Just as an Iowa corn farmer checks the skies and prepares to ride out an oncoming storm, the ethanol industry is ready to weather changes that will come when a longtime federal tax credit is expected to expire later this year.
And officials with POET, say the future is bright, just as long as there’s new infrastructure, so that the industry can compete – fair-and-square – with oil and gasoline companies.
Weathering this change, says Jeff Lautt, President of POET, will allow biorefiners to make technological advances in not only the production of corn-based ethanol, but the next generation of cellulosic ethanol, as well as invent new industrial products made from the corn, corn stover, a blade of grass or wood waste.
At issue is the 45 cent-per-gallon Volumetric Ethanol Excise Tax Credit, or VEETC. It’s the incentive that’s given to fuel blenders who add ethanol into their gasoline supplies.
Most every Midwest corn producer who fuels the ethanol industry with the raw material needed to distill America’s home-grown fuel has benefited from VEETC. Whether that’s a higher per-bushel corn price, or a new, hungry market for their crop, the incentive has helped define an industry.
Yet VEETC, industry leaders and politicians agree, will most likely expire at the end of the year. While the credit has helped an industry – giving it a push from infancy to maturity – there’s a strong chance that VEETC will come to end as politicians look to slash spending to spur the economy.
“From our perspective, we’re pretty certain that the VEETC is going to go away, but we’d rather it go away in the form of reform as opposed to it just going away,” Lautt says. “Today, the industry has grown to be 10 percent of this county’s fuel supply, which is greater than the amount we import from Iraq or Saudi Arabia. We think that the percentage can continue to grow, if regulatory hurdles are removed and market access is opened up. All we want at the end of the day is the ability to compete, one-on-one, with oil and gas.”
Infrastructure Investment
Sioux Falls-based POET – the largest producer of ethanol in the world – has been preparing for life without VEETC for more than a year now.
Chief Executive Officer Jeff Broin saw the winds of change coming, and has worked tirelessly to get politicians to see that scaling down VEETC – but replacing it with investments that open up the market – is good not only for the industry, but for the country as a whole.
“Ethanol is already competitive with gasoline,” he said last year. “I believe the time has come to transition to an open market where consumers can choose their fuel.”
When the first federal legislative ethanol incentive was created within the Energy Policy Act of 1978, the U.S. was only producing 10 million gallons of ethanol, according to the World Ethanol and Biofuels Report from F.O. Licht. This year, ethanol production is expected to top 13.95 billion gallons – which is helping to meet the U.S. Environmental Protection Agency’s Renewable Fuel Standard.
That standard requires that 36 billion gallons of renewable fuels be blended into the nation’s transportation fuel supply by 2022, thereby further reducing foreign imports of oil, while stretching existing reserves.
That can’t happen unless ethanol gets its chance to shine independently, industry leaders say.
E15
A big step to creating a larger market for ethanol and moving forward into this bright new future is overcoming the hurdles to make E15 available to all consumers.
In January, the EPA approved E15 for all vehicles built in the last decade, or some 151 million cars and 67 percent of the cars on the road today that consume about 75 percent of the country’s fuel, according to officials with Growth Energy, the industry’s leading organization for producers and supporters of ethanol.
But there’s been push-back in Congress. In an amendment proposed this summer by Reps. John Sullivan, R-Okla., and Gary Peters, D-Mich., the hope was to prohibit E15 from making it to the marketplace.
That can’t be allowed to happen, industry leaders and supporters said. Not when the industry is so close to new and exciting breakthroughs when our country desperately needs new jobs.
“Blocking E15 would further put Libya, Venezuela and Iran at the steering wheel of our economy and our national security,” says Tom Buis, Growth Energy’s Chief Executive Officer. “Ethanol is the only competition to foreign oil we have today and E15 is a proven fuel for today’s autos that is cheaper than gasoline refined from foreign oil. The Sullivan/Peters amendment picks politics over science. As I have said over and over again, EPA’s approval of E15 was based on the most exhaustive and rigorous study of any fuel blend in history.”
Consumer Choice
“Longer-term, what we’d really like to see is a marketplace that is as open and as available to ethanol as it is to gasoline and let consumers choose based on performance, economics, environmental aspects, whatever they make their buying choice on,” Bob Casper, President of POET Ethanol Products says.
“The tax credit was an incentive for people to use ethanol,” says Casper. “It was an incubator that got things started and it worked pretty well. But now, we’re saturated at 10 percent. For us to move forward, there needs to be the access to a larger marketplace.”
