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5 Billion Gallon Challenge Isn’t As Clean as it Seems

August 19, 2010


The growth and commercialization of next generation biofuels is essential to the long term success of Americas ethanol industry. This success does not need to come at the expense of current technologies. The RFA does not believe that U.S. biofuel policy should be crafted in a manner that jeopardizes the tremendous advances that have come from the investment our nation has made in renewable fuels or causes cannibalization in the industry. It is true that we need to support and promote the growth of next generation biofuels in order to become energy independent and to combat global warming. However, this will not be achieved by pitting different sectors of the industry against one another or abandoning support for one sector of the industry for another when the entire industry needs support as long as we continue to provide permanent tax breaks to oil producers. If we have any hope of breaking our national dependency on oil, we first have to find a way to deal with our tremendous appetite for transportation fuels which today tops 170 billion gallons annually. Over the past decade, our nations ethanol industry has grown dramatically, more than tripling in size in just 5 years to just over 12.5 billion gallons a year. In no small measure, this growth has been fueled by new demand brought on by the Renewable Fuels Standard (RFS) and consistent public policy in the form of our system of biofuel tax credits, However, despite claims that the first generation ethanol industry has matured and no longer needs support, this represents less than 10% of the gasoline consumed by Americans every year. Moreover, the industry continues to be challenged by competing with an oil industry built with over a century of support, nurturing and investment. If the goal is to promote renewable, alternative fuels that can be successful in displacing petroleum based fuels, it will not be met by destroying a successful sector of the industry in an effort to promote newer technologies. On the contrary, U.S. biofuel policy must continue to promote and support the health of the existing biofuel industry, while at the same time supporting and encouraging the growth and development of the second and third generation of biofuels. To do otherwise would result in forcing the nation to make a "Sophies Choice" between clean energy alternatives. Together, with the existing and the next generation of biofuels combined, we will no doubt have the ability to produce the necessary volumes of biofuel needed to provide a real substitute for our nations appetite for petroleum. To meet the RFS goals of 36 billion gallons of renewable fuel use by 2022, it will require renewable fuel production from a diverse basket of feedstocks, including grains such as corn, barley, sorghum and wheat, and cellulosic sourcessuch as grasses, agricultural waste, wood and garbage. The volumes of renewable fuel required for energy independence cannot be met with one or just a few types of feedstocks. All sustainable feedstocks must be employed in the production of biofuels. Moreover, one simply cannot abandon the growth and advances made by the first generation of biofuels in exchange for newer technologies. In making its case for the acceleration of next generation biofuels, the Union of Concerned Scientists and its cabal of corn ethanol opponents continue to misstate or ignore the advances and successes achieved by the existing ethanol industry. First, the report relies on the false claim that the increased demand for corn is straining the agricultural system and environment by driving up food prices, risking water supplies, and sacrificing biodiversity and habitat. Ethanols impact on corn prices and food prices is scant, compared to the impact volatile energy prices. Even frequent biofuels critic, the World Bank, has admitted as much. In a new report, the Bank noted that ethanols impact on corn prices during the 2008 spike in prices was not as large as originally thought. The report goes on to admit that worldwide, biofuels account for only about 1.5 percent of the area under gains/oilseeds. Therefore, This raises serious doubts about claims that biofuels account for a big shift in global [grain] demand. As for water use, Americas ethanol industry is ever-improving its water efficiency. Today, ethanol plants use less than 3 gallons of water to produce a gallon of ethanol and 18 pounds of livestock on average. Many plants, including older facilities, are well below the average. Many of these facilities are zero discharge, meaning that the recycle all the water they use, including the steam. Compared to the increasing water use of the oil industry to extract oil from sands in Canada, for example, ethanols continued reduction in water needs stands in stark contrast. Second, the report falsely alleges that the growth of the existing ethanol industry has come without making any progress toward reducing the emissions responsible for global warming. Again, this is not based on science and the real world. By nearly every fair, direct comparison of greenhouse gas emissions between ethanol and gasoline, ethanol stands head and shoulders above gasoline. Based upon research published in the Journal of Environmental Science, ethanol reduces GHG emissions compared to gasoline by 61 percent. It is only when unproven theories advocated by environmental activists including the Union of Concerned Scientists are used to penalize ethanol, do those numbers decrease. And even then, ethanol shows tremendous GHG reduction compared to gasoline in excess of 20 percent. With continued innovations currently underway and supported by consistent public policy, ethanol will continue to build on these gains. Especially as oil production and refining because more energy intensive and environmentally destructive. Third, the study ignores the tremendous economic benefits provided from the industry which include the revitalization of rural and agricultural economies, job creation, family wealth and consumer savings. Moreover, the report ignores the benefits directly received by the next generation biofuel industry from the investments in infrastructure and market access made, and continuing to be made, by the existing ethanol industry. Undoubtedly, the success of the second and third generation of biofuels is dependent on their ability to share infrastructure and distribution networks currently being financed by the existing biofuel industry. While the UCS "Billion Gallon Challenge" is predicated on a number of falsehoods and misstatements, the proposal does make an accurate statement about the health and condition of the next generation biofuel industry: it is stalled as a result of inadequate and ineffective policies and the drying up of investment caused by the global economic recession. And, for that matter, it is important to carefully analyze the policy proposals laid out in the study. In an effort to accelerate the commercialization of cellulosic biofuels, the plan wisely calls for the establishment of an investment tax credit and loan guarantees to help mitigate the risk of early investment in a fledgling industry. By providing new cellulosic biorefinery developers the flexibility of using existing biofuel production tax credits for biorefinery construction or expansion, cellulosic biofuel producers can find it easier to finance their commercialization efforts and defer some of the high capital costs association with being the first of its kind. The RFA supports the policy of providing next generation biorefinery developers with the ability to elect to take future production credits as investment tax credits. However, the RFA does not believe that this investment tax credit should be established at the expense of other tax credits that have been, and continue to be, successful in driving the domestic production of biofuels. We should be expanding the overall pie for renewable energy investment, not simply resizing the pieces. The RFA also questions the effectiveness of the investment tax credit proposal to the extent that it mandates reductions in the tax credit based on increases in annual capacity instead of market conditions. Long term problems require long term solutionsto be in place before investors can achieve the certainty they need to invest. Therefore, the phase out strategy proposed would likely suffer the same difficulties with spurring an adequate level of investment to kick start the industry. Moreover, this does not take into consideration the commercialization trajectories for other next generation biofuels such as algal-based biofuels. While the RFA generally supports the flexibility provided by an investment tax credit in spurring commercialization, the industry strongly opposes the second part of the UCS proposal which calls for the replacement of the existing system of biofuel tax credits with a performance-based tax credit. The biofuel performance tax credit provides credits to biofuel producers based on the btu content of their fuels and values the credit based on purported estimates of GHG emissions reductions. Currently, ethanol is penalized for indirect effects and other unproven theories in a manner not reciprocated on the oil and gasoline industry. As such, any measurement is skewed. Only when such measurements are equitable and based on the best available science would such performance-based incentives be possible. That scenario simply doesnt exist today. There is no shortage of ideas on how to improve current biofuel tax incentives to bring about the growth in the industry we all desire. Some of these ideas hold a great deal of merit; others lack practicality or might even set the industry. But all deserve to be vetted, and the best deserve to be considered as possible enhancements to current policy. But the first rule should be to do no harm. On the whole, the UCS proposal would not achieve the goals they claim to support and would cause harm to the existing industry on which new technologies will be built.