U.S. Department of Energy - Energy Efficiency and Renewable Energy

Clean Cities

Ethanol Industry Overview Webinar (Text Version)

This is a text version of the video for the Ethanol Industry Overview webinar presented on January 19, 2011, by Robert White, Renewable Fuels Association (RFA).

COORDINATOR: At this time, all participants are in a listen-only mode. At the end of the presentation, we will conduct a question-and-answer session. To ask a question, please press star one.

Today's conference is being recorded. If you have any objections, you may disconnect at this time. We'll turn the meeting over to Ms. Sandra Loi. You may begin.

SANDRA LOI: Great, thank you, Brandon. Good morning, good afternoon, everyone. Thank you for joining us today for our monthly Clean Cities educational webinars. I know we have a lot of coordinators on the line, but I believe we have potentially some new folks and wanted to give you a little bit of background on our Clean Cities program for your information.

My name is, as our operator said, Sandra Loi, and I'm a project leader here at the National Renewable Energy Laboratory in Colorado supporting the Clean Cities program.

Clean Cities is a government industry partnership sponsored by the Department of Energy's Vehicle Technologies Program. The mission of Clean Cities is to advance the energy, economic, and environmental security of the United States by supporting local decisions to adopt practices that reduce the use of petroleum in the transportation sector.

Clean Cities coordinators lead local, geographically based coalitions composed of local fleets, fuel providers, and decision makers that focus on a united goal to reduce petroleum consumption.

There are about 87 coalitions covering areas where 229 million U.S. citizens live—approximately 70% of the country's total population. Since the program's inception in 1993, Clean Cities and its stakeholders have displaced nearly 3 billion gallons of petroleum.

So today's webinar, as you all know, is focused on ethanol, and we have Robert White from the Renewable Fuels Association who will be giving an overview—sort of a state of the industry—and also touching on other elements, such as the tax incentive, and some other things related to the industry.

I'm going to go ahead and introduce Robert. He's a director of market development at the Renewable Fuels Association, or RFA, which is a nonprofit trade organization that serves as the voice of the ethanol industry providing advocacy, authoritative analysis, and important industry data to its members, Congress and federal and state government agencies, strategic partners and media, and other opinion-leader audiences.

As Director of Market Development, Mr. White leads the effort to increase the availability and consumption of higher blends of ethanol along with consumer education, social media, and marketing. He works with petroleum marketers and retailers, states and federal agencies, fleets and consumers.

He's also a sought-after technical expert for the ethanol industry on ethanol, E85, and blender pumps. Mr. White also has served on various boards of directors and advisory committees and is also a veteran of the U.S. army and holds two degrees, one in foreign languages and another in agricultural economics.

So I'm going to go ahead and get us started today. Robert, you may get started.

ROBERT WHITE: Okay, thank you, Sandra. Welcome, everybody. Thank you for taking time out of your busy schedules and joining us today. I hope that all of you will learn something, and if you have questions, we can get those answered as well.

In my too-long-winded bio, you heard Sandra mention the Renewable Fuels Association, and I just wanted to make sure that everyone understands what the RFA is. I hope that the coordinators do, but I know we have some guests from outside, perhaps, the Clean Cities community.

The Renewable Fuels Association is now 30 years old. We're actually celebrating our 30th year as the voice of the U.S. ethanol industry—very excited to reach that milestone and excited about the next 30. But we work on all avenues: advocacy to legislative and regulatory matters, safety, and environmental.

We do, obviously, a lot of work on the tax side. We are basically the association that tries to help the ethanol producers, you know, put their feet up and do what they do best, and that's make ethanol.

So today, I wanted to take a little time with each of you and kind of give you an update on the overall ethanol industry. And I'll see if this first slide comes up here.

SANDRA LOI: We can see it. The second one, Robert?

ROBERT WHITE: Yes, I can't, so I will rely on you, Sandra.

SANDRA LOI: You are on number two.

ROBERT WHITE: Yes, it worked now. Okay. So the U.S. ethanol industry today is just a snapshot of where we're at. There's a total production capacity of 13.77 billion gallons per year, BGPY, billion gallons per year. We expect that the final numbers for 2010 production will put production right at 13 billion gallons or perhaps just slightly under but somewhere in that vicinity.

The current capacity utilization is about 13.1, which means you have about 600 million gallons of production capacity not being utilized. There are several reasons that could take place—simple things like routine maintenance, plants expanding or doing some sort of construction, in a shut-down period or—you know, there are opportunities where the plant could simply be up for sale and not operational.

There are 200 plants operating in 26 different states. I think that paints a little different picture than some think about when they think of the ethanol industry, and they're all sprinkled in Iowa and Nebraska and throughout the Midwest. We do have ethanol production in California and in Georgia and in Florida and Texas and so forth.

There are dozens of next-generation facilities in various stages of development. You all have heard cellulosic ethanol being mentioned before. These are the types of projects in next-generation efforts that we're talking about and looking at.

The 2011 Renewable Fuels Standard—the Renewable Fuel Standard, for those that might not know what that is—that is the national renewable fuel standard that calls for 36 billion gallons of renewable fuels in our U.S. motor fuel supply by 2022. The 2011 RFS calls for just 12.6 billion gallons of ethanol. If you look to the top of that slide, you can see that even our current capacity utilization is above that number, and there's always room to ultimately utilize more.

And I can advance now, great. The next slide simply talks about our latest numbers. Every year, we run these numbers, and we ultimately release them in our industry outlook that always get debuted in February at the National Ethanol Conference. All of you are getting a little taste of some of that information. But the number that we use is approximately 400,000 jobs are created by the existence of the ethanol industry today, and you're looking at approximately 70,000 direct.

But you have to understand where these jobs come from. Of course, everyone understands that you have so many people that work at an ethanol production facility—that's easy to calculate. But you have to think about the sheer numbers from that. For example, in my small hometown of 3,200 people, an ethanol plant came in, and every one of the employees at the ethanol plant were making above the county salary average.

And each of those—each day that the ethanol plant is opened, you have hundreds of semis that come through that need tires, that need fuel—the drivers need food—and ultimately the economic impact is felt, and you see more jobs being created.

The 2010 survey of those employees—you saw that 83% of them earned wages in excess of $40,000. The plants located in the Midwest and for the most part around the country are in rural areas—obviously, hard to find good paying jobs in those areas, and that's why typically, ethanol plants are embraced, but there are areas, of course, that do have the old NIMBY approach—not in my backyard approach.

