February 7, 2025 • 55 mins
What if the future of renewable energy could lie in the hands of agriculture? In this captivating conversation, host Jim Lenz, sits down with Eric McAfee, the visionary CEO of Aemetis.
McAfee shares groundbreaking insights into sustainable and innovative renewable fuel solutions that benefit communities and restore our environment. You'll learn how Aemetis is pioneering carbon-negative biofuel solutions and harnessing the power of agricultural resources, emphasizing the dual use of corn for both food and fuel. From California's largest ethanol plant to innovative operations in India, Eric takes us on a journey exploring the strategic roles of biofuels in global energy independence.
Curious about the role of government policy in renewable energy investments? This episode dives deep into the transformative potential of the 45Z tax credit within the biofuels and agriculture industries. Discover the economic and environmental advantages of supporting local agriculture through policies like California's Low Carbon Fuel Standard and the innovative use of dairy methane. Our discussion uncovers the importance of tax credits, the nuances of their transferability, and the exciting potential for renewable fuel markets in reducing carbon footprints and enhancing energy efficiency.
Explore the opportunities within the ethanol industry as it embraces low-carbon practices and innovative technologies. We highlight the potential of integrating low-carbon feedstocks and the critical role of grain elevators in promoting sustainable farming. Eric shares his vision for the future, detailing the promising paths for those passionate about agriculture and energy—and how these efforts are reversing climate change. Get ready to be inspired by the strides being made in the renewable energy sector and the exciting horizons that lie ahead.
This episode dives deep into the transformative potential of the 45Z tax credit within the biofuels and agriculture industries, as explained by Eric McAfee. We explore how renewable practices can create significant economic opportunities while contributing to sustainability efforts and enhancing energy independence.
Highlights
• Overview of the 45Z tax credit and its significance
• Insights on the role of Aemetis and renewable energy investments
• The intersection of biofuels, agriculture, and sustainability
• Impacts of dairy digesters on renewable energy landscapes
• The importance of unified advocacy within the grain-biofuels community
• Future prospects for energy independence and agriculture integration
• Calls for action to promote supportive policies for renewable energy
Link(s)
Grain Elevator and Processing Society champions, connects and serves the global grain industry and its members. Be sure to visit GEAPS’ website to learn how you can grow your network, support your personal professional development, and advance your career. Thank you for listening to another episode of GEAPS’ Whole Grain podcast.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Jim Lenz, GEAPS (00:02):
All right.
Today we're diving into a topicthat's making waves across the
industry the 45Z tax credit andits impact on biofuels in the
grain sector and I can't thinkof a better person to guide us
through this than our guest,Eric McAfee.
Eric is a highly respectedentrepreneur, venture capitalist
and a global leader inrenewable energy.
(00:23):
He's the founder and CEO ofAemetis Incorporated, a company
at the forefront of biofuels andrenewable energy solutions.
Over the years, Eric hasfounded and funded more than 30
companies across sectors likerenewable energy, agriculture,
medical devices and technology.
Beyond that, he's played asignificant role in advancing
biofuel technologies and shapingpolicies that affect industries
(00:48):
like ours.
He is a frequent speaker atmajor events worldwide, from the
National Corn to EthanolResearch Center to Abu Dhabi
Future Energy Summit, and todaywe are fortunate to have him
here with us.
Eric, welcome to the WholeGrain Podcast.
It's a pleasure to have youwith us.
Eric McAfee (01:03):
Hi Jim, good to talk to you today.
Jim Lenz, GEAPS (01:09):
Our listeners can vary within the grain
handling and processing industry, but it's good to provide just
an outlook, because what you doand who you serve and who you
connect with has such a bigimpact on the livelihood of
those that the Grain Elevatorand Processing Society GEAPS
supports.
So let's start off a little bitbroad and then dig in a little
bit deeper.
We're so fortunate and lucky tohave you here today.
So if you could provide somebackground, an overview of Metis
(01:32):
, a little bit about thebackground, the history and the
founding principles and missionof AE Metis.
Yeah, thanks, Jim.
Ae Metis is really our secondbiofuels company.
First one was Pacific Ethanol,which I co-founded in 2003 and
was focused on corn ethanol.
We built four corn ethanolplants.
We acquired four In 2006,.
We wanted to focus on wastefeedstocks and so sold out of my
(01:55):
ownership.
We'd taken Pacific Ethanolpublic by then and started
Aemetis.
Aemetis is focused on primarilycarbon negative waste feedstocks
.
So our portfolio of activitiesincludes owning the largest
ethanol plant in California,about a 65 million gallon corn
ethanol plant.
