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January 05, 2008

Happy "New Energy" Year

Ethanol: Fact vs. Myth

Learn the truth about ethanol...

Consumers were greeted this New Year with a drop in their 401Ks from a stock market reacting to crude oil surpassing hitting the record $100 per barrel mark, visions of $4 per gallon gasoline – and The Energy Independence and Security Act of 2007 (EISA07).  Ring out the old [news] and bring in the new [news]!

The EISA07 was passed with the help of both mainstream political parties and was supported by the President – only after undergoing the scrutiny of hundreds of hours of public hearings, debates, and the completion of millions of dollars in private and government studies.  The law was passed in the face of roaring negative public relations pressure from many in the oil industry and other sectors that feared hardship from a law that would require a new renewable fuel standard.  Many critics of ethanol tried to dissect and piece meal the energy bill issues to drive doubt and concern into the minds of law makers and consumers.  Yet the Administration and Congress set legislation in motion that will displace nearly all of the Nation's $1 billion dollar per day imported crude oil habit by 2030.  New and developing ethanol and automotive technologies are the center pieces of this historic legislation and they will be the focus of this blog during the coming years.  We believe in total this law is progressive, fair, and was created with open dialog and honest debate.

The U.S. currently consumes about 190 billion gallons of gasoline and diesel fuel annually to meet its transportation fuel needs.  Of this volume, about 65% or 124 billion gallons is derived from foreign sources.  – U.S. Department of Energy.

While the Energy Independence and Security Act of 2007 (EISA07) did not address growing the demand for renewable electricity and a few other important energy matters, it does address the most important and volatile energy issue facing our nation – the ever growing and detrimental economic, environmental and national security costs paid by our country and its citizens by continuing to rely on crude oil as a primary source of energy for transportation.  The provisions in the EISA07 will reduce crude oil categorically, imported crude oil specifically, and gasoline use emphatically.  Gasoline will be reduced in two ways.  The increase in corporate average fuel economy (CAFE) standards will eventually reduce gasoline by about 1.1 million barrels per day in new cars and inserting 36 billion gallons per year of renewable fuels like ethanol will reduce gasoline use in all cars.  All things considered, the government hit the nail on the head and successfully addressed the priority energy issue.  A challenge that industry and consumers have not been able to resolve on their own for the past 30 years.

In the face of all the anti-ethanol articles during the past year – is the new law good news?  Yes! But if you don’t believe me read the new law (H.R.6.ENR).  The Administration and Congress addressed the apprehension of the honest debaters and the trepidation of objective researchers that were truly concerned about the sustainable development of "clean/renewable/domestic fuels" – and ignored those trying to protect the status quo market share of gasoline.  In the past year many of you have read and/or written about the thousands of anti-ethanol stories claiming the upcoming choice between food production or fuel production, negative energy balances, greenhouse gas emission increases, not enough gallons to make a difference in oil imports, the government shouldn’t pick winners, and what if things go wrong, just to name a few.  If you were one of the honestly concerned, you should be happy to see all of your concerns were addressed in the new law.

Below are a few examples of how the EISA07 created an ambitious yet cautious and fair goal for ethanol production and use.

Is 36 Billion Gallons Enough to Make a Difference?  If it is not enough to make a difference it sure is enough to make a point.

  • The U.S. imports about 17.5 BGPY of gasoline and gasoline blending components.  Maybe doubling the supply of finished transportation entering our country will drive own some gasoline prices?
  • To simplify and make a comparison, in 2006 the United States imported 33.9 billion gallons per year (BGPY) from the Persian Gulf -- the worlds’ largest proven reserves of crude oil and home of multiple and long term diplomatic conflicts (e.g., 8.4 BGPY from Iraq, 1.3 Libya BGPY, 21.7 BGPY from Venezuela just to name a few).
  • While the U.S. has already addressed Iranian crude oil imports with sanctions, when the energy security contribution of CAFE increases by automakers are added to the expanded RFS, the RFS/CAFE crude oil reductions may exceed Iran’s contribution to the world crude oil energy supply.

The Government is Not Picking Winners

  • Two subcategories have been added to the national Renewable Fuel Standard. The first is Advanced Biofuels, which is defined as any renewable fuel other than ethanol derived from corn starch that meets life cycle greenhouse gas emissions at least 50 percent less than the baseline.
  • The RFS is not limited to ethanol as it includes biomass-based diesel, biogas, butanol, and other alcohols and other fuels derived from cellulosic biomass. The new law also does not allow many of the coal-to-liquid or other petroleum-based technologies to slip in under the "renewable" definition.   It also does not stop their development.  Everyone gets a fair shot at this new clean fuels market and developing new technologies – including oil companies.

Ethanol Should Have a Positive Energy Balance and Reduce Greenhouse Gases

  • While the majority of recent studies show modern ethanol plants have a positive energy balance, the new law makes sure of it.  A second category in the RFS is called Cellulosic Biofuels is defined as a renewable fuel from cellulose reduces the life cycle greenhouse gas emission (i.e., energy use) of 60 percent less than the baseline.  The baseline will be created on a comparison to gasoline or diesel fuels sold in the year 2005.  Gasoline production does not have a positive energy balance, so the hurdle for renewable fuels will be higher than the current standard.
  • The legislation creates a new grant program for the research and production of advanced biofuels and programs as well as extra incentives to reduce fossil fuel energy consumption in ethanol plants. 