To access the marketplace, more blender pumps need to be installed across the U.S. to deliver higher ethanol-fuel blends, more flex-fuel vehicles need to be produced by U.S. and foreign automakers, dedicated ethanol pipelines need to travel to the East and West Coasts and E15 needs to be commercialized.
“Look, if we’re going to lose the tax credit, let’s get some or all of it invested back into infrastructure, which is good for all Americans,” Lautt says. “We’d like to see that happen so that home-grown, environmentally friendly fuels can continue to flourish here, whether it’s from corn or from cellulose it doesn’t matter, so we can continue to grow these markets and create jobs. As with all policies, they come and go. If you look back 20, 30 years ago, the government invested in this industry because it was new and I think you can say it was a good one, because now you have ethanol displacing foreign oil and a fuel that’s less costly to make than gasoline.”
Fighting the Political Battle
The impediment to a clean, green ethanol-powered future, industry leaders say, seems to be political rhetoric, plain and simple.
“Having affordable, secure sources of energy for the country is one of the key elements for having a robust, sustainable economy, and we don’t have that today,” Lautt says. “It’s important that when we make these investments and that the policymakers allow them to happen. There’s so much uncertainty in Washington right now that it creates anxiety. I think that’s common in the general public as it is in the industry.”
Iowa corn farmers have had to listen to an earful this summer, as Republican presidential candidates came to the state on the stump, looking to impress in the days and weeks leading up to the Iowa Straw Poll. To a candidate, most agreed that VEETC needed reform to help battle the federal budget deficit.
Still, most Republican presidential candidates said they believe ethanol is the right choice for the nation’s energy needs.
Even President Barak Obama, on a summer bus tour through the Midwest, said he still supports the industry as a way toward a “clean energy future.”
“Whether it’s the candidates or whoever is in the White House, the fact of the matter is, this country has an energy problem,” Lautt says. “And we need an energy vision, a long-term energy policy, and that doesn’t go away, whether you’re a Republican or a Democrat or it’s this election or the next. We have to solve that problem.”
Getting there, well, that’s where the battle lies. Even if, industry leaders say, the answers are fairly simple.
A simple solution
“We can make a short-term investment that will reap long-term rewards,” Broin said in June. “The expansion of flex pumps, dedicated ethanol pipelines and Flex Fuel Vehicles would create a competitive market between ethanol and gasoline that would lower prices at the pump.”
Casper puts it another way.
“Today, everyone takes E10 for granted,” he says. “Ten years ago, that wasn’t the case. Ten years ago, people were talking about E10 destroying car engines. It was going to be impossible to supply to the East Coast. E10 was considered to be something that was a non-workable fuel solution.”
“And yet today, there’s 10 percent ethanol is just about every gallon of gasoline sold in the United States and nobody knows it. It’s a testimony to the fact that ethanol works.”
And Casper expects the industry to go through the same struggles as it moves to bring higher blends of ethanol to the market with flex-pumps for a new fleet of flex-fuel vehicles.
“It’s just the nature of how markets develop and adapt,” he adds.
Fair Competition
Even without the credit, the industry will remain strong, according to Bruce Babcock, director of the Center for Agricultural and Rural Development at Iowa State University.
Babcock studied the future of the ethanol industry without VEETC last year and produced the report, “Costs and Benefits to Taxpayers, Consumers, and Producers from U.S. Ethanol Policies.”
“The current ethanol mandate is too large without an extensive investment in the blending infrastructure,” Babcock told those in attendance at this summer’s Federal Reserve Bank of Kansas City Agricultural Symposium, as reported by The High Plains/Midwest Ag Journal. “That means building more flex-fuel cars and adding more blender pumps.”
We’re very comfortable with competing with gasoline without VEETC. Our biggest concern is, we want to compete, we want access to the market, we want infrastructure so the public has a choice – and that will take this county to the next level,” Lautt says.”
It all depends on market access, fair competition – and an investment in infrastructure, rather than tax credits.
“There are future opportunities for corn ethanol, there’s the future opportunity for cellulosic and there’s the future opportunity of all the other products produced by our biorefineries,” Lautt says. “That’s good for the industry, that’s good for the economy. We see the future as very bright and we’re excited about the new horizon, the new opportunities for the future and we’re investing heavily in these areas. We’re not only optimistic in what they’re going to do for POET, but for the whole country as well.”
