Transcript

Monica Trauzzi: Hello, and welcome to OnPoint. I’m Monica Trauzzi. Joining me today is Brian Jennings, executive vice president of the American Coalition for Ethanol. Brian, it’s great to have you here.

Brian Jennings: Thank you very much for the opportunity.

Monica Trauzzi: Brian, you’re in town with a large group of ethanol advocates, meeting with members of Congress and their staffs, talking about the RFS and ethanol blending and E15. What are your main takeaways from the meetings, particularly with the new members of Congress?

Brian Jennings: Well, we did focus on meeting with as many freshmen members of Congress as we could, Monica, and I think we were bracing for some pretty significant opposition, especially to the RFS. At least, that’s what oil companies would, you know, want us to believe. But the signs coming back or the indications coming back from our visits over the course of these last two days is that there’s more support for the RFS than I think what the oil companies are trying to represent through some of their attacks. No one in Congress, including groups like mine, view the RFS as perfect in every way, shape, or form, but these members of Congress that we met with recognize that on balance, the RFS is working, it’s doing what Congress intended it to do, it contains enough flexibility that it enables EPA to make adjustments that they have made. And so I think with respect to the RFS, the takeaway was much less enthusiasm for going in and making modifications or going in for the full repeal that API and others are asking for, than what some folks are representing. Now having said that, we have to be on guard with new members of Congress, with the attacks that are out there. We know the RFS is going to be under review by this Congress, and so that’s why it was important for us to get out here early on and try to set the tone.

Monica Trauzzi: There is this very strong campaign against the RFS here in Washington, and particularly with ethanol credits, the price of ethanol credits rising, that is a cause for concern, and there are members of Congress that are concerned about it. So how do we handle this? Is it through some form of legislation? What’s the path forward? I mean, it does need to be addressed, does it not?

Brian Jennings: Yeah. I think on balance, EPA has a lot of flexibility to make adjustments. So just from a 30,000 foot point of view, if changes need to be made to the RFS, there are ways to do that through rulemakings, and EPA is charged with going through various rulemakings. And we all need to take part in that. With respect to the specific sort of recent issue relative to renewable identification numbers, RINs, and the price of those RINs, what we find amazing is that there’s some revisionist history going on here. When Congress was developing the RFS in 2007, oil companies were concerned that there could be times when there’s insufficient ethanol production, and so they wanted flexibility in credit build into the system to enable them to sort of comply with the standard from year to year. Congress provided that authority to EPA, and oil companies asked EPA through the rulemaking to give them as much credit as they can. And so that’s where the renewable identification number was born. So RINs are the idea of the oil companies. They’re not the ethanol industry’s idea. In fact, I remember …

Monica Trauzzi: But regardless of whose idea it is, is the system working as it’s structured right now?

Brian Jennings: It’s absolutely working, because every gallon of ethanol that an obligated party purchases, they get a RIN for free. If they purchase more ethanol than the annual obligation requires of them, then they get a RIN in terms of extra RINs in terms of a reward, RINs they can store, RINs they can trade, RINs they can carry over. Last year, there were 3.5 billion excess RINs on the market to help obligated parties comply with the RFS. Two and a half billion of those rolled over into 2013. And so there are sufficient RINs, and going back to I guess the point I’d like to make, if the obligated parties purchase ethanol, blend it in E10, E15, or E85, we don’t have this sort of speculative jump in RIN prices.

Monica Trauzzi: Let’s talk about how the industry is doing. According to USEIA, ethanol plants shut down through the end of 2012 and early 2013 in reaction to production costs being higher than revenues. They report the number of idled ethanol plants at 20 as of January 2013. What is the industry doing to improve its margins?

Brian Jennings: And that number changes every day. You see plants sort of jump in and out, or plants ratchet back production based on maybe their location and their corn prices. I think things are going to remain very difficult through the balance of 2013. In recent days, or weeks, I should say, you’ve seen conditions improve for certain individual ethanol plants, but on balance, we have an oversupply problem in this country. We have a blend wall problem with the limitations on how much ethanol we can add to gasoline. We have oil companies dragging their feet to adopt E15, a legal fuel for more than two-thirds of the cars on the road today. And so I don’t think, Monica, you’re going to see a lot of plants kind of ratchet back up until we start to deal with the oversupply or the supply/demand imbalance through E15 and other avenues.

Monica Trauzzi: Let’s talk about subsidies. The sequester and the budget talks have really put a laser focus on the way that the government is spending its money and subsidizing certain technologies, certain forms of energy. Are we at a point right now where things are going to start shifting, and how might that impact the ethanol industry in terms of the way that the US government proceeds with subsidies?

Brian Jennings: Well, as you know, the ethanol tax credit, which didn’t even go to ethanol producers, expired in 2011. We had a little fun this week. We did sort of a clever, we think, press event to try and point out that the oil industry continues to get certain benefits from the tax code for 100 years now. But we don’t have a significant dog in that fight, other than to say this: the transportation playing field, the transportation fuel market, is not free, and it’s not fair. If it were free and fair, it would reward low cost alternatives. If it were free and fair, it would reward innovation. But it doesn’t do that absent a renewable fuel standard. And so our industry is fine with the fact that we don’t receive any taxpayer support, or ethanol doesn’t receive any taxpayer support anymore, but for members of Congress to say on one hand let’s keep these tax breaks for oil companies, but on the other, let’s go after repeal of the RFS, that spells disaster for us, because the RFS is the only policy we have to ensure that our product, a lower cost alternative, has a way to make it onto the market.

Monica Trauzzi: One final question here. There are so many voices lobbying for ethanol. I’ve had many of those voices here on the show. And it seems like they all have different messaging, different campaigns. Is the lack of cohesion that exists in terms of the messaging for the ethanol industry going to somehow negatively impact the outcome of some of these debates that you’re having, and are there competing interests within the industry?

Brian Jennings: I think more is made of that than what is genuinely real right now. In the past, I think there were some issues that were of concern. Today, there’s really no space between the various groups and what we are trying to advocate for: continuation of the RFS, market access through E15 and higher blends. We all do have a different approach, and I think what makes my organization unique is that we bring the grass roots to Washington. We put a human face on the benefits of ethanol. But we work closely with the other groups. We’re standing side by side with the advanced biofuel community in supporting the same things that they’re supporting. And I think actually repetition of message is what you see coming out of the biofuel groups today, and that’s a very good thing.

Monica Trauzzi: All right. We’ll end it right there. Thank you for coming on the show. Nice to see you.

Brian Jennings: Thank you.

Monica Trauzzi: And thanks for watching. We’ll see you back here tomorrow.