As advanced biofuels companies look to move their investments abroad due to regulatory uncertainty, what is the future of cellulosic technology advancement in the United States? During today's OnPoint, Hugh Welsh, president of DSM North America, discusses his company's next steps following last year's opening of the Poet-DSM Project Liberty biorefinery. Welsh also explains why he believes a price on carbon is needed for the U.S. to significantly reduce greenhouse gas emissions.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Hugh Welsh, president of DSM North America. Hugh, thank you for coming on the show.
Hugh Welsh: Thank you for having me.
Monica Trauzzi: Hugh, Poet-DSM's Project Liberty has been operational for a little over a year now. As you consider the proposed 2014 to 2016 renewable fuel standard targets that are set to be finalized this month, are they in line with what the cellulosic industry is currently doing, the numbers that the cellulosic industry is currently producing?
Hugh Welsh: Yeah, thank you, Monica. I don't think that the numbers are the challenge with respect to advanced biofuels in the proposed RVO. I think the challenge is with the methodology they use to get there, and so EPA has imposed a 10 percent blend wall, so to speak, which necessarily means that there'll be less room for advanced biofuels as we go forward. So the number, in and of itself, is not the challenge; it's the methodology.
Monica Trauzzi: What are the production numbers currently at the Project Liberty facility?
Hugh Welsh: We're in the thousands of gallons we're producing now. We haven't gotten to the continuous batch stage, but we are producing cellulosic ethanol at this point. We're encouraged that we're going to get to continuous batch very soon, and at capacity, we'll be able to do 25 million gallons a year. We're also encouraged that DuPont actually opened their cellulosic ethanol facility last week in Nevada, Iowa, and that plant has the capacity to produce 30 million.
Monica Trauzzi: That's right, and I recently interviewed DuPont's Jan Koninckx on the show, and he indicated that his company was actually moving investments abroad as a result of the regulatory uncertainty that exists. Is that also something that DSM is doing in terms of investments and partnerships?
Hugh Welsh: Absolutely. I mean, yeah, the regulatory uncertainty here in the states with respect to the RFS has really dried up the investment climate and it's made it very difficult for us to find other companies that are willing to make an investment in building a cellulosic ethanol plant. That being said, we found a lot of opportunity in China, in India, in Latin America with governments and organizations who are eager to embrace this technology, and it's relatively unfortunate that you have such an opportunity for foreign direct investment in the United States -- I mean, DSM is a Dutch-headquartered company, which took $200 million of its own shareholder dollars and invested them here, creates such an opportunity here in the states, not only for climate change mitigation, but jobs, and we're losing that opportunity because of this regulatory uncertainty.
Monica Trauzzi: So what new technologies -- what technological advancements is DSM working on for next steps on biofuels?
Hugh Welsh: Of course, working on microbial technology to find even more efficient ways to pull the C5, C6 sugars out of stover or other feedstocks, like bagasse in Latin America, elephant grass in Africa. So it's all microbiology technology, new strains that can do this much more efficiently and, as a consequence, lower cost.
Monica Trauzzi: And are these technologies that you would look to share in the U.S. or have you completely diverted your attention to the international market?
Hugh Welsh: We would welcome the opportunity to -- sorry to cut you off. We'd welcome the opportunity to license these technologies to anyone here in the U.S., and first-generation ethanol producers are really a logical group to license this technology to. That being said, there's a hesitancy to make the necessary investments because of the uncertain regulatory climate.
Monica Trauzzi: You talked about the environmental benefits of the RFS, but those benefits have been called into question. As your company is seeking to reduce emissions and you actually have pledged to cut carbon emissions, how do you reconcile some of those numbers, some of those statistics that point to little to no environmental benefits of the RFS?
Hugh Welsh: Yeah, I mean, I would call into question the validity of a lot of the statistics that have come out and said cellulosic ethanol doesn't have a significant greenhouse gas emission benefit over gasoline. I'd take a look at where they came from. That being said, the industry's going to look at doing new and better life-cycle analysis so that we can come up with objective and credible figures that everybody can work against.
Monica Trauzzi: But what about corn ethanol, which is still in use?
Hugh Welsh: Yeah, I'm agnostic with respect to corn ethanol. DSM's not in the corn ethanol business. We understand that's the logical first step to get to the second generation, or cellulosic ethanol, but we're ready to make that step now, and I think the Poet-DSM plant as well as the new DuPont plant are a demonstration that the industry is ready to move from that first generation now to the second generation.
Monica Trauzzi: DSM recently joined 67 other companies in a climate pledge to cut carbon emissions. You support putting a price on carbon, so I'm curious what your thoughts are on the Clean Power Plan, not quite a price on carbon.
Hugh Welsh: You might find it remarkable, and I don't think it goes far enough. We would really like to see a carbon fee here in the United States along the lines of what Senator Whitehouse has proposed in his bill. We think, until there's a price on natural capital, which includes air, water and carbon, we're never going to see the technological developments that we need in a biorenewable economy, and so DSM is a strong proponent of a carbon fee or a carbon tax.
Monica Trauzzi: But in terms of legs -- political legs in Congress -- the chances of a carbon tax passing are very slim. Is the Clean Power Plan a good step forward, then?
Hugh Welsh: It's the first step forward, but again, I don't think it goes far enough. Until there's more economic incentive to make the transition away from a fossil economy to a biorenewable economy, we're not going to see that change.
Monica Trauzzi: You've also talked about tying executive compensation to reducing greenhouse gas emissions. How broad of a reach could that feasibly have?
Hugh Welsh: Well, in DSM, as you may know, 30 percent of my variable pay -- or my bonus -- is tied to us reaching sustainability goals such as reducing greenhouse gas emissions. If you want to encourage the private sector to come with new innovation and new technology to do this, you gotta find a way to tie it to the renumeration. Otherwise, we'll end up with a lot of pledges, which are outstanding, and it's great to see the support, but we need to move from rhetoric to renumeration. That's where you're going to see real change.
Monica Trauzzi: But how would you put that into place? I mean, you can't necessarily put a policy into place.
Hugh Welsh: I'd like to see companies who step up and make a climate pledge also put their money where their mouth is and tie their executive compensation to reaching some of the goals that they've pledged to reach.
Monica Trauzzi: All right. Very interesting. We'll end it there. Thank you for coming on the show.
Hugh Welsh: Thank you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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