Promise of renewable energy
focus of St. Louis conference
By Stephen Thompson, Assistant Editor
stephenA.Thompson@wdc.usda.gov
Editor’s note: For more conference highlights, including the
complete text of many of the major speeches, visit:
www.rurdev.usda.gov/rd/energy/#are.
orn ethanol and biodiesel may dominate the
renewable energy
arena now, but new
technologies may
expand and change
the picture dramatically in coming
years. Cellulosic ethanol may hold
the greatest potential of all for the
nation’s energy future, and wind,
solar, methane and hydrogen will
also likely play a role in helping the
nation move toward energy independence.
These were among
prime messages participants took
home from “Advancing Renewable
Energy: An American Rural
Renaissance,” a conference in St.
Louis, Mo., Oct. 10–12, sponsored
by the U.S. Departments of
Agriculture and Energy.
The event attracted about 1,500
participants, who heard from probably
the greatest gathering ever of
high-ranking government and
industry leaders and researchers for
the purpose of addressing the state of the renewable energy
industry. Speakers included President George W. Bush,
Agriculture Secretary Mike Johanns and Energy Secretary
Samuel W. Bodman, among many others.
America is at a “confluence of national security concerns
and environmental concerns that have come together, probably
unlike any other time in our history,” President Bush said,
necessitating development of new energy sources not only for
economic reasons, but for national security as well. “We’re
too dependent on oil,” he stressed.
Alluding to the rapid drop in gasoline prices this fall, the
President said, “I welcome the lower gasoline prices. My
worry is that a low price of gasoline will make us complacent
about our future when it comes to energy, because I fully
understand that energy is going to help determine whether or
not this nation remains the economic leader in the world.”
President Bush said one way Washington is helping
change the energy picture is by rewarding people for investing
in research and development. The fact that the federal
research and development tax credit expires every year and
has to be annually renewed by Congress is problematic, he
said. “It means there’s unpredictability in the tax code, and
that’s not wise if you’re trying to encourage people to invest
dollars in the long-term,” he said, adding that the tax credit
should be made a permanent part of the tax code.
Regarding ethanol, Bush said, “I like the idea of promoting
a fuel that relies upon our farmers. For those of you who
are in the ethanol business, you’re on the leading edge of
change. It’s coming, and government can help.” More feedstocks
are needed to help boost ethanol production, he said,
citing sugar, wood chips and switchgrass.
The President also expressed strong
support for federal expenditures on
renewable energy research and “new
ways to conserve and new ways to protect
the environment through new technologies.”
He referred to hydrogen
power as a promising, long-term energy
resource. “We’re spending $1.2 billion
to encourage hydrogen fuel cells. It’s
coming. It’s an interesting industry evolution,
to think about your automobiles
being powered by hydrogen, and the
only emission is water vapor.”
The President said that with ongoing
research into new battery technologies,
he could “envision a day in which light
and powerful batteries will become
available in the marketplace so that you
can drive the first 40 miles on electricity
— and your car won’t have to look
like a golf cart.”
USDA funds biomass development
Secretary Johanns used his welcoming
speech to announce the awarding
of $17 million in USDA and
Department of Energy (DOE) assistance
to 17 biomass research facilities.
“Our challenge is to increase the production
and use of alternative energy
across this great nation, to maximize
its potential so that renewable fuels
are an economically viable and sustainable
alternative,” Johanns said.
Both he and Secretary Bodman
extolled the potential of ethanol production
from cellulose.
It was also announced that an additional
$4 million will be awarded for
bio-based fuels research to accelerate
the development of alternative fuels.
The goal of the research is to lead to
breakthroughs that further the goal of
replacing 30 percent of transportation
fuels with biofuels by 2030.
Secretary Johanns noted that in the
past six years, the number of ethanol
plants in operation increased from 54
to more than 100 producing 5 billion
gallons per year. An additional 44 are
under construction, representing a further
3 billion gallons of annual production.
The number of biodiesel plants has
multiplied by more than eight times in
the past six years, from 10 to 86 plants,
with another 78 plants either under
construction or being expanded, which
will boost biodiesel production to about
2 billion gallons per year.
Johanns countered
arguments that without
government subsidies,
ethanol is not competitive
with oil. It costs an
average of about $1.10
to produce a gallon of
ethanol, he noted, and
the average wholesale
price of gasoline was
more than $2 per gallon
in 2006. “Ethanol
will continue to be
competitive with gasoline
as long as oil prices
don’t drop below $30
per barrel,” Johanns
said, noting that DOE
has forecast oil prices
will “even out, in the
long run, at more than
$50 per barrel.”
