Transcript: Morning Session - Biofuels For Transportation Conference

There are three issues that I thought I would highlight that are important to influencing the potential of these fuels. One is that we’ve been fascinated with the ability of some of these technologies to take actual waste streams to take some of our societal problems and turn them into a valuable resource to help meet our energy needs. The picture on the bottom there was taken on a trip to Brazil. That’s a mountain of sugar cane bagasse at a ethanol facility that we visited, and many of you may know that in Brazil they burn this right now – currently, quite inefficiently – they started doing that to get rid of it and they use the energy from the combustion to power their ethanol plants. As they’re changing their laws they’re able to feed some of the electricity back into the grid, they’re making their boilers more efficient. But as these next generation conversion technologies come online they’re expecting that they can take – let me back up – cellulose is made up of lignin, hemicellulose, and cellulose and by just taking the hemicellulose and cellulose, a fraction of that mountain of bagasse and turning it into fuel, they expect that they can literally double their yields per hectare of ethanol and still have the lignin left over to burn to power their plants.

Another factor is that currently sugar cane fields are generally burned before they’re harvested, so all the leaves and tips are burned off so that the men can get in machetes and harvest the cane. They’re starting to transition to mechanical harvesters that can harvest all of that extra biomass. So they actually think they may be able to triple their yield per hectare. In terms of energy crop breeding, I think it’s interesting to think about how we’ve tinkered with food crops for millennia and we’ve hardly begun to look at how we can adapt energy crops – crops for energy purposes. So I think that there is a huge amount of potential there as well.

So now, I’ll just go into a few of the key issues. I’ll talk a bit about the environmental issues and some of the constraints. We’ve heard a bit already about the excitement about the development impacts that biofuels could potentially bring and then I’ll just mention a few trade issues as well and some policy factors. Again, just to highlight the complexity of these issues. The environmental impacts – I think we all tend to assume that biofuels are green fuels and environmentally friendly fuels. You’ve heard the term “carbon-neutral” mentioned already today, but really the environmental and climate impacts of biofuels depend – They really, really depend – they can vary dramatically based on how the fuels are produced. One of the main factors is the feedstock that’s chosen. How is that feedstock– if it’s a crop – how is it grown? What are the inputs used? What was the land used for previously? For example, if a virgin forest or grassland is converted to, say, an annual crop, you could negate all of your carbon benefits that way, and then also as we’ve seen in Brazil the type of energy used to process these fuels is also very important.

This graph – I don’t know if you can see in the back, but this graph just shows the different ranges in greenhouse benefits that are achieved with different feedstocks. On the far right of the screen, you see vegetable oils. To the left of that, you see starches – mainly, corn and you can see that there is a positive climate benefit – the range there, but it is the smallest. The largest is from fibers: switchgrass, poplar, and other energy crops.

I just thought I’d highlight three of the major environmental risks that biofuels could potentially pose. The one that is getting probably the most press and that you might have heard about is the expansion of biofuel crops into sensitive areas. There’s been quite an outcry over pressure put on rainforests in Malaysia and Indonesia for oil palm. There’s also quite a lot of concern in Brazil. The industry there likes to remind us all that Sao Paolo, where most of the sugar cane production is, is very far away from the rainforest, but that’s actually a little bit oversimplified. The expansion of sugar cane is happening in an ecosystem called cerrado. It’s also a very valuable ecosystem – grassland ecosystem. And there’s also, considerations in terms of spillage effects – leakages effects when one land use is displaced and moved to another place. For example, where do those cattle go; where does that farm go? So there are certainly a lot of land management issues, and land title issues that are going to need to be wrestled with.

Water supplies: water is often an issue that doesn’t get enough attention. We’ve already seen aquifer depletion happening in parts of China, parts of the U.S., parts of India, and elsewhere. So this is a very important factor and making these energy crops more – and these energy processing facilities – more water-efficient should be a major goal. Soil degradation – I love this picture – I just put it up there. This is in Brazil where they are harvesting and then being followed by planters. We’re debating whether or not this is staged; probably it’s a stage picture, but it shows the incredible stresses put on soils, by large scale agriculture and one of the things that we would like to work on more in the future and see more in the future is research on integrated systems, integrated energy and food systems, sustainable practices, and these are only renewable fuels if we are able to continue producing them year after year and we can only do that if we have healthy soil.

