Ethanol Summit 2009
Plenary Session on “Ethanol: Global vs. Domestic Market”
l
Bob Dinneen
President and CEO
Renewable Fuels Association
June 3, 2009

As prepared for delivery:

How many of you are familiar with the Indianapolis 500? It’s a little car race we have in the States.
300,000 people attend, and millions more watch on television in the U.S. and around the globe.
How many people, like me, watched the race 10 days ago?

How many people think Sao Paulo native Helio Castroneves won that race?

Wrong! Well, he might have finished first. But the real winner of that historic race was Ethanol! Ethanol
is in its 3rd year as the official fuel of America’s biggest auto race.

After all, there is no more demanding test for a fuel than racing at the Indy 500. The racecars reach speeds averaging 220 miles per hour. There is zero tolerance for engine failure. Because of its high-octane content, ethanol allows cars to attain and sustain great speeds. Because ethanol burns at a higher compression ratio, the engines resist deterioration. Because it has more energy content than methanol, cars can go further on a gallon of fuel, tanks can be designed smaller, and, because unlike methanol, ethanol burns with a flame, the racing is safer for drivers. Ethanol was the real winner of that race, and because most everyone in this room is an advocate for the increased production and use of fuel ethanol, and, indeed, because some in this room actually sponsored the fuel for this year’s Indy, you all can take some measure of satisfaction in Helio’s victory.

Congratulations! The Global Challenge of our Addiction to Oil But here’s the thing … there were 33 cars at Indy this year. There will soon be 3 billion cars on the road across the globe. While we don’t want all those cars running at 220 mph (although my son apparently thinks he should be allowed), we do want them all running on renewable fuels like ethanol.

Three billion cars will drive oil consumption from the 86 million barrels used today, to about 120 million
barrels. My friends, Mother Earth doesn’t have that much oil!

We can’t drill our way out of this mess. And we couldn’t afford it even if we could. Consumption is
continuing to grow. Known supplies are running out. New reserves are harder to find. And developing
and drilling those reserves is becoming much more costly – environmentally and economically. So we can expect more roller-coaster rides on prices – which will shake up an already unstable global economy. That happened last year. And that will keep happening, year after year, until the world cures itself of its addiction to petroleum.

To put it bluntly, petroleum is the problem – and ethanol is part of the solution -- U.S. ethanol; Brazilian ethanol; European ethanol; the world’s ethanol. We will need it all!

Building a Global Biofuels Industry Requires Government Assistance - But here’s the rub – in a world economy dominated by oil, no country has been able to get an ethanol industry going without significant government assistance. Renewable fuels have only taken hold in countries such as the U.S. and Brazil that have created and sustained programs to encourage its production. These incentives have included tax advantages, tariffs, export enhancement, debt forgiveness, infrastructure development and outright subsidies. It is important that countries be allowed to create similar programs, and grow their own biofuels industries, using whatever indigenous raw materials are available to them. No country should be hampered in developing its own industry by having to subsidize the ethanol production from somewhere else in the world. Now I know this is the one area where we in the U.S. have a bit of a different view than those of you in the Brazilian industry, and I don’t want to dwell on this one difference, particularly when we have so much that we need to be working on together. But I want to make sure you appreciate our perspective on
this issue.

The U.S. ethanol program is founded on a market-based tax incentive for refiners that blend ethanol,
whether that ethanol is imported or produced at home. Without the secondary tariff to offset that tax
incentive, U.S. taxpayers would be subsidizing ethanol produced elsewhere in the world that may have
been produced as a consequence of that country’s incentive program. The secondary tariff is only
intended to offset that tax benefit.

Now, an issue has arisen because when the U.S. Congress last restructured the tax incentive and reduced it slightly, they failed to similarly address the tariff. Your erstwhile president Marcos Jank and his very capable lobbyist in Washington, Joel Velasco, both of whom I consider friends, have made a compelling case to Members of Congress to equalize the tax incentive to the tariff again, and I have stated publically on many occasions that this would be a logical step.