Ninety-nine percent reported receiving healthcare and other benefits, and ultimately the industry held at $36 billion to household income. These are all for 2010 and ultimately contributed a little over $53 billion to the U.S. GDP.

In the transportation fuel sector, I think this is important, more than 90% of the gasoline sold today contains ethanol. And I think the number, if we had to pin it down, would be in the 92% to 94% range. These numbers are typically released by the American Petroleum Institute, and it's been a while since we've seen an updated one.

But we could always use more. As you saw earlier in one of my slides, the 12.6-billion-gallon requirement for 2011 is well below current production. It's almost 1 billion gallons less than what we can produce if everything was operational or being fully utilized.

Can you still hear me, Sandra? I'm hearing a lot of clicking.

SANDRA LOI: Yes, loud and clear, yes.

ROBERT WHITE: Just wanted to make sure. And I guess the point here is one of the things that we saw based on that excess production, or excess capacity, or availability of that excess capacity was exports. And the most interesting story I have was this summertime we learned of U.S. ethanol exports. They spiked in the spring and then kind of went up and down over the past few months.

But in this summer, we actually had ethanol from the State of Nebraska being exported to Saudi Arabia. And as interesting as that is to think about—the old saying of ships passing in the night—we're taking petroleum from them and sending ethanol in return. We have a lot of opportunity to utilize more; even Saudi Arabia gets it, and we are, unfortunately, left with exports. So we hope that there's more opportunity in the future through, you know, more E85 usage and the other conversations that we have in the middle.

The next slide just simply talks about ethanol as a fuel and fuel additive, and ultimately shows where it all goes. E10, which is the same now as unleaded gasoline—in most cases, if you look for an unleaded gasoline fuel specification, it allows up to 10% ethanol. It's one in the same. It's approved for use in all vehicles and engines; 98% or more of the ethanol is consumed currently as E10.

And as I already mentioned, 90+% of the U.S. gasoline is blended with ethanol. Now we all flip to E85, and you see that the variance that is allowed there by volume in the ethanol. For those that are new to this, E85 in the past has been seasonally adjusted. Ultimately, the thought process behind it is you would add more hydrocarbon to the fuel to ultimately lower the flash point of that fuel, making it easier in cold-start conditions.

As you can imagine, at International Falls, Minnesota, where the balmy temperature of 30 or 40 below 0 today, compared to Tucson, Arizona, is quite different. And so the fuel in the past has been adjusted based on geography and seasonality.

And ultimately, it's for use in flex-fuel vehicles only. Flex-fuel vehicles have been produced since 1998—for some of you, this is very old hat—but there are 8.5 million of them on the road today. And somewhere in the range of 2,400 to 2,500 E85 stations, depending on who you ask. And I guess that a little less than 2% of the ethanol consumed is as the E85, but those numbers also continue to grow on an annual basis.

The last option for ethanol usage is mid-level blend. These are the blends ultimately between E10 and E85. They are 20%, 30%, 40%—whatever level you choose of ethanol by volume. Right now, they are for use also only in flex-fuel vehicles. They are dispensed through what we call blender pumps. There's approximately 300 stations out there across the country that offer one of these mid-level blends or several options.

The specifications, best management practices—all of these are under development in several states. If you went to some states and asked if you could sell them, they would probably tell you "No" or "It's illegal." Illegal is a stretch. We don't have any spots where they're actually illegal, but we have places where fuel specifications are needed.

They're still trying to figure out, you know, if the blender pump has the technology they want in their state, but ultimately, it's for flex-fuel vehicles at this point. And down the road, we hope that, obviously, there's more flex-fuel vehicles available and out there for everyone to partake in whatever blend they want to.

So I just wanted to go back in time a little bit to give you a snapshot of where the ethanol industry has gone in the short amount of time. This slide has—shows E10 penetration in 2007. And you look, and obviously, the Midwest—heavy and strong—California, of course, been at that 5.7% since 2005 and now up to 10%. The Northeast was starting to blanket.

But the void was a lot in the Southeast, and most of that was simply because the pipelines that ran from Texas all the way through the Southeast and ultimately up the Eastern Seaboard—those gasoline shipments contained MTBE or methyl tertiary-butyl ether. And what happened due to various things—it was illegal to blend two oxygenates into the same fuel.

So you could not combine MTBE with ethanol in the same gallon of gasoline. So the oil companies were clever enough that if you put MTBE in the pipeline, everyone that pulls from that pipeline cannot blend with ethanol. So you saw this void as you can see on the map, very plain as day, with E10 cells. Even in 2007, however, you had 50% to 55% of the nation's gasoline was E10 or below.

So in the next slide, if you fast-forward to 2010, the map changes dramatically. And it's hard to find areas where you're seeing a void of ethanol, and ultimately, we know what happened with MTBE was phased out. It was found to contaminate groundwater sources. A teaspoon of that lovely product would contaminate an Olympic-size swimming pool, unfit for human consumption.

So you have many states that followed suit after California and simply make it unavailable. There are still states, believe it or not, where you can sell MTBE; although, it's in short supply. So if you look at the opportunities, there's a little bit, of course, in the Northeast and then west of the Midwest—the Rookie Range, I guess is the best way to put it. There's not a lot of fuel cells in this area, of course, but we're always looking to fill those gaps.

We do not believe that we'll ever have a full 10% concentration. There are opportunities for those selling fuel to market the non-ethanol blend. There are no doubt folks on the phone that have seen the ethanol-free gas signs at their local retailer either today or in the past, whether it be for boat owners, antique car owners, or the people that simply think that we yank the corn out of babies' mouths and use it for ethanol. The reality is far from that, and we'll talk a little bit more about that later.

The next slide, just kind of jumps into the legislative update. And I can tell you, and you no doubt thought at numerous times this past year that this was never going to happen, that the Volumetric Ethanol Excise Tax Credit—VEETC, the blender's credit, the ethanol subsidy, whatever you want to refer to it as—was going to die, and it was going to die a quick death. And there was not going to be a reduction. It was simply going to disappear in the night.

Well, what happened was the week before Christmas the—you've all seen it because it affected everyone somehow, someway through tax credits, if nothing else, on a personal income tax basis, but the Volumetric Ethanol Tax Credit0—not only was it extended, but it was extended at its full rate of $0.45 a gallon. Now to clarify what VEETC does, it is a blender's credit.

