Military joins biofuel push

Two federal agencies and the U.S. Navy announce plans to help finance commercial-scale biofuel plants from renewable sources.

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The U.S. Air Force Thunderbirds squadron uses alternative fuel. A federal initiative would produce advanced biofuels for Navy jets as well. The Navy wants half its fuel to be from non-fossil sources.

Photo: Olivier Douliery, Mct - Mct

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The federal government intends to jump-start the fledgling biofuels industry in the name of national security.

The initiative, introduced Tuesday by President Obama at a rural economic forum in Iowa, commits $510 million to help finance a new generation of plants to produce advanced biofuels for Navy jets and marine craft. The effort would, in turn, boost job creation in rural America, proponents say.

"We buy too much fuel from volatile places. The price shocks, the supply shocks are simply unacceptable for a military organization to sustain," Navy Secretary Ray Mabus told reporters. "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."

The move comes as Congress ends most of its subsidies for the country's ethanol industry, which includes 21 plants in Minnesota that support 8,000 jobs. Some biofuel companies in the Midwest cheered the announcement, saying it will advance the construction and retrofitting of commercial-scale plants that use waste oil, cornstalks and other non-food materials to produce fuel. The Navy's commitment to purchase half its fuel form non-fossil sources by 2020 will help assure a market, biofuel executives said.

The ability to sell what you manufacture makes all the difference in attracting investors, said Pat Gruber, chief executive of Gevo, a company that is converting an ethanol plant in Luverne, Minn., to make an advanced biofuel called isobutanol. Gevo plans to sells its isobutanol initially to rubber companies, but the product is capable of being used in jets.

"What's been hard has been that it takes a large amount of capital," Gruber said of converting ethanol plants to other biofuels. "If there is access to funds and a guaranteed market, then guys like us go after it."

Another potential beneficiary is JetE of St. Paul, which is trying to commercialize a catalytic technology to produce jet fuel and biodiesel from waste oils. The company wants to build plants, costing about $80 million, with a capacity of 30 million gallons of jet fuel and biodiesel per year. Those plants could be built next to existing ethanol plants to utilize their byproduct corn oil, said Luca Zullo, a technology consultant for JetE. "The goal is to integrate this technology into the existing ethanol infrastructure."

Government loans and a military purchasing agreement will be "tremendously beneficial" to the industry's uncertain economics, Zullo said. "The military, being the single largest buyer of fuel in the United States, can help this industry," he said.

Virent, based in Madison, Wis., has a demonstration plant that produces gasoline and jet fuel from plant materials. It has major partners, including Minnetonka-based Cargill Inc., but has not yet ramped up to commercial production. With the federal government's support, the company hopes the private sector will "come off the sidelines and get in the game with us," said Virent's marketing manger, Kelly Morgan.

"Anytime the government makes a decision to put money into biofuels, we view it as positive step," added Dave Wendorf, director of marketing and sales for Mcgyan Biodiesel of Anoka. Its catalytic technology produces biodiesel from waste oil and other materials at a plant in Isanti, Minn., that opened in 2009.

Wendorf said company executives have made presentations to military leaders about its technology and products.

The U.S. Energy and Agriculture Departments also are part of the federal initiative. Agencies will solicit proposals for projects that also attract private investors.

Todd Taylor, a partner in the Minneapolis law firm Fredrikson & Byron who specializes in renewable energy, said the industry needs to move beyond ethanol plants to more versatile biorefineries that produce a range of fuels and chemicals.

"That is going to require quite a shift, but money talks and if USDA, DOE and the Navy are out there saying we'll help you ... that will make it much easier," Taylor said.

Some companies may choose stay in ethanol production because the federal government still mandates production quotas that guarantee a market. But Gevo's Gruber believes that the new program will cause ethanol producers to look at their plants as "low-cost fermentation facilities" capable of making more than ethanol.

Energy Secretary Stephen Chu said he expects Gevo and companies like it to compete for the new federal money.

Members of Minnesota's congressional delegation who represent rural areas generally welcomed the news of the new program, although Rep. Collin Peterson, who serves the corn-rich Seventh Congressional District, questioned whether advanced biofuels produced by such things as corn husks and cobs or wood chips and grass could ever become an affordable alternative to fossil fuel. Peterson also questioned whether advanced biofuels made from so-called "cellulosic" sources could supplant corn-based ethanol as a viable industry in Minnesota.

Sen. Amy Klobuchar believes the two can co-exist. In addition to the military, commercial airlines want a reliable, domestic source of jet fuel, Klobuchar noted. Others echoed her optimism.

"If we can give our entrepreneurs some help, they can run with it," said Rep. Tim Walz, whose First Congressional District includes 11 ethanol plants.

The government has always had a role in "leading new technologies," added U.S. Sen. Al Franken of Minnesota. "This is going to reduce our dependence on foreign oil and create jobs in Minnesota."

Jim Spencer • 202-408-2752 • jim.spencer@startribune.com David Shaffer • 612-673-7090 • dshaffer@startribune.com

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