State of the Industry Address: National Ethanol Conference: Falling Walls, Rising Tides

February 18, 2014 |

RFA-ethanol=confBy Bob Dinneen, President and CEO, Renewable Fuels Association

What? What kind of a theme is that?! It’s a mixed metaphor for Heaven’s sake.

Well, with the tumultuous market and turbulent political environment we find ourselves in today, a mixed metaphor seems somewhat appropriate. But more than that, I really do believe that Falling Walls and Rising Tides will come to define the year ahead.

2014 will be the year the blend wall comes crashing down.

2014 will be the year the cellulose wall is cracked.

2014 will be the year the trade wall erected by Europe will be breached.

2014 will be the year the octane wall crumbles, and automakers realize the pathway toward increased efficiency, compliance with fuel economy regulations and lower toxics is through cleaner, renewable, higher octane fuel.

And 2014 had better be the year we take the brick and mortar away from Big Oil and deny them their wall of ignorance and misinformation that undermines public support for ethanol.

And how? How will we do these things? How will these walls tumble? By reminding people time and again that “a rising tide lifts all boats.”

The phrase is commonly attributed to John F Kennedy, who used it in a 1963 speech to combat criticisms that a dam project he supported was nothing more than pork barrel spending. He meant that improvements in one sector of the economy would benefit all sectors of the economy. Kennedy’s speechwriter, Ted Sorenson, later acknowledged the phrase was “borrowed” from a slogan of a New England Chamber of Commerce, proving again that nothing clever or thought-provoking ever originates from Washington.

Whatever its origins, the notion of a rising tide aptly describes the economic reach of the American ethanol industry. Consider these facts:

The fact is: The American ethanol industry produced 13.3 billion gallons of fuel in 2013, the second-highest production rate in history and a remarkable achievement given the challenging market environment created by the worst drought in 50 years.

The fact is: Last year alone the American ethanol industry was responsible for some 86,500 direct jobs, and another 300,277 indirect and induced jobs as the money spent on goods and services worked through the economy. Those are good, high-paying, family-supporting jobs. Almost half pay at least $75,000 per year according to BBI’s recent survey and virtually every worker (96%) is covered by health insurance and retirement plans (92%).

And the fact is: The American ethanol industry contributed more than $44 billion to the Gross Domestic Product last year. Our industry provided $30.7 billion in household income. And ethanol plants paid more than $8.3 billion in federal, state and local taxes.

That’s an industry contributing to a rising tide.

But it goes further.

Consider the ethanol industry’s impact on American agriculture. Last year alone, the American ethanol industry used the starch from 4.75 billion bushels of corn and 150 million bushels of sorghum. That translates into more than $29 billion for America’s farmers. And the value-added benefits of ethanol have contributed to a revitalization across all of agriculture. Last year, the total value of crops totaled $217 billion, and livestock receipts surged to a record $182 billion. That’s right, hyperbolic talking points from Big Food notwithstanding; the growth in ethanol production has coincided with a growth in livestock value, rising 82% since 2000. Overall, net farm income has increased 158% since 2000 – the very definition of a rising tide.

That tide has essentially washed out federal farm program payments – which is good for the federal budget, good for the taxpayer, and good for farmers.

The reason: Farmers are now securing reasonable value for their products. The result: Federal farm program costs have fallen like a rock. In fact, federal payments to corn farmers in 2012 were among the lowest in 25 years and 82% lower than in 2006!

Of course, because we’re only using the starch in the corn, the ethanol industry also produced a near-record 35.5 million metric tons of high-quality, high-protein feed. To put this in context, consider that the amount of feed produced by the ethanol industry in 2013 would rank as the world’s 4th largest corn crop, trailing only the U.S., China and Brazil. The feed produced by ethanol plants in 2013 would be enough to produce nearly 45 billion quarter-pound hamburger patties, or six burgers for every person on the planet.

