New ethanol industry blooms in Iowa, but it could soon be uprooted

Source: Written by DONNELLE ELLER AND CHRISTOPHER DOERING, Des Moines Register • Posted: Monday, February 24, 2014


Bales of cellulosic field refuse sit piled up in the yard outside the Poet grain and cellulosic ethanol production facility on Tuesday, Feb. 11, 2014, in Emmetsburg, Iowa.

The story so far: The Renewable Fuel Standard

WHAT IT DOES: The Renewable Fuel Standard requires that an ever-increasing amount of renewable fuels be blended into transportation fuels each year.
WHY IT WAS PASSED: Congress passed the standard to encourage growth of a homegrown industry that would produce cleaner energy and reduce dependence on foreign oil.
THE CELLULOSIC FACTOR: The standard includes a separate requirement for blending cellulosic biofuels. Corn-based ethanol is the nation’s primary biofuel. Ethanol makers have continuously increased the energy gain from ethanol production, but its overall environmental impact has long been disputed. Cellulosic ethanol — made from grasses, wood or inedible parts of plants — long has been viewed as a much greener, second generation of ethanol production. The Renewable Fuel Standard’s separate requirement for cellulosic biofuels was intended to encourage development of this industry, but it took years longer than expected to develop the process to make commercial-scale cellulosic ethanol.
PROPOSED REDUCTION: In November, the EPA proposed reducing the Renewable Fuel Standard in 2014 to 15.2 billion gallons of ethanol and other biofuels — 3 billion gallons below what Congress required in a 2007 law. Required use of traditional biofuels, composed mostly of corn-grain ethanol, would be reduced to 13 billion gallons from 14.4 billion. The proposal calls for use of 17 million gallons of cellulosic ethanol, while the law calls for 1.75 billion gallons.So far, last year’s cellulosic mandate has been reduced to 6 million gallons.
WHO’S PUSHING THE CUT: The oil industry has pushed for an end to the Renewable Fuel Standard, contending it’s out of date and no longer works as Congress intended. Livestock groups, food processors, grocery chains and restaurant groups also argue that requiring use of ethanol raises corn prices, which in turn raises livestock feed and food prices.
WHAT’S NEXT: The EPA has received thousands of comments both supporting and opposing its proposal. A decision is expected this spring.
The demand for renewable fuels has developed more slowly than Congress envisioned when it set ever-increasing requirements for the amount to be blended in the nation’s fuel supply.
SLOW GROWTH: When Congress updated the Renewable Fuel Standard in 2007, it expected consumer demand for motor fuel to keep increasing. That’s why the law required annual increases in the blending level through 2022. But as consumers have driven less and automobiles have become more efficient, the need for fuel has dropped.
THE BLEND WALL: Most fuel today contains 10 percent ethanol. But higher-grade blends, such as E15 or E85 (containing 15 percent or 85 percent ethanol), have not grown fast enough to help meet the higher usage levels foreseen by Congress. The U.S. Environmental Protection Agency has said there are not enough pumps and other infrastructure now in place to absorb more than 10 percent ethanol in the total fuel supply.
FINDING STATIONS: Ethanol supporters have criticized the oil industry and other groups for discouraging the sale of blends above E10. Among their complaints, proponents point to a refusal by petroleum suppliers to offer the fuels to gas stations and say they have been unwilling to invest in new pumps and other infrastructure.
ENGINE DEBATE: The EPA has approved fuel with 15 percent ethanol for most cars and trucks built since 2001, but some automakers refuse to honor warranties and advise against using the higher ethanol blend. Oil industry-funded studies say it could cause false “check engine” lights and engine damage.

What’s next in Emmetsburg

Poet’s Project Liberty plant in Emmetsburg plans to gradually ramp up production to 25 million gallons of cellulosic ethanol annually.
Workers are testing new equipment as construction is underway. The plant is expected to come online by June.
Poet-DSM has about 100 scientists and engineers working on the technology, said Steve Hartig, general manager of Poet-DSM Advanced Biofuels.
Poet has tested the technology in a pilot plant in South Dakota for the past six years. Royal DSM, a Dutch enzyme maker and Poet’s joint venture partner, has been running a pilot plant in the Netherlands.
“Everyone likes the idea of cellulosic ethanol. But the question has always been, ‘Can it be done? Is it real?’ We have to prove that we can do it to scale,” Hartig said. “We know the technology works, but when you’re handling that much biomass … when you scale it up, everything works a little differently.”
“The next six months will be a lot of learning and testing,” he said. “We’ll learn how to do it better and cheaper.”

