Following a significant decline in revenue in 2015, how is the ethanol industry managing continued market and policy uncertainty this year? During today's OnPoint, Bob Dinneen, president and CEO of the Renewable Fuels Association, discusses the challenging environment facing his industry as stakeholders await a court decision on U.S. EPA's 2014-2016 renewable fuel standard targets.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Bob Dinneen, president and CEO of the Renewable Fuels Association. Bob, thank you for coming back on the show, nice to see you.
Bob Dinneen: Thanks for the invitation, great to be here.
Monica Trauzzi: Bob, ethanol revenue declined significantly in 2015. How would you describe the current financial state of the industry, and what's the outlook for the remainder of 2016.
Bob Dinneen: Well, look, it's a tough marketplace today. Margins are clearly being narrowed by the falling oil prices and what's happening. Ours is a tough business. We are buying our feedstock in one commodity market and selling our product into another commodity market. So last year was a tough year. But we just gathered for our annual meeting last month and I was a bit worried that coming into it people would be kind of upset. But quite frankly, everybody in the industry is upbeat because they've been through tough times before and they know that they are a stronger, more efficient industry today, and everybody is investing in new technologies, new markets, trying to gain that edge, trying to become just a little bit more efficient.
I compare my industry, the ethanol industry, with the oil industry. Faced with the same economics, the same economic climate with falling oil prices, the oil industry shed 80,000 jobs last year. And they pulled out of communities in North Dakota and Texas where fracking was booming. And those communities are now suffering from the bust. What did our industry do? Our industry added 2,000 jobs last year, and we reinvested in technologies and we are investing in the infrastructure to grow our marketplace. I think that's a pretty remarkable comparison.
Monica Trauzzi: I've interviewed executives at DuPont and DSM, both companies are moving towards shifting investments abroad, namely to China. What we hear from trade groups is that the RFS is important for the American people, for job growth, but what the industry is doing is contradicting that. They don't see much of an opportunity with the RFS in the U.S. market. With investments moving abroad, what is the long-term view for the U.S.'s industry?
Bob Dinneen: Well, tell me what is going to happen ultimately with the renewable fuel standard. The reason DuPont and DSM are looking to invest with their second-generation cellulosic ethanol technology is because the signal that EPA has sent with its implementation of the RFS thus far is that there's not going to be a growing market for cellulosic ethanol in this country. And so they have no choice. And that is, that's a horrible consequence of a bill that was passed in 2007 with great optimism for how the renewable fuels industry would continue to evolve in new technologies and new markets.
Look, our industry is sort of facing many of the same challenges. Instead of growing our market share here, we are also looking at export markets. We exported 837 million gallons last year, and we will likely do more than that this year. And while that's good in one sense, it's allowing consumers in other parts of the world to have the benefits of renewable energy, the fact of the matter is we ought to be maximizing ethanol use here, we ought to be growing the market so that we could invest here, and see the evolution of the biofuels industry that was envisioned in 2007 really occur.
Monica Trauzzi: But ultimately are ethanol exports going to end up being the strongest source of revenue for the U.S. industry?
Bob Dinneen: Look, the marketplace is going to be what it's going to be. There is still a lot of demand domestically. Ethanol is the lowest-cost, cleanest octane source on the planet, so there's going to be demand for our product. We want to grow by just being that 10 percent blend that the oil companies are satisfied with. We want to be able to offer consumers more choice, lower cost, higher-octane fuels. So we want to grow that market here.
Monica Trauzzi: Officials from EPA recently indicated there's no plan post-2022 when the RFS expires. Can your industry survive without a government mandate in place?
Bob Dinneen: Look, there'll be some ethanol being blended no matter what because of its octane value. But I've been in this industry for now close to 30 years, Monica. I have seen the refining industry walk away from favorable economics. Days when ethanol as an octane source was far cheaper than their toxic aromatics that would replace ethanol. And I'm afraid that in the absence of an RFS, you would see that again. You'd see aromatic levels rising, the toxicity of gasoline causing further public health consequences, because refiners ultimately are in the business of through putting their hydrocarbons, not our carbohydrates. And that's why the RFS remains so important.
Look, I want to get to a time when there is a truly free marketplace in energy. And refiners don't have the control over our distribution and our sale as they do today. But our customer is our competitor, and the RFS was really just trying to make sure that consumers had access to this fuel and making sure that refiners weren't shutting us out.
Monica Trauzzi: So you need the RFS post-2022?
Bob Dinneen: Again, until there is a truly free marketplace. You know, ethanol is not subsidized today. The only liquid transportation fuel that receives a subsidy from the taxpayer is, oh, oil. You know, we're paying refiners to drill deeper in the Gulf of Mexico and to frack in North Dakota and Texas. We aren't subsidized. I want to see the renewable fuels industry continue to evolve. I want to see new technologies. I want to see new feedstocks. I want to see us get beyond the 10 percent blend wall. All of that happens if the EPA grows a backbone and implements this program in the way that it was intended to be implemented so that refiners have to invest in the infrastructure to allow E85, to enable E15 to be sold. It's not that hard.
Monica Trauzzi: And of course there's litigation pending now on the RFS challenging the 2014-to-2016 requirements. Many predictions point to a decision in 2017. How does that impact certainty about the program and certainty within your industry?
Bob Dinneen: Well, clearly the failure to have a decision this year -- and I'm not going to quibble with your timeline, I think that that's probably right, it's unfortunately not likely we'll get a decision in time to inform EPA's RVO process for the 2017 program, and I think that that's a shame. So we're going to continue as we are today hobbling along. I view it as a lost opportunity. And the ones that are paying the biggest price are the DuPonts and the DSMs and those that would want to commercialize advanced biofuel technologies. They're the ones that have been sent the signal, "No, we don't need you, there's not going to be a market for you," and that is just wrong.
Monica Trauzzi: How do you think a new Republican, potentially Republican administration, could change the course on the RFS?
Bob Dinneen: You know, tell me who the Republican president in that case is going to be, and I'd probably have a better handle on it. But, look, I don't know. There is broad bipartisan support for this program. Despite all of the money that API has thrown at trying to undermine support for the RFS, we do monthly polling and every month more than 70 percent of Americans across all parties and all demographics continue to support the RFS and ethanol generally because they know that renewable fuels like ethanol are the surest pathway toward energy diversity, addressing global climate change, helping farmers have a value-added market in rural America. There are all kinds of reasons that bipartisan support for this will continue to exist. And whoever is president, the RFS is law, past 2022, and it will take congressional action to move. So, you know ...
Monica Trauzzi: And there's also bipartisan opposition.
Bob Dinneen: Oh, for sure. Largely in an oil patch. It's awfully loud today but when this debate really gets going and there's a rational debate about some of these issues and committees want to have all the parties at the hearings, not just the oil company apologists, then you'll have a fairer hearing and a better understanding of all these complex issues.
Monica Trauzzi: All right, Bob. Lots of moving parts. Thanks for coming on the show.
Bob Dinneen: Monica, thank you. Always good to talk to you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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