Corn Commentary

Ethanol Makes More Sense Than Ever For America

According to the Oil and Gas Journal, all U.S. oil companies combined control less than 10% of the world’s oil reserves, and the world’s ten largest oil and natural gas companies are 100% owned by foreign governments.

Ponder that statistic for minute and then tell me our quest for more and better alternative sources of domestic energy is a bad idea.  In the latest “Standing Out in the Field” blog they make a well reasoned response to critics who either have contrary agendas or simply have not done enough research.

The public debate over ethanol, and specifically the Volumetric Ethanol Excise Tax Exemption (VEETC), has been prominent in recent weeks so it seems a good time to look at why Congress passed this legislation originally and why it continues to be a sound decision.

An analysis by AUS Consultants shows the elimination of VEETC would result in consumers paying $3 billion more in higher gasoline costs, including $500 million in federal gas taxes, household income falling by $2.9 billion, and 120,600 more Americans having to file for unemployment.  Another study shows the American ethanol industry has generated an estimated $33.4 billion in federal tax revenues and nearly $17 billion in state and local tax revenues since 1978 – a 5 to 1 return on investment of the VEETC.

Economist Donis Petersan notes a 100 million gallon-per-year ethanol plant results in:

  • $70 million to the local economy during construction
  • Expansion of the local economic base by $233 million each year
  • 45 direct jobs, plus 101 indirect jobs throughout the area
  • Household income raised by $7.9 million annually.

So until legislators are willing to apply the same yardstick to all fuel sources regarding incentives, including oil, the debate in Washington, DC should be decided in ethanol’s favor.

Ethanol Tax Incentives Appropriate and Necessary

So why does the ethanol industry think it needs to continue receiving tax incentives? There are the general answers such as to allow a relatively new industry to compete; to give a domestic fuel source a leg up, to compete against the most highly subsidized industry in history…Big Oil.

Those are all kind of trite and simplistic. Bob Dinneen, CEO of the Renewable Fuels Association provides a much more in depth response to that question in a recent interview with Washington DC-based Energy and Environment television.

In the absence of the tax incentive discretionary blending evaporates. With more than 2 billion Renewable Identification Numbers (RINs) through the RFS program that are out on the marketplace, they would quickly be bought up by refiners. So there’s no question that in the absence of the tax incentive demand for ethanol will fall.”

“And if that happens, there’s no question that plants, some plants would shut down. Now, will it be as dramatic or as devastating as the failure of Congress to extend the biodiesel tax credit? No, because we do have a stronger underpinning of regulatory support. The RFS is there and there will be ethanol that will continue to be blended. But suddenly the RFS is going to be a cap, not a floor.”

So what is a RIN? It is really a tradable commodity. Every gallon of renewable fuel in the U.S. has a unique serial number assigned to it. This unique 38-digit serial number (a RIN) is what makes the program work and allows EPA to monitor progress and make certain that all parties are playing by the rules. It also allows marketers flexibility to sell the RFS prescribed amount of ethanol in the markets that make the most sense in terms of demand and logistics.

Why should we as consumers care? At a very fundamental level that I can relate to without being an expert if we lose the ethanol tax incentive (VEETC) we become more dependent on foreign oil.

 “All the growth opportunities for ethanol aren’t going to be there. So we are very committed to making sure the industry is able to continue to grow and evolve these marketplaces that are opening up. And that’s why extending the tax incentive needs to occur,” Dineen says. “Now, do you want to look at ways to reform it? Absolutely and we’re working with the administration, we’re working with our allies on Capitol Hill, we’re working with other stakeholders to try to determine how you can address the future of the tax policy in a responsible fashion, in a way that provides some confidence that the markets will continue to be there, that will allow the continued evolution of the industry into newer technologies, different feedstocks, all the rest.”

