It's the last day of 2008 and OPIS conducted an interview with POET CEO Jeff Broin over email. I thought I'd post the Q&A here for all to read. Happy New Year!
OPIS: What are POET’s legislative goals for 2009? What do you see as POET’s biggest accomplishment of 2008 and its biggest disappointment?
Broin: POET has three legislative goals for 2009 that we refer to as the Three Policy Pillars:
- Maintain the existing support for the industry. The combination of tax incentives and the Renewable Fuel Standard has allowed ethanol to compete with a fuel system that is stacked against our industry. Because of it, we have become a significant part of the transportation fuel mix, generating thousands of jobs and billions in tax revenue and GDP growth that would have otherwise benefited other countries.
- Adjust the regulatory cap on ethanol. By expanding, the ethanol industry can create thousands more jobs and displace billions more barrels of foreign oil, but only if the base blend of ethanol is increased from 10 to 15 or 20 percent. The science overwhelmingly supports the use of 15-20 percent blends in existing non-FFV vehicles, but the EPA rule arbitrarily limits ethanol to 10 percent of the market and prevents compliance with the RFS.
- Expand higher blend infrastructure with Flex Fuel Vehicles and blender pumps so that ethanol has an opportunity to compete in an open market.
I’m not a person that spends a lot of time dwelling on the past. POET had a great year, but my focus is already on 2009 and beyond.
OPIS: This year, ethanol companies continued to deal with challenging economics, with several plants shutting down or halting production and some companies declaring bankruptcy, VeraSun chief among them. How has POET been affected by the challenging economics, and what needs to happen, in your opinion, to getting the U.S. ethanol industry back on track?
Broin: Challenging economic conditions are not new to POET. In 1996, when corn hit $5 per bushel and ethanol was $1 per gallon, we operated profitably and built two new plants. Our combined entities will turn a small profit this year because of the 20+ years we’ve spent perfecting our technology and refining our management practices.
With that said, there are clearly portions of the industry that are hurting and the most important thing to get the industry back on track is to allow ethanol access to more of the fuel market. We’ve been bumping up against the regulatory cap all year as ethanol slowly moves into the remaining available areas of the country. That has led to a situation where the supply of ethanol is greater than the demand and caused it to be undervalued.
OPIS: With POET as the largest ethanol producer, is the company in specific talks to acquire other biofuel-related plants or companies? What does POET look for in a potential acquisition and would POET prefer to acquire assets that are close to POET’s current plants?
Broin: We are in talks with producers regarding acquisitions and are currently looking at all of our options to continue growing. We have already declined several opportunities because they did not meet POET’s strict selection criteria. We have a very thorough due diligence process that looks at corn supply, rail and utility access and other things that we will not compromise no matter how much an asset is discounted.
OPIS: Is POET involved in discussions with Obama’s transition team on possible ethanol provisions in a second economic stimulus bill? What specific provisions would you suggest be included and how would you respond to critics who say the U.S. ethanol industry already receives plenty of government support and doesn’t need any further help?
Broin: POET spends a fair amount of time talking to all supporters of biofuels and we’re encouraged that President-Elect Obama is in that category. What we’ve found in our discussions with his team before and after the election is that we have a lot of areas where we can work together on mutual goals. The Obama team wants to create green jobs, lessen our dependence on foreign oil and decrease global climate change. We’re ready to help.
The existing tax credits and mandates that encourage the use of ethanol are doing their job and don’t need to be increased for the starch industry. In fact, another reduction in the tax credit is set to take place at the start of 2009. They do need to stay in place so that ethanol can compete against a heavily subsidized and advantaged competitor in oil. I do not believe that the ethanol industry needs a “financial bailout” as some have called for.
If the Obama administration wants to speed the development of cellulosic ethanol, there are a number of things the government can do to support that emerging industry.
OPIS: If these challenging economics continue for biofuel producers, do you foresee the need to scale-back the expanded RFS for any of the biofuel carveouts?
Broin: The RFS is the single most ambitious piece of renewable energy in the history of the world and – in light of the recent damage $145 per barrel oil wreaked on the world economy – is not something we can afford to scale back on. But currently the RFS is unattainable due to the regulatory cap imposed by EPA. You have an EPA rule that is preventing compliance with the RFS law and it has to be changed to allow E15 or E20 in legacy vehicles.
OPIS: POET is currently pursuing cellulosic ethanol production with a pilot-scale plant in Scotland, S.D. What is the status of that project and what is the status of the company’s Project LIBERTY facility?
