Ag Secretary Defends Ethanol

By Brad Zigler

Ed Schafer was sworn in as the 29th Secretary of the U.S. Department of Agriculture in January 2008. A two-term governor of North Dakota, Schafer chaired the Republican Governors Association and co-founded the Governors Biotechnology Partnership to increase public understanding and support for the benefits of agricultural biotechnology.

Hard Assets Investor Editor Brad Zigler (HAI): How do you see biomass and biofuel production fitting into a solution to our present energy problem?

Secretary of Agriculture Ed Schafer (Schafer): Well, I'm in that "all the above" category. I think we need to be pursuing all kinds of energy sources.

In 1996, I was the chairman of the Interstate Oil and Gas Compact Commission, an organization representing all the states that produce oil and gas. We developed a public policy and issued a booklet called "America, a Dependent Nation." At that point, a little over 40% of our energy came from nondomestic sources. In other words, imports - mostly of oil.

We projected at that time that if we didn't do something about developing domestic sources of energy, we would see the day when 60 or 65% of our energy would be imported. In 1996, we made a presentation to then-President Bill Clinton and presidential candidate Bob Dole and said, "We need to enter this into the public discussion in the presidential race." Of course, we all know we didn't hear anything about that in the presidential race. Today, we're looking at 65% of our energy needs met by imports.

It behooves us to put on the table a national energy policy, and that national energy policy, in my view, must include the enhancement, discovery, recovery and use of traditional fossil fuel resources in this country.

I think it must include biofuels, but we also have to look at incentives for wind, natural gas and solar. As an example, the solar tax credits are about to expire. Why would you invest in a very expensive energy-generation resource today without good public policy?

So it would help if we had an overall, overarching national energy policy that says this is where the country needs to go. If we don't have one, then we can't develop public policy, whether it be tax incentives, regulatory issues, whatever.

HAI: Could you speculate on why there is no national energy policy?

Schafer: It's dangerous to speculate. But here's my belief. I think that a representative form of government helps divide us and really pit one source against another. What we have said is, "Okay, in my state I have the potential for wind generation, so I'm going to have to champion that." Someone else says, "In my state we have coal production, so I'm going to champion that." Another may say, "In my state we have oil, and I'm going to champion that."

Because we don't have unlimited resources, we pit one against the other. We don't look at overall policy. We say we don't have enough money, we don't have the resources, so a representative has to get enough votes for wind, or enough votes for battery oxide cells for hydrogen, or whatever it is. Because of this, we have fractured the focus so much that we don't get an overall public policy.

I think it's going to take some real strong leadership to say, "This is the overall policy; we're not choosing one or another, we're not trying to pit one against the other or take away from one to advance another. We're not going to trash the coal industry, and were not going to champion wind energy at the expense of coal. This is the direction that this country needs to take."

HAI: In 2005, Natural Resources Research Journal published a study that suggested ethanol production requires more fossil fuel energy than the yield we get from the output fuel. Was that evidence of 2005 technology? Do you think that present-day technology increased energy yields? Where do you see the technology going from here?

Schafer: You know, it's hard to focus on one study. There are so many. Most studies I've seen confirm that there is positive energy generation from the production of ethanol. It's not a big advantage, though. It's a 1-to-1.2 ratio, certainly not as high as some other biofuels.

At USDA laboratories, we're working on a better fermentation process, better feedstocks with a lower-energy-cost profile to grow, collect and distribute. Certainly as the technology moves forward, we're going to see more production per acre of ethanol, which then drives down the cost of production and the energy cost per gallon produced.

I'm convinced that the technology is moving so that while we develop the infrastructure and pursue this important public policy for our country, we will see increases in efficiency as we move forward.

And exciting things are happening with cellulosic ethanol. The POET plant in Scotland, South Dakota, is going to be turning out 20,000 gallons of cellulosic ethanol made from corn fiber and corn cobs later this year. Next year, they will start to produce cellulosic ethanol on a commercial scale at an Iowa plant. That's a joint effort between POET and the U.S. Department of Energy called Project Liberty. Also, the KL Processing plant in Wyoming is starting to turn woody biomass into ethanol as well.

I have to tell you, one of the exciting projects I've seen recently is in our USDA citrus biomass laboratory in Florida, where they are generating ethanol out of peels left over from the huge orange juice industry. It's fun to see that creative use of orange peels, an often discarded by-product. It smells pretty good, you know.

HAI: You mentioned costs. Are there actual savings to be realized with corn-based ethanol now?

Schafer: The Department of Energy calculates that blending ethanol into gasoline cuts the price of a gallon of gas by 20 to 35 cents. That's a savings to American drivers of $28 billion to $49 billion. And if you split the difference, it's about a $200 annual saving for the typical family in the United States today.