“That’s a healthy conversation to have. You can’t have that in the week or two that you’re going to have in a lame duck session. So they can extend this tax incentive with, you know, a stroke of the pen, a little bit of Whiteout, just change the date. That’s what they need to do this year and let’s have a robust discussion about future biofuels tax policy and make sure we’re thinking about it in terms of what’s the best policy to promote cellulosic ethanol? How do we commercialize other advanced biofuels? How do we make sure that E85 and other fuel uses for ethanol as a replacement fuel are there? And that’s just going to be a much broader conversation.”

Hopefully, some day soon such incentives won’t be part of the public dialogue. If a realistic attempt is made to eliminate the millions of dollars in petroleum subsidies and level the playing field, other energy players will follow.

Farmers Need to Make Their Voice Heard

For many of you the harvest season is over, but the process of cleaning and repairing your equipment and prepping fields for spring planting is just beginning. Here’s hoping that in this busiest of seasons you won’t forget to vote in the Nov. 2, 2010 election.

Many local and state races are expected to be very close which means your vote has weight, it has meaning and it is likely worth the drive to town. People are disgruntled as we approach these Mid-Term elections which means two things will happen…many of the dissatisfied will stay at home and say “why bother “ and the zealots on both ends of the spectrum  will camp out waiting in line to make sure their votes gets counted.

This means it is more important than ever to vote. This presents an opportunity for the majority of the population of American society who live somewhere in between those extremes. It presents an opportunity for agriculture.

Farmers constitute less than 2 percent of the population but history shows you also have a remarkably high voter turn-out, so let’s keep that record intact. Your vote doesn’t count? I read a blog today that reminded me that the closely contested 2000 Presidential election five states were decided by less than one percentage point.

Oil Execs Say the Darndest Things!

“You can fool some of the people all the time, and those are the ones you want to concentrate on.” George Bush

If you are a Bill Cosby fan you probably have fond memories of his show “Kids Say the Darndest Things.” I would suggest the networks might want to consider a new program entitled “Leaders and Captains of Industry Say the Darndest Thing.”  And let’s start with oil executives who say the most amazing things including bashing any competitive technology that displaces their market share.

The petro industry is so entrenched and powerful they regularly make clarion call comments in public that are equal parts frustrating, comical and transparent. For example at a recent Oil & Gas Conference in Bakersfield, CA an oil industry high-roller complained about “unrealistic and unnecessary policies aimed at gradually weaning the nation of its dependence on oil and natural gas.”

The event’s keynote speaker, John Felmy, chief economist at the American Petroleum Institute, drove this point home by calling on attendees to spread the message that the Obama administration’s push for greater use of renewable energy, as well as its attempts to reduce subsidies to the industry, are disingenuous, delusional and dangerous.

If oil industry execs are making such comments in a public forum it makes me really want to be a mouse in the boardroom to hear the really good stuff. My guess is they would really like the unwashed masses to just send them their paychecks and shut-up.

Felmy not only criticized the push for greater use of biofuels but took issue with claims that electric vehicles represent a viable option to internal combustion engines. “For the lifetimes of everybody in this room, we’re going to be using oil. No doubt about it,” he said.

Now there is a man with an open mind and vision. All told the tax deductions, credits and other public benefits the oil industry receives, U.S. taxpayers support oil to the tune of between $133.2 billion and $280.8 billion annually. Considering the direct and indirect costs of our oil addiction I hope Mr. Felmy is wrong.

Ironically, American oil companies would likely benefit dramatically from President Obama’s clean energy agenda. They have the capital, the manufacturing capacity, and the engineering wherewithal to dominate the clean energy economy

In the mean time here is an Irish proverb for our leaders to contemplate”

“You never miss the water till the well has run dry.”


The Absurdity of Petroleum

Is there a full moon out or what? In my normal course of scanning news, web sites and blogs for information I discovered a veritable trifecta of absurdity regarding petroleum the other day.

My favorite article had to be about a new study arguing that eliminating federal tax deductions for intangible drilling costs and for US oil and gas production expenses would hurt oil production growth and devastate future US natural gas development.

The Wood Mackenzie study was commissioned by none other than the American Petroleum Institute. (nod, nod, wink, wink). Aren’t these the same companies (foreign & domestic) who were raking it in hand over fist from 2003 to 2008 and making record profits?