But I can say with some measure of certainty that as long as there is a tax incentive available to refiners for their ethanol use, there will be an offsetting tariff. Our efforts in Congress have been to build the market for ethanol in the U.S., such that all can benefit from a growing demand base. Brazilian ethanol will benefit from the 36 billion gallon requirement in the United States. Indeed, over the past several years, almost a half a billion gallons of ethanol has been imported to the U.S., paying the tariff, receiving the tax incentive, and competing quite effectively. The tariff has most certainly not been a barrier to entry.

The real challenge, for both of us, is how to build demand, not how to cannibalize each others market.
Let’s work together on that. Let’s work together to create new markets in the U.S., in Latin America, in
Europe and Africa and Asia and everywhere across the globe. That’s the challenge we face as a global biofuels industry. And that’s the challenge we face as inhabitants of a planet that is suffering from unchecked petroleum use the world over. Increasing Need for Ethanol to Fight Global Climate Change
[As President Lula da Silva, former President Clinton, and other distinguished speakers have explained to us], there is a growing, global consensus that climate change is the great challenge of our times.
Temperatures are rising. Polar ice caps are melting. The weather is becoming more volatile and violent.

And the challenge of global warming is inescapable. We know that the major cause of global warming is greenhouse gas emissions. We know that the major greenhouse gas is carbon dioxide. And we know that the major source of carbon dioxide is fossil fuel combustion – which mostly means running cars, trucks and other vehicles with petroleum products, such as gasoline. We need to reduce greenhouse emissions 80 percent by the year 2050 – and that means drastically reducing the use of petroleum products. If we don’t break the petroleum habit, global climate change will be irreversible, with a devastating impact on our planet and its people.

As I noted earlier, according to the economic forecasting firm Global Insight, we will soon have some 3
billion cars throughout the world. To preserve our planet, those cars will need to be fueled by biofuels
such as ethanol. Researchers from the University of Nebraska have reported, compared to gasoline,
today’s ethanol reduces direct greenhouse gas emissions between 48 percent to 59 percent. And while we may have some issues with EPA’s recent assessment of ethanol’s carbon footprint, even that Agency has acknowledged that ethanol produced from grain in the U.S. using natural gas to run the plant will have direct carbon benefits of more than 60%!

The Global Ethanol Industry: Meeting the Challenge Throughout the world, our industry produced a record 17.3 billion gallons of ethanol last year. This year, our industry is poised to produce 20.4 billion gallons of ethanol – 80 billion litres – replacing the need for 1.9 million barrels per day of crude oil.
Replacing crude oil is critically important for the global economy, the global environment, and the global energy situation.

Don’t just take my word for it – listen to the experts. The IEA has stated biofuels are the only non-fossil fuels helping to reduce oil demand. Merrill Lynch has reported biofuels are keeping world oil prices 15 percent lower than they otherwise would be. And another recent study concluded ethanol produced from biomass alone could supply 65 percent of the world’s energy consumption, with sub-Saharan Africa, the Caribbean, and Latin America accounting for about half of this potential.
That’s something we should be working on – together!

The U.S. Ethanol Industry: Growth and Accomplishments - I want to tell you about what the ethanol industry is achieving in the U.S. because it shows what we all can accomplish globally. In the U.S., domestic ethanol production has increased from only 175 million gallons in 1980 to a record
9 billion gallons last year. We have the capacity to produce more than 12 billion gallons today and we
plan to keep growing to meet increased demand. Rumors of impending doom in the U.S. ethanol are
thankfully ill-advised. The industry may be seeing some difficulty today because of the worldwide
recession, but we are poised to bounce back, and we will, when the economy rebounds.

Today, nearly 80 percent of all the gasoline in the U.S. is blended with ethanol. That’s good, but not good enough. We are bumping up against the “blend wall” – the requirement that every gallon of gasoline be blended with ethanol at a 90-to10 ratio. We are working to increase that limit to allow gasoline blenders, refiners and consumers to take full advantage of the benefits of ethanol blending.
You may know that we’re meeting significant resistance to increasing that blend level. Here in Brazil,
you’ve blended up to 25% ethanol for years. Do your cars run? Do your chainsaws cut? Do your boats
float? With all the fuss in the U.S. you might think otherwise. You can help us raise the blend limit in
the U.S. It would dramatically increase demand for everyone. That’s something we should be working
on together – let’s do it!

