Temporing the Ethanol Industry

The finest steel is made with the hottest fire, Renewable Fuels Association's Bob Dinneen told ethanol industry representatives at the 14th annual National Ethanol Conference, in describing the challenges the industry has faced.
By Susanne Retka Schill | April 14, 2009
The National Ethanol Conference held in late February in San Antonio struck an optimistic tone in spite of the volatile market conditions of 2008 and the current economic uncertainties. Renewable Fuels Association President and Chief Executive Officer Bob Dinneen praised and encouraged the ethanol industry in his opening remarks at the organization's 14th annual conference.

"We all know that the finest steel is made with the hottest fire," he said. "And while we have been and continue to be tested, the ethanol industry will come through this a stronger, more competitive and more sustainable industry." To prove his point, Dinneen referred to last year's production. In spite of a flagging economy and unprecedented commodity price volatility, the U.S. ethanol industry produced and sold a record 9 billion gallons, growing by 34 percent even as the nation's economy was slowing. "The U.S. ethanol industry last year added an additional 240,000 jobs, bringing the employment attributable to ethanol to almost a half million, at a time when jobs across the rest of the economy were hemorrhaging," he said. "Even with recently announced plant closures, the U.S. ethanol industry is still operating at about 85 percent of capacity, while the manufacturing sector as a whole has slowed to about 70 percent of capacity." He also praised the ethanol industry for improvements in energy and water efficiency and the advancements that have been made to commercialize cellulosic ethanol production. "I see ethanol blended gasoline now representing approximately 70 percent of the U.S. motor fuel market and I am thrilled by that," Dinneen said. "And while I know we are also careening toward a blend wall as the RFS (renewable fuels standard) mandated volume of renewable fuel continues to expand, I know we are far better off today than if the 2007 Energy Bill had not passed and we did not have such a robust foundation from which to grow further."

With encouragement from Dinneen, the approximately 1,200 attendees heard speakers from within and outside the ethanol industry as they addressed issues touching on the conference theme: Growing Innovation—America's Energy Future Starts at Home.

From the American Petroleum Institute, Jim Ford, vice president of government affairs, talked about the petroleum industry's support for ethanol and renewable energy while presenting the oil and natural gas industry's point of view on a number of issues. "Our industries are the largest consumers of ethanol, and a number of companies are directly engaged in the business—BP, Chevron, ConocoPhillips, Shell," he said. "We continue to increase the volume of renewables in the nation's transportation fuels mix and last year used 8.7 billion gallons of ethanol through November."

He reminded the group that fossil fuels and the oil and natural gas industry will continue to be the major source of energy for decades to come, with a growing contribution from the renewable energy sector. The oil and natural gas industry has been deeply involved in that growth, Ford said, providing 65 percent of the investment in innovations in energy technologies in the country, totaling $121.3 billion between 2000 and 2007. Ford also reminded the ethanol industry of its reliance on natural gas for powering ethanol plants, providing nitrogen for corn production, and the manufacturing of many of the components used in building renewable energy facilities. He urged the ethanol industry to join the API in asking Congress to allow for the continued development of offshore natural gas reserves.

Ford also asked the ethanol industry to oppose the patchwork of state mandates and attempts in some states to change distribution regulations. A couple of states are currently considering legislation to require suppliers to offer unblended gasoline to jobbers. "If ethanol were more expensive than gasoline, some jobbers may decide to sell only straight gasoline and not handle ethanol blends at all, making compliance with the national RFS more difficult or even impossible if jobbers were allowed discretionary blending," Ford said. "We need to join together to oppose this type of state legislation." The U.S. oil and natural gas industry is committed to working with the ethanol industry, Ford told the conference attendees. "It is essential for all stakeholders to work together in moving forward and respect each others needs if we are to achieve regulatory compliance and consumer acceptance of these new motor fuel formulations." The global economic crisis underscores the need to take effective action now to ensure an efficient and productive expansion of the use of ethanol and other biofuels, he said. "If we get it right, we can get our country on the road to economic recovery and insure we have the energy supplies we need in the decades ahead."

Doing Midlevel Blends Right
During a panel discussing midlevel blends, Kris Kiser, executive vice president of the Outdoor Power Equipment Institute, brought an outsider's view to the ethanol group. The institute represents a range of motorcycle, marine, snowmobile and small engine appliances, which consume about 3 billion gallons of fuel annually. Kiser told the group that it wouldn't be difficult to design small engines for a specific ethanol blend. "We can design for E10 or E20, but it's hard to design for a wide range of blends," he said. The challenge, he added, is that his group represents more than 900 engine families and a wide range of equipment from lawn mowers to snowmobiles. In addition, the industry is now required to meet tighter U.S. EPA emissions targets.

Kiser spoke frankly about the problems the marine industry encountered when ethanol was cheaper than gasoline and a few batches of E85 were fraudulently or mistakenly sold as E10. The boat failures caused by incompatible components prompted a rash of lawsuits and a cautionary approach to ethanol blends among many in the industry. Kiser said he is also concerned about the 200 to 300 million legacy pieces—older equipment that is not compatible with ethanol blends. He said both industries need to support an educational effort as higher blends are introduced so consumers can understand the issues and become familiar with distinctive nozzles or labeling so they can choose the right fuels. "We want to get it right," he said.

