Domestic Fuel

I’m sure that Tom was just standing around his booth (EPIC) at Commodity Classic and looks up and lo and behold, there’s the U. S. Secretary of Agriculture stopping by for a visit. I hope he took a spin in the ethanol car simulator.

Ag Secretary Mike Johanns (second from right) visits with EPIC Executive Director Tom Slunecka (fourth from right) at the 2006 Commodity Classic in Anaheim, Calif., held March 2-4.

Minnesota Governor, Tim Pawlenty, spoke to a crowd here at Commodity Classic in Anaheim on Friday. I think some of the folks here would like to see him run for President. He gave a great talk about how his state has led the way in the development of renewable fuels and challenged other states to follow their lead in what he called the “Energy Revolution.”

I know there’s a lot of you who have never heard him talk. I think you’ll enjoy taking a few minutes to listen to him.

You can listen to Governor Pawlenty’s speech here: Governor Pawlenty Speech (21:21 MP3 File)

AgWired coverage of Commodity Classic is being made posssible by our good friends at New Holland.

Podcast: Play in new window | Download (12.2MB)

The Governor’s Ethanol Coalition met this week in Washington, DC and passed a resolution urging major auto makers to make more flex-fuel vehicles that can run on 85 percent ethanol. Thirty-two of the country’s governors are members of the coalition, which was formed in 1992 to promote ethanol use. So far only midwestern governors have chaired the organization, but governors of states like New York, Arizona and Washington are listed as members. Kansas Gov. Kathleen Sebelius is the new chairman of the coalition and she was quoted as saying this week, “There’s a new energy behind our efforts to promote biofuels.”
Here are a couple of links to regional stories about the meeting this week.
Wichita Business Journal
Kansas City InfoZine
KXMC-News North Dakota

Demand for ethanol is up and it is becoming evident that domestic production will not be able to supply it all. So, the possibility of lifting the current import tariffs on ethanol, particularly from Brazil, is being raised in Washington.
A Reuters article today says “Congress seems unlikely to lift import duties on much-needed ethanol to meet a domestic shortfall in the fuel additive due to opposition from U.S. producers and farmers.”
However, the article also goes on to say that Senator Saxby Chambliss, head of the Senate Agriculture Committee, told Reuters on Tuesday that Congress has no plans to consider tariff cuts this year, but he said such a move was not out of the question. “We’d be foolish not to consider it … if it benefits the energy community, particularly if at the same time it benefits our farmers,” Chambliss said. U.S. Agriculture Secretary Mike Johanns said this week he had not discussed lifting the tariffs on Brazilian ethanol.
Just because the “farm lobby” is against lifting the import duty doesn’t mean it’s not going to happen. The very powerful sugar industry was adamently opposed to the CAFTA-DR and lobbied heavily against its passage by Congress – but it did pass. So, it is possible.
Even though, as the article notes, Brazil is “slapped with a 2.5 percent ad valorem tariff and a second duty of 54 cents per gallon” on its exports of sugarcane-based ethanol to the U.S. – shipments from Brazil are expected to range from 60 million to 70 million gallons this year. Point being, there is nothing actually stopping Brazilian ethanol from coming here, the tariffs are simply designed to offset “the 51 cents per gallon tax credit the United States provides for blending 10 percent ethanol into gasoline” which may or may not be fair, depending on your viewpoint.
The article also quotes Renewable Fuels Association president Bob Dineen on the issue admitting that domestic production will not be able to meet demand, but still opposing the lifting of import tariffs.
Dinneen said supply problems that may result are no reason to lift duties on Brazilian ethanol imports, as the Brazilian government already subsidizes its domestic ethanol producers. “The Brazilians would love to have us subsidize their product (by easing our duties). But I don’t see a serious effort to do that in the Congress,” he said.
That may change and the ethanol industry may have to accept some compromise on the matter. But, like any industry – from cotton to steel – they are going to be protective of their protection and want to hang on to it for as long as possible, which is to be expected.

USDA has released it’s new Energy Estimator for Nitrogen to help farmers and ranchers identify potential nitrogen cost savings associated with major crops and commercial nitrogen fertilizer applications. According to the USDA news release, nitrogen fertilizer is one of the largest indirect uses of energy on an agricultural operation. Fertilizer accounts for 29 percent of agriculture’s energy use, according to USDA research data. Proper management of nitrogen fertilizer, including the use of organic sources of nitrogen such as animal manure and cover crops, can save producers energy and money.
So, the government is encouraging farmers to find alternatives to nitrogen fertilizer, or at least to use less of it. That will also help make us more energy independent in the long term.
The new Energy Estimator can be found here.
I will probably have an interview on this topic with USDA Natural Resources Conservation Service Chief Bruce Knight next week. Any questions you would like me to ask him?

