SUMMER 2008 ISSUE


Securing a Nation



U.S. national security interests demand that we end our dependence on foreign oil. Ethanol is uniquely positioned to help meet that critical goal. But what must happen, and how long will it take?




R. James Woolsey, Venture Partner at VantagePoint Venture Partners in San Bruno, Calif., and the former Director of Central Intelligence who is now a member of the National Commission on Energy Policy, preaches a passionate sermon about an increasingly important aspect of U.S. national security. “We have to destroy oil’s monopoly over the world’s transportation fuel,” says Woolsey, who notes that the United States now borrows nearly $400 billion a year to purchase foreign oil, which in turn makes it a de facto political hostage to dictatorships and autocratic kingdoms whose values are anathema to its own. “I don’t mean limit. I don’t mean reduce. I mean destroy.”


Congress took a leap in that direction last December when it passed the Energy Independence and Security Act of 2007 reversing the thrust of a 2005 measure that sought to increase domestic oil production. The new bill’s objective is to decrease consumption of oil and gasoline. According to the U.S. Department of Energy, the country currently imports between 12 million and 14 million barrels of oil per day. As of May 2008, with prices at $115 per barrel, the cost works out to about $1.5 billion spent each day to meet the current demand.


The cost of protecting those oil interests in the Middle East is enormous as well—and growing. The amount the Department of Defense spends annually, even when the country is not at war, is $49.1 billion, according to Milt Copulos, the late President of the National Defense Council Foundation, who died earlier this year.


In March 2006, Copulos testified before the Senate Foreign Relations Committee, based on his report, “America’s Achilles Heel: The Hidden Costs of Imported Oil.” When all costs related to the higher price of oil in 2005 and protection of foreign supplies were totaled, he said, it would be equivalent to adding $7.41 to the price of a gallon of gasoline.


The politics of oil distort U.S. foreign policy and relations, Woolsey explains. For example, U.S. opposition to Iranian nuclear weapons is seriously weakened by the fact that Russia buys Iranian oil and holds a veto at the UN Security Council. By the same token, China, which buys oil from Sudan and also has a Security Council veto, blocks any U.S. effort to intervene in the genocide in Darfur.


According to Robert Zubrin, author of Energy Victory: Winning the War on Terror by Breaking Free of Oil, Saudi Arabia is the largest recipient of international oil revenues, as large as the next four largest members of the Organization of the Petroleum Exporting Countries (OPEC), and notes that much of this money has gone to fund fundamentalist terrorist groups. In an editorial he coauthored with Gal Luft, Executive Director of the Institute for the Analysis of Global Security, an energy security think tank in Washington, D.C., Zubrin calls OPEC “the real culprit,” stating that oil prices set by the group represent not only a threat to national security, but also a huge regressive tax on the world economy, with $3.2 trillion spent globally on oil. Zubrin says where the United States is concerned, oil import payments have the potential to completely monopolize the U.S. defense budget in future years.


More staggering still are those numbers with no dollar signs attached to them whatsoever. Since the war in Iraq began on March 20, 2003, the number of American lives lost is at 4,077, with 30,004 men and women wounded, according to May 2008 figures from Iraq Coalition Casualty Count.


To help address these issues, the 2007 energy bill mandates the use of 20.5 billion gallons of biofuels annually by 2015 and 36 billion gallons by 2022—a steep increase from the 4.7 billion gallon benchmark for 2007. Given current dynamics in the embryonic market for alternative fuels, most of that will be corn ethanol. But beginning in 2016, the bill mandates annual increases of 7.25 billion gallons in the use of advanced biofuels such as cellulosic ethanol, which can be made from, among other things, switch grass or agricultural waste.


Other alternative fuels, such as methanol, biodiesel and hydrogen cells for cars, have been widely promoted as additional options for a more secure future based on drastically reduced use of oilbased products such as gasoline and diesel, but none of them have so far achieved the consumer awareness or market penetration of ethanol. In addition, claims that biodiesel or hydrogen cells could dramatically expedite energy independence have proven unrealistic. That means that much of the burden for breaking the stranglehold of foreign oil will fall to the ethanol industry.


GETTING THERE FROM HERE


Benchmarks set forth by the energy bill will allow the industry to build a market that will have a genuine impact on national security.


