Corn ethanol policy under attack in California

By Kris Bevill | April 26, 2011

Opponents of corn ethanol in California achieved a small victory on April 25 after the state assembly natural resources committee approved a bill that would make corn ethanol ineligible for state funding and would repeal the California Ethanol Producer Incentive Program. The committee narrowly agreed to allow the bill to proceed to the assembly transportation committee, passing the measure by a vote of 5 to 4 after conducting a lengthy hearing that included passionate witness statements from dairy producers, livestock industry representatives, environmental groups, construction and electrical groups and state ethanol producers.

Supporters of the measure claim that ethanol production is to blame for higher corn prices, which in turn directly affects Californians through higher food prices. The state’s poultry, dairy and cattle producers are at the top of the list of the bill’s supporters. Many attended the committee hearing and told legislators that high corn prices are “killing” their businesses and eliminating support for corn ethanol will help to reduce corn prices. A coalition of the bill’s supporters, including the California Poultry Federation and Western United Dairymen, submitted a letter to legislators stating that the corn ethanol incentives are being used to subsidize as few as two California ethanol plants. “As much as $6 million has already been set aside for the subsidy program and up to $9 million more could be dedicated by the California Energy Commission to the ill-conceived effort,” the letter stated.

Three California ethanol producers are currently able to receive assistance through CEPIP—Calgren Renewable Fuels LLC, Pacific Ethanol Inc. and AE Biofuels Inc. Representatives from all three companies were on hand at the hearing to offer their input. Each producer stressed that while they are currently using corn to produce their ethanol, CEPIP requires them to invest in technology to transition to other feedstocks and the state’s low carbon fuel standard further spurs them to produce low-carbon fuels. Corn ethanol is the best option currently available, they said, and provides a bridge toward cellulosic ethanol and other lower-carbon fuels. But if incentives currently in place to support the existing industry are taken away, California’s ethanol plants will undoubtedly close and the state will lose its forward momentum in commercializing those other fuels.

Eric McAfee, chairman and CEO of AE Biofuels, said the company’s 55 MMgy plant near Modesto just began to grind corn after being idle for some time. “We are starting that plant today,” he said. “We have hired 50 people; 500 people are employed indirectly as a result of our investment over the last two years. If that plant shuts down again, there’s not going to be any technology evolution at all. … Frankly, the reason that we got financed was because of the expectation of this program [CEPIP]. It’s going to be quite a shock to our investors that started this plant with their money that this funding has been withdrawn and the commitment is no longer in place.”

A representative of Foster Farms, a poultry company with operations throughout the West Coast, told legislators that “as long as we continue to incentivize corn ethanol, we are not going to get that transition” to cellulosic ethanol. On the contrary, McAfee said producers will not qualify for incentives through CEPIP unless they are making proven progress in transitioning away from corn toward lower carbon feedstocks. Additionally, he pointed out that CEPIP is currently scheduled to expire so incentive payments are not an infinite source of support for the state’s producers. “This is not an open-ended bill,” he said. We have three years to get this done. "We are not going to be building cellulosic ethanol plants from the ground up, you couldn’t permit them in the state. You can, in fact, integrate them into existing corn ethanol plants. So this is our only way to develop new sources of ethanol from new technology—through the existing ethanol industry in California.”

Neil Koehler, president and CEO of Pacific Ethanol, addressed some of the claims made against corn ethanol by the bill’s supporters in his comments to the committee. “It is remarkable to me how untruths can be perpetuated,” he said. “We do not use 40 percent of the corn [in the U.S.] Forty percent of the corn goes through corn biorefineries, but one-third of that gets concentrated and comes back to the market as the lowest cost, highest protein source of feed available to the dairy industry in California.” He added that ethanol opponents’ claims that the fuel is not energy positive are “ridiculous” and the USDA has proven ethanol has a 2 to 1 net energy balance.

Matt Horton, CEO of Propel Fuels Inc., an alternative fuel retailer, told committee members that the company “has an eye toward the fuels of the future” but the best way to get to those fuels is to provide support for ethanol infrastructure, which means continuing to support currently available corn ethanol. A representative of Calgren Renewable Fuels addressed the indirect environmental benefits of the corn ethanol industry when he told committee members that the company recently received a matching grant to build a $9.5 million manure digester to power the 58 MMgy plant in Pixley, but the plant will not be built if CEPIP is revoked.

The producers’ comments were effective in convincing the committee chairman, Wesley Chesbro, not to support eliminating corn ethanol incentives. Just before calling for a vote, Chesbro said he believes there’s a need to transition to “better” programs than corn ethanol, but he’s concerned about negatively impacting private sector investment by reversing previously enacted policies. “I think we sent a very appropriate signal when we required corn ethanol folks to transition to lower carbon fuels,” he said. “I’m not convinced this bill will solve the problem of high corn prices. If the [California] Air [Resources] Board is going to require ethanol as part of our mix of air quality solutions and the ethanol gets produced in another state with a higher carbon footprint without the requirement that we’ve put in place to transition, I don’t know what we will have accomplished.”

Efforts on behalf of the industry weren’t quite enough to influence the committee to defeat the incentive-killing measure, however. The bill will be taken up by the transportation committee on May 2. If passed there, it will advance to the appropriations committee before being introduced for an assembly vote. Koehler said California ethanol producers will continue to educate legislative members on the merits of the progressive policies currently in place to promote California-produced ethanol. "The California ethanol industry produces the lowest cost protein feed products available on the market, the lowest cost and lowest carbon transportation fuel in the state and provides the best platform for next-generation fuels," he said. "What we saw [April 25] is the livestock industry trying to legislate federal policy in a state assembly. They are misguided and misinformed."