Blogging Ethanol & Biodiesel

President Bush to veto farm bill?

Criticizing Congress's "massive, bloated farm bill" that would support millionaire non-farmers, President Bush's comments from the Rose Garden Tuesday indicate that he will veto the package if changes aren't made.

Looking to offset the increased spending that would doom the bill, congressional negotiators on April 25 reduced the volumetric ethanol tax credit for a second time in the talks. Incentives for biodiesel and renewable diesel were removed entirely. Negotiations on the now-$280 billion bill are ongoing, with discussions focused on finding ways to compensate for the proposed $10 billion increase to the farm direct payments program.

A major breakthrough occurred late last week when senior lawmakers agreed on a $1.7 billion package of tax breaks, and ways to finance the overall package. The 51¢/gal tax credit for corn-based ethanol would drop to 45¢, which would save over $1 billion alone. But another $500 million would be netted out by a new $1.01/gal cellulosic tax credit, assuming of course, that any gets made.

The Corn Ultimatum

Concerns that environmentally sensitive lands will return to crop production owing to corn ethanol's voracious demand requirements were not allayed when a USDA Agricultural Research Service economist confirmed that even Conservation Reserve Program (CRP) lands are not sacred.
        “There is discussion about taking land out of CRP land and putting a portion into corn, said Harold Collins, speaking earlier this week at the National Alliance of Independent Crop Consultants annual meeting in Seattle.
        That is not to say that all 37 million of the CRP acres could be feedstock, as the USDA considers only about 7 million acres suitable for corn production.
         “If we are to make ethanol from corn grain, we would need 68 million acres, which is 72% of the corn grown in the United States. I doubt very seriously that’s going to happen,” Collins said.
         An additional 15 billion gallons of ethanol fuel would most likely come from the Great Cellulosic Covenant.
        Even if tomorrow's vaunted technology were now upon us, switchgrass “is not for the grower who is faint of heart because it takes so long to get started,” Collins said.
         Interestingly, Collins spoke of wide variation in expected yields from switchgrass, based on factors such as irrigation. Ironically, those states rich in corn would ironically come in last. Iowa got 6 tons of switchgrass per acre in the recent USDA study versus Washington's 13 tons.

Senate legislation has two-tiered effect on ethanol stocks

        Equity shares of ethanol producers were mixed Monday after rising 9.7% on anticipation of the energy bill's passage in the U.S. Congress Thursday. As investors took profits and digested the impact of the Senate passage of the energy bill, which mandates a doubling of corn-based ethanol to 15 billion gallons by 2022.
        Large, diversified agribusinesses such as The Andersons and Archer Daniels Midland Co. closed at or near annual highs, benefiting from the fact that they are positioned to take advantage of last week's farm bill as well, which preserves existing subsidy programs for grain and cotton farms.
        "Pure" ethanol producers, however, sank Monday, Aventine Renewable Energy shares fell 38¢, or 3.3%, while VeraSun Energy and US BioEnergy, which announced plans to merge last month, declined around 1% each.
        In addition to not being affected by the subsidy aspects of the farm bill, smaller ethanol-only producers, while benefiting from the increased Renewable Fuels Standard, may not be in as strong a position as the majors to take advantage of the farm bill's cellulosic incentives.

Unpassable energy bill delayed on way to House floor

        House Speaker Nancy Pelosi (D-Calif.) is working with a singular focus to bring the revived energy bill to the House floor though certain facets of the current version are unlikely to stick.
        It didn't show up today, as had been expected, because Pelosi is hitting resistance in attempting to force into the package measures that would raise taxes on oil companies by around $15 billion during a 10-year period.
        If the bill passes the House, it faces an even greater hurdle in the Senate from its insistence on a Renewable Portfolio Standard - the proposed requirement that electric utilities produce 15% of their power from renewable sources by 2020.
        Sen. Pete Domenici (R-N.M.), for one, is strongly opposed to the measure, and it is not clear whether Majority Leader Harry Reid (D-Nev.) and the Minority Leader Mitch McConnell (R-Ken.) can collect enough votes among moderate Republicans to resist a filibuster if Domenici’s camp decides to mount one.
    President Bush is also opposed and has hinted that he would veto the entire bill if the version that shows up on his desk contains either the tax increase on oil companies or renewable electricity provisions.
        Meanwhile, in the Senate today, Democrats introduced a $21 billion tax package that excludes income of major integrated oil companies derived from the production, refining, processing, transportation, or distribution of oil and natural gas, permanently setting the deduction allowed at its current law level of 6% of qualified production activities.
        The proposal would also eliminate the distinction between foreign oil and gas extraction income and foreign oil related income.