So the entity that blends the denatured ethanol, essentially pure ethanol that's been poisoned, unfit for human consumption, the denatured ethanol—when it's blended with gasoline to make a sellable motor fuel, that is the point at when the credit can be claimed. So you could have a situation, while rare, where the ethanol plant could offer E85 out of the ethanol plant, and they would be the blender of record.

You typically have a situation where it's blended at the terminal for delivery to a retail station, but now we even have retail locations that are now the blenders of record, excuse me. So ultimately they have captured the full $0.45. As you can imagine, depending on where the exchange takes place in the supply chain, some of that credit disappears. We've all seen it.

You can go down the street; one E85 station is $0.10 different than the next one or $0.20 or maybe even $0.50 different. We've all seen stories or heard them at least of examples where that credit has not gone to its full, you know, ultimately to the consumer where it should go to encourage them to buy more ethanol.

The credit, however, was only extended through this year. So time is of the essence. Even I will not state that this is possible for 2012 or late 2011, extending this again. There are several different models out there that are currently being explored on how to ultimately alter or evolve the tax credit.

Some think it will disappear completely. Some think it could turn into a producer incentive. Some think part of it could go to infrastructure. There are very different schools of thought, and I guess the one thing that I wanted to leave everyone with is that this is a tax credit. And this is not a pool of money that can be dispersed for multiple purposes. And I think some are—or definitely have not, you know, I guess, swallowed that pill yet.

The ethanol tax credit—this subsidy, if you will, will probably be somewhere in the $6.2 billion range this year. But you have to keep in mind that there will not be $6.2 billion sitting in a treasure chest if this is not extended. It simply—it will go to other places, and that's why we're working on the potential tax reform on the next bullet point.

And that is the Alternative Fuels Infrastructure Tax Credit. This one really surprised me on a personal level. I thought, you know, there is obviously some anti-ethanol sentiment out there across the country, but this one was not an ethanol tax credit. This was for all the alternative fuels and was set to expire for every fuel except for hydrogen.

And I thought that, you know, all everyone would sing Kumbaya together, and this would be a slam dunk. It was extended for a year, but it reverted back to its original levels of 30% up to $30,000. Now for on the E85 side, if you're just replacing the dispenser and cleaning some tanks, you know, 30% is not that bad.

But if you're looking at some of the other alternative fuels, obviously, you can have a hefty investment and with—like I said, just simply surprised. This one was only extended through the end of 2011 again.

I just wrapped up another webinar five minutes before I started talking on this one, and we were driving home—we had over 100 petroleum marketers and retailers on a webinar—we're telling them that they need to take advantage of this because we don't know where it's going to go, and it's important to capitalize on all the available funding to ultimately lower their cost, and we can get more alternative fuels out to the consumer or out to the fleets in that scenario.

The last one that I think was important—if you were reading any of the papers or any of the media, the Brazilian government was really pushing hard to have the secondary import tariff for ethanol removed. Essentially, the tariff is at $0.54. Why it has never been adjusted, I don't know, but ultimately when it was created, it was the exact amount of VEETC.

So you had a $0.54-per-gallon VEETC credit, and you also had a $0.54-per-gallon import tariff. And the secondary import tariff was put into place so that if Brazil or any other country imported ethanol, the U.S. taxpayer would not subsidize it with blending credit.

So for example, if Brazil brought in a gallon of ethanol, and you blended it in the Gulf of Mexico, you cannot get the VEETC on that gallon, or now you, obviously, can, so the tariff offsets it, and all is good.

Now the Brazilians are claiming that this is a WTO violation. We are confident that is not the case. Probably the most interesting point on the whole tariff issue is Brazil has an ethanol import tariff. They have temporarily suspended it as they're lobbying for us to drop ours, but it is still on the books and goes back into effect in 2012.

So we saw a very low level of imports this past year because all of ours was leaving the country. The economics simply did not make a lot of sense. And there was a very different year for the Brazilians and sugar cane production, and not as much ethanol was produced on their behalf to come into the United States.

So those are the three big high-level legislative things that took place; all took place on the same in the same bill. Obviously, there are other things that are important to ethanol, low carbon fuel standard and etc., but these are the big three that was definitely big wins for the ethanol industry, but as soon as we, you know, pumped our fist, we immediately had to go back to work.

And with over 100 new members of Congress, life is interesting this year and will continue to be. But, you know, it's one of those things that as you talk to your elected officials, make sure that they understand the importance of these and actually what they do. I think that's as important as anything.

On the E85 side, obviously, there are new stations and new locations. It's exciting to see the number of stations and the number of cities they're in.

There's essentially 1,800 cities that have E85 stations now; that's exciting. Coming—you know, being involved in this industry, I'm a second-generation ethanol guy, and being in high school running on E85, believe it not, to see that I could count on fingers and toes where all the E85 stations were in the country to now 1,800 cities having that option is pretty phenomenal, but it's a long way from where it should be. And it's a long way from where it needs to be.

More players involved infrastructure development. You know, years ago, it was, you know—when I was at the NEVC, it was—that was the only place you could go for E85 information. And now there are marketers that, you know, are completing the task or not interested in additional help. They're not even worried about calling us and telling us they're doing it.

So it's exciting; the education has gone out there, and they understand how to do this—why it's important—and you're starting to see all the things that we've all talked about for a number of years of how to marry up the synergies. You know, do you get the fleet and the auto dealership and the local retailer and the consumer all involved to support one station and its success? And it's very exciting to see and definitely going to see a lot more this year and in the coming years.

There are more than 40 flex-fuel vehicle models for model year 2011. And we all know that Ford, General Motors, and Chrysler, assuming nothing changes in the next few months, has—50% of everything they make will be flex-fuel. And we're talking a drastic increase not only in the models that will be available as flex-fuel but also in the sheer numbers of the vehicles.

And that is going to be very exciting because the education campaigns that we can launch based on 10% and 20% of new cars at some point being flex-fuel versus 1.5% or 2% or 3% makes things a lot more enticing, not only for the ethanol industry and clean air advocates and maybe even the Department of Energy, but it also makes it more exciting for the automakers.

We all remember, Live Green, Go Yellow from General Motors. Think about, you know, obviously, economic conditions aside, think about how exciting that would have been if 50% of everything they made was on the Live Green, Go Yellow flex-fuel campaign. That would have been very exciting and something that, you know, we definitely hope returns at some point with all the automakers and all those that support it.