Kiser explained the small engine industry's concerns after hearing the preliminary results of small engine testing from the panel's first speaker, Valri Lightner, acting biomass program manager at the U.S. DOE. The testing of midlevel blends being conducted on a range of small engines has raised some issues including clutch failure. An idling chain saw, for example, would be hazardous if it accidentally engaged due to clutch failure, he said. The small engine group joined with several others in cautioning the EPA to go slowly with introducing midlevel blends. "We need to do the studies and understand and prepare for the issues shown in the studies," he said, pointing to the fact that only 28 engines have been tested to date out of the 900 engine families in the industry. "We're not anti-ethanol, although we're often portrayed as anti-ethanol," he added. "We want to partner with you."

Another midlevel blends panelist, Mike Maher, executive director powertrain/vehicle integration for General Motors Corp., echoed Kiser's concerns about higher ethanol blends. "Many of our challenges are the same as for small engines," Mayer said. "There's interest for an EPA waiver for E12, E15 or E20. Some vehicles would work OK with these and some will not," he said. "We're concerned about the pressure to implement a waiver without full study."

Maher also listed several other issues where he sees the auto industry working with the ethanol industry, such as policies encouraging flexible-fuel capability for all original engine manufacturers (OEMs), developing protections for OEMs from certain legal actions involving midlevel blends, and planning a consumer education effort for proper use of blender pumps.

Energy Security Priority
A second oil industry representative gave voice to the free market's role in charting the nation's energy future during the keynote address on the second day of the conference. "We need assistance from the government mandates," said Joe Petrowski, chief executive officer of Gulf Oil LP. "But I don't want the U.S. government deciding on the minutia. Tax credits, mandates, yes, but let the market allocate resources." He doesn't favor the oil industry being told where they can or cannot drill, nor which feedstocks are required in the renewable fuels standard. "It's not government's role to say which acre of land in Iowa should produce corn, ethanol, cattle or poultry. "Let the markets decide the allocation."

Petrowski argued that the nation's policy goals should include low-cost energy as a driver of economic activity, as well as avoidance of price spikes, and a focus on energy security. "Biofuels—ethanol and biodiesel—make a huge contribution to energy security," he said, pointing to the transportation sector's 96 percent dependence on petroleum and its contribution to price inelasticity in the transportation fuels market. "Biofuels are the quickest, most economic and environmentally friendly way to break the back of that dependency. Diversification of resources is important." Ethanol is already making a substantial contribution to reducing that stranglehold, he added. "If we weren't producing 9 billion gallons of ethanol last year, I don't know where we would have gone in prices."

Petrowski also told the audience not to be shy about subsidies. "Ethanol had $5 billion in subsidies," he said. "But wait, we've to date spent $600 billion in Iraq alone." Those types of indirect and direct subsidies are not unusual, he said. "Subsidies to certain industries that serve the public interest are as old as the republic itself," he said.
Petrowski listed other policies to encourage the expansion of alternative fuels:

›Develop the flexible-fuel infrastructure and help the roughly 16,000 stations being renovated each year out of the nation's 165,000 fuel stations to add E85. Gulf Oil owns 1,100 stations and each requires an investment of nearly $250,000 to install E85 capability.

›Increase the motor fuel tax to encourage people to buy more fuel efficient cars, and simultaneously encourage alternative fuels through tax exemptions.

›Mandate fleet conversion.

›Reduce import tariffs, which Petrowski admitted would not be popular in the ethanol audience. "I don't fear Brazilian ethanol like I do Venezuelan petroleum," he said.

›Continue to support more infrastructure for cellulosic ethanol.

Global Alliance
The two-day conference covering policy and marketing issues closed with a session where Dinneen, posed questions to his three international counterparts. Gordon Quaiattini, president of the Canadian Renewable Fuels Association, Robert Vierhout, secretary general of the European Bioethanol Fuel Association (EBio) and Joel Velasco, chief North America representative for the Brazilian Sugar Cane Industry Association, each described the expanded mandates and movement towards greenhouse gas reductions.

During the conference, the RFA, CRFA and EBio announced the formation of the Global Renewable Fuels Alliance (www.globalrfa.org) to promote and support biofuels-friendly policies internationally. In its announcement, the GRFA pointed to the potential for biofuels production to create green jobs and break the global addiction to oil, benefiting in particular 38 of the world's 47 poorest countries that depend on oil imports. The group cited a recent World Bank study showing the biofuels industries require about 100 times more workers per unit of energy produced than the fossil fuel industry. The newly formed alliance called on the World Bank to make investments in developing countries' biofuels infrastructure a top priority.

Susanne Retka Schill is an Ethanol Producer Magazine staff writer. Reach her at sretkaschill@bbiinternational.com or (701) 738-4922.