We Are In This Together, By Ourselves

May 31, 2011 |

Stop moving the goal posts, and two more principles for an advanced ethanol policy that works

By Brooke Coleman, Executive Director, Advanced Ethanol Council

This is a critical time for the biofuels industry. We’re up against a precarious financial and business climate and face major legislative and regulatory obstacles. It is a common refrain these days that solidarity in the cleantech and biofuel industries is the key to weathering these challenges.

This was the idea behind forming the Advanced Ethanol Council (AEC) under the umbrella of the Renewable Fuels Association (RFA), a union built around a common interest in growing and diversifying the ethanol industry. This was the idea behind the AEC spearheading a letter from the major renewable energy trades opposing cuts to the DOE loan guarantee program. And this was the genesis of a recent collaboration among the biofuel trades in support of the federal RFS.

Real challenges, and unreal critiques

But it is also true that the political challenges facing ethanol are not the same as those facing other fuels. Perhaps it is ethanol’s success as the most ubiquitous alternative fuel in the world that drives many to use it as a political football. While some of the concerns about ethanol are genuine (e.g. like all natural resources, land is finite), many more are either widely exaggerated to make a point (e.g. indirect land use change) or totally divorced from reality (e.g. food versus fuel).

Often lost in the counter-productive and backward-facing public obsession with corn ethanol are the clear attributes of the ethanol molecule itself.

Ethanol – highest yields and greatest greenhouse gas reductions

A recent study, “Ethanol – the Primary Renewable Liquid Fuel,” makes the case that ethanol is the most efficient and productive way to create renewable fuels from biomass and reduce our dependence on oil. Published in the Journal of Chemical Technology & Biotechnology, the study found that due to the fundamentals of photosynthesis and the laws of thermodynamics, biomass-to-ethanol can achieve the highest yields and greatest greenhouse gas reductions of any alternative fuel option.

Specifically, the study demonstrates how, compared to other transportation biofuels, ethanol requires the least amount of carbon to produce and retains the highest amount of oxygen that exists in biomass. This is noteworthy because retaining the oxygen in biomass, as cellulosic and advanced ethanol does, leads to greater yields, lower carbon intensity, and in many cases, lower operating and production costs.

The study also dispels some of the myths surrounding ethanol’s performance and infrastructure needs. While it makes perfect sense to treat new biofuels (and bio-chemicals) with open arms, we should not forget that ethanol is a proven commodity that has been used for decades as a high performance fuel in American automobiles and is now blended in all 50 states.

During this time, ethanol has evolved from an octane-enhancing additive to a primary renewable fuel with a very bright future, as new technologies and feedstocks come online. The infrastructural investments now required to keep the ethanol industry on an upward and innovative trend owe to its successes in the marketplace, not its weaknesses.

“China and OPEC are eating our lunch.”

For all his foibles, Donald Trump was right when he said that “China and OPEC are eating our lunch.” T. Boone Pickens was right when he said that “foreign oil dependence is killing our economy.” The basic properties of biomass-derived ethanol make it uniquely suited to become one of America’s primary solutions to rising gas prices, foreign oil dependence and job creation. Ethanol is produced here. It is cheaper than gasoline. And during a period in which we exported jobs and capital to countries like China at an alarming rate, the 200 biorefineries now lining the American landscape offer a breath of fresh air, and in many cases will be ground zero for the development of advanced biofuels.

However, innovating the industry and reaping the enormous upside of advanced and cellulosic ethanol commercialization means that government officials and the regulatory agencies charged with maintaining our access to affordable energy must recognize, as they did for oil and gas in the early 20th century, the urgency of the oil dependence problem and what these various alternative fuels need to reach their full potential.

Three principles for advanced ethanol policy

As a general guide for advanced ethanol, we recommend the following:

1.    Stop Moving the Goal Posts.

Investors in clean energy need, to the greatest degree possible in a vertically integrated and volatile liquid fuel marketplace, stability and predictability. The entire alternative energy sector deflates when tax incentives and programs are offered then pulled back in midstream, when critical programs are implemented then raided to pay for cash-for-clunkers, and when lawmakers take short-sighted runs at landmark programs like the federal RFS and the bioenergy programs administered by the USDA.

The advanced ethanol industry, and the larger advanced biofuels sector as a whole, will deliver if policymakers help stabilize rather than destabilize the ramp to commercialization.

2.    At minimum, create parity in the tax code for alternative fuels.

A cornerstone of the development of the oil and gas industries in this country was the enactment of durable and predictable tax incentives that de-risked the initial investment in fossil fuel extraction and processing. Most of these oil and gas incentives still exist today, and are being used for oil and gas development projects currently underway.

If the volumes of advanced biofuels envisioned by the federal RFS are to be realized, we must level the tax playing field and, at minimum, give advanced biofuels the same preferential treatment offered to oil and gas. BP wrote off approximately 70 percent of its lease rate for the Deep Water Horizon, to the tune of $225,000 per day, because they were trying to find the “next gallon” of liquid fuel. That’s the playing field advanced biofuel companies are trying to compete on. And it’s the same concept.

3.    Open up the ethanol marketplace.

It should be taken as a positive sign that many companies are working on biofuels that have a molecular structure more similar to a hydrocarbon fuel, which in turn will make some aspects of market penetration less cumbersome. But it would be unwise to let the commercial prospect of these fuels paralyze current efforts to expand the marketplace for ethanol. Investors take a portfolio approach to investing in alternative fuels, and the government would be wise to follow suit.

The ethanol marketplace is effectively capped at 10 percent of overall gasoline sales because of vehicle warranties, even though ethanol is much cheaper than gasoline. The current liquid fuels marketplace is too consolidated and reliant on one type of fuel to be guided by market fundamentals and reward innovation.

Action on flex-fuel vehicles

This problem, which runs counter to the American tradition of market competition, is not going to fix itself. Auto industry promises to produce flex-fuel vehicles (FFVs) are appreciated, and are a good first step, but they are far from certain enough to catalyze investment in next-generation fuels that must be able to demonstrate out-year demand to succeed.

The Brazilian government convinced U.S. automakers to produce FFVs for Brazil. It is time for that to happen here. We need more competition in the U.S. transportation fuel marketplace, and ethanol is the first step.

These three guideposts are just the starting point for advanced ethanol.

But two of the three are cornerstones to the ongoing development of all advanced biofuels (and bio-based products). As the AEC and other biofuel trades implement their respective plans to reform tax policy and accelerate the commercialization of their respective energy sources, we would be wise to lay out clearly for lawmakers the numerous areas where we all agree.

If we do so effectively, we will create a more stable platform for success while we go about the business of advocating aggressively for our particular fuel.

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