"New Investments in the Biofuels Industry"
July 2, 2012
MODERATOR: Good morning, everyone, and thank you for joining us for today's press call. The topic today, "New Investments in the Biofuels Industry." We have on the line Agriculture Secretary Tom Vilsack, joined by Secretary of the Navy Ray Mabus and Deputy Assistant to the President for Energy and Climate Change Heather Zichal. The three are available to answer any of your questions, Reporters, regarding this subject matter. If you'd like to ask a question of them, let us know by pressing Star/1 on your touchtone pad. And with that, I'd turn it over to Secretary Vilsack. Good morning.
SECRETARY VILSACK: Good morning, everyone. I think Heather Zichal will start off. Heather?
MS. ZICHAL: Thank you. I'd like to start by talking in broad strokes about how the administration approaches energy policy and the important role we see for biofuels in this country.
Shortly after President Obama took office, we unveiled an all-of-the-above energy strategy for America. We said let's produce more oil and gas, but let's also produce more biofuels. Let's produce more fuel-efficient vehicles. Let's produce more solar and wind power and other sources of clean renewable energy, and we're doing just that.
Last year, domestic oil production reached the highest level in nearly a decade. Imports of foreign oil fell to the lowest level in 16 years. We're producing more natural gas now than at any time in our history. The administration supported the first nuclear power plant in America in 30 years, but at the same time, we've nearly doubled the amount of energy we generate from renewable sources, like wind, solar, and geothermal, and today we are producing more homegrown biofuels than ever before.
Let's be clear about what that all means. For thousands of American workers, it means high-quality jobs. For American families, it means cleaner, safer, and more affordable energy choices. And it means we are becoming more energy secure and positioning the United States as a global leader in clean energy.
Now, one of the most promising industries has been American biofuels. As I said, domestic biofuel production it at the highest level ever. In fact, monthly production has increased more than 40 percent in the last 3 years. That means that biofuels are reducing our dependence on oil, cutting pollution, and creating jobs across the country.
To build on that momentum, the Obama administration has taken a number of steps to encourage deployment of the biofuels technologies we have in hand today, while supporting the development of new technologies in the lab and at commercial scale.
On the deployment side, the administration has pushed forward on a number of fronts; for example, EPA has helped to pave the way for E-15 to be used more broadly in the marketplace. The administration has provided resources to tackle key infrastructure challenges that prevent greater use of biofuels as well. We're investing in the research and development to accelerate the development of next-generation biofuels. The Department of Energy has invested more than $1 billion to support 29 biorefinery projects across the country, and USDA is also supporting innovative biorefinery projects through its loan programs. These are significant investments, and the administration's commitment continues, as demonstrated by today's announcement.
In a minute, Secretaries Mabus and Vilsack will talk about the work they are doing with Secretary Chu to commercialize drop-in biofuels, but before we turn to that, I want to briefly describe some related announcements that DOE is making today. These are for earlier stage R&D projects that complement the work that Navy, USDA, and DOE and doing together. The funding announced by DOE today includes $20 million to support innovative pilot-scale and demonstration-scale biorefineries that could produce renewable biofuels that meet military specifications for jet fuel and shipboard diesel, using a variety of nonfood biomass feedstocks, waste-based materials, and algae.
In addition, the Energy Department is announcing $12 million to support up to eight projects focused on researching ways to develop biobased transportation fuels and products using synthetic biological processing. Synthetic biological processing offers an innovative technique to enable efficient cost-saving conversion of nonfood biomass to biofuels. These projects will develop novel biological systems that can enhance the breakdown of raw biomass feedstocks and assist in converting feedstocks and assist in converting feedstocks into transportation fuels.
With that broad overview, I'd like to turn it over to Secretary Mabus.
SECRETARY MABUS: Heather, thank you very much.
The main thing that we are announcing today is that a Funding Opportunity Availability, an FOA for up to $30 million in Federal funding, is being made available to the biofuel industry. It will have to be matched at least on a one-to-one basis with private industry to produce commercial-scale advanced drop-in biofuels. This is an important next step in the President's direction to Navy, Agriculture, and Energy to work together to support the commercialization of ready-to-use drop-in advanced biofuel substitutes for diesel fuel and jet fuel. Competitively priced drop-in biofuels will reduce the need for foreign oil, which is a significant and very well-recognized military vulnerability.
