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

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 subsidized directly 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. That’s not enough to make a significant difference. 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.

To read more of my writing  and to check out my book-in-progress on renewable energy, go to renewablebook.com.