(Note from Cindy: My interview with Bruce Knight was cancelled last week because of scheduling and the fact that he had laryngitis. I have interviewed “the chief” three times since the first of this year so at this point we are probably not going to do this particular interview after all. Maybe at a later date.)

An editorial in the Wall Street Journal this week entitled “What’s Wrong With Free Trade In Biofuels?” questions the need for tariffs on low cost ethanol from Brazil if we are really serious about energy security in this country. As Hollman W. Jenkins words it – “The U.S. imposes a 54-cent-a-gallon tariff on Brazilian ethanol, to discourage competition with domestic ethanol, which receives a 54-cent subsidy from taxpayers. … This should lay bare the fraud that what’s going here has anything to do with energy security. It has only to do with the agricultural lobby masquerading its interests behind foolish and misleading rhetoric about energy security.”
I would suspect that the tariff is likely to go away at some point, assuming that someday a World Trade Agreement will be reached. In the meantime, I will make a couple of points in support of the tariff in the short term.
First of all, as anyone knows, Brazil has access to an abundance of cheap labor – due mainly to the fact that they don’t have the stringent labor laws that we do here in the United States. No requirements for workers comp, unemployment, health insurance, etc. That is one of the main reasons they can produce ethanol so cheaply. So, the tariff is a way of “leveling the playing field” – at least for now. It’s one of the major reasons we have a tariff on Brazilian orange juice, for example.
Second, the point is made that we are talking about energy SECURITY. That would mean trying to have most of our energy come from sources here in our own country. Why would we want to transfer our energy dependence from the Middle East to some other country because they produce alternative fuel cheaper than we do? Doesn’t make any sense to me. It does make sense to help the domestic industry grow with reasonable subsidies and such – but I think there should at the same time be a plan to wean from that assistance once the industry gets old enough.
People can complain about farm subsidies all they want, but the fact is that our country without question has the safest, most abundant and most affordable food supply in the entire world. And that is very much due to the fact that we have helped to support our farmers so that our country would not have to rely on other countries for our food supply – in other words, so we would have “food security.” The portion of the national budget that goes to “farm subsidies” is less than one half of one percent. Even within the USDA budget, only about 22 percent goes to farm and commodity programs, while 56 percent goes to domestic food assistance programs – and most of the rest to conservation, forestry, research and rural development. (source: USDA) The pay off is that we spend less than ten percent of our disposable personal income on food – an incredible bargain by anyone’s standards. Maybe with a little bit of subsidizing the same thing can be done for energy.

The Bush administration made good on its promise of more funding for domestic bio-fuels today with announcements of loans, grants and cost-sharing. During his appearance at the National Ethanol Conference in Las Vegas today, Agriculture Secretary Mike Johanns announced the availability of $176.5 million in loan guarantees and almost $11.4 million in grants to support investments in renewable energy and energy efficiency improvements by agricultural producers and small businesses. Johanns also highlighted that Energy Secretary Samuel W. Bodman today announced $160 million in cost-shared funding over three years to construct up to three biorefineries in the United States. Here are links to the USDA press release on the funding and USDA audio from an interview with Johanns about the announcement and ethanol in general.

Podcast: Play in new window | Download (1.1MB)

It was awkward, to say the least, that in the midst of President Bush promoting the need for more research into alternative domestic fuels, funding was cut for the National Renewable Energy Lab in Golden, CO. So, before the president made his appearance at the NREL today, some 32 workers who were just laid off two weeks ago were given their jobs back. Needless to say, it was going to look bad for the president to show up there and talk about the important work they are doing and how he wanted to put more money into this research when they had just had their budget cut by $28 million dollars. Kind of hard to explain, but the president did attempt to do so by blaming it on a budget mix-up.
I recognize that there has been some interesting — let me say — mixed signals when it comes to funding. The issue, of course, is whether or not good intentions are met with actual dollars spent. Part of the issue we face, unfortunately, is that there are sometimes decisions made, but as a result of the appropriations process, the money may not end up where it was supposed to have gone. I was talking to Dan (NREL director Dr. Dan Arvizu) about our mutual desire to clear up any discrepancies in funding, and I think we’ve cleaned up those discrepancies. My message to those who work here is we want you to know how important your work is; we appreciate what you’re doing; and we expect you to keep going it and we want to help you keep doing it.
(Read all of the president’s remarks here)
I just thought the whole thing was kind of amusingly ironic. I had been sent a link to this December 20 article in the Rocky Mountain News about the layoffs at NREL, right after the president’s State of the Union speech, but I forgot about it until now. Thanks to my friend Erick in Nebraska for sending me that article.
The AP wire article on the President’s NREL visit today also headlines the budget story. It notes that only $5 millon of the $28 million shortfall was restored to the lab to rehire the workers, leaving $23 million still short. That, according to the article has “forced delays in research subcontracted to universities and companies.”

