POET CEO Jeff Broin: Ethanol Willing to Give Up Subsidies for Level Playing Field

17 Jan
This past October, the EPA raised the ethanol “blend wall” (the amount of ethanol that can be mixed with gasoline) from 10% to 15% for cars made in 2007 and later. I spoke with Jeff Broin, CEO of leading ethanol producer POET, about what this and other developments mean for the future of the ethanol industry.Is the EPA’s upgrade of the ethanol blend wall from E10 to E15 a positive sign for the future of the U.S. ethanol industry?Broin: As the first crack in the blend wall in more than 30 years, it’s definitely a step in the right direction. with 2001 and newer vehicles, it will encompass 54% of the fleet. The studies submitted in the waiver request showed that E15 was compatible with older vehicles as well and we will continue to push for that approval with the EPA.Congress recently extended ethanol subsidies (a 54 cent-per-gallon tariff on imported ethanol and a 45 cent-per-gallon tax credit per gallon of ethanol blended with gasoline) through 2011, despite a rising tide of critics claiming that it’s time to end ethanol subsidies and for the industry to stand on its own. What’s your response?Broin: What’s missing from that argument is that the oil industry has been heavily subsidizeddirectly and indirectly for more than 100 years. There are all sorts of tax breaks for oil companies permanently embedded in the tax code, and some oil companies pay no taxes at all. It costs around $150 billion a year to patrol the Persian Gulf. And there are significant health costs related to oil. The point is that ethanol is hardly alone in receiving subsidies; in fact, ethanol tax breaks have cost our country far less than tax breaks for oil.

That said, we’re now proposing a new plan to phase out ethanol subsidies that would allow ethanol to directly compete with oil. It’s important to understand that oil companies have a virtual monopoly on the gasoline business. Ethanol is up against a 10% blend wall [now 15% for 2007 and later model cars], meaning that there’s a strict limit on how much ethanol we can produce and sell. We’re proposing to give up part of our tax incentive in exchange for being allowed to compete with gasoline on a level playing field. This will require a large investment in infrastructure, including installing more blended fuel pumps at gas stations throughout the country and requiring car companies to make more flex fuel vehicles. If the market were open today so we could compete head to head with gasoline, ethanol could be the most competitive fuel on the planet. We want to give consumers that choice.

With Republicans newly ascendant in Congress, how likely is it that we’ll see the sort of pro-ethanol policy you’re talking about?

Broin: That remains to be seen. The ethanol industry is interested in a fair and open market, which is something I think will be popular with both Democrats and Republicans. Ethanol is the best cost and cleanest fuel. It creates American jobs and helps decrease our reliance on foreign sources of energy. I think legislators from both parties can get behind that.

Critics of ethanol claim that it raises food prices and is environmentally harmful because it leads to deforestation to make room for more acres of corn.

Broin: That’s simply not true. First, growing more corn doesn’t mean claiming more land. We grow six times more corn per acre today than we did in 1920, and yields per acre are expected to double in the next several years. Plus, there are more than a billion acres around the world sitting idle. Increasing ethanol production presents an opportunity to bring those acres back into production. And many of those acres are in developing countries, so using them to grow fuel crops would boost rural economies in some of the world’s poorest areas.

Second, ethanol does not raise food prices. Over the next 20 years the U.S. is projected to double its grain production. That’s enough to produce 48 billion gallons of ethanol annually (up from 14 billion gallons today) while still raising our feed supply by 40 percent. Plus, ethanol production doesn’t remove corn from the feed supply. All of the protein that comes into ethanol plants goes right back out into food and animal feed markets. We only take the starch.

Cellulosic ethanol (ethanol made from non-edible parts of plants) has been touted as the next big thing in biofuels. But according to a recent (Jan. 11) article in the The New York Times, no cellulosic biofuel was blended with gasoline in 2010. Is cellulosic biofuel still on the way, or has it hit a snag?

Broin: We’ve been researching cellulosic biofuel heavily for about 10 years and have put more than $40 million in research. We’re very far down that road and have been operating a pilot plant [in Scotland, SD] for two years that makes fuel from corn plant residue. We plan to build a commercial-scale plant later this year.

So cellulosic biofuel is on the way. Again, until recently, the biofuel industry was up against a 10% blend wall that was met completely by corn ethanol. The market was full, which makes it difficult to invest in cellulosic biofuel. But we’re forging ahead. There’s still lots of research going on to perfect the process, and we’ve partnered with multiple companies to develop microorganisms that break down cellulose. So I’m confident that, given an open market and an even playing field, we’ll start seeing cellulosic biofuel make a significant impact soon.

Today, electric cars are all the rage, with the Chevy Volt, Nissan Leaf, and others making daily  headlines. How does this affect the biofuel industry?

Broin: One thing that everyone seems to be forgetting is that electric vehicles will be powered mainly by coal. We can’t built enough wind and solar power to handle the increase in electricity demand for electric cars. So they’ll end up causing us to burn more fossil fuels and raise emissions.  Ethanol, on the other hand, helps lower emissions. It’s about 59% better than gasoline in terms of emissions, and could be 100% better in the future.