Federal fleet usage—I just went through the waived vehicles for 2011. Approximately 70,000 vehicles out there are still receiving federal fuel waivers—worked with a lot of them this past year trying to just encourage them that some of them have their own reasons. Some of them will turn right instead of left just to avoid an E85 station, and some will say that E85 is the devil and they're not going to use it no matter who tells them.

You get every story out there possible, but it's interesting that you're seeing those gaps start to close. I actually looked at the top 100 fleets and calculated the closet refueling stations to them, and some of them are finding that, very soon, they're going to not have that option anymore, and we even see those updates come from, you know, divisions of Department of Energy telling them that. It's time to start using the fuel—so very exciting on the federal fleet side.

You know, obviously the past few years the flex-fuel vehicle love has kind of diminished a little with the introduction of hybrids, but we think that's—ultimately that may be the combination of the two—will be a good opportunity, utilizing both technologies in the same vehicles. We have some new vehicles. For example, General Motors is going to introduce a turbo-charged flex-fuel vehicle next year, hopefully capitalizing on that additional octane and reducing the fuel economy loss.

It was ultimately modeled after the Saab that you've probably seen at some point over the years, but it's finally coming to the United States and new technology. And the Chevy Volt, for example, we're told that second model year will be flex-fuel, and the E85 will ultimately recharge the batteries, not propel the car, but that's very exciting for us, too.

And on the last bullet, there are more ways to locate. We are trying to eliminate every excuse possible for not being able to find an E85 station. Now, granted, if you're standing in Anchorage, Alaska, and you pull out your GPS, it's going to be very hard still to find an E85 station. But the RFA's been working very hard to eliminate the rest of the hurdles. We have Garmin and Tom Tom points of interest that you can download from our website at ChooseEthanol.com. Ultimately, all you do is hit your points of interest and the E85 button, and it tells you where the closest ones are at, and it can guide you.

On the other side, we have, of course, Apple's apps. We have one that's available for iPad and for iPod Touch and for the iPhone. We are getting ready to release another version of that. The last one was through an outside company. We're going to control that, and right before Christmas, we released an E85 flex-fuel station locator for the Android phone. So any phone that uses the Android operating system can use this.

The next one will probably be BlackBerry. Of course, you have all the tools through the Alternative Fuels Data Center. And we're all linking them back together. And so all of the data being utilized to plot these locations is from that station database housed at the Alternative Fuels Data Center because we're trying to make it the best list of stations, and that way, all of us are reporting the same stations. We're checking. And the data can be as best it can be.

But if you have more ways or ideas on how to locate the E85 stations to make it easier, be glad to listen to the ideas, and this probably would be something that we would explore.

We're very excited at the cost of a GPS device now dropping. You know, some of them are in the $60-to-$70 range now. Hopefully, at some point, it all gets integrated into fleets, and every consumer has one, and it's very easy to find.

The next slide talks about the E85 fuel specification, and I think most of everyone has heard this, but I think it's important to just highlight it. Obviously, there are different versions and updates to all the AST and fuel specifications. ASTM and its committees and members meet multiple times a year.

I am a member of ASTM as is Christy Moore, who's also our technical director on the RFA staff. She is heavily involved and might be queen ASTM, but the last year has been a pretty good fight for E85. And ultimately, in June, ASTM 5798 Version 10 became effective.

And ultimately, it lowered the overall ethanol content of the fuel spec. And if you look at the latest handbook for storing, dispensing—I'm going to mess that order up—the E85 handling and storing document from the Department of Energy, it has the latest version of this ASTM spec in it. And you can clearly see that probably the biggest thing is the availability of 68% ethanol in all three classes year-round.

So for example, earlier, I mentioned that the old specification might have E70 as the low blend for Minnesota at the same time having E83 or 83% as the highpoint if you were in Tucson or Tampa, for example, at the same time of year. This changes that. So you can blend up to that 83% mark if you can meet the rest of the parameters of that specification. But you can also keep it at 68% year-round.

And the positive thing out of this, you know—let me back up. The reason this happened was because of demands. The first as fuel quality studies that have been done with the E85—I don't remember the number off the top of my head, and perhaps Wendy or Sandra can tell me—but the amount of E85 found around the country that was out of spec was horrendous, for probably a lack of better terms.

The feed stock availability and what you could blend with that denatured ethanol to make E85 varied so much, and still does today, that vapor-pressure problems were—not problems but vapor-pressure issues—were there. You had all kinds of other issues depending on what market you were in and what hydrocarbon you had available.

In the Midwest, a lot of it's natural gasoline. If you go to California, it can't be natural gasoline. So you have a lot of variances out there. On the positive side, one of the things that we're thinking for the future is we work with a lot of marketers, and one of the things that drives them crazy is having to worry about the seasonal variation of the fuel.

For example, I'm in Omaha, Nebraska. I'm right in the middle of both directions—east and west and north and south. And so we had all three—in the old specification would hit all three classes, and the retailer would be responsible for knowing what he was getting and ultimately making sure that the consumer was getting what he or she needed.

Now if you can keep a consistent ethanol content around the board, you know, it makes it easier for them if they're using blender pumps, for example. They don't have to worry about that seasonal variance, and they have to adjust the valves and the meters.

So it's pretty important, and I think that ultimately, you're going to see perhaps 5798 break away from E85 and become a mid-level ethanol blend specification, so anything above E15 or E20 all the way to E85 and a fresh start with a new E85 specification.

And one of the reasons that we're lobbying for this is most of the federal regulations or laws, whatever you want to refer to them as—the Clean Air Act, Federal Trade Commission, Department of Energy's definition of E85—most of that refers to 70%. Actually, some of the definitions say minimum of 85%. Well, it's never been a minimum of 85%. That was just the wrong thing put into text.

So what we don't want to happen is this specification to continue to adjust—to kind of cater to these mid-level blends so you ultimately lose your alternative fuel status. Imagine if all the federal fleets just overnight, that had flex-fuel vehicles, didn't have a requirement to use the 85 because there was no such thing as the 85, or it was no longer classified as an alternative fuel.

So just want to assure everyone that we are fighting this fight despite some heavy opposition from the automakers, for one, and the oil companies, for two. Obviously, they want as much oil in their oil products into the fuel as possible, so we're making sure that we're protecting those that have been fighting for this effort for a long time.