For instance, Detroit—the U.S. car manufacturing capital—must produce many more flex-fuel cars as a key catalyst for creating a national market for ethanol. Woolsey says Congress should mandate that all new vehicles sold in the United States be flex-fuel capable. Luft concurs with that assessment, but argues that only a Congressional requirement for flex-fuel vehicles can stimulate the huge national market that ethanol proponents want. “That’s why I’m not very hot on the new energy bill,” says Luft. “It doesn’t really address the issue. A renewable fuel standard is only effective if you make sure the cars are right.”


Based on his research, Luft adds that “about three years after you introduce a flex-fuel mandate, you will have 50 million alternative fuel cars on the road. At that point, there is a business case for fuel distributors and gas station owners to retrofit their facilities and sell the fuel. And assuming that oil prices remain high, and that the ethanol is competitive, you have a business case for making more fuel.”


For that reason, Luft stresses, ethanol producers should lobby hard for such a flex-fuel vehicle mandate. “It’s a major leap, and the only leap that can make a real difference,” he says. “Once you have a lot of flex-fuel cars, then you have real competition for oil. And that is revolutionary.”


John Urbanchuk, an Economist and Director of the Agriculture and Biofuels Practice at global consulting firm Law & Economic Consulting Group (LECG) in Wayne, Pa., agrees that a distribution shortage is a current obstacle to a national market for ethanol.


Equally necessary is to make more widely available blender pumps, which give the American consumer an option when they fill up their tanks. Currently there are between 25 and 50 ethanol blender pumps installed throughout the Midwest. With ethanol blending pumps, one tank at the fuel station holds E85, while the other holds standard unleaded gas. Pumps typically offer E10, E20, E30 and E85 (the numbers equal the percentage of ethanol in the fuel), which is a mixture of the two varying ratios.


Together with a flex-fuel vehicle mandate, a wealth of blender pumps nationwide would give consumers the chance to directly impact America’s dependence on foreign oil as well.


EMULATING BRAZIL


A successful model for the energy future of the United States exists in Brazil. Flex-fuel cars, introduced there in 2003, now represent 85 percent of new car sales, according to research by Bostonbased World Energy, the No. 1 producer of biodiesel. By 2020, Petrobras, a Rio de Janiero, Brazil-based oil company that has moved aggressively into ethanol, predicts that flex-fuel vehicles will make up 72 percent of Brazil’s light vehicle fleet, up from 13 percent in 2006. By 2020, Brazilians will consume more ethanol than gasoline because flex-fuel cars will dominate the country’s fleet, predicts Sergio Gabrielli, CEO of Petrobras. Gasoline-powered cars are expected to shrink to 13 percent from 71 percent over the same time period.


In the United States, by 2022, when 36 billion gallons a year of ethanol and other alternative fuels are being used under the requirements of the energy bill, 30 percent of the motor fuel consumed will come from a source other than oil, Urbanchuk says. “So, I would say at that point, ethanol becomes a significant factor in our national security,” he adds.


One way of getting there, Urbanchuk says, short of mandating the production of flex-fuel vehicles, is to increase the ethanol-gasoline blend from the current 10 percent to 20 percent.


Urbanchuk believes that a booming national market for E20 ethanol, as a hedge against high gasoline prices, would represent a tipping point in terms of impact on national security interests. He believes that benchmark could be met in five years.


For his part, however, Woolsey sets an even loftier goal. Based on rapid development of new technologies for production of cellulosic ethanol, he says the National Energy Policy Commission projects the United States can replace 50 percent of gasoline consumption with ethanol over the next 20 years, an accomplishment that would represent a resounding victory over the monopoly of oil.


“Red Fridays” Program Supports Troops


Launched online as a grassroots movement in 2006, “Red Fridays” recognizes troops serving overseas by asking employees to wear red shirts to work each Friday. “It’s near and dear to my heart because the son of a hunting and fishing buddy of mine died in Afghanistan,” says Mummert. “‘Red Fridays’ shows respect for our military and keeps us thinking about them.”Upon hearing about Mummert’s effort, POET Biorefining – Corning, Iowa, General Manager Greg Olsen adopted the practice at his facility, as well. “We got the entire town involved,” says Olsen.





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