Archive for July, 2009

Act 382 Creates the Advanced Biofuel Industry Development Initiative

Posted on July 13, 2009. Filed under: Advanced Biofuel, Field-to-Pump, Hydrous Ethanol | Tags: , , , , , |

ACT No. 382

HOUSE BILL NO. 1270

BY REPRESENTATIVES PERRY, BOBBY BADON, BALDONE, BILLIOT, HENRY

BURNS, CHAMPAGNE, CHANEY, ELLINGTON, GISCLAIR, ELBERT

GUILLORY, HARDY, HAZEL, HOFFMANN, HOWARD, JOHNSON, LEBAS,

LITTLE, RICHARD, RICHMOND, GARY SMITH, JANE SMITH, AND ST.

GERMAIN AND SENATORS N. GAUTREAUX, LONG, RISER, THOMPSON,

AND WALSWORTH

FUELS: Creates the Advanced Biofuel Industry Development Initiative

AN ACT

To amend and reenact R.S. 39:364(A)(1) and to enact R.S. 39:364(A)(4) and Chapter 23-B of Title 3 of the Louisiana Revised Statutes of 1950, to be comprised of R.S. 3:3761 through 3763, relative to the development of a biofuel industry development initiative; to provide for pilot programs; to provide for state incentives; to provide for the purchase or lease of fleet vehicles; to provide for the purchase of biofuels; and to provide for related matters.

Be it enacted by the Legislature of Louisiana:

Section 1. Chapter 23-B of Title 3 of the Louisiana Revised Statutes of 1950, comprised of R.S. 3:3761 through 3763, is hereby enacted to read as follows:

CHAPTER 23-B. THE ADVANCED BIOFUEL INDUSTRY DEVELOPMENT

INITIATIVE

§3761. Legislative findings and definitions

A. The legislature hereby finds and declares that the development of an advanced biofuel industry in Louisiana is a matter of grave public necessity and is vital to the economy of Louisiana. The use of advanced biofuel will expand United States and Louisiana fuel supplies without increasing dependency on foreign oil. The development of an advanced biofuel industry will help rebuild the local and regional economies devastated as a result of hurricanes Katrina and Rita by providing: (1) increased value added to the feed stock crops which will benefit the producers and provide more revenue to the local community; (2) increased investments in plants and equipment which would stimulate the local economy by providing construction jobs initially and the chance for full-time employment after the plant is completed; (3) secondary employment as associated industries develop due to plant co-products becoming available at a competitive price; and (4) increased local and state revenues collected from plant operations would stimulate local and state tax revenues and provide funds for improvements to the community and to the region. Blending fuel-grade ethanol with gasoline at the gas station pump will offer the Louisiana consumer a fuel that is less expensive, cleaner, renewable, and more efficient than unleaded gasoline. Moreover, preliminary tests conducted in Europe have proven that the use of hydrous ethanol, which eliminates the need for the hydrous-to-anhydrous dehydration processing step, results in an energy savings of between ten percent and forty-five percent during processing, a four percent product volume increase, higher mileage per gallon, and a reduction in greenhouse gas emissions. Therefore, an advanced biofuel industry development initiative in Louisiana is vital to ensuring the broad-based rural economic development of Louisiana and is a matter of public policy.

B. The legislature finds and declares that the proper development of an advanced biofuel industry in Louisiana requires the following comprehensive “field-to-pump” strategy:

(1) Feedstock other than corn:

(a) Derived solely from Louisiana harvested crops.

(b) Capable of an annual yield of at least six hundred gallons of ethanol per acre.

(c) Requiring no more than one-half of the water required to grow corn.

(d) Tolerant to high temperature and water logging.

(e) Resistant to drought and saline-alkaline soils.

(f) Capable of being grown in marginal soils, ranging from heavy clay to light sand.

(g) Requiring no more than one-third of the nitrogen required to grow corn thereby reducing the risk of contamination of the waters of the state.

(h) Requiring no more than one-half of the energy necessary to convert corn into ethanol.

