Hostile Takeover: What Happens to Biofuels if Republicans take Congress?

September 21, 2010 |

The US election season is upon us, and it is a hostile takeover environment if ever there was one. Rollbacks and repeals are at the top of the Republican agenda on many fronts.

Yet biofuels has enjoyed bipartisan support – with Senators like Chuck Grassley of Iowa and John Thune of South Dakota among the sector’s strongest supporters.

What will happen? BIO’s bioprocessing guru, Brent Erickson, takes us through BIO’s view on the potential impact of a DC powershift, and much more.

BD: Where are we now, as we head into the fall elections.

BE: We have had two years with Democrats in Congress and the White House, and they pretty much got their way. Obama took on health care and got it gone, and TARP and the stimulus and he’s shot his wad now.

BD: Overall marks for the Administration?

BE: I have been a little bit disappointed in the Obama administration. When he was in the Senate he as very pro-biofuels.  He had to choose his priorities, and that is understood, but this administration hasn’t done as much as expected.

BD: Impact of the Administration’s Interagency Working Group on Biofuels to date?

BE: It’s having minimal impact so far. Its good from an organizational point of view, and good to have Vilsack at head. DOE says “we are not a deployment agency,” and I am not sure who is. Some people at USDA think that it is, others think not. What we are seeing are, really, the limits of government power.

BD: Looking ahead to divided government?

BE: You can look at biofuels as an agriculture policy issue – or as green tech. These runs in cycles. First there was a biofuels wave, now wind and solar folks have reached the ascendancy. Biofuels is a much more diverse field than wind and solar – over there it’s wind turbines and solar panels – that’s part of the problem. Then, the economy going in the tank, and the people who have money to invest got conservative.

But biofuels have enjoyed pretty good bipartisan support, although the oil companies will have more of a voice if the Republicans take over. Not all oil companies have the same position – some are outright anti-biofuels, some are more pro than others. But the ag lobby is pretty powerful.

BD: What about the Farm Bill coming up for discussion now?

BE: The farm bill is big and complex and it it will take years. It is likely that there will be a big bioenergy title. Vilsack has made rural economic development the centerpiece of his agenda.

BD: Where do you see us on tax credits?

BE: We have done a lot of Hill meetings with the tax staff, both House Ways & Means and Senate Finance. We had a proposal with other associations for biofuels that has a good chance for this year for cellulosic biofuels. But the signals we are getting are that for a new tax credit proposal you have to find offsets to pay for it, and the pay-fors are getting harder to find.

What we are finding is that there is a preference in the House for an Investment Tax Credit as opposed to a Production Tax Credit. We expect to see the Congress renew the ethanol tax credit, but probably scaling it back.

BD: Have the pay-go rules in Congress been a stumbling block for biofuels programs? Will Republicans be able to cut spending and still maintain biofuel tax credits? For example, the biodiesel tax credit? It’s popular, but no one has been able to get it done.

BE: Biodiesel is a perfect example of the pay as you go problem.  Part of the reluctance is the finding the revenue offset. We expect that it will be passed. But its a pay-go challenge, and with the growing deficit, it’s really challenging.

BD: Do you see Congress turning more to non-revenue supports like the Renewable Fuel Standard?

BE: We view tax credits as being really linked to RFS . RFS was bipartisan policy to help commercialize advanced biofuels. The tax credits are a mechanism to make RFS work. But yes, people will start to look at other legislative options to use.

[NOTE: Thursday in hearings, the US Senate will examine the U.S. Department of Energy’s Loan Guarantee Program and its effectiveness in spurring the near-term deployment of clean energy technology.  Witnesses will include Jonathan Silver, executive director,  Loan Program Office, U.S. Department of Energy; Tim Newell, senior advisor, U.S. Renewables Group, Santa Monica, CA; Michael Scott, managing director, Miller Buckfire & Co., New York; Jens Meyerhoff, president and chief financial officer, First Solar, Inc., Tempe, AZ; and Marvin Fertel, president and chief executive officer, Nuclear Energy Institute, Washington.]

BD: Given the continued shortfalls in production of cellulosic biofuel, will oil companies seek revisions to the Renewable Fuel Standard (RFS)? Will they find a receptive audience?