The value of these co-products is also rising. A typical ethanol plant earned 27% of its gross revenue from the sale of distillers’ grains and other co-products. The estimated market value of all feed co-products in 2013 was a whopping $9.1 billion, more than double the value in 2010. Another $700 million was realized through the sale of distillers’ oil, an increasingly important feed component and feedstock for biodiesel.

Consumers also have been benefiting from the rising tide of ethanol. Now available from coast to coast and border to border, 10% ethanol blended gasoline is the standard. Because ethanol is less expensive than gasoline, and because it has dramatically reduced our dependence on imported oil and gasoline, noted energy economist Phil Verleger recently concluded ethanol and the RFS have reduced consumer expenditures for gasoline by $700 billion to $2.6 trillion, meaning that consumers are spending as much as $1.50 LESS for gasoline! That’s a tidal wave of benefit for ALL Americans.

That rising tide – for the economy, for farmers, and for consumers – is a story that cannot be told often enough. Ultimately, it defines the state of the ethanol industry today – for we might be enduring a torrent of criticism and misinformation, but this industry, the people in this room, the engineers, scientists, marketers, managers, and farmers that comprise the backbone of this industry are stronger than that storm. Like a rising tide, we are relentless and we will keep coming until yesterday’s shoreline is forgotten and tomorrow’s bright horizons beckon us forward, filled with new promise and endless possibility.

The state of this industry then is strong – capable of surviving and indeed thriving in the face of the worst drought in 50 years and unrelenting attacks from our competitors. The state of the ethanol industry is determined – committed to growing markets here and abroad so that consumers have access to clean burning alternatives to petroleum. The state of this industry is optimistic – girding for new technologies, new feedstocks, and new markets that will set the standard for the next generation.

All we ask of Washington is one thing – Keep. Your. Word. Keep your word. It’s that simple.

In 2007, Congress did a remarkable thing – it established a long-term energy policy to wean America off our dependence on imported oil, stimulate investment in new technologies, provide consumers choice at the pump, and revive rural economies. This was also the very first program in the world requiring a reduction in greenhouse gas emissions from transportation fuels.

Without question, the Renewable Fuels Standard was, and is, visionary legislation that has become a model for progressive energy policy across the globe.

And by any measure, the RFS has been a remarkable success.

After peaking at 60% in 2005, the RFS and ethanol have helped drive our import dependence down to just 35% in 2013. Improved fuel efficiency, fewer miles driven, and increased domestic production have certainly all contributed. But increased ethanol production has most certainly done its part as well. Without the contribution of ethanol, our import dependence would still sit at 41%. Moreover, ethanol has reduced gasoline imports from 600,000 b/d to near zero today. Looked at another way, the ethanol produced in 2013 displaced an amount of gasoline refined from 462 million barrels of imported oil, or the equivalent of what we currently import from Venezuela and Iraq, combined!

The oil industry, of course, is shall we say unenthusiastic about our success, and is attempting to re-litigate the RFS by telling Congress and the Administration they can’t blend the increased levels of renewable fuel required by the Act. They’re saying it is anachronistic now because they’ve discovered all this tight oil in the Bakken. And they’re claiming the rising price of credits they must purchase from their competitors when they choose not to blend more ethanol is driving up the price of gasoline. Frack that. None of it is true.

Here is the truth.

The oil industry can easily meet the increased volumes of renewable fuel with modest investments in E85 and/or the increased use of E15. Here’s their choice, as laid out in a recent paper by Professor Babcock – who you’ll hear from later: they could spend $65 million on infrastructure to accommodate higher ethanol blends, or $7 billion on RIN credits as a consequence of their noncompliance. In other words, every $1 spent on infrastructure means they avoid spending $118 on RINs.

Moreover, the increased domestic petroleum from the Bakken is NOT driving down the price of crude oil or gasoline, those investments would not pencil out if they did. And there is NO positive correlation between rising RIN prices and gasoline prices – none. As an independent report by the Center for Agricultural Research and Development recently concluded, there is – if anything – a negative correlation because “as RIN prices increase, the retail prices for both E85 and E10 decrease.”