Iowa cellulosic ethanol plants

DuPont Nevada

The $225 million DuPont cellulosic ethanol plant is under construction next door to Lincolnway Energy, west of Nevada. The plant plans to make 30 million gallons of ethanol annually from corncobs, husks and stalks, known as stover. DuPont will contract with more than 500 local farmers to gather, store and deliver more than 375,000 tons of stover annually. Farmers within a 30-mile radius will provide stover from about 190,000 acres. The project, expected to come online in the fourth quarter, will create about 60 jobs.
Poet-DSM’s Project Liberty, Emmetsburg

The $250 million plant is under construction near Emmetsburg, with plans to produce 25 million gallons of cellulosic ethanol annually. Poet-DSM will contract with 400 to 500 local farmers to harvest about 285,000 tons of stover a year. The company has filled all but a few of the 40 to 50 permanent jobs the project will create. The stover will be collected from about a 45-mile radius around the new plant and harvested from 285,000 acres. The new plant is next to an existing 55 million-gallon corn ethanol plant. Poet is a South Dakota maker of ethanol, and DSM Royal is a Dutch maker of enzymes.
Quad County Corn Processors

Quad County is building an $8.5 million cellulosic ethanol facility next door to its existing 35 million-gallon corn-based ethanol plant near Galva in western Iowa. The new plant will turn corn kernel fiber into 2 million gallons of cellulosic ethanol, improve the protein in its dried distillers grain by 40 percent, and boost corn oil extraction by 300 percent. The project is expected to create five full-time jobs. Construction is targeted to be done in April.

Debate still rages: Is cellulosic the answer?

Iowa has waited years for cellulosic ethanol to become a reality. On March 18, 2007, the Register published a six-page special section asking whether cellulosic ethanol could help replace gasoline and turn Emmetsburg into the next energy pioneer — or whether logistical and economic barriers and other challenges would squelch the technology’s promise.

Poet’s Project Liberty by the numbers

770 Projected tons of stover, mostly corncobs and husks collected after harvest, that will be used per day to make ethanol.
20 Millions of dollars Iowa taxpayers have invested in Project Liberty.
25 The cellulosic ethanol production capacity at the plant, in millions of gallons.
22 Acres at the plant that will hold about 23,000 tons of stover. Farmers will store the plant’s stover on their land and deliver it as needed.
20 Millions of dollars that area farmers and harvesting companies will earn annually for stover collection.
100 Millions of dollars provided by the federal government for the project.
285,000 Number of acres where stover will be collected annually for cellulosic ethanol production. About a ton of stover is collected per acre.
500 Maximum number of farmers Poet estimates it will need to provide biomass for annual production.
55 Millions of gallons of ethanol produced with corn next door at the existing plant.
19 Millions of bushels of corn used at existing plant.
150,000 Tons of dried distiller grains byproduct, fed to cattle and hogs, that’s produced by Poet’s existing plant.

EMMETSBURG, IA. — The line of headlights begins close to 6 a.m. as trucks and other vehicles file into the $250 million construction project south of this northwest Iowa town of 3,900.

Some of the 300 construction workers come from Iowa. But most — with license plates from Nebraska, Texas and Minnesota — fill about every apartment, hotel and trailer in a 30-mile radius. The workers pack the local Casey’s for breakfast pizza, line up at Fareway’s meat counter and drop by Don Jose’s for dinner.

“I’m pretty sure it’s the biggest construction project Emmetsburg has ever seen,” said Daron Wilson, general manager of the plant being built by Poet-DSM. He points out six cranes on the prairie skyline, a sight little seen in Iowa outside of Des Moines or Cedar Rapids.

Poet’s Project Liberty is one of three large-scale U.S. plants that will begin making cellulosic ethanol this year, using corncobs and husks collected from area farmers’ fields. It has taken a decade of research and $120 million in government subsidies at this plant alone to bring the ultra-green fuel to commercial-scale production.

