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USDA Media Conference Call Discussion of Joint Announcement by USDA, DOE, and Navy of a Commitment to Develop Advanced Biofuels

Tuesday, August 16, 2011

Mr. Bain: Good day, and welcome to today's live broadcast from the USDA radio studios in Washington, DC.

We are joined today by Agriculture Secretary Tom Vilsack, Secretary of Energy Steven Chu, Secretary of the Navy, Ray Mabus, and Dan Utech, Deputy Director for Energy Policy at the White House Domestic Policy Council.

Before we continue with today's call, reporters, a reminder to you. If you wish to ask our guests a question after opening remarks, please press *1 on your telephone touch tone pad.

And now, it is my pleasure to introduce to you for opening remarks Deputy Director from the White House Domestic Policy Council, Dan Utech.

Mr. Utech: Thank you very much. In March, President Obama outlined a plan for American energy security. That plan set an ambitious goal of reducing our oil imports by one third by 2025, and outlined a strategy for getting there.

A key component of that strategy is increased use of biofuels. That means traditional biofuels, like ethanol, but also next-generation biofuels that can be produced from a range of feed stocks, and can serve as drop-in substitutes for fuels like jet fuel and marine fuel.

To accelerate the development of these next-generation biofuels, President Obama asked Secretaries Vilsack, Mabus, and Chu to put together a plan to partner with the private sector to produce these drop-in fuels.

The plan that the Secretaries are announcing today will do that, and will contribute to economic development in rural America, reduced oil imports, improved national security, and American leadership in clean energy technologies.

With that, I would like to turn it over to Secretary Vilsack.

Secretary Vilsack: Dan, thank you very much. And we certainly appreciate the support of the Domestic Policy Council at the White House. I also want to acknowledge and thank my good friends Secretary Mabus and Secretary Chu for not only being on this call, but for working as closely as we have over the course of the last several months to meet the President's challenge.

The President understands that for us to be more competitive economically and more secure, we need diversification in our energy choices, rather than to continue to blindly support the current oil-producing monopolies.

He challenged our three agencies to dig deep into this problem, and come up with a unique and historic response that addresses all of the known risks associated with a growing industry such as this one. That would include what feed stocks should be used? What technology should be used? And how do we create the need within the marketplace?

Today, we think that we have an answer to the President's challenge, and most importantly of all an opportunity for the country. The Department of the Navy, the Department of Energy, and the United States Department of Agriculture announced today a partnership with industry to construct and to retrofit a number of domestic commercial and pre-commercial scale advanced drop-in biofuel plants and refineries, each of which will have the following characteristics:

The capacity and capability to produce ready, drop-in, replacement advanced biofuels, which will meet military specifications at a price that is competitive with petroleum;

Geographic diversity, which means that these facilities will be located near where there is ready market access, with no significant impact on the supply of agricultural commodities normally used for the production of food.

The Navy, the DOE, and the USDA will endeavor to fund this initiative at an aggregate amount of $510 million over three years. This amount will be split equally between the three departments.

We intend to leverage the extraordinary expertise of the Navy and the Department of Energy, and the Department of Agriculture, with the work that the private sector is currently doing to power military -- and ultimately commercial -- transportation with homegrown American energy.

Now, to give you a sense of the importance of this to the Navy, I want to turn it over to my good friend, Secretary Mabus.

Secretary Mabus: Thank you, Tom Vilsack. And thank you for allowing me to be a part of this. We in the Navy and Marine Corps, and in the entire United States Military, see fuel as a matter of national security.

Having energy independence for the United States is one of the most important things that we can do from a military standpoint. From a strategic standpoint, we buy too much fuel from potentially or actually volatile places on earth.

The price shocks, the supply shocks, simply are unacceptable for a military organization to sustain. For every dollar the price of a barrel of oil goes up, it costs the United States Navy over $30 million in additional fuel costs.

So that's one of the reasons that we're so pleased today to have signed this Memorandum of Understanding with the Secretary of Energy and the Secretary of Agriculture to establish a domestic biofuel industry.

I think the Navy can bring a couple of things here. Number one, the Defense Production Act, a lot of which has been on the books since 1950, which says that if industries are not existent in the United States but are vital to national security, that the government can help those industries get established and get off the ground. I can think of nothing more vital to our national security than energy independence and diversifying our forms of energy.

And secondly, the Navy can also be the market. We have a big need for biofuels. I have announced that by no later than 2020, the Navy will get at least half of all of its energy sources, both afloat and ashore, from non-fossil fuel sources.

That means, in 2020, 8 million barrels of biofuels a year. And what this MOU does is gets us on the road to getting us there. We have already flown an F-18 on biofuels. We have flown a V-22 Osprey on a mixture of biofuels and petroleum. We've tested our riverine craft, our large Navy Seahawk Helicopters.