(2) The distributed nature of a small advanced biofuel manufacturing facility network reduces feed stock supply risk, does not burden local water supplies, and provides for a more broad-based economic development. Each small advanced biofuel manufacturing facility shall operate in Louisiana.

(3) Advanced biofuel supply and demand shall be expanded beyond the ten percent blend market by blending fuel-grade anhydrous ethanol with gasoline at the gas station pump. Variable blending pumps, directly installed and operated at local gas stations by a qualified small advanced biofuel manufacturing facility, shall offer the consumer a less expensive substitute for unleaded gasoline in the form of E10, E20, E30, and E85.

C. As used in this Section, the following terms shall have the meanings hereinafter ascribed to them:

(1) “Advanced biofuel” means hydrous ethanol derived from sugar or starch (other than corn starch) or anhydrous ethanol derived from sugar or starch (other than corn starch).

(2) “Anhydrous ethanol” means an ethyl alcohol that has a purity of at least ninety-nine percent, exclusive of added denaturants, that meets all the requirements of the American Society of Testing and Materials (ASTM) D4806, the standard specification for ethanol used as motor fuel.

(3) “Hydrous ethanol” means an ethyl alcohol that is approximately ninety-six percent ethanol and four percent water.

(4) “Small advanced biofuel manufacturing facility” means an advanced biofuel manufacturing facility operating in Louisiana that produces no less than five million gallons of advanced biofuel per year and no more than fifteen million gallons of advanced biofuel 1 per year with feedstock other than corn derived solely from Louisiana harvested crops.

§3762. Pilot programs

A. The blending of fuels with advanced biofuel percentages between ten percent and eighty-five percent will be permitted on a trial basis until January 1, 2012. During this period the Louisiana Department of Agriculture and Forestry (LDAF), office of agro-consumer services, division of weights and measures, will monitor the equipment used by a qualified small advanced biofuel manufacturing facility to dispense the ethanol blends to ascertain that the equipment is suitable and capable of producing an accurate measurement. Since there are no ASTM standards for evaluating the quality of the product, the LDAF, office of agro-consumer services, division of weights and measures, will take fuel samples to ascertain that the correct blend ratios are being dispensed and follow the development of standards. Provided that no negative trends are observed during the trial period and fuel standards have been developed or work continues on developing them, the LDAF, office of agro-consumer services, division of weights and measures, will consider extending the evaluation period.

B. The use of hydrous ethanol blends of E10, E20, E30, and E85 in motor vehicles specifically selected by a qualified small advanced biofuel manufacturing facility for test purposes will be permitted on a trial basis until January 1, 2012. During this period the LDAF, office of agro-consumer services, division of weights and measures, will monitor the performance of the motor vehicles. The hydrous blends will be tested for blend optimization with respect to fuel consumption and engine emissions. Preliminary tests conducted in Europe have proven that the use of hydrous ethanol, which eliminates the need for the hydrous-to-anhydrous dehydration processing step, results in an energy savings of between ten percent and forty-five percent during processing, a four percent product volume increase, higher mileage per gallon, a cleaner engine interior, and a reduction in greenhouse gas emissions.

§3763. State incentives

A. The Louisiana commissioner of agriculture and forestry, conditioned upon the availability of funds, is authorized to award demonstration grants to persons who purchase advanced biofuel variable blending pumps which dispense E10, E20, E30, and E85. The demonstration grant shall be for the purpose of conducting research connected with the monitoring of the equipment used to dispense the ethanol blends to ascertain that the equipment is suitable and capable of producing an accurate measurement. The grantee shall also develop guidelines for the installation and use of advanced biofuel variable blending pumps by complying with applicable National Type Evaluation Program (NTEP) and National Institute of Standards and Technology (NIST) requirements and ASTM standards.