Energy Secretary Bodman said the
secret to success with cellulosic ethanol
is engineering the microbes used to
break down both plant cell walls and
the plants themselves. Department of
Energy-sponsored research is making
gains in this area, he said.
“Our goal, as the President
announced in his State of the Union
Address, is to make cellulosic ethanol
cost-competitive by 2012,” Bodman
stressed.
Renewable Energy Century
USDA Chief Economist Keith
Collins said, “The potential costs to our
society of failing to develop new energy
sources, and the potential benefits to
agriculture and rural America of developing
them, leave only one conclusion:
we must work vigorously to make the
21st century the renewable energy century.”
U.S. energy consumption is likely
to rise 30 percent by 2030, adding to
the urgency to develop new energy
sources, he said.
Biodiesel production is soaring right
along with ethanol. Only 5 percent of
the nation’s soybean oil was used to
make biodiesel in 2005, he said. “But
only one year later, 2006, we expect
biodiesel to consume 13 percent of total
soybean oil.”
“As more corn moves to more
ethanol plants, corn prices will rise,
corn acreage is likely to rise and there
will be ripple effects on agricultural
commodity markets broadly,” Collins
said. That may mean more acres being
pulled out of the Conservation Reserve
Program, which could have environmental
impacts.
Corn ethanol alone is insufficient to
meet much of the demand for motor
fuel, Collins noted. “Other sources of
renewable and alternative energy must
be developed if the U.S. is to make a
dent in oil imports,” he said.
Patricia Woertz, president of Archer
Daniels Midland — and a former vice
president of Chevron — told the conference
that while ethanol and biodiesel
will continue to be important, new
products still in the laboratory will supplement
them, and possibly supplant
them in time. “We do know that the
future of energy is not in a single feedstock
or product, but it is in diversity of
supply,” she noted.
Woertz also urged for an end to the
“food or fuel” debate. The answer is
both, she said. “Put simply, in the big
picture, we will not meet the growing
demand for food in this world unless we
also supply the growing demand for
energy.”
The world is now using petroleum
faster than new sources are developed,
Woertz pointed out. Refining capacity
is also falling behind. New energy
sources, she said, will be needed to fill a
gap in global supply that will probably
develop by mid-century. “So the question
is not whether a sustainable market
for biofuels exists,” she said, “but rather,
‘how big can — or should — that market
become?’”
Woertz indicated that ADM is
investing heavily in biofuels in the
United States and abroad, including
biodiesel and research on cellulosic
ethanol. ADM’s approach to cellulosic
ethanol centers on using corn hulls,
thus potentially boosting corn ethanol
production by 15 percent for the same
input, she said.
Petroleum industry and biofuel
Red Cavaney, CEO of the American
Petroleum Institute, said that, far from
being opponents of ethanol, the U.S.
petroleum industry sees it as a valuable
source of fuel. “In our view, ethanol is
here to stay, and it is a very important
part of our nation’s gasoline pool,”
Cavaney stressed. “It is absolutely
essential that ethanol and the entire
biofuels industry become strong, vital
and self-sufficient.”
Cavaney expressed his opposition to
current ethanol policies, however, saying
that the ethanol industry is capable
of competing in a free market without
subsidies and government incentives.
He cautioned that states mandating
ethanol use would encourage “boutique
fuels,” raising costs and leading
to price volatility. He advocated allowing
the market to determine the way in
which alternative fuels are introduced.
Cavaney was followed by Vinod
Khosla, the billionaire former cofounder
of Sun Microsystems and now
an ethanol booster and venture capitalist. In contrast to Cavaney’s
approach, Khosla called for mandates
that 70 percent of all new cars meet
flex-fuel standards, and for laws that
require that 10 percent of all gas stations
include pumps that dispense 85-percent ethanol (E-85).
Using gasoline blended with 10-percent
ethanol is an insufficient strategy,
he said. Instead, he said that E85 could,
and should, replace petroleum as fuel
for cars and trucks in 25 years. “My
dream is $1.99 ethanol at every Wal-
Mart in America,” he said. Khosla disputed
Cavaney’s assertion that ethanol
yields fewer miles per gallon than gasoline,
saying that with the proper technology,
ethanol can equal gasoline
mileage.
As for subsidies, Khosla decried what
he described as government subsidies
for petroleum fuels, calling for a “level
playing field” in government assistance
to the petroleum and alternative fuels
industries. He also advocated the
replacement of the current 51-centsper-
gallon tax credit for ethanol with a
variable one that would decrease as
petroleum prices rise.