So we are well down the road to making sure that we are going to meet this goal, tactically and strategically. It will make us better warfighters. It will save lives in our military. And it will reduce a vulnerability that our military has today that we simply shouldn't have.

And so for all of those reasons, I think today is a historic day. And Tom Vilsack, Steven Chu, thank you so much for your leadership. And I'll turn it back over to Secretary Vilsack.

Secretary Vilsack: Great. Thanks very much. I just want to emphasize that this arrangement between the three Departments will be the first time in history that the U.S. Government is addressing, in one place and as one entity, all of the risks associated with growing a manufacturing business and sector.

We're addressing the feed stocks risks. We're addressing the technology risks. And we're addressing the need for a marketplace.

USDA will be responsible for addressing the feed stock risk. The Department of Energy, building on their work under the Recovery Act, is positioned to address the technology issues. And the Navy, as you just heard, is being a consumer, which will address the need for a marketplace.

So this is an extraordinary approach, and it would not have been possible but for the extraordinary work of the Department of Energy under Secretary Chu's leadership.

They have been a key partner in this effort, and I would like to turn it over now to Steve Chu for his comments.

Secretary Chu: Thank you, Tom. But thank you also, Secretary Mabus, for both your leadership in helping strengthen America's energy security. The Department of Agriculture and the Navy have been really great partners as we worked together to seize the biofuels opportunity.

Instead of spending roughly a billion dollars a day to import oil, we should be investing in America's farmers, industries, and innovation. Today's announcement does just that.

We're making rapid progress in developing the next generation of biofuels that can reduce our oil dependence and create jobs throughout rural America. The remarkable advances of science and biotechnology in the past decade have put us on the cusp of a biofuels revolution.

The effort we're announcing will keep this momentum going. It will also help ensure that the United States leads the way in advanced drop-in aviation and marine biofuels.

By leveraging the respective strengths and resources of our agencies, we can help the biofuels industry make the critical move from research pilot facilities to commercial-scale production.

Our goal is to jump-start commercial production, and to gather the information producers need to get commercial financing. This partnership will give industry the initial support it needs to emerge capable of producing jet fuel and diesel at competitive prices. The Department of Energy has valuable technical expertise and experience that will help us achieve this goal.

Today's announcement is part of a broad portfolio to support the President's goal of reducing our oil imports by one third by 2025. For example, we support cutting-edge research through three bioresearch centers which have made important scientific breakthroughs.

We also support R&D to help bring down the cost of biofuels, to get smarter and cheaper ways to move biomass from farms to processing plants to developing innovative technologies to break down the non-edible parts of plants.

RPE has announced a new funding opportunity which includes support for potentially transformative technologies that could create biofuels for half the current cost.

And to help move advanced biofuels closer to commercialization, the Energy Department in partnership with the private sector supports 29 integrated biorefinery projects. Our experience with these biorefinery projects can help in this new effort.

Through our work together and with the private sector, we can achieve breakthroughs that will allow us to produce the clean energy we need right here at home. Thank you.

Secretary Vilsack: Operator, we would be glad to take questions.

Mr. Bain: And reporters, this reminder. If you have a question for any of our guests, please press *1 on your telephone touch tone.

Our first caller today is Paul Merrion of Crain's. Paul, you are with our guests today.

While we wait for the phone lines to populate, a question --

Crain's Chicago Business: Can you hear me?

Mr. Bain: Yes.

Crain's Chicago Business: Hi. I wanted to ask if you have any idea who the private partners will be, and whether it's safe to assume it will be some of the major existing players like Archer Daniels Midland and others, or could it be just about anybody?

Secretary Vilsack: Let me take a stab at that, and then Steve and Ray can add. We anticipate as a result of this Memorandum of Understanding that we signed today that in the very near future we will put, essentially, a request out to seek who might be interested in partnering with us.

Obviously, there has to be private sector investment. We have to be confident in the technology. So we hope and expect to see quite a bit of interest in this, because what we're doing is providing resources for the construction of these commercial-sized operations, assistance with feed stock, and then also a ready, willing, and able customer ready to purchase the product.

So our hope (audio drop-out) of recommendations and applications.

Secretary Mabus: We are very hopeful of just exactly what Secretary Vilsack said. And in fact, earlier this summer, the Navy, through the Defense Logistics Agency, put out a request for proposal for 450,000 gallons of biofuels (audio drop-out) as far as we know is the largest request that has ever been put out.

So the idea that there is a market there is real. It is solid. And it is existent today. And I think that will do what Secretary Vilsack said, which is drive a lot of the private industry toward wanting to partner on this.

Secretary Chu: And finally, let me add that this is going to be a (audio drop-out) we seek their comments in designing the solicitation. But in the end, it's going to be open to all comers, and we hope that many industries would be interested in this.