In terms of other factors that we need to be aware of as this industry develops, there are competing uses for biomass in terms of high tech products, but also just everyday products. There are other energy uses: co-firing, basic combustion for example. We’ve already heard mentioned the trade barriers. There are infrastructure issues and unfortunately, we don’t have much time to get into those, but there are certainly a number of issues in terms of transitioning fuel pumps and what needs to happen for biofuels to be able to go through pipelines and that kind of thing that need to be considered. There are still technological hurdles to cellulosic biomass production that need to be overcome. We’re expecting those hurdles to be overcome much more quickly in the years to come as interest in this has heightened and oil prices stay high.

Public acceptance: now this is something that hasn’t been talked about a whole lot, but resistance to these fuels can slow down the development of the industry and efforts should be made to help consumers become comfortable with these fuels, understand the differences in these fuels and traditional fuels and learn how to appropriately use them in their vehicles. One topic that might be mentioned this afternoon is the need for international fuel quality standards. There also issues like this that just need to be dealt with on the institutional level. I feel that a lot has already been said about this.

Certainly, a lot of support for this industry is coming because we are very excited about the development potential and having come from a small farming community as Chris mentioned, I can tell you that this is something that is very exciting for rural communities in rich countries like ours, but also poor countries. But as we’ve seen in the Brazilian experience and also now more and more in the U.S. there is a tendency for increased concentration as these industries mature. So there has to be active policy intervention to make sure that smallholders and small communities do really gain from this industry. It’s interesting actually, the World Bank came out with a report on biofuels that said that for every unit of energy output in biofuels industry you’ve got 100 times as many jobs as you do in the petroleum industry, which I think is an impressive statistic for people who are looking at the job creation angle.

This graph is just a visual representation of some of the trade barriers that exist in the form of import duties. You can see that these numbers are a couple of years old, but I think that they haven’t change very much. Australia has very large import tariffs, followed by the United States, the European Union, Brazil, and Canada, and maybe, depending on your interest, we’ll get into this issue this afternoon, but there’s certainly a lot of debate in this country going on now as many of know about this dilemma between nascent industry, domestic industry protection and nurturing and the development of a truly global market. So this is a certainly an interesting area to be discussed, but we feel that this is an enormous market – the transport fuel market is absolutely enormous and that there is probably room for both.

Some of the experience in Brazil and the U.S. and Europe has shown that there are certain policy mechanisms that are more effective than others in supporting this industry and its development. Some of them have been used together very effectively – tax mechanisms and mandates especially. We just saw in Germany that they have decided to repeal at least some of their tax relief for biodiesel and replace it with a blending mandate so sometimes you see these things in succession. We’re hoping that there will be new mechanisms that we haven’t even thought of yet that will be even more effective than these others in supporting this industry.

Certainly more research and development is needed, but not in lieu of commercialization hopefully together with commercialization, and more and more discussions are happening as people wrestle with how we make sure that these fuels are developed sustainably both environmentally and socially and there have been increasingly calls for standards – standard creation for biofuels and certification systems. Those conversations are evolving. Actually, maybe Andre later will talk about what’s going on in Holland. Holland has passed a law saying that all of their bioenergy that’s imported has to be certified sustainable. So they are right now wrestling with how to define that and how to make that happen.

In terms of the recommendations that we’re making, unfortunately we can’t make extremely specific recommendations because they are, of course, context-specific, but in general we felt that strengthening the market is extremely important. Speeding the transition to the next generation is also extremely, extremely important because we have the most to gain there and there’s only so much food that can be turned into fuels. So we’re going to hit that limit fairly soon and need to really move quickly into these cellulosic technologies, protecting the resource base, facilitating sustainable trade and really distributing these benefits equitably. I think that it will be interesting to see how these industries develop, but it’s quite intuitive I think to understand that when there’s more ownership on the community level, the economic benefits are magnified.

And then last but certainly not least, we urge that this industry be developed together with efficiency gains. We did some quick, back of the envelop calculations and we looked at a typical American city of a million people and how much municipal solid waste they make. We calculated that if that waste was turned into biofuels, it would be enough fuel to meet the needs of about 58,000 Americans, and at today’s per capita fuel use levels in France that would need the meets of 360,000 people. So the demand side, the efficiency side is absolutely critical to how big a role that biofuels can play, and if you go to China, it’s actually 2.6 million people. So I can’t stress the efficiency side enough and hopefully we can make great gains there as well.

I guess maybe I’ll end with something that I’ve heard Bill Holmberg say and many of you in this room probably know him. He’s often introduced as the grandfather of biofuels in this country and I’ve heard him tell people that: “Now we know what you know, but tell me what you’ve achieved,” and I think that we all know that there’s a lot of work to be done and we are looking forward to working with all of you in the future. So thank you for coming and I look forward to hopefully meeting those of you I don’t know later today.