The only other thing that could be interesting is my third bullet there is that if you search ASTM specifications for E85 in the name, you won't even find it anymore. E85, or that's 5798-10, is called ethanol fuel, not to be confused with denatured ethanol, which is fuel ethanol. I'm sure there were a couple laughs or hopefully there was at that point.

The next few slides—just want to run through the myths and facts and definitely have time for questions. This year and the end of 2011, we saw a lot of return of the old myths and facts. And the good news is these never change. They just come from different angles or different sources, but it's typically the same conversation that you've had before, especially if you've been in the game for a while.

The first one is ethanol's net energy balance. The myth is it takes more energy to produce a gallon of ethanol than you get out of it. The reality, if you look at this simple chart, if you go back to 1992, that was the last time that any other individual, scientists, academic, or insane asylum person has said that ethanol has a negative net energy balance.

If you look past 1992, Dr. Pimentel, who is an entomologist, and Dr. Patzek, who has chairman and Chevron in his current job title, are the only two individuals that say it's a negative net energy loss. The problem with these individuals in their claims is the data that's being used. A 1978 corn yield, for example—it is 2011.

We've had significant increases, not only in productivity on the farm but productivity in the ethanol production process. Those 200 plants that I mentioned earlier—I'll do a contest giveaway if you can tell me how many of those were opened in 1978.

The other thing, probably one of Dr. Pimentel's things that humored me the most, was, in one of his late-'80s renditions, he actually included the energy content of the farmer's lunch as part of his energy equation.

Now, if you flip over above the line, the 100% line would give you a one-for-one exchange. So for every BTU of energy in, you get one BTU out, which would be a wash. If you look, you'll see agro business. You'll see national laboratories. You'll see esteemed scientists and professors.

The last one being Dr. Shapouri the U.S. Department of Agriculture. This came out in 2010, and it was essentially an update to the 2002 study. You can see it if you look for Shapouri, and it includes all the rest of those involved. Fast forward to 2010, and that's the gain that they found using the same analysis. And the range there is, of course, of the older plants compared to the newer plants.

There are some efficiency gains but well over a—instead of a 1 to 1.2, or 1.6 depending on how you looked at it, you're seeing upwards of 2.3 for every BTU of energy in. And this is the slide that I always use. Probably several of you have seen it before. It just simply frames up where the information is coming from, and unfortunately, that—you don't have to take the ethanol industry's word for it. These are all proven data sources that you can obviously check out yourself.

On sustainability, this is one that obviously comes around a lot. How can you continue to meet demands for corn without, you know, plowing down trees, moving people out of their homes? The sheer fact is there's a lot of information here, and you'll all have this to peruse afterwards.

The best way to sum it all up is in 2007 you had the record corn crop in U.S. history. In 2009, just two years later, you again had the record corn crop in U.S. history but on 7 million less acres. Let me say that again: You had a record corn crop above what you had as a record two years prior on 7 million less acres. Now there's only about 427 million acres of land that's arable for agriculture available. And you used 7 million less and made a higher production rate.

So I think it's important that you frame that up as you hear these conversations. There's plenty of data to show you. One of the things besides the one I just shared is corn production is actually—as far as land use—is below what it was in 1930, and that just shows you that there's a lot of other things contributing to the amount of land that's available for agriculture but also what it's going for, and it's always just kind of important to compare the two.

Ethanol and water—this is a very exciting one for us. Since 2001, so in the last decade, we've reduced water requirements by 28%, and many of the plants are actually requiring, excuse me, requiring less than 2.72 gallons of water to produce ethanol in distillers grains. Now, that's a pretty amazing number.

I mean, you've obviously seen in the media anywhere from 3 gallons to 3,000 gallons to make a gallon of ethanol, but most of that comes from the second bullet point. And in a typical season of crop and corn being grown in the United States, 87% of that is fed by rainwater. So Mother Nature does her best to irrigate the corn.

Excuse me, if you hear or if you look at what actually makes its way into the ethanol bio refineries, it's about 97% is not irrigated. This last year was a very unique one, and we saw more rain than we could ever imagine. And I had some friends in South Dakota that were third-generation farmers, have irrigated since they could get it out of the ground, and did not turn on a single irrigation pivot this year.

So this year's numbers are even better than they've probably ever been. I would guess it's in the 6% to 7% was actually irrigated, but we haven't see those numbers to date.

The last bullet point just gives you some frame of reference—40 gallons of water to make a cup of coffee. I doubt anyone's going to protest Starbucks anytime soon but good for comparison, and your sources there are down at the bottom.

The next one—food versus fuel. This is one that, like I said, has never died. It just has flashes in the pans when more people are interested or not. The first one is something that a lot of people don't understand. The ethanol production does not use sweet corn. Sweet corn is what we eat, whether it's in salsa, a can of corn, corn on the cob—that is all sweet corn. It is not fuel corn.

Fuel corn was ultimately designed or intended for livestock production. Obviously, it is ground, and the powder or the once-milled product is used in some countries, but it's not a very popular item. And ultimately, when you make ethanol, all you use is the starch. If you look at my waistline and many of us fellow Americans, we don't have a deficiency on starch. We are not lacking starch.

What we typically lack where hunger is an issue is the protein, fat, fiber, and the oils. And none of that is utilized. It ultimately comes back out in the distillers grain, which are fed to livestock. So for every bushel of grain that goes into an ethanol plant, a third of it comes back out and is ready for livestock feed.

And then the final bullet point—obviously, usually 10% of the annual corn crop does not have a home. It's often called surplus or simply carryout. Indirect land-use change—this is something that the USDPA had to deal with, and the California Air Resources Board is still trying to determine where ethanol falls.

And the important thing to note here is in order to qualify to be utilized by EPA or CARB, the ethanol, in this case corn ethanol, had to meet a 20% greenhouse gas–reduction threshold in order to qualify to meet all sorts of parameters. But if you—and we agree that, with CARB's analysis and EPA's on where corn ethanol comes out.

What we don't agree is that an indirect land-use penalty is added on top of that greenhouse gas score. And probably the closest way to sum it up, and there's a lot of information here for you, is that biofuels is the only one that gets targeted with indirect land-use penalty. There is no penalty for tar sands. There's no oil coming from the tar sands—nothing from methane flaring, etc.