So while the oil industry tries to bamboozle policymakers to protect their monopoly over the fuel supply, we need to remind Washington – Keep your word.

From an environmental perspective, the RFS has been a stone cold winner. A comprehensive new study conducted by Life Cycle Associates found that the carbon footprint of corn ethanol continues to shrink, while the carbon impacts associated with crude oil production continue to worsen as more marginal sources are introduced to the fuel supply. The study, which you’ll hear about shortly, found that average corn ethanol reduced greenhouse gas (GHG) emissions by 32%, including the dubious impacts associated with indirect land use change. When compared to marginal petroleum sources like tight oil from fracking and tar sands, average corn ethanol reduces GHG emissions by 37-40%. By 2022, average corn ethanol reduces GHG emissions by 43-60%. Those benefits will only continue to improve as 2nd generation cellulosic technologies are commercialized. Meanwhile, petroleum’s carbon footprint only gets worse with every new barrel of tar sands and each new well drilled for fracking.

To those in the environmental community who have questioned the ecological impact of renewable fuels, I would note that since the RFS was passed:

 The Hypoxia zone in the Gulf has shrunk 27% since 2001,

 Amazon deforestation has been reduced 83% since peaking in 2004, and

 Transportation sector CO2 emissions have been reduced 11%.

And to Washington, I say, Keep Your Word!

And we can’t say it often enough, ethanol and the RFS have revitalized rural America. The 158% increase in net farm income since 2000 underscores the economic success of the RFS. But still there are voices questioning whether this success has come at the expense of increased food prices. Here the facts are indisputable – ethanol and the RFS are NOT driving up the cost of food. Again, the facts:

 More grain is available for food and feed use worldwide today than at any time in history;

 Corn prices today are lower than when the RFS was passed;

 Food inflation has been lower since the RFS passed (~2.5%) than in the 20 years prior (~3.5%), and food inflation in 2013 was just 1.4%, the second lowest in 40 years. Incidentally, the lowest food inflation rate in the last 4 decades – 0.8% — occurred in 2010 – a year in which ethanol production was also near 13.3 billion gallons.

According to the World Bank, “most of the food price increases are accounted for by crude oil prices,” not ethanol! That’s because food production and distribution is so heavily tied to petroleum for fertilizer, energy, transportation, and refrigeration and storage. So to the Malthusian alarmists that believe ethanol is driving up the price of food, I say, check your facts and stop spreading false information.

And to Washington, I say, “Keep Your Word.”

Finally, the RFS is absolutely stimulating investment in new technologies and driving innovation in renewable energy production.

The greatest fear of some oil companies is that the evolution of the ethanol industry from a grain-based industry to one of multiple feedstocks will succeed. Indeed, that is why they are fighting the RFS so vehemently today. You’ve taken 10% of the barrel from them with grain, they know that if the RFS is allowed to progress to its 36 billion gallon target with 21 billion gallons of advanced biofuels and cellulose, they will have lost more than a quarter of the barrel. That’s what’s at stake here. So they talk of phantom fuels and they grouse about the pace of commercialization, ignoring that EPA has waived 99% of the cellulose targets to date because production was stalled by a global recession and an investment freeze. They hope they can leverage past disappointment for future capitulation.

But they are wrong. Too late! Cellulose is here! Ineos in Florida is already producing from agricultural waste. Abengoa Bioenergy in Kansas is producing power today and will soon begin production of cellulosic ethanol from wheat straw. POET/DSM is slated to begin production using corn cobs and stover at their Iowa facility in a few months. DuPont’s Nevada, Iowa plant is going up quickly and they’re looking at commercial scale production soon. And Quad County Corn Processors is just one of many corn ethanol plants investing in technology to process the cellulosic fiber in the corn kernels into a 2nd generation fuel and will be producing soon as well.

The only potential roadblock for these companies is if EPA fails to implement the RFS as it was intended. So to these cutting-edge companies, I say: Keep up the great work. And for them in particular I say to Washington, “Keep Your Word!”

