Bridge Building Towards Ethanol’s Future

Dinneen says industry can meet challenges ahead
By Susanne Retka Schill | March 10, 2011

The continuing turmoil in North Africa and the Middle East has sent oil prices rising, underscoring the importance of domestic ethanol production in the United States, said Renewable Fuels Association President and CEO Bob Dinneen in his opening remarks at the National Ethanol Conference in Phoenix on Feb. 21. The industry needs to convince lawmakers of the importance of tax incentives for the nation and the industry, he said. "We need to go to Capitol Hill, speaking as one voice, educating the more than 100 new members of Congress who are new to this debate."

While current challenges may seem insurmountable, facing such a situation is not new to the ethanol industry, Dinneen said, quoting from a memo written by RFA’s first president Dave Hallberg in 1981: “While always volatile, the environment affecting alternative energy technologies has been in an acute state of turmoil and uncertainty… The administration has embarked on an economic revival program based on massive budget cuts, new tax laws, and market oriented policies that have either totally eliminated, or put in great doubt, existing federal government commercialization programs and tax incentives. Last, but not least, press treatment of the alcohol fuels industry has been generally shallow and uniformed, and the general public is receiving an increasingly negative view of its value and potential.”

The first attempt to eliminate a federal ethanol program was by the Reagan administration, Dinneen pointed out, and the industry has seen it extended four times since with ethanol being seen as a tool for reducing carbon monoxide as a pollutant in metropolitan areas, replacing MTBE when the oxygenate used in reformulated gasoline designed to fight urban smog turned out to be contaminating the nation’s drinking water. Later it was seen as a way of decreasing oil imports. The challenges today are as complicated as any faced in the past, Dinneen said, “We need to rise to these new challenges. We need to step up our game. We need to build new bridges, forge new coalitions and offer new ideas. We need to be flexible in our approach, disciplined in our message and recognize the limitations of government support in an era or unimaginable debt and competing priorities.”

Dinneen cited the economic contribution made by the ethanol industry to rural communities and the national economy, before stressing the contribution the industry makes to the nation’s energy security. With a $1.5 trillion budget deficit, and the proposals for cutting many programs, Dinneen said, “few programs will be spared. Everything is on the table; or should be.” A recent proposal to strip certain tax incentives from the petroleum industry failed, he pointed out, although efforts to end ethanol subsidies still abound. The lessons learned in the effort to extend VEETC for one year were unambiguous, he added. “Our industry needs to work with Congress and the administration to reform the tax incentive moving forward. We will. Indeed, I welcome a dialogue about the future of the ethanol tax incentive.”

“I can assure everybody in this room that an expiration of the tax incentive is a very real possibility this year,” Dinneen warned, saying the mixed messages from the industry and agriculture are not helpful.  “While this outcome is possible, it is by no means predetermined. We need to unite.”

Dinneen called for a more comprehensive approach to policies regarding incentives, looking at all energy tax policy in general and addressing the permanency of tax incentives for the mature and profitable energy industry compared to the “extenders games” played with renewable energy technologies. He mentioned several reform proposals, saying that all need to be fairly considered, including:

•    A refundable producer tax incentive rather than market-based incentive.
•    An incentive limited to the gallons above the renewable fuels standard obligation, or make it available to only midlevel ethanol blends and E85.
•    A phase down of the incentive while phasing in mandates for FFVs and blender pumps.
•    A carbon-based performance credit favored by environmentalists.
•    A variable tax incentive tied to the price of oil and/or crush margins to provide a consumer safety net, assuring ethanol demand if oil prices fall, but being dropped if not needed.

“Frankly, each of these has both advantages and disadvantages. But we must allow a dispassionate debate, based on fact and market analysis, and guided by political reality,” he said. “Ultimately, the arbiter will be Congress, and we will all have to live with the consequences.” 

Similarly, there are competing proposals for the best way to catalyze investment in cellulose and advanced ethanol technology, Dinneen added. “The industry needs to rally around a specific proposal soon, or existing policy will be the default and investment may continue to languish.” Shortly before the annual event, the RFA announced the formation of an Advanced Ethanol Council to work towards such policy.

Beyond the work to be done in the halls of Congress, Dinneen addressed the work needed on the federal and state levels to clear the way for the adoption of E15, including labeling issues, state level challenges and a project in cooperation with Growth Energy on health effects testing.

Finally, Dinneen revisited the food versus fuel discussion, which is heating up again with the increase in corn prices, pointing to the 12.5 billion bushels of corn raised last year, and the fact that it was the fourth consecutive year that the U.S. crop topped 12 billion bushels. U.S. corn yield has more than doubled since the  RFA was founded, Dinneen said, which he attributed to the demand created by ethanol enabling innovation and driving increased productivity. “We need to start taking credit for it,” he said. “And we need to tell people that it is innovation and advanced technology that hold the key to meaningful economic development in impoverished parts of the globe. The biggest threat to food supplies isn’t biofuels, it’s underinvestment in agriculture and, more significantly, it’s skyrocketing energy costs.” Last year, despite poor weather in some areas, the global supply of grains was the second largest ever, trailing last year’s record global production by 1 percent. “There is simply no justification for  blaming ethanol for world food prices,” he said.

He added that the food versus fuel “canard” is as important to cellulosic ethanol producers as it is to grain processors. “The reason is, the debate really isn’t about food,” he said. “It’s about land.” Some environmentalists, he pointed out, have criticized cellulosic proposals for their use of land and water resources. Progress has been made on refuting the poor science in the calculations surrounding indirect land use change penalties to grain ethanol, he added. “Facts are stubborn things. Last year, Brazil released data demonstrating that deforestation has dropped precipitously since 2004, and shows no correlation to increased ethanol production in the U.S. whatsoever. In fact, Amazon deforestation rates in 2010 were at their lowest point since the Brazilian government began collecting data in 1988.”

Dinneen also addressed the differing points of view in the ethanol and agricultural industroes. “We will have no chance whatsoever if divisions within the industry, across agriculture, and among biofuels continue to distract from the bigger picture. We need to spend less time arguing about who is right and more time doing what is right. As long as we’re more focused on what trade association you belong to than what the right policy should be, as long as ranchers are pitted against farmers over the price of grain, and food processors ignore the price of oil, as long as we’re arguing the relative merits of a ‘drop-in’ fuel vs. an ethanol molecule and whether investments in infrastructure help or hurt, we’re going to condemn our children to a future ever more reliant on imported petroleum.”

Change is coming to this industry, he said, saying the question is what the response will be. “We need to do what the RFA has done for 30 years—build bridges. We need to build a bridge wide enough for the entire biofuels industry to cross to a more sustainable energy future. We need to build a bridge to our customers and consumers so the road to increased ethanol use is paved with understanding. We need to build a bridge to lawmakers so that we end up with a motor fuel policy befitting a 21st century energy industry. And we need to stride confidently across this bridge with enough vision, strength and innovation to conquer the insurmountable opportunities of our time.” 

—Susanne Retka Schill