Broin: Almost two years ago, when we were awarded $80 million from the Department of Energy to commercialize cellulosic ethanol, I was hopeful that we could achieve it. Today, I am convinced that it is not a question of “if” but “when.” In 2008, POET spent $20 million in research and development, mostly on the commercialization of cellulosic ethanol. We tripled the size of our lab, doubled our research staff and brought a pilot scale cellulosic facility online. The increased resources have led to some significant breakthroughs in yield and fermentation. We are on track to open Project LIBERTY, our first commercial plant, in 2011.
OPIS: Do you believe the cellulosic ethanol target under the RFS can be reached, given that no companies are producing the fuel on a commercial basis?
Broin: As long as there is a market available for cellulosic ethanol, we can meet the target. With ethanol capped at 10 percent, there is no market available for cellulosic ethanol and that’s putting the future of cellulosic ethanol in jeopardy. Every time the government has set a goal for the ethanol industry, critics said we couldn’t meet it and we’ve always exceeded it. I believe we can do the same with cellulosic ethanol.
OPIS: With the RFS2 now law, why does the U.S. ethanol industry still need both a tax incentive and an import tariff? Do you see room for negotiation, should the topic be addressed legislatively in 2009?
Broin: The tax incentive is not for the U.S. ethanol industry, it’s for blenders of all ethanol regardless of its country of origin. The tariff is simply in place to offset the tax incentive so that the imported ethanol is revenue-neutral to the U.S. taxpayer. Lifting the tariff would not result in one additional gallon of displaced foreign oil, because the domestic market already has the capacity to meet the ten percent of the market that is open to it. As long as foreign ethanol has access to the blender’s tax credit, it is important that the tariff stay in place to offset that credit and prevent U.S. taxpayers from subsidizing foreign ethanol.
OPIS: What are your thoughts on President-elect Obama’s nominees for USDA, DOE and EPA and how do you think the biofuels industry will be impacted?
Broin: It appears that President-Elect Obama has put a team in place that will help him achieve the goals he laid out during the campaign. He wants to create green jobs, slow climate change and lessen our dependence on foreign oil. I believe this team understands that those goals are not achievable without the participation of the biofuels industry and we look forward to working with this team.
OPIS: Earlier this year, the food versus fuel debate headed up over how much of a role ethanol have played in the run-up of food prices. POET is a founding member of a new group, Growth Energy, launched to help fight the food versus fuel issue. Why there was a need to launch another ethanol advocacy group and what do you feel was missing from the efforts of other ethanol groups?
Broin: Along with some other producers, we felt a need for a fresh voice that would be an aggressive proponent of ethanol and agriculture. The food and fuel debate is only one of many issues that we intend to speak out on, but is a good example of why a new voice was needed. The lobbyists for big food spent millions of dollars to convince the public that ethanol was the reason for their price hikes. Now, with corn prices down by more than half and food prices continuing to increase, we have been able to point to the facts and show that ethanol played a very minimal role in food inflation. That was a message that wasn’t getting through to the public, despite the fact that almost every independent study on the topic supported our contention.
OPIS: What proactive steps will Growth Energy be taking on this issue and does the group plan to launch a PR campaign, should the food versus fuel debate again flare up in 2009? Does the group plan to focus on other biofuel-related issues beyond the food versus fuel debate?
Broin: I think you’ll see Growth Energy continue to aggressively defend ethanol and agriculture from any unfounded attack. Now that the lobbyists for big food are admitting that ethanol is only one of many factors in recent food price increases, they’re moving on to attack the industry on other issues. Where our industry can improve, we will continue to do so. But if we’re unfairly attacked, Growth Energy will respond.
OPIS: Earlier this fall, there seemed to be conflicting information about whether POET was a member of the Renewable Fuels Association. Can you clear up whether the company is currently a member of RFA and if not, the reason for the departure?
Broin: POET believes that Growth Energy is the best vehicle for moving ethanol and agriculture forward into the future. Because we are focusing the majority of our efforts in this new organization, we have cut back our involvement in many others. We fully intend to continue coordinating with all organizations seeking to benefit the ethanol and agricultural industries.
OPIS: POET, formerly known as Broin, has been in business since 1987. What most surprises you about the U.S. ethanol industry today and what issues/topics do you see as still needing to be addressed as the industry moves forward?
Broin: The most surprising thing to me has been the phenomenal growth that the ethanol industry has achieved. Twenty years ago, I would never have guessed that the U.S. would get more gasoline equivalent BTUS from ethanol than it does from Saudi Arabia, but that’s where we are at today.
After seeing what the industry is capable of, I am now convinced that there is tremendous potential remaining for ethanol worldwide. With improving agriculture technologies for grain combined with cellulose availability worldwide, we could potentially replace gasoline over the next 20-30 years. In the U.S., grain-based and cellulosic ethanol could easily replace oil imports in the next 12-15 years. But in order for this to happen, the U.S. and the world need to set aggressive programs and policies to reduce global warming and oil dependence.
