Transcript Driving Factors Behind Ethanol

National Association of State Energy
Officials’ 2005 Summer Fuels
Outlook Conference
The National Press Club
Washington, DC
April 7, 2005
Douglas A. Durante
Executive Director
Clean Fuels Development Coalition
www.cleanfuelsdc.org
Clean Fuels Development Coalition
Constituency
Alternative
Fuel Providers
Automobile
Manufacturers
Clean Fuel
Technology
Developers
and the . . .
Federal and State
Governments, Public and
Private Organizations that
Support Their Advancement
U.S. Ethanol Industry -- Evolution
•
U.S. ethanol industry nearly legislated out of business as recently as 1997
by elimination of tax exemption.
•
Today, ethanol industry is in the midst of an unprecedented expansion.
•
Billions of dollars in capital investment.
•
Hundreds of thousands of jobs.
•
Unrivaled political support.
•
Can contribute to energy, agriculture, environment, and economic
development.
How did this happen?
Ethanol Identified with a Range of
Public Policy Initiatives Over 25 years
ENERGY
•
Energy Security Act of 1978
•
Alternative Motor Fuels Act of 1988
•
Energy Policy Act of 1992
•
Energy Policy Act of 2004/2005
ENVIRONMENT
•
Clean Air Act of 1990
AGRICULTURE
•
Farm Bill of 2002
•
Ag Appropriations – Commodity Assistance Bills
TRANSPORTATION
•
Highway Bill of 1978
TAXES AND ECONOMIC DEVELOPMENT
•
Energy Tax Act of 1980
•
Corporate Tax/Jobs Bill of 2004
U.S. Fuel Ethanol Production 1979-2006
4.5
4.0
Billions of Gallons
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
'79
'80
'81
'82
'83
'84
'85
'86
'87
'88
'89
'90
'91
'92
'93
'94
'95
'96
'97
Ethanol production estimates based on year-to-date production from U.S. EIA.
2005-2006 capacity estimates courtesy American Coalition for Ethanol.
'98
'99
'00
01
02
03
04
05/E 06/E
U.S. Ethanol Plants
Current and projected ethanol production in U.S.
82 operating facilities – 3.45 BGPY/2004
600+ MGPY expansion/under construction, possibly 4+ BGPY/2006
Source: Clean Fuels Development Coalition/American Coalition for Ethanol
Ethanol Share of the Pie is Growing
Ethanol
Gasoline
4
135
Billions of Gallons per Year
Factors Driving Ethanol Development
Continued Need for Clean Fuels:
• Federal RFG – even without an oxygen
requirement.
• Carbon monoxide (CO) programs
- Both federal and state requirements
• CO2/Greenhouse gases
- E-10, E-85 particularly effective
Factors (Continued)
Economic Considerations:
• Extension of the tax exemption through
2010
• USDA grants, incentives, loan guarantees
• State incentives
• Industry efficiencies = greater yield
• Low cost of money = high ROI
Rural America Taking Charge!
Plants Going up in Record Time with Larger Capacities and
Investor/Owner Financing
30
18
17
Up 10 10M
14
10-20M
20-50 M
Plant Capacity
Source: Clean Fuels Development Coalition
50M+
More Growth Likely Through a
Renewable Fuels Standard
• Would eliminate oxygen in federal RFG, helping to get more MTBE
out of the system.
• Would establish an annual requirement for refiners to have a modest
percentage of their fuels renewably derived.
• Establishes a flexible credits and trading program to meet the
requirement.
• Incentivizes biomass ethanol by giving it greater value in the trading
program.
• Incentivizes biodiesel, treating it equal to ethanol.
• Newest version of this legislation (S.650) would create demand for
700 million gallons per year for the next 7 years!
Lessons Learned From 20+ Years of
Incentives
• Tax Incentives lifeblood of industry
Successful in making ethanol competitive
Critical element of project financing
BUT………………….
• Economics alone insufficient market driver -- ethanol
price swings too volatile
• Most effective incentives tied to market assurance
Most aggressive growth spurt for ethanol came from CAA as
industry doubled in 1990s --10% annual growth -- doubled again
in 4 years
4
3.5
Billions of Gallons
3
2.5
2
1.5
1
0.5
0
'90
'91
'92
'93
'94
'95
'96
'97
'98
'99
'00
01
02
03
04
Year
Most recent explosion in development due to assumption of either
RFS or capture of MTBE market. Renewal of tax exemption never
had the impact of a market driver like this.
Ethanol Demand from Renewable
Fuels Standard in S.650
8.5
8
7.5
7
6.5
Billions of Gallons/Year
6
5.5
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2006
2007
2008
2009
Year
Source: Clean Fuels Development Coalition
2010
2011
2012
Political Support for
Renewable Fuel Standard
•
•
•
•
•
•
•
•
•
•
Ethanol producers
Corn growers/agriculture
2/3 U.S. Governors
Air quality officials
Water quality officials
Majority of U.S. Senate
Bush Administration (Clinton as well)
Highway interests/road builders
American Petroleum Institute
State petroleum councils
Range in Ethanol Demand From
Renewable Fuel Standard Legislation
9
8
Billions of Gallons
7
New RFS (S.650) corrects
demand/supply imbalance
6
5
4
Old RFS
(HR.4)
3
2
Under old RFS, production
exceeds demand
1
0
2006
2007
2008
2009
2010
Projected Demand Under Old RFS
Current/Projected Ethanol Production Under Old RFS
Projected Demand Under New RFS
Source: Clean Fuels Development Coalition
2011
2012
Legislative Outlook
• Energy remains a top priority for the 109th
Congress.
• Ethanol continues to be an area of consensus.
• Renewable fuels standard likely to be included.
• Biomass energy for power, fuels, and products
must be part of the mix.
Thank you!
For more information log on to
www.cleanfuelsdc.org
www.ethanolacrossamerica.net