This funding opportunity will enhance our national security. It's going to help support the creation and commercial viability of a defense-critical industry, and that's in domestic biofuels. This is made possible by the Defense Production Act (DPA). It is an authority that dates back to 1950, and it's used to support the industrialization of defense-critical domestic industries. It's been used in industries such as steel, aluminum, semiconductors, titanium, radiation-hardened electronics. Energy is specifically called out in the Defense Production Act as a defense-critical industry, which is why we are using this authority for this announcement.
As the U.S. Navy prepares to meet the demands of the new defense strategy that the President announced in January, which is a maritime-centric strategy focused on the Western Pacific and the Arabian Gulf regions, it requires a global naval presence using innovative, low-cost, light footprint engagement. Energy security has to be at the top of our agenda. It has to be there because the -- right now we give countries that produce oil too much of an input on whether our ships sale, our aircraft fly, or our surface combatants -- our surface vehicles operate, and one of the ways that this happens is that every time the price of oil goes up a dollar a barrel, it costs the Navy an additional $30 million in fuel cost. We have faced price spikes this year going into the hundreds of millions of dollars, and we don't want to be in the position of having to trade readiness for fuel. That's simply a trade that's unacceptable, and it's a vulnerability that we have got to address. And this will help address it.
Diversity of supply is one of the keys to energy independence and energy security. It's not the first time that we have invested in alternative fuels. In World War II, Congress passed the Liquid Synthetic Fuels Act, which authorized in today's dollars, almost $370 million to construct synthetic fuel demonstration plants. The U.S. paid $58 a barrel, which was far higher than the market price for oil and gas at the time. Additional expenditures over the next decade increased the government's investment to over $700 million in today's dollars.
So what this announcement does is it's a part of the process. We have worked with industry. We are putting this funding availability out. Industry will have to come back with a very comprehensive strategy, comprehensive business plan, and sometime in the October time frame, sometime in the fall, industries will be chosen, and then negotiations will begin on exactly how the funding will work and exactly where it will go.
Specific funding questions and specific contracting questions related to this FOA are going to have to be addressed to the Air Force. They are the executive agent for this, but this is Navy funding working to increase our energy independence, our energy security, through the creation of a competitively priced domestic biofuel industry. We have worked very closely with Agriculture and with the Department of Energy to get to this point, and Tom Vilsack, the Secretary of Agriculture, has been an incredibly good and resourceful partner.
And, Tom, if you would comment on this, I'll turn it over to you.
SECRETARY VILSACK: Secretary Mabus, thanks very much, and thanks for your leadership on this issue.
As Secretary Mabus and as Heather have indicated, this is a matter of national security, it's a matter of energy security, but it's also good news for Rural America. This project involving the Navy, the Department of Energy, and the United States Department of Agriculture was a result of the President's executive order establishing the Rural Council, in which Cabinet-level members meet on a regular basis. And their agency and administrative assistants meet to discuss how to integrate and coordinate opportunities that will enhance economic opportunity, job growth in Rural America. And one of the first announcements was a $510-million commitment by the Navy, the Department of Energy, and the USDA to help build a drop-in aviation and marine fuel industry in this country.
I can tell you that that opens up great promise for the development of nonfood feedstocks as a potential cash crop for farmers, ranchers, and producers throughout the United States. The refineries that will be converting this biomass ultimately into fuel will likely be located in rural areas, helping to create jobs, and the USDA's role will be to use Commodity Credit Corporation resources to assist in making sure that the fuel that the Navy will be purchasing from these facilities will be cost competitive. We are grateful for the Navy's decision to move this forward and for the announcement that the Department of Energy is making that will begin the process of determining who, where, and how this fuel will be developed.
I can tell you that I've had meetings recently with the GE Aviation as well as commercial aviation interests, and they are too excited about this opportunity. It's not just a chance for the military to be less dependent on foreign oil and to deal with the cost shocks that occur when oil goes up and down, but the commercial aviation industry is also feeling the same pressure, and they are very interested in seeing this industry take root.
We are excited about the role that USDA will play. We are in the process of providing assistance to producers to produce those nonfood feedstocks that might be the feedstock for this aviation fuel through our Biocrop Assistance Program. We are also working with the Department of Energy on mutual research projects. We too are announcing loan guarantees for the development of biorefineries that will help produce these fuels, and we are working with a number of other programs within the Food, Farm, and Jobs bill to ensure that our assistance will continue.
I would say that this is an opportunity for us to build a biobased economy in Rural America, which is part of the President's initiative to establish a stronger rural community focused on production agriculture and exports, local and regional food systems, conservation, outdoor recreation, and the biobased economy. This administration has made an historic investment in Rural America to build a stronger economy and stronger communities and to support the strong value system that's inherent in rural areas.