In the midst of an economic downturn in our own country and throughout the world, the U.S. ethanol
industry continued to grow, opening 31 new plants and adding an additional 240,000 jobs.
Many of these plants – and most of these jobs – are in rural areas or small factory towns. Many of these are places where farmers are facing hard times; where the factories are closing down; and where young people have had to move out of town in order to get good jobs.

Now, in these places where hope is the rarest commodity of all, the ethanol industry is offering new
opportunities for farmers to find markets for their crops, for workers to find good-paying jobs, and for
everyone to get in on the ground floor of a growing industry. In fact, more than half of all ethanol plants are owned by farmers’ cooperatives – ordinary people making the most of an extraordinary opportunity. Just a little more than a month ago, in a farming, factory and mining town called Fort Dodge, Iowa, there was a ceremony at the local high school honoring 109 students for their achievements in math and science. These are the young people who might be most likely to leave town to attend college and get good jobs far away from home.

But, this time, the speaker was the manager of the Biofuels Testing Laboratory at Iowa Central
Community College. He talked about how the ethanol industry offers good jobs for professionals and
technicians with training in biology, chemistry, mathematics, engineering, accounting and business
management -- jobs where you don’t have to leave home to get ahead. That is true all over the world. The ethanol industry isn’t just about creating new sources of energy. The ethanol industry is about creating new opportunities in communities, countries and continents that most industries have ignored; places where hardworking people are having hard times; places where we provide what people are crying our for – not a handout but a hand up. While others just talk, our industry creates green jobs producing clean energy.

That is why, as part of its response to the environmental and economic crises, the Obama Administration is assisting the biofuels industry to maintain our existing factories and open new ones. That is what we are fighting for all around the world.

Answering Attacks - Because we’re doing such a great job meeting urgent needs for energy, the economy, and the environment, our industry is under attack as never before. We should take these attacks as a badge of honor – and answer them with gusto. The most common attacks are shameless, senseless, and fact-free: First, we’re told that using ethanol and other grains for ethanol production in the U.S. and throughout the world is causing the clearing of rain forests and other native lands which, in turn, contributes to climate change.

Second, we’re told that producing ethanol from grains decreases food supplies and increases food prices. Now the fact is: Most deforestation is caused by logging, cattle ranching, and subsistence farming. These are local decisions that were made far away from the Midwestern United States, are they were not caused by a growing biofuels market, either here or in the U.S. And here are some more facts: Throughout the world, agricultural productivity is increasing. Enormous
amounts of arable land are unused and untilled. And the chances are negligible that significant areas of rain forests and other native lands will be exploited as a result of the expansion of the ethanol industry.

As recently as 2007, the total amount of cropland dedicated to American ethanol production was only 0.6 percent of total cropland worldwide. Even if the U.S. were to produce 15 billion gallons of grain ethanol by 2015, as required by energy legislation, this would still require less than 1 percent of total world cropland.

Moreover, there are vast amounts of unused arable land available for agriculture throughout the world. As the Food and Agriculture Organization of the United Nations has reported, there are, at present, 1.5 billion hectares of land used for arable and permanent crops. That is about 11 percent of the world’s surface area. Meanwhile, there are a further 2.8 billion hectares of unused land that are suitable for agriculture. That is almost twice as much land as is currently being farmed.
So the world need not choose between environmentally-friendly fuels and environmentally-essential rain forests. Nor does the world need to choose between food and fuel.

Throughout the world, agriculture is increasing its productivity to meet increasing demand. Farmers are producing many more crops from their farmlands. For instance, in order to produce the world corn crop grown and harvested in 2007, it would have taken twice as much land in 1977, just thirty years ago. Nor should corn ethanol production be thought of as separate from – or at odds with – agriculture and food production.