“It shouldn’t take any extra money
from the federal government,” Kholsa
said. “This is an alternative future that
can happen on strictly economic
grounds. We can have cheaper fuel for
Americans to buy if the oil companies
let it happen.” To help reach that goal,
he advocated eliminating tariffs for
imports of E-85 fuel (a move that is
strongly opposed by most of the
ethanol industry).
Cellulosic potential
In a panel discussion on biofuels,
Mike Muston, CEO of Broin
Associates, which has built and operates
many co-op- and LLC-owned ethanol
plants, presented a similar approach to
ADM’s emphasis on corn hulls for cellulosic
ethanol. By separating bran and
fiber from distiller’s grains, he said,
Broin calculated that not only is there a
gain of as much as 15 percent more
ethanol from fermenting processed cellulose,
but it could make the remaining
distiller’s grains much more useful for
feeding swine and poultry.
With the addition of corn stover,
Muston said, ethanol output could be
boosted by 25 percent. Burning the
byproducts of both could also sharply
reduce the need for expensive natural
gas to run plants.
Don Endres, chairman and CEO of
ethanol producer VeraSun, joined
Woertz in downplaying the food vs. fuel
problem. “We’ve underestimated the
capacity of the American farmer to
grow corn,” he said.
Endres pointed out that every generation
of American farmers has doubled
corn production, and said that innovations
on the horizon could accelerate
that trend. Transportation costs for raw
materials would be lowered by higher
yields, he said, because facilities could
get sufficient feedstocks from a smaller
area.
Endres discussed corn-germ separation,
which he said could raise oil yields
by 25 gallons per acre. Combined with
new bioengineering efforts to produce
high-oil-content corn, he said, the
result could be 65 gallons per acre, with
no impact on yield.
Like other presenters at the conference,
Endres was bullish on biomass,
claiming that the United States has up
to a billion tons of harvestable biomass,
but said that corn ethanol will be the
most profitable biofuels venture in the
near future.
Craig Rockey, a senior vice president
of the Association of American
Railroads, offered some practical advice
for new biofuels producers. Involve the
railroads in your initial planning stage,
he urged those planning to build plants.
Review those plans with your transportation
and infrastructure requirements.
Work with railroads to use unit
trains, which are by far the most costeffective
way to ship by rail, he urged,
and nail down your railcar supply and
your rail infrastructure before you
begin construction.
Industry overbuild likely
Robert Engel, president of CoBank,
had some sobering words for ethanol
investors. “It is probable that the industry
will become overbuilt,” he said. The current
high returns will inevitably encourage
even more capital investment, which
at some point will lead to an industry
shakeout, and volatility in prices and
profits. The rapid expansion of ethanol
production will also have unknown
impacts on the markets for corn.
Engel emphasized that ethanol operations
will need careful management
and investment to deal with these conditions.
However, he said that CoBank
remains optimistic about ethanol production
for the long term.
Vijay Vaitheeswaran, author of
Power to the People: How the Coming
Energy Revolution Will Transform an
Industry, Change our Lives, and Maybe
Even Save the Planet, and correspondent
for the Economist magazine,
attacked what he said were myths
about the energy situation. There is no
energy crisis at hand, and no necessity
for an all-out “moonshot” government
project, as some have called for.
“Government shouldn’t try to pick
winners,” he said.
Vaitheeswaran also assailed the idea
of energy independence, saying that
reducing imports doesn’t have much
impact on prices because of the fungibility
of petroleum and other energy
sources. And avoid mandating “silver
bullets,” such as hydrogen or plug-in
hybrids, he said.
Vaitheeswaran pointed out that
Brazil’s first effort to rely on cars running
on 100-percent ethanol resulted in
disaster when the ethanol market collapsed.
The true costs of such mandates
may be far higher than any supposed
benefits, he said.
Opportunity of a lifetime
USDA Under Secretary for Rural
Development Thomas Dorr closed the
conference with a rousing talk about
the promise of alternative energy.
“Some have argued that this may be, in
fact, the greatest opportunity for
wealth creation in history. I don’t know.
That may be right,” Dorr said. “But it
is certainly the greatest opportunity for
investment, economic growth, new jobs
and wealth creation in rural America in
our lifetimes.”
“Since 2001, USDA Rural
Development has invested over $482
million in biodiesel, wind, ethanol
and aerobic digesters, geothermal
and other energy and energy efficiency
projects,” Dorr noted. “This
investment has leveraged over $1.5
billion in additional private investment.”
In the same period USDA, as a
whole, has committed more than $1.7
billion for renewable energy, biobased
products and energy efficiency investments,
he noted.
But in the long run, Dorr stressed,
it will be private investment that will
move the renewable energy industry
forward.
