EcoLogic Blog

The renewable fuel industry will be paying particularly close attention to this year’s election. As you might recall, the great ethanol boom of 2007 was the reaction to the federal government’s support of renewable fuels. A little more than one year later, corn-based ethanol has experienced a roller-coaster ride of political, investor and public support. As a result the industry has a tarnished reputation that has left some American citizens questioning its role in our country’s energy independence and some politicians looking for ways to reduce federal support. This includes the 51 cent blender’s credit (which will be reduced to 45 cents in 2009) and the 54 cent import tariff on foreign-produced ethanol.

Earlier in September during the Republican National Convention, the GOP voted to support John McCain’s opposition to government mandates and subsidies for the U.S. ethanol industry. In its 2008 policy platform, the GOP stated that the free market, not the government, should control how much ethanol is blended into gasoline. McCain has long opposed tax breaks for ethanol and the tariff that protects it from imports.

This is a strong move away from the Bush Administration’s support for the U.S. ethanol industry which calls to expand the use of ethanol to reduce dependence on foreign oil and increase revenues for farmers. As a part of the Renewable Fuels Standard (RFS), the U.S. will produce 36 billion barrels of ethanol per year by 2022.

In response to the GOP’s new stance, Democratic presidential nominee Barack Obama has reasserted his support of federal requirements to use ethanol as a way to reduce reliance on oil imports.

Both Democrats and Republications do support an increased push for developments in cellulosic technology to produce ethanol from non-food inputs rather than corn. This is ultimately where the future of renewable fuels is headed in a matter of years.

Some industry analysts believe that the removing ethanol mandates only make the transition to cellulosic ethanol more difficult. These analysts argue that the development and success of the cellulosic ethanol industry will be derived from the infrastructure created by the corn-based ethanol. It is their belief that eliminating federal support for renewable fuels will ultimately discourage investors and slow the necessary technological advances needed for cellulosic ethanol.

Still there are many business and political leaders that believe a free market will be a better way achieve the needed renewable fuel advancements without the current incentives and mandates from the U.S. government.

The debate on how the country should move forward with our renewable fuels initiatives will be a heated topic during the upcoming presidential election. As our country continues its quest to become more “green,” it will be interesting to see how the public reacts to upcoming ethanol policy debates. Will the country rally behind the ethanol industry or force it to stand on its own feet without assistance from the government?

We all remember the great food vs. fuel debate of 2007. Many critics were quick to point at corn-based ethanol as the primary culprit for a rise in food prices. Although most experts will agree that higher fuel costs have a greater impact on food prices, it still forces renewable energy proponents to continuously look for improved sources of clean energy. As a part of this ongoing trend, recently a large step was taken toward the production of a cleaner burning ethanol that does not require any food-based inputs.

During this month’s American Coalition for Ethanol conference in Omaha, Neb, Poet – one of the world’s largest ethanol companies – announced it has neared completion on one of the country’s first cellulosic ethanol plants. [Poet is not a client of Tunheim Partners]

Although the plant will be considered a pilot operation, producing only 20,000 gallons, it is the first significant step toward the commercial production of cellulosic ethanol. Using corn cobs and stalks for its primary input, the plant is scheduled for completion by the end of the 2008 and will be adjacent to Poet’s already existing 9-million-gallon ethanol plant located in Scotland, S.D.

Why is this significant? Because with the rising demand for ethanol (a federally mandated 36 billion gallons per year by 2022), there simply is not enough corn to meet this need. Nearly 21 billion gallons per year will need to be produced by cellulosic ethanol. Also, creating ethanol from alternative inputs such as woods, grasses and non-edible plants parts will help alleviate high corn prices and allow farmers to market new inputs traditionally thought to be waste.

Once the technology is perfected, Poet plans to implement the same process to other plants across the Midwest. If successful, Poet’s new type of hybrid plants will be able to take corn into one side of the plant and corn stalks into another, and use both inputs to increase the overall plant production of ethanol. According to Poet, this new cellulosic technology is capable of producing 11 percent more ethanol from each corn bushel and 27 percent more ethanol from an acre of corn.

“It is no longer a question of if, but of when we will produce cellulosic ethanol,” commented Poet CEO and President Jeff Broin. “I don’t know if I could have said that even one year ago.”

According to the DTN Ethanol Center, Poet was one of six companies awarded a total of $385 million in grants from the U.S. Department of Energy in February 2007, to develop the first generation of cellulosic ethanol plants. [Full disclosure, DTN is a client of a Tunheim Partners]

Since that announcement only one other ethanol company, Canadian-based Iogen Corp, has made plans to build its first commercial wheat straw-to-ethanol plant in British Columbia.

Although analysts believe the complete introduction of commercialized cellulosic ethanol is still at least two or three year away, this first step by Poet will definitely be a push for the other major U.S. ethanol companies to speed up their own cellulosic research and development efforts.

[Click here to listen to an interview with Poet CEO Jeff Broin]