Agriculture Commissioner Bob Odom is pushing for an ethanol fuel mandate in Louisiana, and the oil and gas industry is pushing back.
A battle for a new energy standard in Louisiana is heating up in the Capitol, where oil and gas interests are lobbying Gov. Kathleen Blanco to veto an ethanol bill they say will drive up the cost of gasoline at the pump. The heavyweight showdown pits two of the most powerful political players in the state ' Agriculture Commissioner Bob Odom and the Louisiana Mid-Continent Oil and Gas Association ' against each other in a showdown that could have a dramatic outcome on Louisiana's future fuel policy and costs.
If Gov. Blanco signs House Bill 685 into law, Louisiana will join the ranks of states that require biofuels to be combined with gasoline and diesel at pumps statewide.
Odom, who crafted the bill with the Farm Bureau and American Sugar Cane League, supports a mandate requiring oil refiners to blend Louisiana-produced ethanol or biodiesel into fuel sold in the state. The oil and gas industry prefers an incentive ' either tax credits or subsidies ' or allowing consumers to pick their own choice for fuel purchases. The controversial bill has survived in the Legislature so far with the mandate intact, over the vocal objections of oil and gas lobbyists.
Blanco initially was a staunch supporter of the ethanol mandate, stating twice that she would sign the bill into law. Her position wavered last week, and her office is now calling for a closer examination of the bill's effect on the price of gasoline at the pump.
Odom, Louisiana 's agricultural commissioner for 26 consecutive years, out-maneuvered big oil by a vote of 32 to 4 (with three members absent) in the Senate and 53 to 33 in the House (18 members were absent for the final vote), reaffirming his political clout and enormous base of farming constituents.
"I'm not against big oil," Odom says. "I think ethanol is the best thing for Louisiana. I just want to do what's good for the state of Louisiana agriculture. I think the farmer needs to share in some of that [ethanol] money. If the farmer could share, he could stay in business. If not, we're going to have a hard time keeping farmers in business. And we've got to provide food in this country. If we depend on other countries to provide food, we're going to be a goner."
House Bill 685 ' known as "Odom's bill" around The Capitol ' mandates that when Louisiana biofuel production reaches 50 million gallons of ethanol a year or 10 million gallons of biodiesel, a minimum of 2 percent must be blended with gasoline or diesel. Odom says the state should reach that threshold within the next two years.
At that time, 20 percent of the state's gas supply, about 500 million gallons, would be a blended ethanol variety ' and theoretically available at pumps across the state.
Jeff Copesky, vice-president of Louisiana Mid-Continent Oil and Gas Association, says it's premature for the state to issue any ethanol mandate. "Right now there is zero ethanol production in the state. We have to meet these targets, and we have to find the ethanol someplace."
Copesky says refiners will be hard-pressed to find a reliable ethanol producer. Oil companies also will have the burden of transporting ethanol to their refineries, which must be retrofitted to accommodate fuel blending. Gas stations will need a new underground tank for the blended fuel and a new pump. The bottom line, Copesky says, and the argument that compelled 33 members of the House to vote against Odom's bill is that gas blended with ethanol currently costs more than pure gasoline.
"There's no infrastructure, and the market isn't here," Copesky says. "Ultimately, you and I are going to have to pay for that. That's the nature of a mandate. It's going to be in the cost of every gallon of gasoline." Copesky argues that the government mandate goes directly against letting the market set the value of ethanol. "How do you make people buy something? You make it cheaper. It's not cheaper. Why would you force it on Louisiana consumers?" he asks, noticeably irritated.
Odom shrugs off Copesky's charges. "The major oil companies say it's going to increase price. That's not true. They're looking at transportation costs to bring ethanol from the Midwest. Growing it and producing it here, you don't have transportation costs. The mandate is going to make sure somebody is going to build the plants, and that's what I'm interested in. The oil companies want to be the producers and owners and everything else and make all the money. I'd like to see somebody else involved."
The standoff between oil and agriculture is indicative of a market in transition, says David Dismukes, associate director of Energy Studies at LSU. "Most of the agriculture people don't understand energy production, and it's the same for the energy production people who don't understand the ag business. They're on opposite sides of the spectrum and are having a hard time finding the middle."
The LSU professor has run the numbers on the difference between wholesale costs of gasoline and ethanol-blended gasoline and doesn't see much difference. According to the Chicago Board of Trade, where commodities futures are traded, pure ethanol for July delivery closed on June 5 at $3.39 a gallon. The New York Mercantile exchange, which trades energy and metals, listed the wholesale price of gas for July delivery at $2.16. If the 2 percent mandate for blended gasoline were currently in effect in Louisiana, the wholesale price of ethanol-blended gas would be $2.18 a gallon.
