Policy change has ethanol ‘feeling like the rug has been pulled out’

Source: Written by Donnelle Eller and Christopher Doering, Argus Leader • Posted: Sunday, March 2, 2014

As Emmetsburg, Iowa, cellulosic plant starts, lower blend muddies future

NO FOOD CROPS: Nationally, about 5 billion bushels of corn go into ethanol production annually, about 40 percent of U.S. corn production. Food companies, livestock producers and others have complained that corn-based ethanol makes food more expensive for consumers, especially when drought or other difficult growing conditions limit corn supplies and push up costs. Development of cellulosic ethanol from corn residue left after harvest will boost the supply of renewable energy without pulling from food markets. (Ethanol supporters frequently note that about 35 million metric tons of distillers grains — a high protein ethanol byproduct that’s fed to livestock — are produced annually.)LOWER GREENHOUSE GAS EMISSIONS: Using cellulosic ethanol in your tank is expected to reduce greenhouse gas emissions 86 percent when compared with gasoline. Conventional ethanol creates about 20 percent less greenhouse emissions than a gallon of gas, government research shows.NEW CROP: Harvesting some of the corncobs, husks and stalks after harvest generates new income for farmers, who face declining commodity prices. Farmers in Emmetsburg are expected to get $60 to $70 for each bone-dry ton of stover. EFFECT ON SOIL: Environmentalists worry that too much crop residue could be removed in making cellulosic ethanol. Corn stover provides critical nutrients and helps prevent soil erosion.SUBSIDIES: The government has spent hundreds of millions of dollars to underwrite development of the technology and processes to make cellulosic ethanol at commercial scale. Critics say the fuel should be able to compete in the marketplace without subsidy.OVERSUPPLY: The government also intervenes in the market by requiring that biofuels account for a certain percentage of the nation’s fuel supply. Cellulosic ethanol will struggle to compete with lower-cost corn ethanol, which is expected to be in oversupply if the federal government reduces the required blending level for biofuels.


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, IOWA — 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 town of 3,900 in the state’s northwest corner.

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 of the city 130 miles southeast of Sioux Falls.

Workers pack Casey’s for breakfast pizza, line up at the 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.

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 as a new industry 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 Europe.

“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 Sioux Falls-based ethanol maker Poet 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 difficult to reach, given more fuel-efficient vehicles.

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.

Five S.D. plants part of investors search

Taxpayers have a lot invested in the plant. The federal government provided $100 million to help with developing the technology behind Project Liberty. Royal DSM is putting $150 million into the plant.

Poet itself has spent almost 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 South Dakota. 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 effect of up to $1.2 billion and create as 2,846 jobs in two decades. But the investment chill caused by the proposed renewable fuels cut already is occurring.

Chilling effect on development

“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, Iowa, as the three large-scale U.S. cellulosic plants that will open this year. Smaller plants in Florida and Mississippi began shipments last year.

“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 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 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, Iowa. “But it is dependent on what do the cellulosic biofuels look like in reality?”

Potentially reducing greenhouse gases 90%

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 now made, reduces greenhouse gases an average of about 20 percent.

Merritt, the Poet spokesman, said the new Project Liberty plant could reduce greenhouse gases by 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.

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.”

Delays fueled Big Oil’s 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.

Cox worries 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 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 working with the U.S. Natural Resources Conservation Service to ensure harvesting crop residue is sustainable. Poet has worked with Iowa State University and 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.”

Seeing jobs, fuel, feed in more ethanol

President 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.

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.

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