HAI: Mr. Secretary, thank you so much for your time.

Comments

[hockey:]

This is another classic example of the corporate control of the Republican Party. Clearly ADM has long been a lobby greaser for the Ag Department as it favored
all the industrialization of a core food component. Now corn sweetener is one of the classic examples of corporate crap - it has flooded obesity across the world through drinks that have only damaging impacts on human bodies, not to mention brains.

2008 Oct 21 03:52 PM

[Old Rick:]

What the secretary does not mention (nor did the interviewer ask) is that the energy content of ethanol is about 1/3 less than gasoline. Current costs of E-85 ethanol do not nearly account for the energy disparity. E-10, if priced on an energy content basis should be 4% or so cheaper than straight petrol, but is in fact 4% or so HIGHER due to market prices and Govt mandates and subsidies.

2008 Oct 21 03:56 PM

[GeorgeMo:]

This is strange - was the interview conducted before the Bailout Bill was written into law? Because that bill has a whole section extending the solar energy credit and juicing other alternative energy technologies. Surely the Ag Secretary should know about this! (from the interview: "As an example, the solar tax credits are about to expire. Why would you invest in a very expensive energy-generation resource today without good public policy?")

2008 Oct 21 08:22 PM

[john s. gordon:]

leadership @ the national level is key, we haven't had any since january 2001. we've had a lot of cheney & george w helping their friends,
> jack

2008 Oct 22 09:15 AM

[SubsidyEye:]

Moreover, the Ag Secretary has stirred up a storm of controversy, suggesting that the federal government will provide loan guarantees on borrowings of up to $25 million per company, to bail out imprudent operators of ethanol plants, who locked in future supplies of corn at $7 per bushel -- or in some cases, speculated in the market.

According to Schaffer: “There's going to have to be some credit applied to companies to buy some lower-priced corn to blend with their higher-priced corn. This is important public policy for the country because corn-based ethanol is a stepping stone to energy independence through cellulosic ethanol. We're going to continue to support it as much as we can.”

www.agweb.com/Blogs/Bl...

In short: there is no limit to the extent to which the U.S. federal government is prepared to come to the rescue of ethanol producers.

Here is a response (see above link) from one conflicted grain co-operative, FAC:

“We have heard an overwhelming swirl of disbelief with regard to US Agriculture Secretary Schafer’s comments in Des Moines Friday about providing USDA/RD assistance for ethanol companies that have come on hard times. Some of this pain in the ethanol industry has come from the market (ethanol margins), but some has come from some players trying to outguess the market and possibly staying unhedged on some part of their positions. Why should the US taxpayer have to pay for their mistakes?

“FAC is a feed company. And like many grain and feed companies (FAC) has had to jump through hoops to be sure that we were able to maintain financing though the rock and roll markets of 2008. And our increased costs have come because of the growth in the ethanol industry sucking more corn from the pipeline and in turn pushing prices to record price levels. The wild market ride is likely to continue. No one knows which way we will go. But we have to agree that there should be no 'bail out' for ethanol producers. Why are they any different than any other segment of the marketplace? We have many livestock producers that have continually asked 'Where is my subsidy for providing demand to the corn market?' We are all for a growing demand base. Ethanol markets have been good markets for us to sell into. But where do we draw the line on providing assistance to this sector of the marketplace?

“We believe that the grain and feed industry must take a stand on this issue. I understand that many of the 'ethanol companies' that we are talking about are members of your associations. This will be a political hot potato, but enough is enough. How do we stop this kind of mentality in Washington? How do we get our story out? And most importantly, how do we do it in the politically correct fashion?”

2008 Oct 22 09:43 AM

[Managing Ed...:]

Yes. The interview was conducted in the first week of Septemeber.

2008 Oct 22 10:28 AM

[wheels14:]

Corn is currently selling for $3.85/bushel. Lets put that in historical perspective. 30 years ago corn sold for $3.25/bushel. 30 years ago gasoline was $.88/gallon, today it sells for $2.95/gallon. Which one of these did not keep up with the rate of inflation? Apparently, ethanol did not push the price of corn out of the reach of American consumers.

2008 Oct 22 11:12 AM

[searcher:]

Corn sweetener is really a nonesense issue, more of a throw away line in a partial chorus of the crowd intent on expressing disapproval of the 'other'. A sugar syrup can be formulated to make the uninformed just as fat as currently using any number of sources.

The issues of misdirected food resources and the waste of production and storage and transportation attendant to ethanol are valid and need constant and consistent attention.

2008 Oct 22 04:27 PM

[wheels14:]

Dear Old Rick

Do you know the difference between potential energy and realized energy?

There is no mileage lose when you use E-10 or up to a 30% alcohol mix.

2008 Oct 22 06:15 PM