But just as a new industry for Iowa is about to take root, a proposed change in government policy could limit demand for ethanol and send new plants and jobs to other countries. Think Brazil, China or European nations.

“There will be a Plant Two for us. What we can’t say is whether that plant will be in the U.S. or Iowa or some other country,” said Steve Hartig, general manager of Poet-DSM Advanced Biofuels, a joint venture between Poet, a Sioux Falls, S.D., maker of ethanol, and DSM Royal, a Dutch maker of enzymes.

The U.S. Environmental Protection Agency has proposed reducing the amount of renewable fuel that must be blended into the fuel supply that powers American vehicles. The EPA says it’s bending to market realities: The mandates were too aggressive and hard to reach, given that autos have become more fuel-efficient.

But Poet-DSM says the proposed reduction will create a glut of corn-based ethanol with which the new cellulosic fuel will have to compete.

The proposed change in the federal government’s Renewable Fuel Standard turns the company’s financial plan on its head. Makers of next-generation ethanol will “lose money on every gallon that it sells in the United States” under the EPA proposal, Poet-DSM wrote the agency.

If the reduction is enacted, “cellulosic ethanol will be produced in other parts of the world for other markets, but not in America and not for automobiles operated in this country,” the companies wrote.

“The timing is terrible. Step one was corn ethanol. Step two was cellulosic — nonfood — ethanol. Here we are at the starting gate of step two, ready to launch forward, feeling like the rug has been pulled out from under us,” Hartig said.

Feeling an investment chill

Taxpayers have a lot invested in the plant. The federal government provided $100 million — and Iowa taxpayers, $20 million — to help with developing the technology behind Project Liberty. Royal DSM is investing $150 million in the plant.

Poet itself has spent nearly a decade researching and developing the technology. Now it’s looking for investors to help it duplicate the technology elsewhere, including Poet’s 26 other U.S. plants, five of them in Iowa. And it seeks to license the know-how to other ethanol producers.

Poet spokesman Matt Merritt said he’s unable to estimate the potential market and investment, but pointed to a 2010 Iowa study that says Project Liberty could have an economic impact of up to $1.2 billion and create as many as 2,846 jobs over two decades.

But the investment chill caused by the proposed renewable fuels reduction is already occurring.

“Frankly, we believe that the impact (of reducing the Renewable Fuel Standard) will be dramatic and significant and make it almost impossible for new investors and existing producers to have confidence that the market will be there to invest this large sum of money in a new facility,” said Christopher Standlee, an executive vice president at Abengoa Bioenergy.

Abengoa is scheduled to begin making cellulosic ethanol this year near Hugoton, Kan., joining plants in Emmetsburg and Nevada, Ia., as the three large-scale U.S. cellulosic plants that will open this year. Smaller plants in Florida and Mississippi began shipments in 2013.

“We have decided that we are placing a hold on our evaluations of future investment in bioenergy in the United States until we see the final rule,” Standlee said.

Will cellulosic ethanol be done right?

Beyond potential new jobs, development of cellulosic ethanol has attracted global interest because it addresses two criticisms of corn-based ethanol.

First, it removes the food vs. fuel argument. Millions of acres in the U.S. are now devoted to growing corn to make ethanol and to feed livestock. Critics say those acres should be used to raise food for humans. Cellulosic ethanol wouldn’t affect food supplies or prices because it’s made with inedible parts of the corn plant.

Second, cellulosic ethanol is a much greener fuel, whose use could significantly cut greenhouse gas emissions.

However, Craig Cox, a senior vice president at the Washington, D.C.-based Environmental Working Group, still has concerns about the development of cellulosic ethanol.

“There’s potential for cellulosic biofuels to be an important contributor to reducing fossil fuel use in transportation,” said Cox, who leads the group’s Midwest office from Ames. “But it is dependent on what do the cellulosic biofuels look like in reality.”

Using cellulosic ethanol in your tank is expected to reduce greenhouse gas emissions 86 percent when compared with gasoline, according to the U.S. Department of Energy. Corn-based ethanol, as it’s currently made, reduces greenhouse gases an average of about 20 percent.

Greenhouse gases contribute to global warming, scientists say, acting like a blanket around the planet that traps heat in the atmosphere.