Protecting Food Supplies: Food vs. Fuel Production

  • The EISA07 caps the amount of corn that can be used for ethanol at 15 billion gallons beginning in the year 2015.  There is also considerable amount of attention paid to studying the impacts on virtually every sector of the economy, including food production and prices, as a result of complying with the new RFS legislation.
  • The EISA07 also contains several economic and environmental safeguards (e.g., RFS waivers and suspensions) should the government feel the need to reduce the RFS requirement based on their requirements to continually study the impact of increased ethanol/cellulose/renewable fuel production and use. 

Consumer Protection & Increased Market Competition

  • EISA07 prohibits major oil companies from restricting the sale of renewable fuels in gasoline retail "franchise agreements." This part of the law prohibits the restriction of installing retail renewable fuel dispensers, converting existing gasoline tanks or pumps to renewable fuel blends, advertising renewable fuels, purchasing renewable fuels from persons other than the franchiser, listing renewable fuel availability on signs or dispensers, and allowing the use of credit card payment.
  • The law also allows a franchisee (gasoline retailer) to remove one grade of gasoline, even if three are required by the franchise (major oil company) contract.  This allowance is extremely important as many new E85 distributors would need to replace either premium or mid-grade with E85.

True Alternative Fuels Not Just a Gasoline Blend

  • The law requires the Department of Energy to issue a report within 24 months on the feasibility of requiring E85 fuel dispensers in regions where Flexible Fuel Vehicles (i.e., FFVs, or vehicles that can burn up to 85 volume percent of ethanol) comprise at least 15 percent of all motor vehicles.
  • The EISA07 requires the government to perform an ethanol pipeline study and implement a number of other small programs that will address and solve retail, technical, and marketing issues relating to marketing and distribution of ethanol and E85.

Increased Production and Use of Alternative/Flexible Fuel Vehicles

  • Our government even had the foresight to extend the corporate average fuel economy credits (i.e., CAFE credits) designed to help automakers produce and sell Flexible Fuel vehicles (FFVs). This is a declining credit beginning in the year 2014 and remains in effect through 2019.  While some organizations have historically criticized "CAFE credit" for FFVs, this credit is single-handedly responsible for adding the six million FFVs that are on the road today.   As a result of those CAFE credits, U.S. automakers have already pledged to make 50% of their vehicles FFVs by 2012.  Existing and new FFVs will provide crucial support for a nation trying to meet new RFS requirements and consumers demanding relief from crude oil imports.
  • Do as I do.  The EISA07 also contains some progressive "petroleum reduction requirements" (i.e., crude oil) for federal government agencies, most of which could be met by biofuels in hundreds of fleets across the country.

On many other levels, the EISA07 sets a great example of the nation trying to meet its core mission of protecting democracy, capitalism and diplomacy.  This law is a great start to a much brighter energy future.  Our "new energy" law and ethanol specifically, has undergone and will continue to under go more scrutiny than any issue our nation has faced.  Deploying the components of the Energy Independence and Security Act of 2007 and the new Renewable Fuel Standard may not be easy, but it should easily be considered a very proud moment for our country.  We all need to play a role in making sure it meets all of our expectations. The public demanded change, Congress created the vehicle for change, and the President signed change into law.  The majority of people in this country will benefit from a very important public battle that was won over the nation’s future energy policy. Game – Set – Match, let’s move forward.

The Energy Independence and Security Act of 2007 Renewable Fuel Standard
(Billion Gallons Per Year)

Year Total Volume of Renewable Fuels Advanced Biofuel Requirement Cellulosic Requirement (Resulting Cap on Corn Ethanol)
2008 9.000      
2009 11.100 .600   10.5
2010 12.950 .950 .100 12.0
2011 13.950 1.350 .250 12.6
2012 15.200 2.000 .500 13.2
2013 16.550 2.750 1.000 13.8
2014 18.150 3.750 1.750 14.4
2015 20.500 5.500 3.000 15.0
2016 22.250 7.250 4.250 15.0
2017 24.000 9.000 5.500 15.0
2018 26.000 11.000 7.000 15.0
2019 28.000 13.000 8.500 15.0
2020 30.000 15.000 10.500 15.0
2021 33.000 18.000 13.500 15.0
2022 36.000 21.000 16.000 15.0

There is also the first ever renewable diesel requirement under the following schedule:

Year 2009 2019 2011 2012
Amount (BGPY) .5 .65 .80 1.0

Happy "New Energy" Year! Do you have any energy related resolutions?

Burl Haigwood
Director of Program Development



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I am a big fan of biodiesel. I rather like the new requirements for renewable diesel. I don't understand why there isn't more emphasis on biodiesel. Biodiesel does not require new pumps at gas stations, does not require new types of engines in diesel trucks, can be made from most waste streams, and can be purchased centrally for diesel fleets. Why isn't there a greater push for biodiesel? It would be much easier to integrate into the transportation fleet.

Burl Haigwood

You bring up some valid points about why we should use more biodiesel -- and there is a lot of excitement about the future of biodiesel. Google the National Biodiesel Board www.biodiesel.org to learn more. Biodiesel is going through much of the same growing pains experienced by the ethanol industry in the 1980s. Ethanol is about 20 years ahead of biodiesel in terms of production and growth. This time has given ethanol more time to mature and guarantee production processes, set standards, expand and diversity feedstock production, and grow consumer acceptance.

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