So it's just important to kind of look at it. The biggest one is that ethanol is causing deforestation. And so what you have on this slide is the U.S. ethanol production climbing over the last decade. Bio-diesel production—they're on the bottom. And the deforestation rates for Brazil dropping since 2004. You did have a blip in 2008, but the assumption or the—what's being applied to ethanol just doesn't simply add up whether it's on the penalty or—and the descending of the deforestation rates.

To kind of close it down, you look at the 2011 market or renewable fuel standards. I mentioned 12.6 billion gallons. The ultimate goal was just shy at 14 this year. But look at the numbers in 2022—36 billion gallons has to be ultimately put through our supply system, and we're just simply not prepared for that.

You've seen countless stories; some people believe the oil companies are dragging their feet. They want to be able to come back to Congress and say, "We told you so; we can't use this much." Others are being early adopters. You've seen some of the refiners even putting in retail locations. So you've kind of seen both approaches, and we're trying to get them all, obviously, in the middle.

A couple of things that are available—just want to make sure everyone knows the flex-fuel vehicle brochure—this is basically the inside of it. It has a flex-fuel vehicle identifier. These are available to all of you guys at no charge.

You can also download a PDF of it at ChooseEthanol.com, but just call my office or send me an e-mail, and I'll make sure you get some. These are great for events. They're obviously handy to have around if someone calls. Do I have a flex-fuel vehicle? And these have all been verified with the automakers for all of you that have your Bentley. It was a nice edition this year, but like I said, all available at no cost.

The next slide is dispenser labels—once again, free. Don't pay for them. We'll give them to you, but these are some examples of what we have. We don't have E10 labels. Like I said, most of—or, you know, a third of the states don't even require E10 to be labeled, and so, excuse me, so we didn't go through that process, but call if you need any of these. And with that, I'll open it up for questions.

SANDRA LOI: Great, operator, can we go ahead and open up the lines for questions? Thank you, Robert.

ROBERT WHITE: Thank you.

COORDINATOR: Thank you. We will now begin our question-and-answer session. If you would like to ask a question, please press star one. Please unmute your phone and record your first and your last name. Your name is required to introduce your question. To withdraw your question, you may press star two. Once again, if you'd like to ask a question, please press star one. One moment please for our first question.

SANDRA LOI: So while we're waiting for our first question to come through, Robert, I actually have a question that came in online from Joe Castro. He asks, "I heard a myth or fact the other day that ethanol is causing higher nitrate levels in rivers and streams and therefore killing fish downstream. Can you comment?"

ROBERT WHITE: Well, that's one myth I didn't—well, not necessarily a myth, that I didn't get to you. Was it ethanol or corn production?

SANDRA LOI: Let's see, it said, "ethanol is causing higher nitrate levels."

ROBERT WHITE: Good, that's even better. So the concept here is that the Mississippi River, or all rivers in that case, basically carry all of the runoff from the land down, and you've probably heard at some point the Gulf Dead Zone or the Gulf of Mexico Dead Zone. What that is is a hypoxia created from these high minerals, these chemicals, herbicides, pesticides being washed down the river.

If you look at the overall analysis of where all this—the creation of the hypoxia comes from you—agriculture is just a piece of it. So you have, of course, your golf courses, your lawns—all of that are playing an important role in ultimately feeding the rivers of these—I don't know if "pollutants" is a good word but "impurities."

If you dig down into agriculture as an example, this year, you're looking at probably corn being about 40%, 45% maybe of the production. And then of ethanol being a third of that. So you're looking at somewhere around 6% to 7% if you keep breaking it down of the runoff. We can somehow point towards ethanol. So 93% of what's happening every spring in the—when the, essentially, the ground thaws, what happens in the Gulf of Mexico could ultimately be contributed back to ethanol.

Now what we've seen in farming practices, and clearly some of the environmental groups don't like to focus this way, but the amount that's being washed down the river has dropped dramatically over the past 20 years. You have to remember that the farmer, the last thing he wants it to do is runoff because he needs those nutrients. He needs that pesticide, that herbicide for his crops in order to make a healthy crop. So the last thing he wants to do is put too much on so that it runs off.

So while very little can be contributed to ethanol, I can assure you that the agriculture community is doing what they can do minimize that effect.

SANDRA LOI: Great, thank you. Brandon, do we have any calls on the line?

COORDINATOR: Yes, our first question is from Paul Wider. Your line is now open.

PAUL: Hi, I have a question. I've read a lot of various conflicting information on the current supply and demand balance for DDGS, and I wondered if you could comment on that.

ROBERT WHITE: Well, I wasn't expecting that one, but I actually can't speak too much to it. I'd be glad to give the group a more educated response after I look up the numbers. Distillers grains is one of the co-products of ethanol production—for those I didn't clarify good enough. You have three products that come out of an ethanol production facility. You have ethanol, you have carbon dioxide, and, of course, distillers grain, which is the high protein, high vitamin/mineral livestock feed.

That has predominately been feed to beef and dairy cows, but, of course, you see it now in dog food. You see it in the poultry market. You see a lot of it being shipped via containers to Asia and other markets. U.S. Grains Council has a very healthy export program for U.S. distillers grains.

But as far as balance of supply and demand, I haven't seen anything that's completely out of line lately. And the bulk of that is the supply of distillers grains can often upset the demand for corn. So as the market price of corn grows, you know, a lot of the folks that have the opportunity to use distillers grains in their local market or even a long-distance market will switch to that.

But, Paul, I can definitely look into that and get back to you.

PAUL: Okay.

SANDRA LOI: Next question?

COORDINATOR: Our next question is from Peter Ward. Your line is now open.

PETER WARD: Good afternoon, Robert.

ROBERT WHITE: Hi, Peter.

PETER WARD: How are you?

ROBERT WHITE: Good.

PETER WARD: I was wondering if you could go back in your slideshow. You were referring to the low carbon fuel standard here in California. And you said something about 20%, and I think I just missed it. You know, 20% carbon reduction, and there it is. Okay, maybe that wasn't from the low carbon fuel standard here. Can we discuss that a bit—the 20% GHG reduction threshold?

ROBERT WHITE: Sure, what do you want to clarify?

PETER WARD: What is the 20% GHG reduction threshold? Now I'm just referring to California as the low carbon fuel standard—must be below the re-gasinated diesel baseline. And then ethanol is typically right around there: 20%—15% to 20% is low in California anyway. So is this a U.S. EPA reduction, and is this proposed?

