Testify for Ethanol!

Jeff Lautt, Executive Vice President of Corporate Operations at POET, testified at a field meeting in Omaha of the Senate Agriculture, Nutrition and Forestry Committee. Jeff talked about the significant advancements in the efficiency of grain ethanol production and what the future of the industry will look like with ethanol from corn and cellulose.

If you'd like to read his complete testimony, feel free to download a PDF of his statement. The transcript of his oral remarks can be read here and on the continuing page:

Mr. Chairman and distinguished committee members, thank you for the opportunity to visit with you today. My name is Jeff Lautt. I am Executive Vice President of Corporate Operations for POET. Currently, POET has twenty-three ethanol production facilities and three more under construction that will be operational this fall. Our production capacity will be over 1.5 billion gallons per year.

Energy independence for the United States can be a reality. This is the result of an ever-efficient corn-based industry coupled with the future of cellulosic ethanol.

Thanks to tremendous corn yield improvements, grain-based ethanol has the potential to continue to grow by leaps and bounds We believe that 50 billion gallons of grain based ethanol per year can be produced here in the U.S. within the next two decades without substantially increasing food prices or acres.

Grain ethanol production is also getting more efficient and more environmentally friendly. According to a recent study by Argonne Laboratories, in just the last five years, the dry-mill ethanol industry has reduced energy consumption by 22% and water usage by 26%. Developments are also being made to reduce and possibly eliminate natural gas usage by the biorefineries.

One example is our plant in Chancellor, SD which in the next couple of weeks will commission a solid fuel boiler that will burn wood waste to power 60% of the plant’s power needs.

A pipeline is also being installed to a nearby landfill which will pipe methane gas to the biorefinery. Eventually, this will replace nearly all of the plant’s natural gas usage.

The U.S. also has an incredible natural resource of biomass. A report from the DOE and USDA showed there is over one billion tons of available biomass in this country.

This biomass can eventually be turned into energy if our nation is committed to doing so.

One billion tons of biomass has the potential to turn into 85 billion gallons of cellulosic ethanol annually. If you combine this with the grain-based ethanol opportunity, we could eventually produce 135 billion gallons of ethanol, which is over 90 percent of nation’s gasoline usage. This of course, requires sound and stable policy.

Today, the renewable fuels industry is facing some major challenges. The ethanol industry has been the target of a public relations defamation campaign that has severely damaged our industry’s reputation.

This campaign has inaccurately pitted food against fuel. Food or fuel is not a choice we have to make. It does not need to be one or the other. It can – and should – be both.

An issue that clearly needs to be understood is that there is currently a small market for ethanol in the U.S. Contrary to many beliefs, there is not an undersupply of ethanol today; but rather, an oversupply. That is why ethanol is currently selling for approximately one dollar under gasoline.

According to auto manufacturers, most of the vehicles in this country are only warranted for ten percent ethanol. Consequently, ethanol is essentially limited to ten percent of the gasoline supply. This is commonly referred to as the “blend wall”.

The current gasoline usage in the United States is approximately 140 billion gallons annually. Ten percent of that is 14 billion gallons. However, it’s not realistic to penetrate every single gallon, so experts predict the blend wall to be around 12.5 billion gallons. We expect to crash into this wall sometime in 2009 if not before.

Flex fuel vehicles along with higher blends of ethanol are certainly a big part of the long-term solution. But this will take several years to accomplish. To continue on the path of reducing our dependence on foreign oil, higher blends of ethanol are needed today.

If the ethanol market is allowed to expand, investors will have the confidence they need to continue to invest in cellulosic ethanol production. Without higher blends, there is literally no place for any additional ethanol to go which will threaten the development of the commercial cellulosic ethanol industry. We must move beyond E10 to achieve energy security.

Additionally, there has been much recent discussion on removing the tariff on Brazilian ethanol. If foreign ethanol were allowed to enter this country without a tariff as the U.S. ethanol industry is approaching the blend wall, the goal for energy independence will be set back decades. The U.S.biofuels industry will be crushed.

Investment has already slowed down considerably due to the blend wall. With tariff-free, Brazilian ethanol entering our country, investment will cease. And this will apply to not only grain-based ethanol, but cellulosic ethanol development as well.

Additionally, if the tariff were to be dropped, the U.S. taxpayer would actually be subsidizing Brazilian ethanol because its use would be subject to the blender’s tax credit just the same as U.S. produced ethanol. Protecting US production and modeling portions of the Brazilian ethanol policy seems more reasonable.

POET is one of the leading developers of cellulosic technology. We have invested tens of millions of dollars in cellulosic ethanol research and are prepared to invest hundreds of millions more to make this a reality. The commercialization of cellulosic ethanol is not far off. POET announced last week it will be producing cellulosic ethanol at our pilot scale facility later this year in Scotland, South Dakota

Construction of our commercial scale facility in Emmetsburg ,Iowa is scheduled to begin in 2009. The plant is expected to commence commercial production in 2011.

But if we are suddenly faced with an influx of Brazilian ethanol in our market while we are simultaneously running into an ethanol blend wall, we will not be able to see this dream become a reality. Nor will the many others who are diligently working on this process.

If we truly wish to see a change in our nation’s transportation fuel supply, we need to do the following:

1. Create a larger market for ethanol by allowing higher blends in today’s vehicle fleet. The 10% blend wall will stop investment in both grain-based and cellulose-based ethanol development.  It’s critical that the EPA approve a rate greater than 10% ethanol before year-end 2009.
2. Mandate that all new vehicles are flex fuel. It takes 17 years to convert our automobile fleet. It is minimal cost to make a new car flex fuel and we should not delay this any longer.
3. Incentivize the installation of blender pumps throughout the nation. Blender pumps give the consumer the choice of multiple ethanol blends. We need to allow the American consumer to choose his or her fuel blend based on performance and price.
4. Support cellulosic development. The recent Farm Bill has three important provisions that will help which USDA needs to implement on a timely basis:
   • Loan Guarantee
   • Repowering
   • Harvesting, storage and transportation
5. We need to focus on a U.S. solution. The natural resources are available. It is important we continue to support the upstart biofuels industry. Today’s grain-based ethanol is the foundation for cellulosic ethanol. The tax credit and tariff are critical pieces of legislation that will allow the nation’s energy potential to be fully realized.

The U.S. ethanol industry has demonstrated in the past that we can meet the challenge and we stand by ready to do so in the future. Make no mistake; this problem is solvable in the United States. The natural resources, ingenuity and technology are all right here. We simply need our nation’s will.

Thank you for the opportunity to testify today. On behalf of POET and the entire renewable fuels industry, we thank you for past legislation that is truly making a difference in our nation’s energy supply.

POET looks forward to working in partnership with the Congress and the Administration to reach the national goal of 36 billion gallons of renewable fuel produced per year by the year 2022.

Comments

[Edgar]

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