B. The Louisiana commissioner of agriculture and forestry, conditioned upon the availability of funds, is authorized to award demonstration grants to persons who purchase vehicles which operate on advanced biofuels. A grant shall be for the purpose of conducting research connected with the fuel or the vehicle and not for the purchase of the vehicle itself, except that the money may be used for the purchase of the vehicle if all of the following conditions are satisfied:

(1) The Department of Agriculture and Forestry retains the title to the vehicle.

(2) The vehicle is used for continuing research.

(3) If the vehicle is sold or when the research related to the vehicle is completed, the proceeds of the sale of the vehicle shall be used for additional research.

C. An income tax credit of ten cents per gallon of advanced biofuel is available to qualified small advanced biofuel manufacturing facilities as defined in R.S. 3761(C)(4). The credit applies only to the first ten million gallons of advanced biofuel produced in a tax year and expires on December 31, 2012.

Section 2.   R.S. 39:364(A)(1) is hereby amended and reenacted and R.S. 39:364(A)(4) is hereby enacted to read as follows:

§364. Purchase or lease of fleet vehicles; use of alternative fuels; exceptions

A.(1) The commissioner of administration shall not purchase or lease any motor vehicle for use by any state agency unless that vehicle is capable of and equipped for using an alternative fuel which results in lower emissions of oxides of nitrogen, volatile organic compounds, carbon monoxide, or particulates or any combination thereof which meet or exceed federal Clean Air Act standards, including but not limited to hybrid vehicles. Alternative fuels shall include compressed natural gas, liquefied petroleum gas, reformulated gasoline, methanol, ethanol, advanced biofuel, electricity, and any other fuels which meet or exceed federal Clean Air Act standards.

* * *

(4) A governmental body, state educational institution, or instrumentality of the state that performs essential governmental functions on a statewide or local basis is entitled to purchase E20, E30, or E85 advanced biofuel directly from a qualified small advanced biofuel manufacturing facility at a price equal to fifteen percent less per gallon than the price of unleaded gasoline for use in any motor vehicle. The price of unleaded gasoline will be the prevailing average price for the locality on the date of purchase.

* * *

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Small-scale Distributed Energy in Wisconsin Benefits Farmers, Local Communities

Posted on July 12, 2009. Filed under: Rural Development | Tags: , , , |

Small-scale distributed energy in Wisconsin benefits farmers, local communities

by Lisa Gibson

Biomass Magazine

April 29, 2009

 

If Wisconsin would take advantage of “low hanging fruit” and cash in on the state’s biomass potential via small-scale distributed energy systems, advantages would reach both the agricultural sector and rural communities, according to a recently released Program on Agricultural Technologies (PATS) policy perspective. ‘How Could Small Scale Distributed Energy Benefit Wisconsin Agriculture and Rural Communities?’ was published in late April. 

Authors Gary Radloff, director of policy and communications with the Wisconsin Department of Agriculture, Trade and Consumer Protection, and Alan Turnquist, outreach specialist at the Program on Agriculture Technology Studies at the University of Wisconsin-Madison, say a distributed energy system in the state might curb logistical challenges that come along with large-scale, industrial production, such as biomass feedstock aggregation, short-term storage and transportation. “In policy discussion, we need to keep in mind policy incentives for smaller-scale operations,” Radloff said.

“For me, the thing that struck home was that all of these logistics behind biomass are so dependent on location,” Turnquist said of his research. The small-scale distributed energy option is obvious, he said, creating a marriage between the idea of hundreds of thousands of producers and smaller-scale uses.

Wisconsin has almost 15 million tons of potential biomass, the paper states, and if smaller local operations use that feedstock, it could increase energy production opportunities and increase returns for rural communities. It’s not just the scale of biomass potential that makes distributed energy a powerful tool in Wisconsin, but also its diversity, Turnquist said. “The single biggest benefit is that we have the capacity to do it right now,” he said.