House RFS caps corn ethanol

Image: Superbug via CafePress

House Dems have proposed scaling down the Senate's Renewable Fuels Standard and are heard to be nearing a deal that would require 20.5 billion gallons a year of renewable fuels by 2015. Congressional staff are trying to bring this to the floor next week.
        Interestingly, it seems that even in the renewed momentum of the RFS, critics of corn-based ethanol have been able to stir in a backwash tide. Policymakers in the House are capping the sought-after corn ethanol RFS at just 15 billion gallons of that 20.5 billion, leaving the rest as specific carve-outs for so-called next generation biofuels such as renewable diesel and ethanol fed by cellulosic feedstocks.
        This is an astute turn by House Dems and should keep the RFS portion energy bill from being viewed strictly as a bail-out for the Midwest's ethanol producers.         
        Meanwhile, the CAFE compromise, which would give vehicles such as SUVs lower standards for fuel efficiency, remains viable given Rep. John D. Dingell (D.-Mich.) ever-dutiful push for concessions to help struggling American automakers.
        House Speaker Nancy Pelosi said this week that she hoped to gain passage of an energy bill containing the new mileage rules by the middle of next week.

Biofuels 101

    Sure, you know a lot about biofuels, but even the best of us need to refresh ever so often, if not outright explainers.

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Cellulosic would-bes 'in everyone's face'

Image courtesy: New Line Cinema

    Big Ethanol apparently aren't the only ones waiting with baited breath on Congress's fall calendar. Big Timber is, too.

    The Senate farm bill being debated in committee this week includes Senator John Thune's (S.D.) legislation designed to promote the production of cellulosic ethanol produced biomass feedstocks such as wood chips. That legislation would provide $200 million in producer incentives to produce and deliver energy-dedicated crops.

    Tree people are already marching, as Rick Holley, CEO of Plum Creek Timber indicates: "I think [a cellulosic production incentive] is an important thing because these people that build these plants, you know they're like $150 million a copy. And they're going to need those kind of Federal and State incentives, at least on a temporary basis, to kind of get going."

    "We hear about corn, but it is still a very small market," said Holley, speaking to investors yesterday on a call to discuss quarterly earnings. "So I think it's going to take some of that for the U.S. government to jump start it, and we're in everyone's face that's in this business."

What else can we do for the RFA?

The Renewable Fuels Association's press conference yesterday in Washington, D.C. seemed tactically designed to get support behind an expanded Renewable Fuels Standard, such as the one being debated among Senate and House leaders this fall.

Acting Agriculture Secretary Chuck Conner was undaunted in his support for ethanol, and the other speakers, e.g. Gerson Santos of Abengoa, Carlos Riva of Verenium, seemed to all but be begging Congress for their guaranteed market. And for guaranteed loans.

Dr. Charles Abbas and Dr. Mark Stowers, as respective heads of research for ADM and POET, brought up the technical end of the sell, trotting out excellent Powerpoints as to how cellulosic ethanol can come to be - but also, how expensive this is all going to be.

The DOE's investment in its cellulosic research centers is already up to $400 million and the USDA has proposed four times that for cellulosic R&D. That would be government support of the technology to the tune of $2 billion.

"And that's just a drop in the bucket," said Verenium's Riva.

So, this is what the RFA was asking for yesterday: a vastly expanded government-created ethanol market on government-funded technology, and it's all because today's government-created ethanol market is due to wash out next year, if not sooner.

The RFA's Bob Dineen ended his comments in trademark Voice-of-God mode, telling us "not to be deceived by the naysayers who are still using their Selectric typewriters. We are the future. The future is now."

Maybe, but should taxpayers have to pay for it, Bob?