Dismukes points out that big energy companies like British Petroleum, Shell and ConocoPhillips are already investing in alternative fuels, and international corporations such as Baton Rouge-based The Shaw Group are looking into ethanol and biodiesel plants. "We're still going to have fossil fuels until we have some type of technological innovation that moves us into some other type of energy and away from what we've been doing in terms of liquid fuels. The larger companies see the writing on the wall in terms of change, not only in supply, but availabilities."
Which makes the current political fight puzzling to Dismukes. " I can't get a real good answer why they are so adamant about [trying to kill the bill]," says Dismukes. "In fact, a lot of the pressures you see have to do with federal changes in fuel standards. If you're doing it already, why are you balking at it?"
Blanco's office says it wants to look more closely at every aspect of the bill. "We want to know before we finalize anything [that] we know everything there is," Blanco's Chief of Staff Jimmy Clarke told The Advocate.
Odom's duel with the state's oil and gas interests is not unlike what's happening throughout the rest of the country. Louisiana's move to become an ethanol-friendly state plays out against a national backdrop of energy debate so politically charged that politicians as ideologically different as President George Bush and Democratic Sen. Hillary Clinton have both called for boosting ethanol production as an alternative to Middle Eastern oil.
"My impression is that almost everybody who speaks on the subject has an agenda," says Jamie Kitman, who has been following the national ethanol debate for nine years as the New York bureau chief for Automobile magazine. "There's a striking lack of clarity," he says.
According to Kitman, ethanol is a cleaner fuel than gasoline and has inexhaustible potential. "And the other good news is that it can be made from things besides corn. It can be made from almost anything. Switch grass, sugar cane, solid waste â?¦ There's a lot of enthusiasm, not only among crackpots and hippies, but scientists and environmentalists and capitalists ' Bill Gates is investing heavily in ethanol ' that there will be much cheaper and easier ways to get ethanol, and it will be a big part of the future fuel picture."
But the transition from a fossil fuel-based infrastructure to an alcohol based-one has environmental and engineering drawbacks.
"The problems with ethanol, aside from the fact that the oil industries don't profit from it ' and in fact it points to the elimination of the oil industry or a great reduction in its scope ' is that the entire fuel industry in the country is porous," says Kitman. "Ethanol encapsulates water and carries it along with the gasoline. The problem is a chronically leaky infrastructure of underground tanks and pipes that the industry uses. It leaks into the ground water."
And that was a pipeline to numerous lawsuits resulting from toxins associated with leaded gasoline and most recently the chemical compound MTBE. The Energy Policy Act of 2005, which includes numerous incentives for alternative fuels such as ethanol, passed after a five-year battle when the provision exempting MTBE manufacturers from liability was removed from the bill. "When you hear all this talk about tort reform, that's a huge part of it," says Kitman. "The oil industry and the chemical industry have huge liabilities awaiting them, and they've known it for a long time, that they've been spilling shit into the water. You can be damn sure that they want to be exempted from this liability."
The 1973 oil crisis led to the creation of tax incentives for ethanol blended with gas. In 1988, Congress passed the Alternative Motor Fuels Act, which offered credits to automakers that produced cars with the ability to run on ethanol-blended fuels. But there continues to be little national infrastructure in place for delivering ethanol-blended gasoline to service station pumps.
Technical issues about running cars on ethanol are minor, Kitman says. Major automotive manufacturers General Motors and Ford have manufactured more than 2 million flex-fuel cars to date, which can run on ethanol-blended gasoline. The two usual blends are called E10 ' 10 percent ethanol and 90 percent gasoline ' and E85, which is 85 percent ethanol and 15 percent gas.
Kitman says adapting cars not built specifically for flex fuel shouldn't be a problem either. "You'd want to make some minor adjustments to it and you might want to change some of the fuel lines that can be damaged by a higher percentage of ethanol, but those things are minor," he notes. "It would not be hard to switch the entire fleet over as they have done in Brazil. Cars we would recognize are running around Brazil on pure ethanol."
Odom's bill is designed to jump-start the ethanol business from the fields to gas tanks in Louisiana. "My goal is very simple," Odom says. "In order for a farmer to stay in business today, he's got to produce fuel, fiber and food. He needs to be able to sell his commodity and share in the production of ethanol. I'm not saying he needs to own part of the business; he needs to be able to make a profit on his commodity."
Corn is the agricultural fuel stock of choice in the Midwest, where most of the ethanol and biodiesel in the United States originates. States like Iowa, Illinois and Nebraska have established an ethanol infrastructure, building ethanol plants and supporting gas stations that sell ethanol-blended fuel without a government mandate. If the governor signs the bill, Louisiana joins four states ' Minnesota, Montana, Missouri and Washington ' that have ethanol mandates.