Small-scale operations are starting to pop up around the state, according to Radloff, mostly at rural schools. Starting small and building out might be a way to build the biomass-to-energy infrastructure in the state, he added. Some larger projects also are in the works such as Governor Jim Doyle’s order for four university campuses in the state to “come off the grid” and switch to biomass, Radloff said. If more energy is produced locally and used locally, it can complement other renewable energy sources such as wind and solar, Radloff said. The two researchers compare local energy production to something most Wisconsinites can relate to, a local farmer’s market; the money locals spend goes to other locals they might know personally.

It is possible to construct a system in which a portion of the renewable energy dividend stays at home and the long-term benefits are shared by the landowner, farmer, forester or local community, Turnquist and Radloff write, as several biomass technology options can be economically efficient when located in rural settings, as indicated by studies and real world examples.

But what if local people don’t want the energy systems in their communities? According to Radloff and Turnquist, local systems would require local participation, including organization and decision making, that could eliminate the Not In My BackYard (NIMBY) opposition wind farms and new ethanol plants have met. If the payoff and decision-making process stay in the community, locals may rally more support toward community renewable energy products, they said. “It’s not just about natural resources and infrastructure,” Turnquist said. “It’s also about people and communities.”

Opportunities also exist for small-scale projects to partner with larger-scale operations, according to the authors. They cite as an example Xcel Energy’s 2008 proposal to add a biomass-to-energy burner to their existing plant in Ashland, which already uses woody biomass.

The amount of biomass that can be produced and harvested in Wisconsin still is an open question, the paper states, along with how much the communities actually will benefit from bioenergy and other renewables. But, it adds, local energy production is an important part of the state’s economic future and policies should be crafted to ensure the economic and energy returns go to rural Wisconsin residents and that groups undertaking distributed energy projects can manage the risk in the bioenergy market.

 

About Renergie

Renergie was formed by Ms. Meaghan M. Donovan on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten ethanol plants in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita.  Each ethanol plant will have a production capacity of five million gallons per year (5 MGY) of fuel-grade ethanol.  Renergie’s “field-to-pump” strategy is to produce non-corn ethanol locally and directly market non-corn ethanol locally. On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida Department of Environmental Protection’s Renewable Energy Technologies Grants Program.  Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice. On  April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector.  On January 20, 2009, Florida Energy & Climate Commission amended RET Grant Agreement S0386 to increase Renergie’s funding from $1,500,483 to $2,500,000. By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is renewable, more economical, cleaner, and more efficient than unleaded gasoline.  Moreover, the Renergie project will mark the first time that Louisiana farmers will share in the profits realized from the sale of value-added products made from their crops.

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Measuring Corn Ethanol’s Thirst for Water

Posted on July 12, 2009. Filed under: Advanced Biofuel | Tags: , , |

Measuring Corn Ethanol’s Thirst for Water

Ethanol from corn consumes three times more water than previously thought.

By Phil McKenna

MIT Technology Review 

April 14, 2009

Ethanol derived from corn consumes up to three times more water than previously thought, according to a new study.

Prior studies have estimated, based on national production averages, that one liter of corn-derived ethanol should require 263 to 784 liters of water to both grow the crop and convert it into fuel. Now, researchers at the University of Minnesota have concluded that the amount of water used in ethanol production varies hugely from state to state, ranging from 5 to 2,138 liters of water per liter of ethanol, depending on regional irrigation needs.

Corn ethanol is already plagued by environmental concerns such as pollution from fertilizer, pesticides, and herbicides; soil erosion; greenhouse-gas emissions from production; and competition for agricultural land with food crops.

The new study, published in the journal Environmental Science and Technology, also found that as corn-based ethanol production has approximately doubled nationwide between 2005 and 2008, related water use has more than tripled.

“Ethanol consumes more water over time as corn production extends to regions that need extensive irrigation,” says Sangwon Suh, an assistant professor of biosystems engineering at the University of Minnesota and coauthor of the study. “That means more water is needed to produce a given unit of ethanol over time.”

