Governors' Biofuels Coalition

As the renewable fuel standard continues to face legal and legislative challenges, advanced biofuels companies are seeking alternative investment markets. During today’s OnPoint, Hugh Welsh, president of DSM North America, discusses his company’s ongoing work to move investments to China. Welsh says his company is engaging in several conversations with both privately and state-owned organizations in China that are interested in licensing DSM’s technology.

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Monica Trauzzi: Hello, and welcome to OnPoint. I’m Monica Trauzzi. With me today is Hugh Welsh, president of DSM North America. Hugh, thank you so much for coming back on the show.

Hugh Welsh: Thanks for having me again.

Monica Trauzzi: So Hugh, this week the Senate revisited issues stemming from the RFS and EPA’s implementation of the rule during an oversight hearing. What is your current level of confidence in EPA and its ability to effectively set RFS targets?

Hugh Welsh: We’re very happy with the way EPA’s done it thus far. We’d like to have them look at the mechanics of how they do the calculations again to move away from this ill-conceived concept of a blend wall. We don’t think that there’s a blend wall in the RFS legislation. So we’d like to see increasing blend levels, which would require EPA to do their calculations differently. I heard a little bit about Senator Inhofe’s committee hearing today. Still a lot of arguments against the RFS. Trying to repeal the RFS, but we’re also confident that the RFS is going to remain through 2022.

Monica Trauzzi: What’s the level of responsiveness from EPA in changing the way that they do their calculations?

Hugh Welsh: Not so much today, but I think the EPA is waiting to see how the plethora of lawsuits resolve themselves over the course of time.

Monica Trauzzi: Earlier this month, Senator Bill Cassidy proposed an amendment to the big energy package that would have repealed the RFS. Do you expect that efforts like that one will continue with any success?

Hugh Welsh: I expect that efforts will continue. Groups like API and some of the other big oil lobbying firms will continue to push their elected officials to have the RFS repealed, but I don’t think they’ll be successful at all.

Monica Trauzzi: Republican presidential candidate Ted Cruz still managed to win Iowa earlier this month despite being in favor of repealing the RFS. Has the industry seen any specific impacts from this really heated debate over the RFS that we’ve seen in the presidential campaign?

Hugh Welsh: Senator Cruz did win in Iowa, but 83 percent of the voters voted for pro-RFS candidates, which was even a higher level than in 2012. So the result in Iowa was actually, from our perspective, very pro-RFS. We, again, remain confident that the RFS will remain in place. It’s good for the country, good for the environment, good for jobs.

Monica Trauzzi: So we’re hearing from many U.S. biofuels companies that China is increasingly looking like a compelling market. What signals are you seeing from the Chinese market that there is demand for U.S. advanced biofuels?

Hugh Welsh: There’s a lot of capital flight at the moment from China. You see it in the news every day on MSNBC and some other stations, but one area where the Chinese government, both the public and private sector, are looking at is ways to bring in cellulosic ethanol specifically. So they would love to bring in cellulosic ethanol technology to produce ethanol within China. The reason is the Chinese government has put a moratorium on building new grain ethanol plants ’cause they don’t want ethanol in China to compete with food or feed. DSM, with our partner POET, has built a large-scale demonstration plant here in the United States called Project Liberty. So we have a lot of interest from different Chinese organizations to license our technology, to bring it to China to help alleviate some of the environmental concerns that they have.

Monica Trauzzi: So as you mentioned, the Chinese economy is slowing. So is the advanced biofuels industry bulletproof to the economic downturn that that country is seeing?

Hugh Welsh: It’s so early days in China in the biofuels industry. I think less than 1 percent of Chinese transportation fuels are biofuels. So there’s a lot of opportunity for growth there. The big push there is actually from the Chinese citizens. So you’ve seen in the news last year a lot of the red alerts in places like Beijing because it’s too difficult to breathe during the day. I think less than 1 percent of the Chinese urban citizens breathe air that would be deemed healthy by the E.U. So there’s a lot of groundswell push for different types of biofuels to come in to reduce greenhouse gas emissions and improve air quality.

Monica Trauzzi: What specific conversations has your company had with the Chinese?

Hugh Welsh: We’ve had conversations with several Chinese, both state-owned and private organizations who are interested in licensing our technology.

Monica Trauzzi: At what point are you in those conversations?

Hugh Welsh: We’re along in those conversations, but we’re not yet in the position to sign any deals or make any announcements. I think DuPont very recently made an announcement about a joint venture in China. We’re happy to see that. The more folks that we can have active both here in the States in cellulosic ethanol as well as in China, the better.

Monica Trauzzi: By turning to China, are you essentially ruling out the United States as a growth market?

Hugh Welsh: No, we would love to expand here in the United States. We continue to look for folks who are interested in investing and building new cellulosic ethanol plants and licensing the technology, but it’s a challenge here ’cause we have a lot of folks who are constantly filing amendments to bills to repeal the renewable fuel standard, which has a chilling effect on investment. That’s our challenge here in the States. In China, we don’t have the same challenge. They’re welcoming cellulosic ethanol, and we see that as a great opportunity for us, but we’re not ruling out the United States.

Monica Trauzzi: We constantly hear about this concern with jobs being shipped overseas. By shifting investments to China, does that mean you will also be shipping jobs to China?

Hugh Welsh: We would be growing jobs in China, up to 6 million new jobs in China, if they adopt this technology. We’d like to do that here as well. We’d like to create more jobs here in the United States like we’ve done in Emmetsburg, Iowa, already today, but with the chilling effect of all these amendments to try to repeal the renewable fuel standard, it becomes very difficult to encourage folks to invest here.

Monica Trauzzi: We’ll end it right there. Thank you for your time and for coming on the show.

Hugh Welsh: Thank you.

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

[End of Audio]

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