Many of the people serving in Ray Mabus' Navy are from these small towns and rural areas, and I think that they will be appreciative of the leadership the Navy has shown in providing an opportunity for us to build a much stronger military, a much less-dependent military on foreign oil.
Consumers will also benefit from this. As we have seen with transportation fuels, consumers, because of a robust biofuel industry in this country, are currently spending less money at the pump. Some studies suggest 25 cents a gallon. Others have suggested as high as 80 cents to $1.30 a gallon less for gas than otherwise, and it's clearly a job creator, nearly 400,000 jobs directly or indirectly supported by this industry.
So we are excited about this announcement, and this is one step, a very positive step forward, and we look forward to further announcements this fall.
MODERATOR: All righty. Reporters, if you would like to ask a question of our panelists, please let us know by pressing Star/1 on your touchtone pad.
As we await for reporters to get on the line, I want to start off. You've got this Funding Opportunity Announcement, called "FOA," and there are a couple of phases with this. If any of you want to take it, explain what the two phases are and how does one become a part of it.
SECRETARY MABUS: I'll take a shot at that first. One is the first phase is a $30-million governmental funding phase. It has to be matched by the private sector on at least a 1:1 basis.
Now, companies should respond to the funding opportunity availability, and the details and exactly what's required in terms of a business plan, in terms of what technology you are using, that sort of thing will be in this FOA.
The companies that are chosen to participate in Phase 1 will then have the opportunity to participate in Phase 2, which would be a $70-million governmental source from Defense Production Act funds, to move into the actual production, to move into setting up this domestic competitively priced biofuels industry.
Phase 2 will be open to everyone. Companies, however, who are chosen in Phase 1 will have more experience and will have already been completed vetted for Phase 2. If a company is interested in participating, it is important that they participate in Phase 1, so that their technology, their business plan will be considered at this time in the process.
SECRETARY VILSACK: Ray, I just want to add, the Department of Energy's announcement basically parallels this effort, because it provides potential resources for the establishment of pilot-scale projects that could in fact be utilized to produce, on a pilot scale, fuel which would then allow those companies eventually to obtain additional resources to scale up the size of those projects to commercial-sized operations. Then USDA will work with the Navy as it begins to purchase these fuels to make sure that they are competitively priced, and this will establish a domestic industry that has not heretofore been in existence. It is the first time in the history of our country that three agencies have worked this collaboratively to address all of the major challenges that a fledgling industry would have, the ability to access capital to build and research the ability to be assured of a customer willing to purchase and the ability of a feedstock cost to be reasonable, so that the overall cost of the product is reasonable.
MODERATOR: All righty. With that, Reporters, again, if you would like to ask a question, let us know by pressing Star/1 on your touchtone pad. We do seem to have a few reporters that have gotten on the line. Let's start off with ClimateWire's Tiffany Stecker. Tiffany.
QUESTIONER (ClimateWire): Thanks for taking my call. I was just wondering how much the administration has invested in biofuels to date.
SECRETARY VILSACK: Well, I can tell you that in the 3 years that I've been Secretary, through loan guarantee commitments, through the BCAP program, through the Advanced Biofuel Producer Assistance Program, and through some of the joint projects that we've had with the Energy Department, the amount that has been invested or provided is over a billion dollars, and all of those resources were basically authorized by the 2008 Farm Bill, which we've encouraged Congress to continue adequate funding of the Energy Title of the Food, Farm, and Jobs bill that's now before the House.
MODERATOR: All righty. Let's continue with callers on the line. Greenwire's Annie Snider. Annie.
QUESTIONER (Greenwire): Yes. Thank you so much. I just wanted to ask how this effort stands to be impacted by legislation that's working its way through Congress aimed specifically at these investments. Will this be happening quickly enough to avoid it? This is in 2013 legislation. How are you handling that?
SECRETARY MABUS: Well, let me make several points, Annie. One is that this is a presidential directive that we are following through on. Second is we have both an authorization and an appropriation in FY12 that is the basis for this. Third, I think we're still fairly early in the legislative process, and I think that there is a lot of support for this as we move forward, but fourth, as we said, we are announcing today that this opportunity is there. The awardees will not be chosen until the fall, and then negotiations will begin starting sometime in the fall. So the time table stretches out, and Phase 2 would not be until sometime after Phase 1, which would be sometime in '13. So I think it fits right in with any sort of action by Congress, but also, again, I think that there is support in Congress to reduce this military vulnerability.