Suh and his colleagues examined state and county records on irrigation use for growing corn, both as food and for fuel, as well as the location, production levels, and water usage of existing corn-ethanol facilities. The researchers found that more than 80 percent of the corn used to make ethanol is harvested within a 64-kilometer radius of the refinery where it is converted into fuel. Using this information and data on local rates of irrigation, the researchers were able to estimate the water requirements of individual corn-ethanol production facilities.

In some states, such as Ohio, Iowa, and Kentucky, where corn can grow with little to no irrigation, only five to seven liters of water are required to turn the foodstuff into fuel. Almost all of this water is used to boil, ferment, and distill the biofuel. As ethanol production has increased, however, more corn is being grown in western states such as Nebraska, Colorado, and California, where irrigation needs raise the fuel’s water requirements significantly.

“This is one more nail in the coffin for ethanol,” says David Pimentel of Cornell University, in Ithaca, NY, whose own studies have shown that ethanol requires more energy to produce than it releases when burned, and that the fertilizer used to grow corn for ethanol has contributed significantly to dead zones in the Gulf of Mexico (areas of the ocean with low oxygen content due to increases in chemicals in the water).

The U.S. Energy Independence and Security Act of 2007 mandates that ethanol produced using existing technologies will have to increase from the 34 billion liters produced in 2008 to 57 billion liters per year by 2015. This includes the more arid western states, where corn-based ethanol is currently produced.

Jerry Schnoor of the University of Iowa, in Iowa City, says that ethanol producers are already planning additional production facilities in all states to meet the 2015 goals. “We’re already in an unsustainable situation in terms of water use, already drawing down aquifers like the Ogallala,” Schnoor says of the vast underground water source stretching from South Dakota to northern Texas. “This would exacerbate that decline if we expand in these irrigation states.”

Geoff Cooper, vice president of research at the Renewable Fuels Association in Washington D.C., questions the researchers’ claim that water use has tripling as ethanol production has doubled. “The bulk of expansion from ’05 to ’08 occurred in the central corn belt–places that don’t irrigate corn,” he says. “There is a finite limit to how much ethanol you can put in water-constrained areas. We are not putting ethanol plants into areas where water is severely limited.” Suh is also optimistic that water use can be reduced while ethanol production continues to grow. He says that agricultural land that has been set aside for conservation in regions that do not require irrigation could be brought back into production, and genetically engineered corn could maintain high yields with lower water requirements.

“I’m very optimistic we can achieve the ethanol production mandate without sacrificing water security in the U.S.,” he says. Schnoor adds that ethanol production could expand to the south and east, where land is cheaper and water is more plentiful.

Pimentel, however, disagrees. “You read the paper and the conclusion is certainly that it will require more and more water, but [Suh] is from Minnesota, and you have to be cautious because in Minnesota they are promoting ethanol,” he says.

The study was funded in part by the Department of Energy and the state of Minnesota.

 

About Renergie

Renergie was formed by Ms. Meaghan M. Donovan on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten ethanol plants in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita.  Each ethanol plant will have a production capacity of five million gallons per year (5 MGY) of fuel-grade ethanol.  Renergie’s “field-to-pump” strategy is to produce non-corn ethanol locally and directly market non-corn ethanol locally. On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida Department of Environmental Protection’s Renewable Energy Technologies Grants Program.  Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice. On  April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector.  On January 20, 2009, Florida Energy & Climate Commission amended RET Grant Agreement S0386 to increase Renergie’s funding from $1,500,483 to $2,500,000. By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is renewable, more economical, cleaner, and more efficient than unleaded gasoline.  Moreover, the Renergie project will mark the first time that Louisiana farmers will share in the profits realized from the sale of value-added products made from their crops.

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A Rough Year for High Ethanol Blends

Posted on July 11, 2009. Filed under: Advanced Biofuel, Field-to-Pump | Tags: , , , |

By Kate Galbraith
The New York Times
July 10, 2009

Far fewer people have been refueling with high ethanol blends this year in parts of the Midwest.

In North Dakota, sales of E85 — gasoline blended with 85 percent ethanol — were down by more than 60 percent this year from January to May, compared with a year earlier, according to the state’s Department of Commerce.