Excuse me but when any single company’s sales outpace the domestic national product of 120 nations as Exxon-Mobil’s did in 2008 I find it hard not to be a little skeptical regarding the Woods Mackenzie Study.

We have seen repeatedly that domestic oil price shocks are a result of refining and distribution problems more than even supply. Mix that in with inadequate competition in the oil industry and an ample dose of bad energy policy and you get a real mess.  Maybe this is why the petroleum giants have tried repeatedly to discredit the performance and viability of ethanol.

This might go a long way toward explaining why they have so energetically fought against “tax incentives for blending ethanol” that actually go the ethanol blender…once again oil. Forgoing short term gain for long term profit is not a new concept. It also would explain their reaction to the current effort to raise the amount of ethanol in a gallon of gasoline.

 Increased ethanol demand cuts into petroleum’s profits and their ability to manipulate the market.  The economic impact of being able to control a product we are addicted to from cradle to grave is heady and lucrative stuff. (more…)

Corn Growers Honored by ACE for Ethanol Efforts

The American Coalition for Ethanol (ACE) honored corn growers for their efforts in promoting ethanol at the 23rd Annual Ethanol Conference and Trade Show in Kansas City this week.

On Wednesday night, staff members of the South Dakota Corn Growers Association and Corn Utilization Council received the President’s Award from ACE for “principled dedication and support” of the industry. SD corn executive director Lisa Richardson and legislative director Teddi Mueller received that award. Also, the National Corn Growers Association (NCGA) and 11 corn grower states were recognized with the “Paul Dana Marketing Vision Award” for their support in making the BYOethanol campaign possible.

ace darrin ihnenNCGA president Darrin Ihnen of South Dakota addressed the ACE conference yesterday and talked about some of their efforts to promote ethanol, as well as their partnership with the organization to speak with a unified voice in Washington on issues important to the industry. Darrin sported fluorescent pink fingers at the conference, not as a new fashion statement, but proof that he is a working farmer as they came from vaccinating hogs the day before on his South Dakota farm.

Darrin talked about those big issues facing the ethanol industry right now - the expiration of the blenders tax credit at the end of this year and the delays in approval of E15 - as well as the lack of an energy bill in the Senate that includes provisions for renewable fuels. “We’re disappointed that they’re not going to do anything, but at the same time, the bill that Reid had introduced didn’t have anything in it for ethanol, so it gives us a little more time to get some ethanol provisions in that bill,” Darrin told me. “The downside is that they already don’t get a lot done so by pushing it back to September, that’s even less time before the elections.”

Listen to my interview with Darrin from ACE here:

Download the interview here: Darrin Ihnen at ACE conference

Black Gold, Texas Tea or Carbon Crack…it’s all Crude

 In our recent series discussing ethanol a lot of the information has been more philosophical in nature and has focused on some of the critics and their motivations. The idea was to get you thinking in a skeptical way rather than beat you up with statistics. That ends with this installment which will discuss petroleum. (Skip to the end for the stats).

Black Gold, Texas Tea, or carbon crack…at the end of the day there is a reason they call it crude.  Even in its refined form it remains crude. This stew of dead, decayed plants and animals we call oil is nothing but another anachronistic fossil fuel that is little removed from cavemen rubbing sticks to keep us warm.

We may have become highly technical and efficient in finding oil and getting it out of the ground but the final product remains, well…crude.

Over the years more than 200 ingredients have been put in gasoline to try to make it burn better, make your engine knock less, and sometimes just because it was a convenient way to make unpleasant chemical waste products from the petroleum industry disappear out your exhaust pipe.

And all of us gonzo gas mavens would ignore the obvious imperfections and hideous social costs because it was abundant, cheap and made our powered toys sing. Cars, boats, motorcycles, weed-whackers, generators, power washers, etc…..Yikes, the list does go on.

