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Big Oil Fights Big Ag

Posted Feb 09 2010 10:45am
By John Addison (2/9/10)

Americans are Spending 20 percent of their income on transportation. In the average two-car household it is often higher. Big Oil and Big Ag are fighting for their share of that money
Petroleum use has started to drop in the United States as we have fewer cars and more fuel efficient cars. The U.S. Department of Energy continues to report drops in refinery utilization due to weak demand for gasoline and diesel.

Ethanol and biodiesel further cut into oil profits. Big Oil is maneuvering to slow Big Ag from selling more biofuels. Big Oil giants include Exxon (XOM)Chevron (CVX)and Shell (RDS.A). Big Ag giants include ADMBunge (BG)and Cargill.

Industry leaders are trying to sound high-mindednot crude. No food fights. No fighting in the war room.

The latest EPA Renewable Fuels Standard will cause over 8 percent of our car and truck fuel to come from food crops in 2010. That lowers Big Oil’s sale of gasoline and diesel by 8 percent. That’s real money. Billions. The EPA does not require that the biofuel come from foodthat’s just our only volume choice in 2010. Cellulosic and waste production is still at the expensive pilot stage. EPA talked tough in developing the new RFSbut in the endgave the industry ways to qualify by making corn ethanol.

We need fuel from wood and wastenot food and haste. Big Oil may actually win the fight to stop using food crops with low-yields per acreand help the transition to high-yield low carbon emission sources. The industry has invested over a billion dollars in advanced biofuelsalgal fueland biotech ventures.

Exxon Mobil’s CEO Rex Tillerson famously referred to ethanol as “moonshine.” Now Exxon is investing $300 million in Craig Ventor’s Synthetic Genomics with plans to produce fuel from algae. BP Biofuels was voted 2009 Biofuels Corporation of the Year by the World Refining Association at its 4th annual Biofuels Conference. BP has poured hundreds of millions into basic biofuel research and into a variety of partnerships including biobutanol with DuPont and Virgin Fuelsand energy cane in the U.S. with Verenium. Shell has established a $12 billion sugarcane ethanol joint venture with Brazil’s Cosan (CZZ).

In the futureif biotech can deliver low-cost liquid hydrocarbons from biomass that can be profitably blended at the refinerythen Big Oil may partner with industrial agriculture. Valero (VLO)the largest refiner in the U.S. bought a number of ethanol plants at deep discounts from bankrupt VeraSun.

For nowboth the petroleum producers and industrial agriculture want to control EPA regulationfederal tax breaksand billions of federal funds. They also want greenhouse gas emissions measured their way. If growing more corn for ethanol and soy for biodiesel leads to rainforests being destroyedthen Big Oil favors that being included in biofuel emission lifecycle analysis. Big Ag is against such land-use analysisArgonne Lifecycle Presentation California Lifecycle with Land-use Studies
Renewable Fuels Standard.

EPA has finalized a rule implementing the long-term renewable fuels mandate of 36 billion gallons by 2022 established by Congress. The Renewable Fuels Standard requires biofuels production to grow from last year’s 11.1 billion gallons to 36 billion gallons in 2022with 21 billion gallons to come from advanced biofuels. Increasing renewable fuels will reduce dependence on oil by more than 328 million barrels a year and reduce greenhouse gas emissions more than 138 million metric tons a year when fully phased in by 2022. For the first timesome renewable fuels must achieve greenhouse gas emission reductions – compared to the gasoline and diesel fuels they displace – in order to be counted towards compliance with volume standards.

Biomass Crop Assistance Program. USDA has proposed a rule for Biomass Crop Assistance Program (BCAP) to convert biomass to bioenergy and bio-based products. USDA provides grants and loans and other financial support to help biofuels and renewable energy commercialization. BCAP has already begun to provide matching payments to folks delivering biomass for the collectionharveststorageand transportation of biomass to eligible biomass conversion facilities.

Biofuels Working Group. In MayPresident Obama established the Biofuels Interagency Working Group – co-chaired by USDADOEand EPAand with input from many others – to develop a comprehensive approach to accelerating the investment in and production of American biofuels and reducing our dependence on fossil fuels. Today the Working Group released its first report: Growing America’s Fuel – a new U.S. Government strategy for meeting or beating the country’s biofuel targets. The report is focused on short term support for the existing biofuels industryas well as accelerating the commercial establishment of advanced biofuels and a viable long-term market by transforming how the U.S. Government does business across Departments and using strategic public-private partnerships.

Frank Maisanoan energy specialist based in Washington D.C. at Bracewell & Giuliania law firm that represents refiners and cellulosic ethanol makersgives this perspective: “The long-suffering lifecycle Greenhouse gas rule was released last week with great fanfareincluding a call with Energy Secretary ChuEPA Administrator JacksonInterior Secretary Salazar and USDA Secretary Vilsack. It followed a meeting with the White House and highlighted several biofuels task force recommendations. Beyond confusing most reporters about EPA’s authority to go beyond the 2007 Energy law requirements for ethanolthe two takeaways seem to be EPA was giving in some (at least enough to placate Vilsack) on indirect land-use regulation of biofuelsand that the US is WAY behind its biofuels requirements in the same 2007 Energy law. Certainlythe coalition of enviro advocatesfood groupssmall engine groups and refiners were annoyed with the first point while ethanol supporters reluctantly said they could live with the EPA position. Ethanol emissions expert Tim Searchinger of Princeton may have said it best: “the numbers are inconsistent with the great bulk of analyses by otherswhich consistently find that emissions from indirect land use change for crops grown on productive land cancel out the bulk or all of the greenhouse gas reductions.” EPA’s Jackson said they weren’t messing with the equation to get to a specific result.”

Frank Maisano also summarized the following: “House Legislation to Limit EPA AuthorityGHG Lifecycle Analysis –Last weekHouse Ag Chair Colin Peterson introduced legislation to prevent EPA from regulating GHGsbut added a twist: a provision blocking its land-use biofuels rule as well. This makes for an interesting dilemma should the two remain togetherespecially for members such as oil-patch Democrats that may want to block EPA authority on GHG regulationbut toughen land-use provisions to ethanol’s measuring stick. We shall see how this plays out. On the Senate sideSen. Murkowski said she is likely to petition the Senate Environment and Public Works Committee by the end of February to force the release of her proposal to block the EPA from regulating greenhouse gas emissions. Murkowski now has 41 votesincluding her ownsupporting the resolution (S.J. Res. 26).”

Regulation that helps Big Oil and Big Ag is billions of tax breaks for exploration and for not growing crops. EPActs encourage government buying of flex fuel vehicles. No automakerincluding the primary beneficiaries of the regulation GM and Fordoffer a flex fuel vehicle in the U.S. that can deliver 20 mpg (EPA combined) running on E85. No U.S. sold flex fuel vehicle does much better on gasoline. As the 4 million vehicles in federalstateand local government fleets continue to add flex fuel vehiclesmore gasoline and more ethanol must be purchased to deal with the poor mileage. In the endit’s more taxpayer dollars going to Big Oil and Big Ag.

By John Addison. John Addison publishes the Clean Fleet Report and speaks at conferences. He is the author of the new book - Save GasSave the Planet - now selling at Amazon and other booksellers.
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