But from that corn ethanolplant we have about 80 dairies
(02:17):
and 100,000 dairy cows that wefeed with the wet distillers
grant from our plant.
And that gave us an opportunityabout six years ago to launch a
dairy renewable natural gasbusiness that now has 50 signed
dairies, 16 operating dairies,36 miles of biogas pipeline in
the ground and a central cleanuphub which happens to be
(02:38):
co-located with our ethanolplant, and we inject that carbon
negative renewable natural gasinto the natural gas pipeline.
So we're a provider oftransportation fuel that
actually came as methane fromdairy digesters and we plan to,
if possible, satisfy all 80 ofour customers plus some more.
(02:58):
So over the next five yearsthis will be probably doubling
to the 100 dairies for ourproject, and these are all
connected by a network ofpipelines to come to central
cleanup opportunities.
So the ethanol business isuniquely positioned to provide
carbon negative fuel.
Our average carbon intensity isnegative 380 for capturing this
(03:23):
methane that otherwise would goup in the atmosphere as a
greenhouse gas.
We also happen to be the largestbiodiesel producer in the
country of India.
It's the first plant I built,actually 18 years ago, and we're
in the process of taking thatcompany public as we expand it
into new sectors in India beyondbiodiesel, and have populated
(03:43):
with a growth-orientedmanagement team.
We're excited about the countryof India and we happen to be, I
think, the only US operatoroperating in the biofuels
industry in India and thathelped us get a global
perspective on supply chain.
It gave us a bunch ofadvantages about bringing, for
example, talo in the US tosupport some of our activities
here.
And the last thing I want tonote is we do have a sustainable
(04:05):
aviation fuel and renewablediesel plant that's fully
permitted and a carbonsequestration well that has
already been fully permitted forthe first phase and we've
actually started the first phaseof drilling on the carbon
sequestration well, and that'sbecause all the activities I
just described produce carbondioxide, and when you capture
carbon dioxide and sequester itpermanently underground, you can
(04:28):
essentially reverse climatechange.
Essentially, what you're doingis sucking CO2 out of the
atmosphere, and the oil industryis very much in support of this
.
It's not only used for enhancedoil recovery, but also just
pure sequestration asdecarbonization of fuels and
chemicals, and so we haveemerged as one of the leading
California carbon sequestrationbusinesses, and we're the
(04:50):
largest renewable CO2 producerabout 150,000 tons a year from
our ethanol plant.
So we're very well positionedto finance and operate these
wells because we produce theinitial roughly 200,000 tons out
of a 1.4 million ton per yearinjection well system that we're
building.
That's just incredible thewealth of experience that you
(05:11):
have personally gained and allyour team members, from supply
chain to really examining avariety of options and
peripheral opportunities andmaybe duties to improve the
environment and providesolutions.
A couple of things just to keepin mind there.
I'm just curious what does inIndia, where you said how many
(05:32):
years have you been?
18 years, 18 years, and there'sbeen some governmental
initiatives.
Can you tell us about that andthe impact that will have on
renewable fuels?
Tell us about that and theimpact that will have on
renewable fuels.
What's the focus in?
Eric McAfee (05:48):
India.
Can you tell listeners aboutthat?
India has focused very much onethanol because they are, I
believe, the second largestsugar exporter in the world and
so taking sugar, feeding it toyeast yeast makes ethanol is a
very viable way for them to helptheir agricultural sector.
They also are a country with nopetroleum production.
In terms of liquid petroleum.
(06:08):
They've recently found somenatural gas deposits, but they
have to import all the petroleum, so any domestic ethanol they
can produce can directly offsettheir import of crude oil to
make gasoline, which is verybeneficial to the country.
They have a national biofuelspolicy that is updated every
five years or so, currentlytargeting a 5% blend of
(06:30):
biodiesel.
Currently the country is atless than a 1% blend.
It's about 25 billion gallondiesel business, so they're
about a billion gallons short ofthe biodiesel they need.
A 5% blend would be about 1.25billion and they're currently at
about 250 million.
So it's a growth industry forbiodiesel.
(06:50):
And then biogas comes from allthese agricultural activities,
and the animal waste is a bigsupplier.
Municipal landfills is anotherone, and so capturing that
methane and using it as a fuelto replace gasoline and or
diesel is quite a large businessthere.
In terms of the grain market.
This is a Wikipedia number, butthey have the second largest
(07:11):
number of cows and water buffaloin the world over 300 million
animals and those animals haveto get fed somehow.
So India is definitely anexport market that we all should
be paying attention to in termsof animal feed commodities.
Jim Lenz, GEAPS (07:26):
So huge emphasis in there.