Energy is the theme of presidential appearances around the country this week, as promised in the President’s Saturday radio address. He started off today in Milwaukee, Wisconsin at Johnson Controls. Much of the president’s remarks focused on investment in new energy technology, such as what is being done at Johnson Controls, especially developing new batteries for hybrid vehicles – advanced lithium ion batteries that are now used in cell phones and laptops. These batteries are lighter, they are more powerful, and they can be recharged quickly. Using new lithium ion batteries, engineers will be able to design the next generation of hybrid vehicles, called plug-in hybrids, that can be recharged through a standard electrical outlet.
President Bush also discussed ethanol, which he noted can be used in hybrid vehicles.
Now, we’re on the edge of advancing additional ethanol production. New technology is going to make it possible to produce ethanol from wood chips and stalks and switch grass, and other natural materials. Researchers at the Energy Department tell me we’re five or six years away from breakthroughs in being able to produce fuels from those waste products. In other words, we’re beginning to — we’re coming up with a way to make something out of nothing. And this is important because it’s — economics are such that it’s important to have your ethanol-producing factories or plants close to where the product is grown.
That’s why E85 has spread throughout the Midwest, that’s where you’re growing the corn. Pretty soon, you know, if you’re able to grow switch grass and convert that into ethanol, then you’re going to have availability for ethanol in other parts of the country. I mean, there’s a lot of stuff that gets thrown away that may be converted into fuel, but it’s not just located in one part of the country — it’s located around the country. And one of the goals is to make sure that ethanol is widespread. If we want to affect our consumption of oil, we want ethanol to be readily available for consumers outside certain parts of the — certain regions of the country.
And so we proposed spending $150 million for government and private research into these homegrown fuels. It’s an important initiative. We want to provide our consumers with reasonable, cost-effective ways to help us become less dependent on foreign sources of oil.
The third alternative vehicle fuel discussed by the president was hydrogen. When hydrogen is used in a device called a fuel cell, it can deliver enough electricity that could power a car that emits pure water instead of exhaust fumes. It’s an exciting new technology. We’re a ways down the road from bringing it to fruition, but we are spending $1.2 billion over five years to research this important opportunity.
Also noteworthy were the president’s remarks about natural gas and coal. Coal has the potential to reduce our reliance on natural gas. The problem is we’ve got to make sure that we can keep our commitment to the environment. Coal requires investment to make sure that we don’t pollute our air. And that’s the conundrum, that’s the difficulty with coal. This country is — I told you we’ve reduced our air pollution by 50 percent, in spite of the fact that our economy has grown substantially. We want to continue that commitment.
Lots, lots more good stuff in the president’s address today – read it all here on the White House website. Go to the Johnson Controls website if you want to watch the archived webcast.
It’s very notable that he is not taking a “one-size-fits-all” approach to this goal of reducing our dependence on foreign oil – it’s going to take a combination of different domestic energy sources, lots of research and serious commitment on everyone’s part to both finding alternatives and conserving energy whenever possible.
Tuesday, Bush will visit the National Renewable Energy Laboratory in Colorado to talk more about getting domestic fuel in the pipeline as fast as possible.

The Environmental Protection Agency has changed the rules requiring certain states to add oxegenates – like ethanol or MTBE – to gasoline to fight air pollution. Here’s the actual announcement from EPA made late yesterday:
In a move to provide greater flexibility in producing clean-burning gasoline to protect and improve air quality, EPA is revoking the two percent oxygen content requirement for reformulated gasoline (RFG) nationwide. The Energy Policy Act authorized the action, which reduces production burdens while continuing to protect the environment with clean fuel blends as the use of ethanol increases. Currently, about 30 percent of gasoline is RFG. The revocation takes effect nationwide on May 6 and in California 60 days after the regulation’s publication in the Federal Register.
In other words, the government is no longer going to tell refiners exactly how they have to make cleaner-burning gasoline. The new regulation implements a provision in last year’s comprehensive energy bill that did away with the oxygenate requirement – and that was in response to complaints by states that have banned MTBE because it pollutes groundwater, leaving them with ethanol as their only option.
Now, the smoggiest areas of the country in 14 states – California, Connecticut, New York, Delaware, Georgia, Illinois, Indiana, Louisiana, Maryland, New Jersey, Pennsylvania, Texas, Virginia, Wisconsin – and the District of Columbia are still going to have to meet clean air standards by using cleaner burning gasoline. They may still choose to use oxygenates, like ethanol, or go some other route.
What will this mean for the ethanol industry, since much of the increased demand lately has come from states replacing MTBE with ethanol? Likely not much, because while the energy bill eliminated the oxygenate requirement, at the same time it created a new renewable fuels requirement that calls for refiners to use four billion gallons of renewables this year, and 7.5 billion by 2012. So, as an article in USA Today states, the outlook is still bright for ethanol.