Also, electric cars are projected to be only 2% of all cars on the road by 2020. While Elon Musk and Tesla Motors, as well as many other manufacturers are trying to increase production of electric cars, gas-powered cars still dominate the industry. Right now, General Motors, Chrysler, and Ford have committed to make at least 50% of their cars flex fuel capable by 2015. So we need to get E85 (85% ethanol, 15% gasoline) into pumps and educate the consumer about making smart fuel choices. Look, for example, at your local Nissan dealerships. It will be a while before these cars are available in used car dealerships in Phoenix, Arizona, perhaps until after the market becomes saturated with these vehicles.


4 Responses to “POET CEO Jeff Broin: Ethanol Willing to Give Up Subsidies for Level Playing Field”

  1. Gregor MACDONALD January 18, 2011 at 6:02 am #

    Thanks for the response. The portion of ethanol which comes from a renewable resource (corn) is actually quite small. Ethanol is a process which converts other energy inputs like NG, electricity, and fertilizer (either made with NG or extracted naturally from the ground through mining operations, i.e potash) for the following purpose: to capture the very small solar energy that the corn plant captures, during its growing season. In other words, the making of ethanol is both a transformative process (solids and gases to liquid) and is also an energy pick-up process.

    When you say ethanol has less energy density than oil, that is true. But the corn itself and other plants contain so little energy density that, because of the blow-out spread in scaling, it would actually be difficult to chart them together–in a graphical image. Ethanol’s energy is not mainly from the corn.

    Ethanol faces enormous limits, placed upon it by the natural world. No doubt you are familiar with the history of arable land, and agricultural yield, and how humans have struggled/innovated to to maintain yield. Ethanol neither scales in acreage terms, nor does it scale in energy-input terms.

    But I’m not ideologically opposed to these liquids. Indeed, I see a solid role for biofuels as a local fuel that avoids myriad energy-losses by not being transported by pipeline or truck, and, that uses refuse biomass that comes from aggregate local agricultural activity. In other words, I see ethanol as a community fuel, and I would not be opposed to it on that level, or public investment in it. After all, the very, very small energy pick-up in this conversion process is positive. Barely, but it’s positive.

    The mistake is a national ethanol investment as a way to maintain the auto/highway complex which itself is heading towards negative energy returns.



  2. Gregor MACDONALD January 18, 2011 at 4:16 am #

    As a science writer, you are presumably able to disentangle multiple arguments, while deciding in favor of proportionality. So, for example, you would be able to understand that while Broin is very correct that all subsidies for oil should end–including externality-type costs such as health, and war spending–that this does not in itself make a case for the viability of ethanol. Perhaps you could address the core issue: energy density of oil vs corn.



    • jnshere January 18, 2011 at 5:39 am #

      Good point. The POET website addresses the issue in this manner:

      “It has been assumed that while ethanol may cost less at the pump, it provided fewer miles per gallon than regular unleaded gasoline. However, a study released in December 2007 by The University of North Dakota Energy and Environmental Research Center and the Minnesota Center for Automotive Research found that automobiles using midlevel blends may actually get better gas mileage than cars running on regular unleaded gasoline.”

      Is this study legit? If so, does it “prove” that ethanol is as efficient as gasoline? No. I don’t yet know enough about internal combustion engines to be able to judge the above cited study one way or the other.

      But here’s my take. As you note, ethanol is less energy dense than gasoline. That’s a fact. Therefore you generally get more miles per gallon with gasoline in the tank than you do with ethanol. I’m pretty sure that’s a fact, too. And so ethanol ends up costing the consumer more, because you have to fill up your tank more often.

      But one way or another, over the long term, fuel prices are going to rise. Gasoline prices are now around $3.00/gallon. I’m sure they’ll continue to fluctuate, but the inevitable trend over the long term is that they’ll continue to rise. The cost of ethanol, meanwhile, has been on a downward trend and has the advantage of depending on a renewable (as opposed to a finite) resource. Absent a vast, prolonged drought leading to massive crop failure, ethanol prices will continue to drop and/or remain steady. So at some point, perhaps sooner than later, a gallon of gasoline will cost enough that the lesser energy density of ethanol will matter less than it may seem to at the moment.

      Does this make a clear-cut case for ethanol? Maybe not. Ethanol is not and never will be a perfect solution. But can and will it continue to play a significant role in the evolving energy landscape? I think so.

      • Russ Finley January 21, 2011 at 6:01 am #

        “…The cost of ethanol, meanwhile, has been on a downward trend and has the advantage of depending on a renewable (as opposed to a finite)…”

        The price of corn ethanol has always and will always closely match that of gasoline. Why would an ethanol refiner charge less than he can get? If he can charge just a few cents less than gas, that is what he will do regardless of his costs, in order to maximize profit. Corn ethanol will never give consumers a price break.

        In addition, the price of corn tends to follow the price of oil so a corn ethanol’s costs go up with oil prices. This fuel would not exist in a free market.

        And roughly 4 out of five units of energy found in a gallon of corn ethanol came from non-renewable fossil fuels. Calling corn ethanol renewable is somewhat misleading.

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