Summary of Cellulosic Biofuels & Biorefineries Summit Day 1

by Joanne Ivancic (Advanced Biofuesl USA) The Renewable Fuel Association's Bob Dinneen started the Cellulosic Biofuels & Biorefineries Summit with a call to the biofuels community--ethanol, cellulosic ethanol, advanced biofuels, renewable and biodiesel--to realize their common bonds and interests. Particularly, he emphasized that controversies such as the current use of indirect land use change theories in greenhouse gas emissions calculations by the EPA and California Air Resources Board are not directed only at corn or other grain ethanols, but represent concerns about any use of land for fuel production. Later, Wes Bolsen of Coscata echoed that plea for unity during discussions of support for changes to the loan guarantee programs.

Dallas Tonsager, Under Secretary, Rural Development for USDA reviewed USDA biofuels-rleated programs. In response to a number of questions from attendees frustrated with USDA program requirements, he didn't actually acknowledge that there were any weaknesses or flaws in the regulations, but emphasized that he has directed his staff to be "problem solvers" whatever the Rules are.

Later, a panel on "Creating a Policy Framework that Will Enable Biofuels and Biorefinery Commercialization" tackled the issues raised. Coskata's Wes Bolsen bluntly summarized the situation pointing out that we do have technologies that do work; what we lack is the efficient, effective implementation of the loan guarantees called for in the 2005 Energy Bill; their importance being that banks are not willing to take risk on construction of first-of-a-kind technologies (contrary to the implications of moderator Keith Martin of Chadbourne & Parks that cellulosic ethanol was produced in Brazil--NO cellulosic biofuels refineries exist anywhere in the world). He also noted that without production, production tax credits that expire in 2012 are a meaningless incentive for investors.

Constructive changes suggested included giving Investor Tax Credit parity to biofuels. Now ITCs only apply to wind, solar, etc., renewable energy production.

On the bright side, Matt Carr of BIO noted, if volumes of cellulosic biofuels are produced, the RFS2 requires that they be used in blending, so whatever is produced has a market; but Candace Wheeler of General Motors suggested that EPA could do better than waiving all requirements up to actual production level. EPA, she explained, should be aggressive in setting required volumes for blending, pushing more production or making the obligated parties feel the pressure to support advanced biofuel development. An attendee lamented that EPA waives the requirements at all, taking the intended trade off (either pay for RINS or pay non-compliance penalties or invest that money in advanced biofuels production) off the table.

Later, Jeff Passmore of Iogen Corporation reflected concerns about RFS2, suggesting that the credit be retained, even if the volume requirements are waived. He said this would create a sense of urgency in "the strategics" (Big Oil, etc.) His comments were part of a perspective on evolved investment philosophy that recognizes that venture capitalists invest in project of $25 Million max; not on undifferentiated molecules with long returns; and that, as was mentioned over and over at the conference, funding was not coming from conventional lenders. He believes that government's appropriate role is to create the market; then private financing will have more confidence in an assured cash flow and return on investment. One way government could do this would be to assure payment of $3-4 per gallon of fuel produced. If the consumer market does not meet that price level on its own, the government pays the difference. If the fuel is not produced, the government pays nothing.

A number of vague allusions were made over the course of the day to increased interest from potential investors, those with some risk available in portfolio management. Even representatives of hedge funds were making inquiries. Suggestions were made that there might be interest from investors depending on combinations of "pre-revenue" companies (as Lee Edwards of Virent describes them) and companies with cash flow.

Mark Niederschulte, COO of INEOS Bio suggested that investors need to look at this investment as the price of technology plus the cost of building the first plant--with the expectation that many more plants will follow.

Arnie Klann, CEO of Bluefire Renewables summarized the value of getting home-grown biofuels to market--70% of the US deficit is related to importation of petroleum. Not only does the US have energy security, rural economic development, non-exportable jobs and military flexibility to gain from development of biofuels, but the displacement of imported petroleum will also put a significant dent in the US deficit.

Jim Lane, editor and publisher of Biofuels Digest, calculated that price parity (gasoline and drop-in biofuels) was only 4-5 years away. Panelists, all "moving dirt" or close to it, agreed. When that happens, all cars will be able to be "green" cars and we'll see that dent in the deficit start to grow.