In light of the catastrophic BP oil spill in the Gulf, President Obama said this week it's time for the United States "to aggressively accelerate" its transition from oil to alternative sources of energy.
While the global recession, cheaper oil, and the clamor of critics have all posed significant challenges for the industry, proponents say significant opportunities are looming on the horizon.
David Miller visited with the industry's leading entrepreneur last year and filed this report.
The ethanol industry has been considered by some to be a savior for U.S. corn growers and a key element of weaning the nation from its addiction to foreign oil. Others have blamed America's predominant alternative fuel for increased food prices and deforestation in foreign countries.
Today, the ethanol industry has enough capacity to more than offset 10 percent of America's gasoline consumption. But without an increase in renewable fuel production mandates, ethanol producers claim they'll hit a wall that effectively stops market expansion.
One of the industry's more vocal advocates working to increase the amount of the predominately corn-based fuel is Jeff Broin, CEO of POET, the world's largest producer of ethanol.
Jeff Broin, POET: "...when I was a child, we set aside large tracts of land, where my father built his first ethanol plant on his farm, because he was setting aside large tracts of land and planting grass on it. It was growing up in weeds and it, as a farmer wanting to produce, it was driving him crazy."
In 1987, Broin Companies began their ethanol business with the purchase of their first refinery in Scotland, South Dakota. In 2007, the company was renamed POET and today it employs about 1,500 people at 26 Midwestern plants which have the capacity to produce 1.6 billion gallons of ethanol annually. But Broin says even POET is threatened by limits on how much ethanol can be mixed with gasoline.
By law, the blend rate for ethanol in non-flex fuel vehicles is set at E-10, a mix of 10 percent ethanol and 90 percent gasoline. Since U.S. motorists consume 140 billion gallons of gasoline annually, a 10 percent limit means 14 billion gallons is the maximum amount of ethanol that can be consumed domestically.
Like most ethanol proponents, Broin believes the industry needs to proceed well beyond the 10 percent blend-wall to survive and grow. Broin was able to get more than 50 other ethanol refineries to join POET in its appeal to the Environmental Protection Agency to increase the blend rate from E-10 to E15.
(September 16, 2009) Jeff Broin, POET: "...we have a 90 percent mandate on gasoline in this country. Ethanol, due to the Clean Air Act, can only get to 10 percent of the fuel supply... I think people don't understand that, you know, the success of ethanol really plays a big role in the success of agriculture and, you know, today we've had some ethanol plants that have been closed and in a response grain prices have dropped significantly below the cost of production. ...we're going to be awash in grain with the harvest this year and once again ethanol has the opportunity to balance the grain supply in this country that's been so uneven over the last 20 to 30 years."
Besides the move to E-15, Broin wants to increase usage through blender-pump technology allowing the consumer to choose the amount of ethanol to be pumped into the tank. Only flex-fuel vehicles can legally take advantage of these variable rate pumps.
Broin believes by using more than just the corn kernel, the market share can easily be increased without adversely affecting land use or food supply. Through experimentation at the Scotland, South Dakota refinery company scientists and engineers are learning how to squeeze more energy from corn. Using the plant's stalks, leaves and cobs POET has developed a process to make cellulosic ethanol under the name "Project Liberty."
The new technology is designed to work side-by-side with conventional operations. The first cellulosic refinery will be built at POET's Emmetsburg, Iowa plant at a cost of $250 million. Ground breaking is expected sometime in 2010 with the first product available in 2011. Corn cobs, Project Liberty's primary feedstock, have already been harvested from nearby farms using machinery designed by companies like Vermeer.
Broin's work on alternative fuels, and status as owner of the largest ethanol production company in the world, has attracted the attention of the Obama administration. During his recent White House to Main Street tour, the president stopped at POET's Macon, Missouri operation. (April 28, 2010) Jeff Broin, POET: "You know, I think he's very interested in expanding bio-fuels. I think that he -- the President knows that we have a blend-wall today that doesn't allow ethanol to go any further. A 90% mandate for gasoline. I think he's very interested in -- in helping us move that wall."
Over the years, state and federal subsidies have been used to quickly increase the size and capacity of the U.S. ethanol industry. At the beginning of 2009, the amount received from the federal government, often referred to as the "Blender's Credit", went from 51 cents to 45 cents per gallon of ethanol. Despite the decrease, financial support from Washington has been a target of criticism. But Broin is quick to point out the oil industry also is highly subsidized.
Jeff Broin, POET: "$4.7 billion was the decreased tax revenue in 2008 from the ethanol tax incentive. Yet in that year, because of ethanol production, we reduced farm payments by $8 billion. So, we saved the government $8 billion in farm payments. We saw $8 billion dollars in tax revenue generated by the oil industry. We saved the consumer over $40 billion on the price of gasoline by adding more fuel to the supply and we changed the -- added to the gross domestic product by more than $60 billion. So, for a $4.7 billion investment you'd think the government would want more of that. That maybe the best investment the government has ever made."
According to a General Accounting Office study conducted in 2000, the petroleum industry received approximately $150 billion in subsidies over the previous 40 years, while ethanol received just $11.2 billion -- more than 92 percent less than oil. Some of that $11.2 billion went to POET for its development of cellulosic ethanol.
And Broin believes by combining grain and cellulosic production the Midwest could become the equivalent of the Middle East in the next 20 years.
Jeff Broin, POET: "If you look at the doubling of the corn crop, which is projected by Monsanto and DuPont, you look at doubling the corn crop, we literally could produce 50 billion gallons of grain-based ethanol 20 years from today and if you look at a billion tons of cellulose in this country, which will also grow as we produce more crops, there will be more and more cellulose we can produce 80 to 100 billion gallons of cellulosic ethanol 20 years from today. Those two combined could replace gasoline while still increasing our food supply by over 40 percent. So, there's tremendous potential in this nation to provide our own energy from the Midwest and from our own land from cellulose located all over this country rather than get it from the Middle East."
Ethanol gained in popularity during the Arab oil embargo of the 1970s, but almost immediately the homegrown fuel was attacked on various fronts. Even today, some critics claim increased ethanol production reduces the food supply, resulting in higher food prices. Others say corn used for fuel in the United States compels farmers in foreign countries to tear-up fragile land to plant food.
Traditionally, ethanol producers have looked to the Renewable Fuels Association, or RFA, to fight public relations battles for the industry. Broin, a member of the RFA's board of directors, didn't think enough was being done to counter what he believed were unfounded accusations. More than a year ago, Broin broke from the RFA and formed his own ethanol promotion agency called Growth Energy.
Jeff Broin, POET: "I think we were ill-equipped to battle the food versus fuel issue which was a malicious attack by those trying to protect the status quo. It's been proven that we were a very small portion of any food price increases in the ethanol. In fact energy played a much larger role. Every study that's out there energy played a much larger role in changing food prices. Yet that was put on our back and I think that, without question, our industry got caught flat-footed and was -- was ill-equipped to respond. So, Growth Energy, I think, again, was formed to be the type of organization that can deal with those type of attacks on a pro-active basis rather than a reactive basis and to get the truth out. Our industry needs to get the truth out."
Despite the clamor of critics, Broin's unwavering support of alternative fuels has only grown stronger over the past 20 years. While ethanol has proven to be a wise investment, his commitment to the alternative fuel goes well beyond personal gain.
Jeff Broin, POET: "This, this is truly the one fuel that has the you know help to lead that that change in our world and it's an exciting change and it's a change that will leave a better world for my children and that's really something that gets me up in the morning and drives me in our quest to make ethanol a major fuel for the world."
For Market to Market, I'm David Miller.