USDA Undersecretary for Rural Development Tom Dorr was one of today’s speakers at the National Biodiesel Conference in San Diego. Chuck Zimmerman interviewed him about USDA’s renewable energy initiatives, which fall under the umbrella of the Rural Development agency with in the Department. Dorr talks about the administration’s committment to reducing imports of foreign oil and USDA’s value added energy programs. Dorr says, “We consume 140-150 billion gallons of liquid transportation fuels in this country every year. Right now we’re producing about five billion gallons of ancillary fuels. There’s gonna be a tremendous opportunity to grow this industry.”
You can listen to the full 7:00 interview here.

Podcast: Play in new window | Download (3.3MB)

Every single news story that I read or heard about the president’s speech last night focused on his remarks about ethanol and it seemed to be overwhelmingly positive. Even the Democratic response to the address from brand new Virginia Governor Tim Kaine seemed to agree with Bush on this point, sort of. “When it comes to energy, Americans are using more than ever, paying more for it, and are more dependent on the Middle East than ever before. There’s a better way. Last summer, I joined Democrats in Washington and in other states in calling on oil companies to share in our sacrifice and return some of their record-breaking excess profits. Democrats at both the state and national levels are leading the way on energy reforms, calling for greater public investments for alternative, advanced energy technologies. These investments will promote energy independence, boost our nation’s economy, create jobs, and strengthen national security.”Automotive News noted some reaction that the plan was “too little and too long term.” Global reaction was mixed according to an Associated Press story which includes negative comments from France and OPEC – no surprises there.
Read more about the Advanced Energy Initiative that the president announced last night.

Guess what? President Bush talked about ethanol in his State of the Union address tonight! No kidding!
As expected, energy was part of the president’s speech and his most memorable line was “America is addicted to oil” – a headline that was splashed all over the internet news services as soon as they received their advanced copies of the address, hours before it was actually made. The president devoted less than three minutes of his address to energy, but it was the most highly anticipated by the media and – naturally – those in the domestic fuel industry. The Renewable Fuels Association even sent out a press release with reaction to the yet-to-be-made address at 5:30 pm EST (although they did note it was embargoed until 9:30 EST).
What the president had to say was certainly good news for the ethanol industry, announcing the Advanced Energy Initiative – a 22 percent increase in clean energy research at the Department of Energy. “We must also change how we power our automobiles,” Bush said. “We will also fund additional research in cutting edge methods of producing ethanol, not just from corn, but from wood chips and stalks or switch grass. Our goal is to make this new kind of ethanol practical and competitive within six years.” After sustained applause the president added, “Breakthroughs on this and other new technologies will help us reach another great goal to replace more than 75 percent of our oil imports from the Middle East by 2025.” Listen to President Bush’s full domestic energy remarks here.

Podcast: Play in new window | Download (1.6MB)

Expect to hear “W” talking about ethanol tomorrow night. News sources are reporting that alternative energy will be a major theme of the President’s State of the Union speech Tuesday after Bush talked about ethanol in a recent interview with CBS, noting the number of flex-fuel vehicles already on the road that can run on E85. You can watch the 20 minute interview with Bob Schieffer here. Dozens of news outlets are carrying stories previewing the president’s speech, including the Associated Press.
Bush has always been a strong supporter of ethanol, so this is no surprise. And, given the high cost of fuel right now, it’s pretty much a no-brainer that the president is going to address that issue. High energy costs and domestic fuel strategies have already been a major theme in state of the state addresses given by a number of governors around the country this month.

This just in …
The Associated Press just put a story on the wire that Illinois officials are asking for an investigation into whether oil companies are keeping gas stations from offering ethanol-based E-85 fuel. The push for the inquiry is coming from U.S. Sen. Barack Obama (D-IL) and Illinois Governor Rod Blagojevich. The Democratic governor is asking the Federal Trade Commission to look into why very few of the state’s 100 E85 fueling stations are located in the most populous county – that would be Cook, the home of Chicago. The AP story reports that his letter requests action on “potentially illegal policies by major petroleum companies that discourage the sale of biofuels.”
Meanwhile, Senator Obama is getting together with Senator Charles Grassley (R-IA) to ask the GAO to look into the issue. Obama’s office has reportedly obtained “an internal memorandum from a major petroleum company” that says gas station franchise owners are prohibited from selling non brand name renewable fuels like E85 and B20 from fuel islands or underneath canopies bearing the oil company’s name or logo. The memo also said that any alternative location of fuel pumps dispensing alternative fuels must be approved. Read the press release from Obama’s office here.