Merritt, the Poet spokesman, said the new Project Liberty plant could reduce greenhouse gasesby more than 90 percent because it will use byproducts from making the fuel — a woody product called lignin and methane biogas — to power the plant. The cellulosic manufacturing process also will have enough power left over to provide about half the power needs of the next-door corn-based ethanol plant, making it greener as well.

But cellulosic ethanol’s environmental benefits have been slow to arrive. The EPA has slashed federal mandates to use cellulosic ethanol for several years running. The cellulosic ethanol mandate last year was 1 billion gallons. So far, the EPA has twice ratcheted back the goal, now at 6 million gallons.

“There is a lot of hype and promises being made about cellulosic biofuels, but frankly, as of this moment, nothing has really been brought to commercial scale,” Cox said. “So, we’re sort of talking about something we really don’t know yet.”

The Emmetsburg cellulosic plant was first announced in 2006.

“The technology is challenging, and it’s taken a lot of work on development … more work and effort than people thought,” said Poet’s Hartig.

The recession also slowed progress for many renewable fuel companies. Several companies struggled financially, and some large producers like VeraSun filed for bankruptcy.

Delays fueled arguments

Delays in cellulosic ethanol’s development helped fuel Big Oil’s battle against renewable fuels.

The American Petroleum Institute’s biggest anti-mandate argument has been that the U.S. market can’t push beyond blending 10 percent ethanol into the fuel supply. Most gasoline sold in the U.S. already contains 10 percent ethanol. The EPA has approved gasoline with a 15 percent ethanol blend for model-year 2001 vehicles and newer, but gasoline retailers have been slow to switch over pumps to offer it for sale.

Environmentalists like Cox also worry that even a greener ethanol can be damaging to the planet if too much stover — the corncobs, husks, leaves and some stalks — is pulled from farmers’ fields. That corn residue slows water runoff and prevents erosion, critical to protecting farmland in Iowa and elsewhere in the corn belt.

“There is already substantial concerns in Iowa that there already isn’t enough soil cover now,” Cox said.

Another fear is the prospect that higher profits will prompt farmers to grow only a single type of crop for cellulosic ethanol. That would increase competition for traditional food production.

“There is a lot of ways for this to go off the tracks,” Cox said. “After 35 years in conservation business, the two most dangerous words are ‘done right,’ because we tend to get the ‘done’ and not necessarily the ‘right.’ ”

Ethanol producers are confident they’re protecting the land and farmers.

For example, DuPont is partnering with the U.S. Natural Resources Conservation Service to ensure harvesting crop residue is sustainable. And Poet has worked with Iowa State University, among others, to ensure it’s conservative in collecting stover.

“We’re starting low to make sure we’re doing the right thing,” Hartig said.

Even though harvesting stover represents a second cash crop for farmers, they’ve been cautious and have studied possible ramifications, he said.

“Farmers aren’t looking at their land, saying how much money can I make this year,” he said. “They’re looking at how they use their land for five, 10, 20 years, before they hand it to their son or daughter.”

Mayor sees jobs, fuel, feed

President Barack Obama’s administration bills itself as championing rural development. Emmetsburg Mayor Myrna Heddinger finds it confusing, then, that the administration would pull back on the nation’s renewable fuels program.

“There are many of us here trying to figure out why they’re doing this,” said Heddinger, a retired nurse. “We have the capability to make our own fuel, to make us more independent.”

Heddinger said Poet’s corn-ethanol plant already has created permanent jobs for young workers. And the byproduct — a dried distillers grain that has become valuable to hog and cattle producers — goes to Kerber Milling, which sells livestock feed.

The mayor says Emmetsburg — with a strong regional hospital, community college and new casino — has a lot going for it. Town leaders are taking bids for a new community center, working to redevelop the town square’s storefronts and developing a telecommunications center that includes expanding broadband access.

But the recession was tough for many small Iowa communities. Emmetsburg, a German and Irish enclave, has struggled with the loss of companies like Skyjack, a forklift manufacturer that closed when construction dried up in the financial crisis.

Heddinger is happy to talk about the added economic vibrancy that 300 construction workers bring to her town. But the 40 to 50 new jobs the community will have after construction ends are what’s most important to her.

“The project gives us hope for our future, gives young people a chance for jobs,” she said.