ROBERT WHITE: This is what EPA has in their, ultimately, in their renewable fuel standard. Originally, their threshold is 20%, so what you have is if you're 19 you cannot be utilized to meet any of the program requirements or volume requirements. And in that fashion, what they had was when they included the indirect land-use change penalty, it would take the corn ethanol, if you will, out of the opportunity to be utilized to meet the renewable fuel standard.

So you ha—if you took away the example—it actually moved it to about 21% overall reduction in greenhouse gas emissions. On the flip side, on the CARB side, you have your baselines that you have to meet, and the corn ethanol, based on every document I've seen, meets all the parameters, but if you do add on the indirect land-use change penalty it would take it out of compliance.

PETER WARD: Are these values from EPA published now for indirect land-use change?

ROBERT WHITE: Absolutely, yes.

PETER WARD: Okay, and how much is it a carbon-intensity penalty? Thirty? I've heard them use 30 in the past?

ROBERT WHITE: It varies depending on the technology, and I can definitely share that with you.

PETER WARD: Okay, and I think there will be more developments from California as I understand they've included their expert panel on indirect land-use change here in California.

ROBERT WHITE: Yes, we actually had a staff member on it, so we're excited.

PETER WARD: Right, so do we. Thank you.

ROBERT WHITE: Thanks, Peter.

SANDRA LOI: Next question?

COORDINATOR: Our next question is from Tim Vandenberg. Your line is now open.

TIM VANDENBERG: Robert, thanks for your presentation.

ROBERT WHITE: Thanks, Tim.

TIM VANDENBERG: My question has to do with the E10 blend wall, and it's maybe a two-part question. First is how soon do you think that E10 blend wall might be a problem? And second, are you concerned at all the efforts to try to redress it, like, say go to E15? It seems like there's a bunch of, kind of, how should I say it, impediments in terms of, you know, there being enough E15 pumps and changing enough state laws to allow the assimilation of a lot of E15 quickly.

So I guess my second part of my question is whether those efforts to address it are likely to succeed?

ROBERT WHITE: No, good question. The first one on the E10 blend wall—the answer is yes and probably 18 months ago. You saw, like I said, hundreds of millions of gallons being exported outside the United States because we didn't have a market for it on top of, you know, all of our 600 million gallons not being—production capacity being utilized.

So to say that, you know, there was a recent university study; I believe it was Purdue that said, you know, the blend wall is imminent. Well, we've been staring at it for almost two years now, and it's a clear reality and, unfortunately, distorting markets. And when you—you have to keep in mind when they export ethanol, you know, we're playing with a weak dollar, so we're, you know, the ethanol industry is getting even less for it as we export it than we are if we utilized it here.

So it's kind of a double-edged sword. Now the opportunities to minimize that effect and ultimately utilize more ethanol, E15 being one of those, I can tell you that the E15 challenge is not a small one by any means. Right now, EPA has blessed E15 in 2007 model year and new light-duty vehicles and trucks, but at the same time, we have about 15 little items that we have to check off before you can sell E15 to anything other than a flex-fuel vehicle.

And essentially, it is everything that had to be done to allow E10 or unleaded to be sold. We are currently doing health effects testing because they simply—the EPA is unsure if there is any health effect difference between using E15 and E10. And not only do these studies cost millions of dollars, but they're no doubt taking some time.

I mean, some of these—I think we're number four on the list, and we've been working on them for well over a year. We think that ultimately, you know, maybe in the next week or two, EPA may actually say 2001 and newer vehicles are allowed. But one of those hurdles is a big one, and that is UL—while we're going through this process de-listed, if you will, anything above E14.

So while the equipment manufacturers thought they were testing equipment, and Wendy can speak to this, they were under the understanding, and even most of their product manuals for their dispensers said, E15 or 15% ethanol, it was actually up to E15 or up to 15% but did not include 15%.

TIM VANDENBERG: And my understanding is they won't certify infrastructure that's actually already in the ground.

ROBERT WHITE: No, because they can't verify it and make sense in some fashion that you simply can't—you couldn't verify what that product had been used for: jet fuel, diesel, you know, you name it. So you're looking at an extreme turnover in infrastructure. And, you know, that's one of the reasons why we're looking at these blending technologies is simply because you can still utilize the same two-tank systems but get more multiple products, and E15 would be one of them.

I think the flex-fuel vehicle, you know, going to 15%, we hope that Congress will push that even a little harder. We're seeing, you know, new stations open up every day, but one of the things we're encouraging is as they're replacing those new dispensers—and they're usually five to ten years if they're in a busy, populated environment—that they look down the road or what their opportunities are to just buy another unleaded dispenser.

TIM VANDENBERG: So, Robert, do you think that the refiners, if they're unable to push the ethanol sort of down the supply chain here in the States, if they have any excess ethanol due to their, you know, the number of rims they have to buy—are you suggesting that they're probably going to export that?

ROBERT WHITE: Well, that still won't help them meet the renewable fuel standard. So you're going to see two options. One, they're going to, you know, cry wolf and say, "We told you so; this is too much; we can't do it." And then Congress will have the option of. "No, we watched you sit on your hands for ten years," or "We agree and they'll lower the RFS." So we're in a delicate balance right now, and that's why we're trying to eliminate every possible hurdle that they can claim so that there's opportunities.

I mean these dispensers that can sell the various blends of ethanol are now the two most popular—or they are the most popular dispenser at Gilbarco and Dresser Wayne. So that's exciting news that we are seeing an evolution, but it's not something that comes with a flip of a switch.

TIM VANDENBERG: Right, well, thank you very much.

ROBERT WHITE: Thank you.

SANDRA LOI: Next question?

COORDINATOR: Our next question is from Bart Kaminski. Your line is now open.

BART KAMINSKI: Yes, thank you, very interesting conference here. Bart Kaminski, Tin Cities, middle of Tennessee. I just didn't understand today that they have some sort of issue with lining in the tanks for ethanol. They want to go to a double-lining versus a single lining. What is your comment on that, please?

ROBERT WHITE: Well, in the late '80s and then actually took into the '90s, you had a huge, excuse me, huge underground tank turnover, ultimately trying to minimize the number of fuel tank underground, and that's where you saw the gasoline blender pump come from. Any of those tanks, almost since that changeover in say, 1990–'91 are compatible for up to denatured ethanol.