Minnesota has also seen a severe dip in E85 sales, according to the Minneapolis Star Tribune. Around 1.5 million gallons were sold in May — which is almost 1 million less than a year earlier, the paper reports.

National figures are not tallied by the Energy Department.

“It’s all about price, price and price,” said Phil Lambert, the vice-president for market development at Growth Energy, an ethanol lobby group. He noted that consumption of regular gasoline has also fallen across the country.

E85 can be used in “flex-fuel” vehicles, which can also take regular gasoline. Mr. Lambert said that there were slightly more than 8 million such vehicles in the United States today, or less than 3 percent of all vehicles.

Because ethanol has a lower energy content than gasoline, ideally it should be priced 15 to 20 percent lower than regular unleaded to make it worthwhile on a cost-for-energy basis, according to Mr. Lambert. Consumers, he said, should “never, ever, ever buy E85 when it is priced higher than gasoline.”

But the price was higher, at least briefly, in Iowa, according to Monte Shaw, the executive director of the Iowa Renewble Fuels Association, in the wake of plunging gasoline prices last year.

In Fargo, N.D., E85 was retailing for up to 20 cents above regular gasoline prices this spring, according to Julie Fedorchak, the communications manager for the state’s Department of Commerce — and the town of Harvey, N.D. even put bags over its E85 pumps for a time.

Recent months have brought better news for the industry. Harvey has taken the bags off its pumps, and several states report a pick-up in demand as prices return to a more viable level.

Growth Energy has a calculator on its E85 Web site suggesting that the fuel is currently priced 15 percent below regular gasoline, although there is substantial local variation.

Mr. Shaw of Iowa said that he had recently filled up at a pump where E85 was at least 70 cents cheaper than gasoline. “That’s very attractive,” he said.

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One Year After Oil’s Price Peak: Volatility

Posted on July 11, 2009. Filed under: Advanced Biofuel | Tags: , , |

By Jad Mouawad
The New York Times
July 10, 2009

A year ago this weekend, oil prices reached a trading record of $147.29 a barrel. That peak followed months of speculation that oil prices would zoom past $200 or $250 a barrel — predictions often made by people with a major stake in seeing that happen, even as experts said they were puzzled that prices could rise so high, so fast.

Within weeks of the July highs, prices collapsed as the mortgage crisis in the United States morphed into a full-fledged economic and financial meltdown around the world.

Oil demand has dropped by nearly 1.5 million barrels a day since last year, and OPEC producers are now sitting on five or six millions of barrels of daily idle capacity. As the world confronted its worst economic crisis in over 50 years, oil fell to around $33 a barrel by December.

But prices remain as volatile as ever.

With oil rising above $70 a barrel, I wrote on Monday about big swings in the oil markets over the past 18 months (which also included this neat graphic).

The story ran a day before the Commodities Futures Trading Commission, the Federal government agency in charge of commodity markets, said it was considering regulating “speculation” in commodity markets.

Oil is now headed below $60 a barrel, and some major banks like J.P. Morgan Chase see prices headed to the low $50-range in coming weeks. The reason? While investors pushed up oil prices earlier this year in anticipation of a global economic rebound, reality seems to have set back in, and most people now expect a slow recovery.

But the volatility in the energy markets is unlikely to end soon. While one trader told me this week he was bearish for oil in the short term, he said that long term he was “extremely” bullish for oil. Most of the reasons that have pushed up prices in the past years — tight supplies, geopolitical risk in major producing countries, declining production in major oil basins like the North Sea and Mexico, as well as strong demand growth — have not disappeared.

____________

A note of clarification for statistical sticklers: The July 11 record of $147.29 a barrel was the highest trading level ever reached by oil. But in print, we typically refer to the highest settlement price at the closing of a trading session on the New York Mercantile Exchange. That was set on July 3, 2008, at $145.29 a barrel.

