The Advanced Ethanol Council, and the unity movement in biofuels policy – a Digest Q&A

February 22, 2011 |

In Washington, the dust has settled on the announcement by the Renewable Fuels Association that it is starting an Advanced Ethanol Council.

Here’s some brief Q&A on the background:

Q. What is the main goal of the Advanced Ethanol Council?

A. In a few words, production and tax credits. One of the most powerful drivers of both the petroleum and renewable energy business are investment tax credits – and biofuels don’t have any.

These can be structured to be transferable, in the early stages of project development, which allows them to be sold (at a discount) to companies that have profits to apply credits to, and that flow of dollars creates investment for energy projects. ITCs can also be structured so that the US Treasury can buy them back from projects, which simplifies the process of turning credits into investment capital.

Another way of achieving the same thing is to extend the cellulosic ethanol production tax credit, which currently sunsets next year – by extending that into, say, 2017, and also making those credits transferable and fungible (especially via sale to the Treasury), the industry can create investment capital flows that result in projects.

Q. Aren’t there other goals?

A. Sure, there are plenty. Coordination on the ethanol tariff, the VEETC (ethanol blender tax credit) – plus market access policies such as funding for blender pumps and flex-fuel car mandates. Not to mention loan guarantees. It’s a year in which the ethanol tax support system will be revised, and the AEC aims to rope in as many cellulosic ethanol players as possible to synchronize the “ask”.

Q. Is 2011 a year in which the Renewable Fuel Standard will be opened, and revised – for example to make the cellulosic ethanol mandate a true mandate?

A. Nope. Not unless the opponents of ethanol on the Hill have something to do with it. The mood on the Hill is considered too volatile and fractious this season to seriously look at RFS2 – the House voted this week, for example, to defund the entire rollout of E15 ethanol. Not an auspicious start with the new Congress.

Q. Who is heading the AEC?

A. Brooke Coleman, the current head of the New Fuel Coalition, is the new executive director. Bill Brady of Mascoma is the chairman. Digest readers will know him from his recent series on California’s Low Carbon Fuel Standard, and he’ll be penning a monthly column for the Digest this year.

Q: What’s Coleman’s take on the AEC?

A: “Ethanol is the most ubiquitous alternative fuel in the world. It is already replacing billions of gallons of foreign oil and stemming the loss of taxpayer dollars and American jobs to oil interests overseas. But we need to make sure that the ethanol industry keeps growing, with new technologies and advanced production processes that will allow the industry to diversify it’s feedstock portfolio and bring a new family of green fuels to the marketplace. There are a hand full of things that must happen in the marketplace to unleash the full potential of advanced ethanol. The Advanced Ethanol Council (AEC) was formed to address these critical areas, and we look forward to working with our partners in the ethanol industry to get it done.”

Q: What’s going to happen to the New Fuels Alliance – will it be folded into the AEC?

A: Coleman declined to speculate on a “way too early to say” basis, but we don’t think so. The New Fuels Alliance is, these days, funded and organized generally on a campaign by campaign basis, and we expect that there will be campaigns not suited to the AEC that the NFA will continue to undertake.

Q. What about the Cellulosic Ethanol Alliance – that loose coalition of companies also known as the “Thursday Club”?

A. Well, that group is, by and large, the backbone of this one, and generally speaking, you can consider the AEC a successor to the CEA. Sheesh, the three-letter acronyms are getting confusing, especially when you throw the American Coalition for Ethanol (ACE) into the mix.

Q. How does the AEC relate to some of the other advanced biofuels groups – isn’t this a slap in the face for the Advanced Biofuels Association or BIO, which also represent advanced ethanol as part of their outlook?

A. Well, not really. Ultimately, the producers of ethanol – be it cellulosic or otherwise – have a series of policy “must-haves” relating to market access, and blending ratios – that align them with ethanol interests more than, say, the makers of drop-in biofuels. We expect that the groups will closely coordinate on the topic of investment tax credits and production tax credits with other groups. Later on, they all can be expected to coordinate on the Renewable Fuel Standard.

You can expect that the AEC will be strong supporters of E15 ethanol blending and mandates related to flex-fuel cars and support for blender pumps. This will be a slightly different issue for groups such as the National Biodiesel Board and the Algal Biofuels Organization, and a non-starter  among the drop-in fuels crowd.

We would expect the drop-in fuels crowd, which generally coalesces within BIO and especially the Advanced Biofuels Association, to be more involved in the introduction of fuel and feedstock neutrality into the language of bioenergy legislation.

Q. What is driving the unity movement among biofuels policy groups?

A. Recognition that tax credits, as well as subsidies, other incentives mandates, tariffs, and other instruments of federal renewable energy policy, are going to be easy to ask for, tough to get out of the new Congress. Among ethanol producers, there is real concern that the ethanol blender tax credit (VEETC) will be allowed to expire this year, and fully expose the US ethanol industry not only to head-to-head competition with petroleum gasoline, but with Brazilian sugarcane ethanol – though, with sugar prices at record highs, concerns about the latter have faded to some extent in recent months.

Category: Policy

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