ethanol in their tanks as is. A lot of them are doing so because there's no stations that provide that amount of alcohol, usually it's more like a 10 percent blend. What needs to happen to get these cars and trucks running on a higher percentage of ethanol?
Bob Dinneen: Well a number of things need to happen. First of all, it's not just some gasoline stations that sell 10 percent blends, 30 percent of the nation's fuel today is blended with 10 percent ethanol. So the industry has grown to the point where we are in fact a ubiquitous component of the US motor fuel market. Now, E85, neat ethanol fuels, in these flex fuel vehicles represent another opportunity for ethanol in the most significant way to displace crude oil. In some states, like Minnesota where there are literally hundreds of E85 stations, there is an opportunity for consumers to utilize E85 as opposed to gasoline, so earlier this year when gasoline in Minnesota was topping $2.25 they could go to the E85 with the flex fuel vehicle and only pay about $1.60. Consumers all across the country ought to have that opportunity. I don't. I drive an E85 vehicle and there's one E85 station in this metropolitan region available to the public. We need to get more stations out there. We need to get more vehicles out there as well and continue to encourage car manufacturers to produce these flex fuel vehicles. You know Brazil, every vehicle that they produce and sell is a flex fuel vehicle.
Brian Stempeck: Right.
Bob Dinneen: There's no reason why we can't have that same sort of commitment here and in fact, if we were to do so there'd be a real option for consumers. They wouldn't be held hostage to the vagaries of OPEC and crude oil prices. We could have a price cap on what the Middle East is allowed to charge for our energy supplies. So I think we ought to be moving toward that. It's going to take some time of course, but I think there's a will to do so.
Brian Stempeck: All right, we're out of time. We're going to stop there. I'd like to thank our guest today that was Bob Dinneen, president of the renewable fuels Association. I'm Brian Stempeck. This is OnPoint. Thanks for watching.
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