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The CommStock Report - 02/21/08
Copyright 2008 CommStock Investments, Inc.
David Kruse
Retransmission, copying, or forwarding without permission is Illegal
By Steve Allen, For The CommStock Report
Laura Sands, Senior Associate with the Clarke Group, a biofuel's
industry support organization, delivered a sobering presentation to the group
assembled at this year's Top Producer seminar entitled, "Underlying Concerns
with the Biofuels Market." More precisely, she rephrased her topic as
"Biofuels Update-Finding a Safe Midlife Crisis." She explained that her
message subtitle stems from the fact that the biofuels movement is now facing
some of the biggest public perception challenges it has faced since its
inception, something you have heard David Kruse report on several occasions
to you.
Following are the trends Laura sees developing which present real
problems for sustaining the biofuel's movement: (1) The notion that ethanol
subsidies are "just another subsidy for farmers", 2) The idea that ethanol
isn't good for the environment, (3) Tough competition and opposition has
developed from powerful forces, (4) It is becoming more difficult than ever
to get ahead of the information curve and stay above reproach with so much
bashing of the industry happening and industry friendly information being
disputed.
Knowing how things happen behind the scenes in Washington as I do, I can
tell you that it was not a coincidence that recently in separate speeches, a
Grocery Manufacturers Association executive and an oil industry executive,
both called into question the sustainability of ethanol seven times. . .these
people are operating from the same playbook and they don't like to see the
efforts going into ethanol production. They are doing whatever they can,
wherever they can, to slow it down, or reverse it.
Laura's presentation was laced with trends which seemed contradictory,
but which in actuality represents what the biofuels industry is facing and in
turn causing the rising level of grief and uncertainty within it. For every
positive item she mentioned, there was a negative one to counter-balance. As
an example, the current 2008 mandate for ethanol use is 9 billion gallons,
which exceeds current supply. On the other hand, the rate new plants are
coming on line will push supply 2-3 billion gallons beyond that in the near
future. In the short term, the net result will be continued high prices and
tight margins. But with the opposition building against the ethanol industry,
what comes after that, in spite of the mandates in the recently signed into
law Renewable Fuels Standards Act(RFS)?
One might think that the biofuels industry is in good standing after the
passage of new RFS Act. This is particularly so in regards to the push behind
the development of cellulosic biofuels mandating 16 billion gallons of usage
by the year 2022. Also, in the bill, there was emphasis on the development of
"advanced biofuels," but this does not include starch based ethanol.
Notwithstanding the detractors and distractions coming forth to make the
road to energy independence more difficult, Laura points out that there are
still a number of positives in ethanol's favor. For instance, Rich Ezell,
Wal-Mart Senior Strategy Manager of Fuel, has stated that "Our goal would be
to make E-85 available across the U.S." This would mean that E-85 would be
mainstream, making it available in 3,900 potential stores and would expect to
serve 7-10 million flex fuel vehicles.
But the biggest driver for Wal-Mart is CARBON. . . ethanol is a low-
carbon fuel. Right now, in Washington DC and in corporate America the
sustainability discussion is all about carbon. This is the low-hanging fruit
for ethanol right now as it defends itself on the sustainability front. The
United States Climate Action Partnership is urging policy makers to enact a
policy framework for mandatory reductions of greenhouse gas (GHG) emissions
from major emitting sectors . . . the cornerstone of this approach would be a
"cap-and-trade program." Fortunately for agriculture, the only way this can
be presently achieved is through the use of biofuels. This will add
additional revenue for grain farmers and ethanol producers. Most importantly,
it will be built-in market pull for low carbon fuels like ethanol when the
transportation sector is forced to reduce carbon. And this is accomplished
through a "cap-and-trade" plan whereby a cap is placed on emissions and
"trades" are made for offsets.
In Laura's opinion, the key to staying in the driver's seat in the cap-
and-trade scenario is making ethanol an even more carbon friendly fuel
throughout the production of the product. Those out front in the industry are
now striving towards what is referred to as "low carbon ethanol" production.
Techniques being developed by researchers, such as methane, capture ethanol
production, and have been found to reduce GHG by 80% over gasoline. This
change alone could yield a 1.5% reduction in carbon. The most stringent
climate bill in Congress calls for 2% reductions/year starting in 2011, and
the emissions reductions discussed above are ONLY due to one processing
change. More efficient feedstocks would yield even greater reductions.
The success of the biofuels industry in this new carbon sensitive
political environment, Laura commented, may hinge on the following: (1) The
ability of agriculture to learn to move outside its comfort zone and into
green, national security and other partnerships; (2) The ability to support a
range of renewable energy portfolios and capture moral high ground; (3) and
come to the realization that incentives and mandates may have to go hand in
hand.
Getting the upper hand in the upcoming biofuels wars is going to take
more clever and skillful approaches than those previously employed.
Maintaining a grip on political control for the benefit of the biofuels
industry, agriculture, and consumers with the opposing forces marshalling
their public relations efforts is going to be ever more difficult in the
future. It will be critical for the biofuels industry to get a strong enough
foothold to hang on through the upcoming battles by becoming an economic
force which cannot be denied, while at the same time becoming more forceful
with the public relations campaigns which are going to become absolutely
necessary to keep perceptions about biofuels positive. Failure to do so
should not be an option.
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The CommStock Report - 02/21/08