In 2007, U.S. ethanol producers used approximately 3.2 billion bushels of corn to produce nearly 27
million tons of high-quality livestock feed. In addition to ethanol, they produced 23 million tons of
distillers grains, 3 million metric tons of corn gluten feed, and 600,000 metric tons of corn gluten meal.
So, when you hear these and other attacks, be sure to answer them with the facts. The facts are our
friends. Ignorance is our enemy. Do not be lulled into a false sense of complacency, thinking this food vs. fuel debate is just corn ethanol’s fight. If we lose it, the powers behind petroleum status quo will turn their attention to other countries and other crops. After all, following their flawed logic, in a hungry world an acre of sugar cane used to produce ethanol in Brazil could be denying someone of a food crop also. This fight is ours. And we will win it – once and for all – if we work together. Let’s do it!

The Next Generation of Ethanol - I’ve said a lot about corn ethanol. But, in the U.S and throughout the world, the next generation of ethanol is becoming a reality. For almost 25 years, many of us have said that the development of cellulosic and other next generatio ethanol technologies has been “just around the corner.” Well, now, we’re turning the corner. In the U.S., ethanol producers are rapidly developing and commercializing technologies that use new feedstocks in addition to corn and other grains. These feedstocks include woodchips, corncobs, native grasses, and plain old garbage.

In fact, the town of Hoover, just outside of Birmingham, Alabama, is fueling its police cars with ethanol
made from the city’s own garbage by a startup company called Gulfcoast Energy. The ethanol industry is creating new opportunities in an area where the Rev. Martin Luther King, Jr., led historic civil rights
struggles, where the steel industry is in decline, and where working people – black and white – are
hungry for hope. In Nebraska, Abengoa – which has plants in Brazil and in Spain, as well as in the U.S. – is producing ethanol from corn stalks, wheat straw and switchgrass.

New technologies are also being developed to make the production of ethanol more environmentally and economically sound. In recent years, electricity use is down by 20 percent, overall energy use is down by 15 percent, and water use is down by an astounding 26 percent. But we must not think in terms of new ethanol and old ethanol. Just as with any new generation, the new
generation of ethanol needs an older generation before it. Grain ethanol gives rise to the companies, the infrastructure, the trained and skilled workforce, the markets, the vehicles and even the public policies that are so essential for cellulosic ethanol. As President Obama just declared, the “transition to [the next generation] will be successful only if the first-generation biofuels industry remains viable in the near term.”

Brazil has enormous cellulosic resources (not in the Amazon!). Europe has cellulose, Asia, Africa, there
isn’t a corner of the globe without the capacity to produce renewable fuels from cellulose. Let’s make it
happen. Let’s work together to accelerate the commercialization of the next generation of biofuels.

Looking Beyond Our Differences to Work Together - Make no mistake: Our industry really is enjoying the greatest opportunities of our lifetimes. And we’re in the fight of our lives. Never before has there been so great a need for clean-burning alternatives to petroleum products. Never before has the worldwide ethanol industry been so strongly positioned to make the most of our opportunities, for the benefit of our nations’ economies, the global environment, and our children’s future.

And never before have we needed to challenge so many misstatements, so many ill-conceived policy
proposals, and so many outright lies. That is why I worked with colleagues in Canada, Europe, Argentina and South Africa to form a new organization, the Global Renewable Fuels Alliance, today representing over 60 percent of the world’s renewable fuels producers from 30 countries. Brazil needs to be a part of that effort too. The challenges we face are real and they are shared by all of us. I invite you to join us in the worldwide alliance to fight our common enemy – ignorance and complacency, and pave a new way for renewable fuels across the globe.

Conclusion - We in the worldwide industry have a great story to tell, a compelling case to make, new opportunities to seize, and new markets to win over. Don’t let anybody tell you that our differences are so great that we cannot stand together. Our adversary is OPEC, and our natural allies are each other. Don’t let anybody tell you that the ethanol industry is somehow responsible for despoiling rural areas around the world. We are creating new hope, new markets for farm products, new jobs for willing workers and new opportunities for entrepreneurship in communities where people need new pathways to a better life. Don’t let anybody tell you that the world must choose between food and fuel. Our industry is helping humanity to achieve its historic dream of an affordable, and sustainable, abundance of all the necessities of life. If we stick together, do our work well, and stay focused on the future, our potential is unlimited. Thank you all for listening, and for the honor of being one of you.