The older tanks, you know, I get my nerves rattled a little bit just thinking about how old they might be, if they're older than that, and if they need to be replaced anyway, but if you have older tanks than that, it's a tank-by-tank, model year—model itself and manufacturer—we have to verify to see if you can put a higher level of ethanol in there.

As far as E10, you know, it's clean the tanks, and you're good to go. But if you're looking at, you know, going to double-lining, it's no doubt something, you know, in the middle of or at least the higher-level blend. And that's just based on, you know, whether it's compatible and UL listed for that or not. There's not much you can typically do to fix that problem.

BART KAMINSKI: So in other words, I need, any of the newer vessels or tanks should be adequate for the E85, or do they have to have a double-lining when they're made?

ROBERT WHITE: No, I mean you have, I mean, there's even fiberglass tanks out there that are compatible. I mean, if it's the right one, most—like I said, almost exclusively, anything installed in the last 20 years will be compatible, but we check every one of them and encourage everyone to do the same. But it would be rare to find one definitely in the 10 to 15 range that wasn't compatible for E85.

BART KAMINSKI: Right, okay, thank you.

ROBERT WHITE: You're welcome.

SANDRA LOI: Great, thanks, Robert. I have another question from the Web from Gene Powen. The question is for those of us who do not have mandates and are developing our ASE suite strategies based on business case. What do you see to be the compelling factors for ethanol in light of the higher incremental fuel cost? In other words, in these tough economic times, how do we justify the higher operating costs?

ROBERT WHITE: Good question. If you're comparing it to unleaded, I think you're going to see continued pressure on that current price. For example, obviously it depends on where you're located, but as the—there's a couple factors I guess. As the market swings, we now are above $90 a barrel on oil.

Some of the experts are claiming that we'll see $4 and $5 gasoline in the next couple of years. I still think that's a little hard to believe, but anything's possible for sure that the ethanol, based on where it's produced, and ultimately, it will be a local product when we get into the next-generation ethanol fuels where it might ultimately have to go 50 or 100 miles from a local production facility instead of, you know, potentially several states, depending on where you're at right now.

The other opportunity is if you're looking at—if you're in a situation where you're going to an alternative fuel, the compelling case for ethanol has always been that the vehicles do not cost any more.

And typically, if you have any type of fuel service station that the addition of E85 to that service station or to, you know, your local service station, that the prices are going to be minimal, and there's incentives to hopefully, in those cases, lower it to the price of unleaded or actually make the installation of E85 cheaper than if they went and replaced their unleaded compartment.

So I think that, you know, as I travel the country and with the other alternative fuels, I kind of sit back and look at the differences to getting into the market, if you will. And on the light-duty side, ethanol typically seems to be the value. You definitely, as the market swings, there are times when E85 with the fuel economy penalty is not going to be—you're going to have to dull your pencil a little bit.

But on the flipside, there's definitely some times when it's very economical and hopefully with the opportunities with incentives and any grants that might be available, that ultimately you—that it doesn't cost you any more to switch to the E85.

SANDRA LOI: Great, thank you. Do we have more callers on the phone lines, Brandon?

COORDINATOR: Yes, our next question is from Greg. Your line is now open.

GREG: Robert, thanks for your presentation. What is being done to standardize fuel requirements from state to state? As a multi-state job, we see differences as we market from state to state, and it'd be nice to see this standardized.

ROBERT WHITE: Well, believe it or not, that's something we all want. Obviously, we're trying to make your life easier, and we push those down from the national level whether it's with ASTM for the fuel specification, the National Conference of Weights and Measures. And unfortunately, it's just like any other state-level issue coming from the federal level. They can't really take away from it, but they can always add to it.

And we think that as the opportunities in renewable fuel standards continue to add more volume to our fuel supply, that standardization will just be one of those things that almost has to happen. Otherwise, you know, even the oil companies will start complaining.

And for the most part, it's, you know, almost them creating the problem, but I think long-term what you're going to see is more standardization even at the federal level, but it will ultimately be embraced more at the state level just simply because they will have a harder time keeping up with it I think.

SANDRA LOI: Great, we have another one on the Web, and then I'll think we'll take one more phone line, and then we'll wrap up. The one on the Web here is from Chad Williams. His question is, "How do blenders make sure they're providing the correct blend, such as 68% versus 67%?"

ROBERT WHITE: I should have had the jobber answer that last one, but the, you know, it's a percentage blend. Often times, they have to know, obviously, what the two blend stocks are using. So you have situations where jobbers, the only thing they have—or marketers, the only thing they have is E10, and they're simply diluting denatured ethanol to E85 as an example. They have to know what the two products are. And often times, as they're picking them up from the fuel terminal, it's done electronically. And they can't even mess it up.

So it's one of those opportunities where we're trying to take out the opportunities for a mistake, and you do have variance ability. So for example, if a truck driver pulls up to a fuel terminal, and he needs E85, he punches that code in, and two different supply sources are tapped into, and ultimately, it's inline blended and done—blended into the truck ready for delivery.

Now depending on the state, depending on, you know, the local level, that variance—so that 1% variance you mentioned is probably not going to be the end of the world, but they probably will start checking it and figure out where that variance came from. But the good thing is if you're—they've been doing it for a long time with E10. They've been doing it a long time with E85.

And they've been doing it for a long time with the other octane enhancers, whether it's benzene or toluene or any of the others. They have magical spots that they have to be—keep that level within variance. So it may sound a lot more difficult than it is, but obviously, they've got a lot of practice at it when they're selling millions of gallons of fuel.

SANDRA LOI: Great, Brandon, can we take one more from the phone lines please?

COORDINATOR: I'm actually showing no further questions at this time.

SANDRA LOI: Okay, great. Well, thank you so much, Robert, for being on today. And thank you for all of those for participating. We will be posting the webinar slides, the presentation slides, on the Clean Cities website. If you go on Clean Cities, under the Toolbox and under the webinar—past webinar archives page. If you would like, you can also e-mail myself or Robert. I'm sure he'd be happy to share more information and slides with you.

Again, thank you so much for participating. And if anyone is interested in future Clean Cities webinars, we do host them typically once a month on a variety of topics. I have posted up a slide with my e-mail, so feel free to e-mail me, and just ask to be added to the general Clean Cities webinar e-mail distribution list, and I'd be happy to add you.

So thank you again to Robert and to all of you for participating today. Have a great rest of your week.

COORDINATOR: That concludes today's conference. You may disconnect at this time.