Thank you. (Applause.)

MR. FLAVIN: Thank you very much, Suzanne.

We now have two more speeches this morning and then we’re going to open it up to questions and discussion involving all three of the speakers that are speaking post to coffee break. Next speaker is Viktor Elbling, who is the deputy chief in the division of international economic policy in the German Foreign Office. The German Foreign Office as you probably surmise is the German equivalent of the U.S. State Department responsible for the foreign policy of Germany.

Okay. Excuse me, a slight change of plans. Prior to Mr. Elbling’s speech, we’re going to hear from Thomas Dorr, the undersecretary for rural development at the U.S. Department of Agriculture and as one can imagine the Department of Agriculture is a central player in biofuels in the United States. Mr. Dorr comes to this position with a substantial body of experience in agriculture as one could imagine having been head of a family agribusiness company based in Iowa, I believe and having grown up in our farm belt and having played a number of important policy roles including having been a member of the board of the National Corn Growers Association as well as the Iowa Corn Growers Association.

So without further ado, the undersecretary of the U.S. Department of Agriculture. Thank you.

(Applause.)

THOMAS DORR: For those of you who wanted to see Viktor, just play like I’m Viktor. (Laughter.) I just came from the press conference announcing Chairman Goodlatte, Ranking Member Peterson, chairman of the Finance Committee, Senator Grassley, and a number of members’ endorsement of a resolution called “25 x 25,” which I’m certain most of you have heard about and it was very exciting, very enthusiastic reception. And I got out of there to come over here, and I made the observation that given the fact that we’re at 6 percent renewable energy use in this country now, today maybe we can start a moniker of something like “19 percent to go.” But, in addition, I was there with a fellow who was involved in the biodiesel business and my father who’s now deceased years ago was involved in the oil and gas business in a small way. Every time he had a well that looked good, well, he got a little bottle of fresh clear crude oil and set it on his desk and I was given a bottle of biodiesel and I thought if only my farmer father could have lived long enough to have a bottle of biodiesel, he would have been rather surprised and impressed, but thank you.

It really is a distinct pleasure to be with all of you today. I would like to first bring you greetings from Secretary Johanns who himself has a fairly significant background in the area of renewable energy and ethanol support, both as a governor in the state of Nebraska, prior to that in his role in local government and now as a secretary of agriculture, but we are here obviously today to discuss and frankly to celebrate the emergence of biofuels as a significant contributor to the energy economy, both in the United States as well as internationally. This process, of course, is still in its infancy. Renewables right now, as I’ve just indicated, barely account for about 6 percent of U.S. energy consumption, but the growth curves – the growth curves are steep and in my view and as you all I’m sure concur the potential is very high, and last but certainly not least, the rising cost of oil is truly a big go signal for especially biofuels and wind, which are finally approaching commercial viability at current and I would submit reasonably modest subsidy levels.

In my view, this is really a great thing. It’s a great thing for national security, for the economy, for the environment, and frankly for farmers as well. If you’ll permit me a personal aside as a farmer from Iowa as was indicated, I spent most of my life growing what you grow in Iowa: corn and soybeans, hogs and cattle. However, the way we’re headed, that’s just in my view another way of saying producing ethanol, biodiesel and methane with some premium food products thrown in. In fact, not too many years down the road once we get cellulosic ethanol up to speed just about everything on a farming except the machinery, the buildings and the proverbial squeal of the pig will be a potential energy source. From the sunlight glinting on the fields to the wind rippling through the trees, to the corn stover that today mostly rots in the field tomorrow it will be powering our vehicles.

This has been a long time coming. I can remember my father, who I mentioned a moment ago, more than 30 years ago working very hard to pass the first corn check-off in the state of Iowa and the immediate thing they did was to begin producing ethanol. I have to tell you a little anecdotal story because this is a great story. Some of my peers might not appreciate this, but when we passed the check-off and began to advocate at that point gasohol – some of you may have seen that ear corn pump – but what most farmers didn’t know is that we couldn’t find any ethanol any place, and the truckload of ethanol that we did find was produced at a wood ethanol factory plant owned by the DOT – DOD in the forest of Oregon and if they would have known the price we paid for that ethanol to blend it, start pumping it, I think they’d probably would have shot us, but back then ethanol was really nothing other than a niche industry with a regional market.