Today, I would gladly trade in my heated seats, directional headlights, and GPS for a modern fuel (hopefully domestic) and new engine technology that moves us away from the oil-fed internal combustion dinosaurs we depend on today.

If we can have cell phone technology that changes daily, digital television technology sharper than the human eye can even see, and tractors that steer themselves we surly should be able to market a functional, fuel efficient and more environmentally friendly car that runs on a cleaner, renewable fuel source. (more…)

Little is Sweet About Sugar Cane Ethanol

A recent study attempted to make the case that if the U.S. government allowed the ethanol tax credit to expire it would have very few adverse consequences for the U.S. industry. The fact the study was funded by the Brazilian sugarcane ethanol industry was dutifully avoided.

Anti-ethanol folks, who have been receiving a lot of attention on this blog of late, made sure the study got plenty of media splash because it helped them further their own causes. Interesting they didn’t showcase the source of the funding for the study or point out how badly Brazil’s sugarcane ethanol industry lusts after access to the world’s largest ethanol market…the USA.

And in today’s budget conscious environment in Washington, DC their efforts are getting some traction. The direct cost of the ethanol incentives is being reviewed independently without any comparative assessment to savings in farm bill costs, how much we spend militarily on protecting our petroleum shipping lanes, or the economic fallout from depending on foreign oil. Federal tax revenue generated by the production and use of U.S. ethanol totaled more than $8 billion in 2009, $3 billion more than the value of the tax credit.

It is amazing how quickly some of our elected officials have forgotten the core rationale for putting the US ethanol tax credit in place. President Ronald Reagan, who was not exactly a political Dove, regularly noted it is in America’s best interest to reduce the world’s dependency on oil from unstable regions of the world.

That’s why Reagan and virtually every president since has asked domestic alternative energy producers like ethanol to step up. He also noted the expense related to America’s foreign oil addiction and how helpful bringing these energy jobs and the billions of dollars ($1 billion day) we send overseas could be for the U.S. economy.

Despite this clarion call the aforementioned detractors, which mysteriously enough include some environmental groups, like to preach the benefits of sugarcane ethanol; sometimes called “slash-and burn ethanol.”(See attached photo). It’s even more amazing some U.S. regulatory agencies actually tout Brazilian ethanol as an “advanced biofuel over the American made corn product.  In case you were wondering the photo shows a burning cane field in Brazil. The Sao Paulo area alone burns 8,000 sq miles of field producing incredible amounts of volatile compounds and particulates.

To make harvesting easier, which reduces manual labor costs, sugarcane fields are burned prior to harvest to remove the plants’ leaves. Considering the near slave labor conditions in some cane fields I guess this burning might seem a gift for the machete wielding masses, despite the obvious environmental costs of the massive burning.

If critics are truly concerned about our fuel needs and specific environmental and economic consequences consider the following:

Data from the Brazilian sugar organizations clearly shows they are planning, by 2020, to export 63% more sugar and export 336% more ethanol – all at the expense of increasing the land area required for sugarcane by 78%. Corn based ethanol is being provided with increased corn yields on the same acreage and using modern production processes throughout the production chain.

Sugarcane ethanol provides primarily ethanol, with some electircal cogeneration. Corn based ethanol provides ethanol, high protein feed for livestock, corn oil, and even captured CO2 from the fermentation process to carbonate soft drinks.

Sugarcane ethanol provides jobs that don’t meet subsistence level incomes, while jobs in the ethanol production chain are highly skilled jobs that provide long term employment and taxable income for local schools etc…

And the next time you want to get on a soapbox promoting sugarcane ethanol consider the following items below which are being ignored to make Brazilian product look better than it is:

  • Ignoring direct and indirect emissions from crop residues;
  • Use of inappropriately low fertilizer rates;
  • Failure to account for energy inputs for dehydration of hydrous ethanol;
  • Failure to accurately assess transport of ethanol from Brazil to U.S.
  • Failure to assess actual cane harvesting practices and processing in Brazil

At the end of the day if the U.S. ends up importing more ethanol, then we will once again lose a domestic growth industry, export American jobs, and become dependent on foreign energy producers.