As you all know, EPA last fall proposed REDUCING the RFS across the board – cutting the cellulose requirement, the Advanced Biofuel bucket that includes biodiesel, and the portion of the RFS where corn starch ethanol qualifies. EPA recommended cutting corn ethanol from 14.4 to 13 billion gallons, a potential cut of 1.4 billion gallons and, incredibly, 800 million gallons less than what was required by the RFS last year. Indeed, the 13 billion gallons in EPA’s proposal is 300 million gallons less than what we produced in 2013 – on the heels of the largest corn crop in history! An inexplicable step backwards to what has been an overwhelming successful program.

But it’s a proposal. And thankfully, Americans across the country stood up to express their frustration. At a public hearing EPA convened in December, well more than 2 to 1 of the citizen advocates attending were appalled by EPA’s action and demanded the Agency implement the RFS according to the statute. Tellingly, at that hearing the oil companies paid a dozen or more college students beer money to wear pre-printed t-shirts with anti-ethanol slogans. But even the oil company rent-a-students began to clap when Iowa Governor Terry Branstad spoke passionately about the impact ethanol has had on rural America and consumers across the country.

Ironically, the most compelling speaker on that day was also a student – although not rented by anyone – a student from Michigan drove the 800 miles to D.C. on his own dime to tell EPA quite directly not to roll back on the RFS because the natural consequence of that would be more tar sands, more fracking and greater environmental harm to a planet his generation would inherit. We need more renewable fuels, not less, he said. EPA needs to listen to him. And you’ll get to meet Aaron Walsh later as he is one of our Scholarship recipients.

A few weeks ago, EPA closed its comment period on the proposed RVO. They heard from more than 50,000 Americans all across the country concerned about consumer choice, lower gasoline prices, energy security and value-added markets for farmers. In effect, those 50,000 Americans were all telling Washington to “Keep Your Word!”

Now, EPA must listen and lead. The Administration must not allow the oil companies to subvert the RFS by erecting a blend wall and claiming it precludes them from complying with the RFS. If EPA limits the RFS to the volume of ethanol Exxon is comfortable blending, we will never realize the potential of renewable fuels and an historic opportunity will be frittered away. The evolution of biofuels technology will stall for lack of a growing market. The carbon benefits of renewable fuels will be forfeited. The most important value-added market for farmers will stagnate, costing jobs and economic growth in rural America. And the inexorable march away from petroleum will be reversed; leaving us ever more dependent upon a finite source of energy that compromises our national security and endangers Mother Earth.

None of that makes any sense. Washington, Keep Your Word!

We must keep our word as well. We must redouble our efforts to eliminate the regulatory barriers to E15, develop the market and build the infrastructure to accommodate higher level ethanol blends. No matter what happens with the RFS, we must do these things.

On the regulatory front, we have made great progress. A year ago, only a handful of states allowed the use of E15. Today, 22 states either allow E15 or are very close to doing so and another dozen states are on a pathway to remove those remaining regulatory barriers.

Because of the progress we have made, today more than 60 stations in 12 states offer E15 to 2001 and newer vehicles. In those stations, E15 is averaging more than 20% of overall fuel sales. Compare that to just 3-5% sales for premium on average. Perhaps most importantly, fuel and C-Store sales are up! E15 is proving to be a winner not just to the consumer as it is typically priced below E10, but for the gasoline marketer as well. In addition, more than 70% of the top 20 vehicles sold nationwide today explicitly approve E15 in their owner’s manuals. There’s a market. That helps to explain the announcements recently by Murphy and MAPCO that they will soon embark upon major E15 conversions.

It is time for the histrionics surrounding E15 to end. More than 60 million miles have now been driven on E15 without a single report of misfueling or engine damage. The CRC junk science API and AAA point to justifying their scare tactics about E15 was methodically and thoroughly debunked by the Department of Energy’s National Renewable Energy Lab last fall. Most recently, a study conducted by the International Council on Clean Transportation for the Bipartisan Policy Committee threw more cold water on the CRC study. After reviewing the CRC study, ICCT stated “interpreting these results in the context of a number of other studies – which found no significant damage to vehicles with E15 and E20 – we conclude that vehicles model year 2001 or later can safely consume E15.”