Mr. Bain: And we remind you again, reporters, that if you have a question for Agriculture Secretary Tom Vilsack or our guests, please press *1 on your telephone touch tone pad.

And we return to the phone lines, to Jim Lane of Biofuels Digest. Jim, welcome.

Biofuels Digest: Thank you. Secretaries Vilsack and Mabus, and Secretary Chu, do you have any idea of how much leverage you're going to be looking for from private industry? Will you be looking to them to match or double, or do you have any idea how much support you'll be able to leverage with this $510 million commitment?

Secretary Mabus: It has at least a one to one match, but as Secretary Chu said, this is a competitive proposal. And part of the request will be how much private industry is willing to put in, and that will be part of the competition.

Secretary Vilsack: And let me add that it's not just the direct match. To the extent that you establish a commercial-size operation, you're going to also establish a number of support industries and businesses that will provide a variety of services to that particular facility.

And so that's why it's important and relevant not only in terms of fuel independence and security (audio drop-out) job creator in rural areas, and as improving the bottom line for farmers and ranchers.

So there is an opportunity here for rural America that we have not seen in some time.

Secretary Chu: And finally, the whole idea of this is that we will help start these new competitive industries, but they -- we would like them to become self-sustaining going forward, and greatly reduce the price of biofuels.

And so this makes this particularly -- (audio drop-out)

Mr. Bain: Agriculture Secretary Tom Vilsack, Secretary of the Energy Steven Chu, Secretary of the Navy Ray Mabus, and Dan Utech of the White House Domestic Policy Council are all on the line awaiting your call.

If you have a question, press *1 on your telephone touch tone pad. We next go to Jim Spencer of the Minneapolis Star Tribune. Jim, good day.

Minneapolis Star Tribune: Hey. Thanks, fellows, for taking the call. This is probably for -- well, it's for anybody. There's a company named Gevo (audio drop-out) butanol plant that's a drop-in fuel in southeastern Minnesota.

They actually have their plant up, getting ready to be commercially viable. If they were ahead of the curve, how does somebody like that get involved in this program?

And the other question I have is, have you figured out what places you're going to put these commercial plants, or does it depend on the RFP? Are you going to put anything in Minnesota?

Secretary Vilsack: I think it depends on the competition, obviously. I'll address the last question first. I think it depends on the competition, but our expectation and anticipation is, we want to see a number of different feed stocks being utilized, so that would likely result in geographic diversification of these facilities.

We want to make sure this is an industry that provides opportunities in all rural parts of the country, and all parts of the country.

Secretary Chu: The company Gevo is an example, one example of several innovative companies using the very advanced, rapidly advancing biological techniques to create biofuels.

And there are a number of companies like that. As we said before, this is going to be a competitive process. This will help companies like Gevo to really begin to scale up and build the kind of plant that can lead to commercialization of large-scale plants.

And so we expect that that company will be, certainly, one of the people putting in proposals.

Secretary Mabus: And wherever they are in their current business strategy, I think that when the requests for proposals go out, they can fit in and can be very competitive for some of this partnership money to, as Steven Chu just said, to become commercially viable, and to enter the market that the Navy is establishing.

Mr. Bain: Standing by is Bill Ray with AgriNet, but first we go to Ryan Tracy (phonetic) of Dow Jones. Ryan, hello.

Dow Jones: Sirs, thanks for taking the question. I'm wondering if you could talk a little bit more about this $510 million. You say up to $510. Where is the money coming from, and what form is that investment going to take? Are we talking about grants or loans? I just wonder if you could go into more details on that point.

Secretary Vilsack: Well, I'll speak on the USDA part of it. Our $170 million commitment is coming from the CCC fund, which is basically -- we're not talking about new money.

We're talking about using existing resources in a different way. And we expect and anticipate using those resources in order to provide assistance to the companies to make sure that their product is competitively priced to the Navy.

Secretary Mabus: And speaking from the Navy standpoint, we are also using existing funds, repurposing those funds. It's a matter of setting priorities.

And this energy from this energy revolution, this change in the way we use and produce energy is -- there is no more -- there is no higher priority that we have. And so we're using existing money to put our $170 million dollar investment in here.

Secretary Chu: And the Department of Energy, as I said, we have already invested 26 projects for integrated biorefineries. We are anticipating that we will have funds in 2012 and beyond that will allow us to double down on those bets.

And as Secretary Mabus and Secretary Vilsack said, this is a very big deal for us.

Mr. Bain: And now we go to Bill Ray with AgriNet. Bill, good day.

Agrinet: Good day to you, and to everyone. Congratulations on these fellows, everyone getting together the way you are. And that's certainly heartwarming to a lot of us in broadcasting, to see what's happening here.

One question that I had has to do with the investment groups that are coming in. Is there some thought -- I'm sure there is, but I'd like to have some interpretation from those that want to bring this up.