Give Me Corn Ethanol or Give Me…?

 Dear New York Times…Your editorial today regarding corn-based ethanol is superficial, either uninformed or malicious, and a disservice to the citizens of this nation looking for real energy solutions we can implement today.

Before addressing some of the onerous points in your piece, please take a look at the attached photo. This is not from the BP spill in the Gulf but rather the latest incident in Michigan which has dumped a million gallons of oil into a river and is now 80 miles from polluting Lake Michigan. Oil is and always has been a loaded gun from an environmental perspective.  From leaking tanks at service stations to oil tankers grounded on coral reefs in storms. No more explanation needed on this one.

However, perhaps the biggest point you fail to address is wind, coal, and geothermal don’t make your car go. Natural gas can be used as an automotive fuel but it too is not renewable and has other issues I won’t go into here today. Solar….I’ll race you with my bicycle.

Will ethanol be made from other sources some day?  Undoubtedly. Other biomass sources show real potential and will come with the proper research and development, but corn-based technology and infrastructure is the very launching platform for this effort. Yet opponents would have us build our domestic energy house without a foundation.

Ethanol…dubious environmental benefit? Line up the hundreds of studies regarding ethanol, look at the funding sources and consider what is left. What you will find is a long trail of reputable scientists and institutions public, private and governmental that clearly shows the environmental benefits of ethanol.

When compared to petroleum especially, ethanol is a rock star in regard to cleaning the air, maintaining water quality, and soil management. On the oil side think tar sands.

Your reference to the land use issue is also comical. Incredible productivity on our existing corn acres is easily supplying the growing ethanol industry while also meeting the needs of other markets. And yield growth is accelerating.

And finally, I think we must aggressively pursue all forms of renewable, domestic energy given the finite nature of petroleum and do so in good conscience because of the legacy we stand to leave future generations. To suggest we put our entire energy investment in “maybe someday” sources while ignoring a viable and tested source like ethanol is shortsighted at best.

The Anti-Ethanol Circus is in Town!

My brother-in-law recently asked me why ethanol had a great reputation for two decades and suddenly seems to be getting pounded constantly, especially in editorial/opinion pages by the media.

 He doesn’t have a farming background and isn’t invested in the ethanol industry so he is a neutral and somewhat uninformed observer. He is also one of the busiest guys I know so for him to notice it means the anti-ethanol crowd are now officially pervasive. Apparently, it’s not just me feeling paranoid.

 The conversation came back to me in a hurry this week with the latest “ethanol is evil” Tsunami rolling across the country once again. It started with the Wall Street Journal  (No link here because you have to pay for this tripe) and the Washington Post and worked its way across the country hitting the Chicago Tribune and Des Moines Register yesterday and likely making its way for the West Coast like some cheap traveling circus.

 And like the aforementioned Circus the anti-ethanol gang leave a trail behind much like Barnum and Bailey’s elephants only there is no guy with a shovel and bucket cleaning up in their wake. They leave their load of “misinformation” to fester in the road in full knowledge that most people are also too busy to check the veracity of their propaganda.

 The public lynching of ethanol began with the bogus food vs. fuel charade in 2008 and since then has continued to resurface over and over again in several different guises that get trotted out and recycled whenever opportunity presents itself.

 Several things remain consistent as the attacks continue. The noxious cocktail they serve up is made with equal parts of the best bad science money can buy and poor logic. And the olive on the toothpick seems to be just plain old avarice.

 That’s greed, materialism, or covetousness with a Capital “C.” The people fanning the fires of these attacks have rationale and motivation that are simple if not transparent. They are the folks that want the cheapest corn possible because it boosts their profits; want ethanol to be made from another source; or want ethanol crippled forever because the market share just got too big.

 So, for the next couple of days come back here and you will get a sneak peak each day of some of these players and the Machiavellian games they play and fund all to snuff out the only real competition that imported petroleum faces in the marketplace today…ethanol.

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