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Oil Companies and Ethanol Plants: Slash, Burn and Buy

Posted on July 9, 2009. Filed under: Blender's Tax Credit, Field-to-Pump | Tags: , , , |

Oil Companies and Ethanol Plants: Slash, Burn and Buy

RenewableEnergyWorld.com

by David Blume 

February 26, 2009

 

With all of the corporate bailouts and economic disasters our country is facing at present, it really is easy to welcome the wallet-relief provided by currently low transportation and heating fuel prices. As the saying goes, “Why look a gift horse in the mouth?” It isn’t comfortable to consider that the relatively calm waters international oil prices present could be covering an insidious undertow that is quietly dragging our renewable and alcohol fuel industry down to the OPEC equivalent of Davey Jones’s Locker where it will lay submerged until the big oil pumps finally do run dry. 

In some places around the country today we are paying US $1.89 a gallon for gas (or even less). However, it is important to point out that with that short term windfall comes the ominous realization that nearly 25% of our Alcohol fuel producing industry will be going belly-up soon. That is correct. Many investor-backed as well as entrepreneurially driven Alcohol plants currently producing in the US may be bankrupted by the end of February 2009. 

It is very likely that 40 of the nearly 200 alcohol fuel plants we have working now will be victims of what I refer to as big oil’s slash, burn and buy strategy to collapse, consume and control our fledgling alcohol fuel industry. 

The obvious poster child for this tragedy is VeraSun. Declaring bankruptcy recently in a federal court in Delaware, VeraSun represents a considerable failure for the alcohol fuel industry. Having fallen from the vanguard of ethanol plants funded by venture capital, its collapse is having a rip-tide effect through the investment (and sadly) the farming community as well. Once a mighty force for alcohol expansion VeraSun is now reduced in value to pennies on the dollar. [Editor’s note, for more on the takeover bid, read RenewableEnergyWorld.com’s Wednesday story, Ethanol Industry Eyes Valero’s Bid for Verasun.]

How did this happen? What is the sleight of hand big oil is using to lull us to sleep at the wheel, while it methodically implements the conquest and enslavement of America’s independent and sustainable energy future?

Here’s the answer. Oil companies are using the commodities futures trading system to artificially drive up the price of corn while depressing the price of alcohol, essentially gaming the futures market. The impact of artificially high corn prices is that plants like VeraSun (that aren’t built and supported by farm-owners, but rather by capital investors) had to pay high prices to compete with big oil to buy corn and make fuel. Meanwhile, the futures price of alcohol was driven down by big oil’s fuel monopoly-easy since they buy over 99% of alcohol fuel produced.

Although VeraSun recently named the company that has offered to buy it out of bankruptcy and as I had predicted, it’s an oil company. Big oil recently spent a billion dollars conducting a fictitious food vs. fuel campaign, contributing to devaluation of US $6 billion dollars’ worth of alcohol plants by more than 90%. Big oil is now quietly spending a fraction of the $125 billion they made in profit last year to buy up alcohol fuel plants for pennies on the dollar.

It is sad that VeraSun and some other independent distillery companies face bankruptcy, but the real market losers are our farmers. While oil companies bought futures contracts for corn at $6 a bushel, farmers were subjected to a quadrupling of prices for oil-based crop inputs such as fertilizer.

With the federal court ruling in the VeraSun bankruptcy, a legal precedence is being set that now allows plant owners to reject contract commitments for grain and corn purchases they have made with working farmers. For the first time ever for any company, there may be an escape from paying for the futures contracts that are bought. The problem with this is that farmers have of course already borrowed money (based on futures pricing) to pay for higher input costs in producing the supposedly higher-priced corn. Unlike the plant owners, they won’t get to avoid their debts and as that crunch goes on.

I think that there is a real chance that big oil will buy up the alcohol plants, reject the futures contracts, bankrupt the farmers and then be able to buy their land.

If the oil companies gain control of even a quarter of the alcohol production infrastructure and land for the crops, there will be no end to the disruption they can cause in markets, they could even potentially bankrupt the rest of the industry. If you think that it’s a nightmare that big oil controls our energy, think what life would be like if it controlled our land and food, as well.