BE: Oil companies are spending millions to get their tax breaks renewed, and a lot of those companies are bad mouthing biofuels tax credits. It was the oil companies who pushed for waiver in RFS, and now the EPA is waiving the Standard.  We’ve got to consider making it a real mandate.

BD: What about the ethanol tariff?

BE: We don’t have a position on tariffs. But a couple of companies have raised a new idea – why don’t we lift the tariff on sugar for non-food uses so we can bring sugar in to make sugar based biofuels? That way you wouldn’t end the protection for traditional uses, just to make biofuels or bioplastics. It’s not just about using biofuels. The organisms we use to make enzymes use sugar, so we could bring down the costs of detergents. That illustrates the think outside the box approach that we will see more of.

BD:  The GAO issued a report in June showing that the DOE Loan Guarantee Program is not working as intended. What can Congress do to fix the program, and will it be on their agenda?

BE: We have met with congressional and DOE staff, and will come forward shortly with something on that front. While Congress had good intentions, it was wrong to lump biofuels in with wind and solar and require long-term off-take agreements. No oil refinery has those, much less biorefineries. In the end, the government is doing the same thing the private sector would do. The government would shoulder greater risk.

BD: Rep. Peterson introduced language to prevent the EPA from considering international land use change in biofuel carbon accounting. Under a Republican Congress, will that issue be revisited?

BE: Some people think its in EPA’s ballpark, so leave it there. But we starting to see key experts, and more and more people questioning Searchinger’s data and approach. I wouldn’t be surprised if somebody tried to do something to modify it.  Ethanol is looking for head space.

BD: E15 ethanol blending?

BE: I wouldn’t be surprised to see E15. I would be surprised to see E12, because all the testing has been based on E15, and they could be easily sued if they tried to extrapolate the data. Either way, it only buys a little time.

BD: GMO issues – are concerns growing or fading?

BE. GMO issue will diminish as time passes. Think 20 years ago, when radiation of food was introduced. An uproar. Now you see all these packets of food unrefrigerated on the shelf and not one peep by the public.

BD: Corn prices are rising. What are the chances of another food-vs-fuel campaign being mounted by cereal manufacturers?

BE: Hopefully the press and public is more educated this time. It was opportunism on the part of GMA, and did this country a disservice, especially in the way-deflected attention to problems of their own on obesity. But this obesity thing is more than they handle right now. Michelle Obama has made it her cause, and it is silly to try to engage another issue. But there is always have large amount of turnover on the media, and new young reporters, and opportunities to sell them a story, when they are not yet savvy enough to ask tough questions.

BD: The next congressional session – with divided government will we have a more productive, civilized discourse?

BE: I don’t look for it to get more civilized. As soon as the election is over – the presidential election begins, and Republicans in the House would start oversight hearings. Not more civil, for sure.

BD: Presidential elections. Does the prominence of the Iowa caucuses in the election process help biofuels?

BE: Yes, I do think it helps. The ag states are critical in that process.

BD: There’s talk of moving a Renewable Power Standard forward this fall, or in a lame-duck session after the elections. Does an RPS help or hurt biofuels?

BE: We come to a conclusion we can’t some to a conclusion. It could help the formation of a biomass production industry. And, when the refineries are ready, there would be model contracts available, and systems for harvesting and storage. Or it could drive up the price and be not helpful.

Brazil’s example is interesting though. When you talk to people who operate in Brazil, and they are growing fast and their hydro system doesn’t provide enough power any more, they need electricity. In many cases they don’t want to use the bagasse for biofuels because they need to use it for power.

BD: Last question. Looking at the industry, we see a lot more emphasis on renewable chemicals and integrated biorefineries. Is this a trend that will continue?

BE: There are a couple of new trends. As financing has stalled out, chemicals can be commercialized at a smaller scale, and the technology wasn’t there before now. Everyone used to talk about 100 million gallons, now they are looking at 25 million gallons, because we have taken a good hard look at biomass logistics, and smaller diameters make more sense.

It’s all about feedstock. The largest feedstock in chemical production is natural gas, they are held hostage to the price volatility in gas, and bio-based production opens up a whole new supply chain, starting with plastics. Plus, the chemical companies are an end user of petroleum, not a producer. So they have every reason to move forward.

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