The federal energy bill of 2005 requires the United States to use 7.5 billion gallons of renewable fuels by 2012. To help achieve that goal, it includes $1.3 billion dollars in tax breaks for alternative motor vehicles and fuels, and companies like agribusiness titan Archer Daniels Midland receive federal agricultural subsidies to grow corn. There is also a smorgasbord of federal incentives to build ethanol and biodiesel plants and a federal tax break that pays 52 cents a gallon for every gallon of ethanol made. Those incentives make the price of ethanol-blended gas in Midwestern states comparable to gasoline.
In 2004, Louisiana grew 55.3 million bushels of corn, according to Mike Salassi, professor of agricultural economics at LSU. "You can get 2.7 gallons of ethanol out of a bushel of corn," notes Salassi. "That's 149 million gallons of ethanol if you use every bit of corn grown in Louisiana." If Louisiana builds ethanol plants, that amount of corn alone is enough to trigger Odom's blending mandate. "We just haven't had the market until now," Odom says.
Corn isn't the only agricultural crop associated with the distillation of ethanol; the future of fuel may be tied to sugar production.
Sugar farmers in south Louisiana have struggled mightily over the past three years. "We haven't seen these times in a long time," says American Sugar Cane League General Manager Jim Simon. "In the last two years there's been upwards of 30 farmers going out of business in the sugar belt in Louisiana." Simon has been watching the ethanol bill with interest but doesn't view it as an immediate fix for the sugar business. "We think it has potential, but it's a ways down the road for us."
In countries like Brazil, ethanol is made from sugar cane molasses the same way rum is distilled. Ethanol plants are essentially giant stills, and cars can actually run on any pure alcohol, whether it's denatured alcohol or Bacardi 151, according to Kitman. Currently, Simon says it isn't economical to use sugar as a feedstock to make ethanol. Sugar currently sells for about 20-25 cents a pound in the United States, as opposed to 10 cents a pound outside the country, where labor, land, fertilizer and fuel costs are cheaper.
The current federal farm bill, which extends through September 2007, includes import taxes that keep domestic sugar prices high. Tariffs of 54 cents a gallon on cheap ethanol from Brazil protect Midwestern corn farmers. Brazil, which has been cultivating sugar longer than Louisiana, is also ahead in sugar-to-fuel research, with 30 years invested in biofuels technology. The South American country hopes to become energy self-sufficient this year, balancing its domestic petroleum production with an increase in ethanol produced with sugar cane.
In Brazil, one of sugar's advantages over corn is that bagasse, sugar cane waste, is used as the fuel to fire the boilers, making sugar-to-ethanol very energy efficient. Odom is looking at the Brazilian model and is confident that the Lacassine sugar mill built by the state's agriculture department will start producing ethanol within two years. "We'll be the first in the nation using sugar [to make ethanol]," he says.
Turning bagasse directly into ethanol is the gold standard for the sugar industry, according to Simon. Bagasse is composed of cellulose, the common material in plant cell walls. In the agriculture and energy industries, any plant material left after harvest ' corn stalks, cane stalks, rice straw, wood waste ' is referred to as biomass. Biomass-produced ethanol, a fuel source highlighted in the federal energy bill, could revolutionize the industry.
It's about to happen in Jennings. Rudy Fogleman, general manager for BCI Louisiana, a subsidiary of private company Celunol, says BCI Louisiana has been researching and developing ways to convert biomass into ethanol. "We actually have an operating pilot plant, and we're in the early stages of developing a commercial biomass plant on the scale of 1-2 million gallons of ethanol a year," says Fogleman. The company plans to break ground at the end of the summer, and the plant should be completed in about eight months.
It's one of multiple biofuel projects projected across the state. A biodiesel plant has already started production in Pollock, north of Alexandria. BCI in Mermantau hopes to manufacture ethanol in a year's time. The Shaw Group has announced two projects, a biodiesel plant in Port Allen and an ethanol plant in Donaldsonville. And Odom cites multiple possible investors for sites ranging from Vermilion and Plaquemines parishes to Lake Providence in north Louisiana. He also touts a proposed syrup mill in Bunkie as a companion site for ethanol production, as is the state-owned sugar mill in Lacassine.
According to Odom, even Willie Nelson wants in on the action. BioWillie, the country singer's company, is looking at Louisiana as its next location for biodiesel and ethanol production.
Domestic fuel production is one part of the big picture when it comes to ethanol. Environmental issues long discounted by major automobile and oil and gas companies have finally come into play. "Something really changed in the last year," says Kitman. "Industry in general is coming around to admitting that global warming exists, and the storms and the weird weather has convinced people that something is going on. The hurricanes, if anything good came out of them, it's the realization in the automobile industry that they have to do something different. They've dragged their feet on air pollution for a solid 80 years."