Oh no, I hear another bailout in the makings! Unfortunately, I think that the only way to avoid this catastrophic scenario is for us to provide alcohol fuel plants with a bail-out plan. However, as I have recommended for the auto industry bailout, there should be conditions. While a number of initiatives should be addressed to ensure the alcohol fuel industry’s long-term growth, implementing these bailout conditions in the short term will make the ethanol business more secure and less likely to need any future assistance:

  • All alcohol fuel plants should be required to install the equipment necessary to handle non-corn energy crops.
  • By 2010 plants should be required to diversify their crop inputs, limiting corn to 50% of the total. This would insulate them from further manipulation by oil companies and start the country, especially the Midwest, on the path of sustainable agriculture.
  • By 2011 all plants should be required to run at least 90% on renewable fuel, not fossil fuels. Corn Plus has already converted its plant to run on biomass, reporting a 6:1 energy return compared to the usual 1.5:1 of coal-based alcohol fuel plants.
  • The bailout should include loans to provide energy to alcohol fuel plants using biomass-fired combined-heat-and-electricity facilities. This would reduce alcohol price volatility, since alcohol production would largely be decoupled from the prices of oil, coal, and natural gas.

Even though I am an advocate for smaller alcohol fuel plants for many reasons (security, local economy strength, true energy independence among others), the larger plants need to be protected for the health of the industry and the United States. Without an effective alcohol industry to compete with big oil, the sky would be the limit on gasoline prices.

I have already gone on record predicting that we can expect gas prices to rocket by March 2009. I have also stated that there will be a concerted effort to blame the new administration for this occurrence. This will happen because oil companies and OPEC are afraid that President Obama will carry out his campaign promises to reduce oil imports and address climate change.

There is already a big oil campaign going on to portray the oil companies as back in control of energy prices that somehow got out of control last summer due to “speculators.” You might have caught the 60 Minutes Infomercial they ran for OPEC and the Saudi family recently, (wow take a guess at what that cost to purchase and produce).

Big oil is already floating articles that say that putting money into alternative fuels will be a waste of taxpayer dollars and will raise rather than lower the price of auto fuel. Expect this chorus to become a propaganda flood during the first 60 to 90 days of President Obama’s administration, with the aim of discouraging Congress from doing anything substantial to cut our oil use via any alternatives not controlled by big oil (oil shale, tar sands, coal-to-gas).

It will be in the oil companies’ best interests to avoid attention until after the first round of legislation from the new administration. Traditionally, new presidents can get almost anything passed in the first 60 days or so. The oil companies would prefer to not have the gun sights of legislators trained on them during this period. Once the first flush of legislation is introduced, it will be autumn before another major bill could be introduced to interfere with the oil companies. They will hope to have the ethanol industry and enough legislators bought up by then.

I urge citizens everywhere to contact their Congressional representatives, the Department of Justice, Antitrust Division and the Federal Trade Commission, Bureau of Competition to express their concern regarding the Valero acquisition of Verasun and to help mandate protectionary and regulatory programs for the formation of a truly independent renewable energy and fuel producers market. (Note: email is not always secure. Mark confidential information “Confidential” and send it via postal mail).

David Blume is the executive director of the International Institute for Ecological Agriculture, (I.I.E.A.). He is a globally renowned permaculture and alcohol fuel expert and is author of the Amazon best-selling book Alcohol Can Be A Gas (www.alcoholcanbeagas.com). Mr. Blume is a leading advocate for alcohol fuel and the role of the American farmer in developing a truly sustainable energy and food policy for the post-oil era.

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    Renergie created “field-to-pump," a unique strategy to locally produce and market advanced biofuel (“non-corn fuel ethanol”) via a network of small advanced biofuel manufacturing facilities. The purpose of “field-to-pump” is to maximize rural development and job creation while minimizing feedstock supply risk and the burden on local water supplies.

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