QUESTIONER (Greenwire): Can I just ask a quick follow-up?
SECRETARY MABUS: Sure.
QUESTIONER (Greenwire): So the funding that was in FY12, does that cover what you are doing now, or do you need additional funds in FY13 to cover what you are proposing today?
SECRETARY MABUS: No. The funding for both Phase 1 and Phase 2 are covered with '12 money, and we do have an additional funding request for '13, but that's for follow-on. It's not for Phase 1 or Phase 2.
SECRETARY VILSACK: And I might add the CC funding, we have authority to utilize that at any point in time.
MODERATOR: Okay. Our next call comes from Bill Eby with Agri-Pulse. Bill, are you there?
QUESTIONER (Agri-Pulse): Yes, ma'am. Ladies and gentlemen, thank you so much for doing this, this morning. I am going to digress a little bit.
Ms. Zichal, I understand that you were among a number of folks that met at the White House with oil companies to talk about the Renewable Identification Number issue, and I'm wondering if you can share anything with us as to what occurred at that meeting.
MS. ZICHAL: I think the long story short is that we have heard from industry some concerns about the RIN credit program. We sat down with them, including the biofuels industry, which also agrees there's a challenge here. We're just in the very beginning stages of trying to do some brainstorming to figure out how we can resolve some of these issues around fraudulent RIN credits. We've had a very robust set of dialogs with the oil and gas industry, with the biofuels industry. I think the important thing here is that across the board from the administration to the industry to the biofuels crowd, we all agree this is a problem. We're working collectively to resolve this issue as quickly as possible.
QUESTIONER (Agri-Pulse): Thank you.
MODERATOR: Let's continue. We've got time for two more calls. Let's go to POLITICO's Talia Buford. Are you there?
QUESTIONER (POLITICO): Hi. Yes, I am. Two questions, actually. One, when will this FOA go out, and two, slightly off topic, how are you guys -- was there any impact from the derecho that was here in the D.C. area this weekend?
SECRETARY MABUS: I can answer the first part of that question, which is the FOA went out on Friday.
QUESTIONER (POLITICO): Okay.
MS. ZICHAL: And I'm sorry. I didn't catch the second question that you had. Could you please repeat it?
QUESTIONER (POLITICO): Yes. We're just wondering if you guys are experiencing any effects from the derecho that happened this weekend, the big storm, whether or not there are any issues with any administration offices closing or anything like that.
MS. ZICHAL: I'm not personally aware of that. I mean, we certainly recognize that a number of customers are without electricity during these very hot summer temperatures, and I think we appreciate the good work that is being done to restore power as quickly as possible and the work that's happening on a local level to ensure consumers have access to electricity and cool places to reside.
SECRETARY VILSACK: USDA had one facility which is now back online, but we're providing an opportunity for folks to telework, which gives them the opportunity to continue to do the work and to make sure that if they have issues in their own homes that they can attend to those at the same time, taking care of the needs of the citizens.
QUESTIONER (POLITICO): What facility was that?
SECRETARY VILSACK: It was an APHIS facility.
QUESTIONER (POLITICO): An APHIS facility?
SECRETARY VILSACK: Yes.
QUESTIONER (POLITICO): Okay.
MODERATOR: All righty. We've got time for one last call, and that's Jerry Hagstrom with The Hagstrom Report. Jerry.
QUESTIONER (The Hagstrom Report): Good morning. Mr. Secretary, could you tell us how you will use this CCC money? Would this be used to reduce the price of the fuel to the military or for commercial purposes also?
SECRETARY VILSACK: Jerry, we would use the CC resources to essentially buy down the cost of the feedstock for the producers of the fuel that in turn would sell to the Navy and/or commercial enterprises, which is an appropriate and authorized use of CCC funds.
SECRETARY MABUS: And if I could make one quick statement here to make sure that I was clear. To participate in Phase 2, you have to be selected in Phase 1. So, if a company is interested in doing this, they have to participate in Phase 1 and be chosen in Phase 1.
MODERATOR: All righty. With that, if no one has any closing remarks -- do you, Panel?
SECRETARY VILSACK: Let me just thank Heather Zichal and the team and the White House and Secretary Mabus and Secretary Chu's team at the Energy for this, what I think is an extraordinary opportunity to build on the biobased economy which will no doubt have a profound and positive impact on the rural economy.
MODERATOR: All right. With that, everyone, thank you for listening in on today's press call and for those who asked questions. That concludes our call.