There’s nothing left. It’s time to move on and allow consumers the choice to use E15 if they believe it is appropriate for their car and their pocketbook.

EPA can help here. The Agency has made E15 a seasonal fuel by denying it the same volatility treatment afforded ethanol. The RFA has provided EPA with reams of data demonstrating the equivalency of E15 and E10 from a volatility perspective. EPA needs to provide parity so that marketers can offer these fuels year round. Either provide the volatility waiver to E15, or take it away from E10. But the continued disparate treatment of E15 is unjustified, and is standing in the way of expanded ethanol fuel use and the successful implementation of the RFS.

A recent report by the Petroleum Equipment Institute concluded that the cost of upgrading an existing retail gas station to sell E15 is substantially less than the $200,000 – 300,000 claimed by ethanol opponents. In fact, the report notes, the stations that offer E15 today have spent an average of just $10,000 per station to add the product—or slightly less than $0.01 per gallon of gasoline sold for the average retail station. Adding an E85 pump will be slightly more, perhaps $50,000 per station.

We need to understand – and act upon — the changing demographics in the gasoline retail sector. Today, most gasoline is sold by small businesses without the deep pockets or access to capital to invest in blender pumps. Moreover, there’s the continued intransigence of the major refiners to higher ethanol blends. Therefore, it is up to the ethanol industry itself to prime the infrastructure pump. The RFA intends to lead an industry effort to assure the future growth of higher ethanol blend market opportunities. I hope that you will all join us in this effort. Yes, I would like to think we could all stand outside 1150 L St. in Washington and shout to the API’s Jack Gerard to “Tear down that Blend Wall.” But he is not listening. We’ll need to do this ourselves, brick by brick, station by station.

While that wall is coming down, the RFA will also continue to lead the way toward expanded export opportunities. After all, if the U.S. market is going to be artificially constrained, we’re going to have to move our product to those places that will use our fuel. The U.S. ethanol industry has solidified its position as the low cost ethanol producer in the world. As a consequence, last year we exported approximately 630 million gallons to Canada, the Philippines, Brazil, and the United Arab Emirates – that’s the third highest total ever. We’re working with the U.S. Grains Council and Growth Energy on an Ethanol Export program to stimulate demand in growing markets across the globe. We intend to grow that market.

We will, of course, continue our efforts to tear down barriers to ethanol exports, such as that erected by the European Union when they unjustly imposed an industry-wide anti-dumping duty, despite no evidence of dumping by any company having been determined. We’re challenging that action in the European Courts and we’re working with our government to challenge that action at the World Trade Organization. The real loser in the EU’s nonsensical action is the European consumer, who is being denied access to low cost high performance renewable fuels.

In his very poignant and insightful book, “The Last Lecture,” the late, great computer science visionary Randy Pausch, who was so wise and died too young, expressed this profound truth:

“The brick walls are there for a reason. The brick walls are not there to keep us out. The brick walls are there to give us a chance to show how badly we want something. Because the brick walls are there to stop the people who don’t want it badly enough. They’re there to stop the other people.”

The walls are not there to stop us! The walls are not there to stop the people in this room. This industry tears down the walls intended to keep us out. We’ll use a rising tide of consumer choice and economic prosperity to wash those walls into the sea.

Remember, we are the people who beat the odds to build a great industry. We are the people who prevailed over Big Oil and passed and preserved one of the most successful energy policies in American history. And we are the people who overcame a drought and a downturn to produce record amounts of ethanol while developing the next generation of biofuels.

For the American ethanol industry:

Difficult is what we do.

The seemingly impossible just takes us a little bit longer.

And – mark my words – 2014 will be a banner year of rising tides and falling walls!

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