Posted on: November 16, 2010 in Ethanol, Environment, Fuel, Land Use, Production, Renewable Fuel Standard, USDA

Cellulosic Biofuels & Biorefineries Summit

November 16, 2010

Washington, DC

Remarks of Bob Dinneen, President and CEO, Renewable Fuels Association

(as prepared for delivery)

Welcome to the 5^th Annual Cellulosic Biofuels and Biorefineries Summit.  I am honored to be a participant in this event again this year because I believe this is a critically important event, gathering the leaders in production technology, finance, marketing and policy who will drive the continued evolution of the fuel ethanol industry.  When cellulosic ethanol is commercialized, and I say when, not if, it will be because of the people in this room.

That said, I think it is important to recognize that as we gather here this morning, numerous obstacles to the rapid deployment of the technologies represented in this room remain, and more obstacles are materializing every day.  Capital markets have not yet opened the spigots for this sector.  Public policy remains inadequate to encourage investment.  Political support, always fickle, appears to be waning as Congress and some in the Administration turns its eye to alternatives they perceive as more attractive.  And consumer demand for greener fuels has been muted by a flagging economy and confusion over the efficacy of climate change policy they fear will drive up energy costs. 

At this meeting, then, I believe strongly we must recommit ourselves to working together – first generation and second generation and third generation – those representing ethanol molecules and those promoting “drop-in” fuels – all stakeholders in the biofuels production and supply chains – to assure the continued growth and evolution of this important industry.  Make no mistake; we are all in this together.  As I have said to this audience before, attacks on grain ethanol today will easily become attacks on cellulose tomorrow and other advanced biofuels down the road.  Those wishing to halt the inexorable march toward biofuels really don’t care what the feedstock is or the technology is, they only want to preserve the status quo. 

So, what do we need to do?

First, we need to pry open capital markets.  To put it plainly, there won’t be commercialization without capital.  That is why we need to reform loan guarantee programs to reflect the market realities in this sector.  Fuel markets are fundamentally different than electricity markets.  We can’t bury costs in a rate base and we don’t have long-term supply agreements.  As long as the DOE Loan Guarantee program is going to ignore the realities of fuel marketing, and hold to a risk assessment equivalent to that of any private sector bank, it will not be the tool Congress intended to assist emerging technologies over the investment valley of death.

There is clearly more hope for the US Department of Agriculture’s Loan Guarantee program.  There, Secretary Vilsack and Under Secretary Tonsinger are committed to seeding investment and appear willing to accept the few inevitable failures in order to assure the desired successes.  But even with that program, the influence of bean counters at OMB could ultimately undermine the program’s intent.  And in any case, the Administration and the Congress need to stop raiding these programs for funding every time some other Clunker idea runs down the pike!

Changes to tax policy will also be needed to attract capital to new advanced biofuels technology.  Congress needs to expand the cellulosic biofuels producer tax credit to include a broader range of eligible advanced biofuels including algae and to allow developers to select a refundable 30 percent investment tax credit for advanced biofuel commercialization.   If other tax policy changes are necessary, the sector needs to come together – quickly – to identify what else is needed and help those of us tasked with the responsibility of lobbying on your behalf to assure success on Capitol Hill.

Second, we need to be looking at a range of market access issues currently discouraging investment in cellulosic ethanol.  Look, the RFS schedule clearly is not driving investment.  Now, to be fair, it was never intended to do so.  If there were adequate supplies of advanced biofuels, the RFS would be working just fine.  But as it is, we must recognize that the RFS is NOT a mandate.  As long as EPA continues to adjust the cellulosic requirement downward, it will be exceedingly difficult to commercialize the technologies that would one day meet those targets.  Investors will walk away without a true market.

There are other issues.   The fight for breaking through the blend wall is as much about creating market opportunities for cellulose, as it is about the existing industry.  If EPA continues to limit the availability of E15 to 2007 and newer vehicles, or even 2001 and newer vehicles, then the market opportunities for cellulosic ethanol will continue to be artificially restrained.  EPA needs to make E15 available for ALL vehicles and ultimately needs to raise the blend level even further to accommodate the volumes of biofuels required by the 2007 Energy Bill. 

Perhaps more importantly for cellulosic ethanol, there needs to be a far more serious effort to increase the number of flex fueled vehicles and infrastructure if cellulosic ethanol is ever to achieve its potential.  The voluntary commitments of GM and Ford are terrific, and I applaud their effort.  But unless the foreign manufacturers step up, the demand for E85 will never be sufficient to drive investment in cellulose.   The time for an FFV mandate is long past.

Third, the people in this room would be making a mistake to believe that the fight over indirect land use and carbon accounting is a grain ethanol fight.  The debate isn’t about feedstock.  The debate is about land.  And an energy crop grown on land that could be used for food will be subjected to the same insidious and ignorant assault that is hampering grain ethanol today. 

Environmental and energy policy are now tied together.  We all have a stake in making sure this debate is founded upon sound science and consistent system boundaries.  It makes no sense, for example, that biomass used for ethanol generation is penalized by the current CARB model for indirect land use, while that same biomass used for electricity generation is not.  It makes no sense that ethanol is penalized for Brazil’s failure to adequately address deforestation in the Amazon; while battery technology is not penalized for the environmental consequences of lithium mining and refiners are not penalized for the environmental degradation associated with tar sands.

The recent election results may have struck a blow to monetizing carbon through a cap and trade bill.  But it most certainly did not signal the end of efforts to reduce carbon emissions.  Note that Prop 23 in California, the effort to dismantle the state’s carbon policy, garnered more votes than any candidate running for office at either the state or federal level, and it was handily defeated.  Carbon policy will continue, and our collective interest in assuring sound public policy that recognizes the carbon benefit of ALL biofuels is more important today than ever.

Look around you and see every sector of our industry and its allies – pioneers in feedstocks, industrial biotech, and biofuels technology and plant developers, as well as leaders from the finance, oil and transportation communities.

What you see is one industry that has grown together, that has overcome obstacles together, and that now must surmount new challenges and seize new opportunities – together.

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