How are you going to keep a lot of these guys who like to get into these investments, and then end up actually wanting to take it all and run with it? Is there some safe way to make sure it stays the way it's supposed to?

Secretary Vilsack: One of the things I would suggest is that what we want to be able to do with this project is to help stabilize and create a market for drop-in aviation and commercial, military and commercial fuel, which we think is a sustained -- it's a sustained effort for a sustainable industry that's going to provide us greater security, national security, and greater economic opportunity in rural communities.

You're not going to build these plants, which are multiple hundred million dollar plants, unless you have the desire to stay. And I think if we can make this, as Steve Chu indicated, an industry that ultimately sustains itself and is profitable, I think people are going to stay in the business.

I don't think this is a fly-by-night situation. This is a commitment to a real, new energy future, and what's exciting about this is that the government is trying address all of the risks simultaneously, whereas before we tried to deal with each risk one at a time, which slowed the process down.

Agrinet: Thanks.

Mr. Bain: We have two more callers for our guests. Secretary Tom Vilsack and others on the line today. We first go to Bill Bartel (phonetic) of the Virginian Pilot newspaper. Bill, good day.

Virginian Pilot: Hi. I have sort of a parochial question here addressed at Secretary Mabus, and that is, given the proximity of the Navy to Norfolk, Virginia, for this particular project, is there any preference given to closeness to Navy operations, in terms of these kind of operations? Is that a factor, or is that not necessarily -- obviously, I'm interested in Virginia.

Secretary Mabus: Well, geography is a factor. We want this biofuel industry to be geographically diverse across the United States, and certainly the ability to deliver to Navy bases, whether Norfolk, Little Creek, Jacksonville, San Diego, Washington State, wherever those Naval bases are -- the ability to get the fuel there is certainly something we will look at in the request for proposals.

Whether that means being right next door to it, I simply don't know yet. There are lots of ways you can move fuel. But geographic diversity is very important, to make sure that this is a nationwide industry, and not simply a very localized, regional one.

Mr. Bain: And our last call of the day belongs to Ledyard King of Gadet (phonetic). Ledyard, welcome.

Mr. Bain: And with that, we will go ahead -- actually, we will take one more call, and that belongs to Ed Crooks (phonetic) of Financial Times. Ed, good day.

Financial Times: Hello, good morning. Hi. Just a question about what you mean by advanced biofuels. Just wanted to see what your definition is, and does this mean cellulosic sourced biofuels only?

And secondly, in a way, kind of depending on that definition, what you mean by advanced, what makes you think this is going to be $510 million well-spent, given the poor record of production of these biofuels by the private sector so far?

Secretary Vilsack: Well, let me start with -- first, it means a number of things. It's not only using cellulosic feed stocks to create either ethanol or bio-butanol, but it also could mean using sugars to make drop-in fuels. And the end goal, the real goal, would be to use the cellulosic feed stocks, whether it's wood residues like wood chips, or grasses, or wheat straw, or corn cobs, to make these drop-in fuels, whether it be aviation fuel or marine fuel.

So it's things of that nature which we lump into the advanced biofuels. And to really make these commercially viable, one has to develop -- and industry is developing -- as well as research labs, the biological tools to actually convert this material into these either drop-in replacement fuels, or to use the very much less expensive cellulosic feed stocks to make either advanced fuels or the heavy alcohols that one would need.

But again, the final goal is we want to produce jet and marine fuels for not only the Navy, but for the U.S.

Secretary Mabus: And we have already bought biofuels made from things such as algae, which is one advanced biofuel. And the demand signal that we're putting out, even at the small test-end level, the prices from suppliers are coming down pretty dramatically over the last year or so.

Secretary Chu: I would just add one final point. And that is, in terms of whether this is money well spent and invested -- you know, as we look at a difficult economy and the fact that we're going to be, at the federal level, having less resources to invest, it puts a premium on making sure that the resources are invested wisely.

What's unique about this particular announcement is that you've got three separate departments who have coordinated their resources in an integrated fashion to address all of the risks associated with getting this industry to a point where it can deliver product that the Navy can use on a more reliable and sustained basis.

You can create economic opportunity for farmers, ranchers, growers, and producers in rural communities, and you're building these biorefineries in places in America that have historically had high poverty and high unemployment.

So you'll be able to create construction jobs and full time jobs that will really provide some hope and some confidence in the future. So what makes this, I think, a wise investment is not just simply the importance of biofuels, advanced biofuels, drop-in fuels, and the national security aspect of it, but the way in which we are doing this, I think, provides a new model for government doing business.

Mr. Bain: And thank you to Secretary Vilsack, Secretary Chu, Secretary Mabus, and Deputy Director Utech. And reporters, thank you for your questions today, and for all of you listening in on today's broadcast.

This is Rod Bain from the USDA radio studios in Washington DC wishing you all a great day.