It's a lot of work that you didto get to that position.
You've done a lot of work herein the United States in biofuse
or renewable energies.
People think about oilcompanies.
They kind of have a couple ofchoices right they can either
buy carbon credits, like fromorganizations like yours, or
(07:47):
they can become active in thatrenewable energy market as well.
Isn't that true?
Eric McAfee (07:53):
Yes, they can.
In 2005, george Bush waslooking to stop sending so much
cash over to our enemies,essentially, and today we send
about a half a billion dollars aday to the Middle East and
Venezuela and Nigeria, and it'scompletely voluntary.
The United States is stilldependent on receiving
(08:15):
approximately half of our crudeoil from imports.
And so if you would havethought 50 years ago if John F
Kennedy would have said we'regoing to go to the moon and
we're going to become energyindependent, we're going to use
our waste streams from ouragriculture and from our towns
and we're going to optimize,let's say, fracking, which they
didn't know about 50 years ago.
(08:35):
We're going to optimize theproduction of oil and natural
gas.
We're going to become a countrythat can export our energy to
other countries and not bedependent on them, that can
export our energy to othercountries and not be dependent
upon them.
Think about how many wars andmilitary budgets we've had to
fund in the ensuing 50 years.
That would not have beennecessary.
I do like telling people if itwas all about humanitarian work,
(08:57):
we would have invaded the Sudanwhen the Houthis and the Tutsis
were killing each other, but wedidn't.
And why did we wander intoKuwait with a whole bunch of
airplanes and then on to Iraq.
It's clear it's because of thedependence we have on oil and I
think, in terms of running acountry, corn soybeans grown on
(09:19):
approximately 160 million acresof American soil is a very
distinct strategic advantage.
If you just look at the globeand you notice that the Sahara
doesn't have a whole lot of cornand soybean being grown, even
the jungles of Brazil struggleto have consistent supply chains
that can support agriculturaldevelopment, and you start
(09:41):
really looking around the globeChina, russia they're very cold
countries, you know.
I think San Francisco is aboutequal to the middle of China, so
you're just not sitting in aglobe that can grow a lot of
agricultural products and to acertain extent we don't
understand that in the UnitedStates is a source of not only
food but fuel.
And in the United States, froma policy perspective, for at
(10:04):
least the last 20 years we'vestruggled with the idea that if
you take the starch from cornand turn it into a fuel, you're
somehow starving people.
My point is that 42% of theAmerican corn crop goes through
an ethanol plant so it can becheaper animal feed.
People only eat about 1% of thecorn.
It's not actually the fieldcorn that goes through an
(10:26):
ethanol plant right, it's anedible corn product.
That's only about 1% of thecorn industry.
The rest of it's an industrialproduct.
It's how we use that industrialinfrastructure to make the food
cheaper is what's interesting.
Well, 42% of the corn crop goesthrough the starch, which is
72% of the corn kernel, becomessugar, becomes ethanol through
yeast, making the other 28%cheaper than any other product
(10:50):
in the market.
Now why do I like to say that?
Because we couldn't sellanything if we just went to our
customer and said look, I knowyou can buy it cheaper elsewhere
, but please, just because we'rea bunch of Midwestern farmers
and elevators, would you pleasejust pay us a premium over what
else you could buy.
We wouldn't sell anything withthat sales pitch.
We have to be able to be in aposition to sell the distiller's
(11:12):
grain, which is the protein,oil and fiber, the 28% of the
corn kernel that cannot becomesugar and cannot become ethanol.
We have to sell that at a lowerprice than every single
commodity that's in themarketplace, and we do that
because we have an ethanolindustry.
So I don't know how this worksat scale, but I like saying to
(11:33):
people.
You know when you eat a donutyou're eating starch.
We really don't need to give asmany donuts to dairy cows as
what we currently do.
So why don't we take the donutsout, make that into fuel and
then sell the protein, oil andfiber at a discount Out here in
California?
It's almost a 10% discount.
We sell to every otheravailable commodity from any
(11:56):
location on the planet Earth andI think with that mentality
we're now thinking like acountry that can use our
agricultural lands to providelower cost energy.
By the way, our ethanol sellsfor a net price of about $1.80.
I go across the street and Ibuy it back.
The same molecule we justshipped I pay over $4 a gallon
(12:16):
for here in California.
So if we could just figure outthat we should not be importing
this crude oil and all thedamage of environment and
terrorism and, you know,supporting bad regimes and all
the stuff that goes on, butinstead fund the american corn
farmer, the american elevator,american railroad and trucking.
(12:37):
That's really physically whowe're funding with that money,
right, uh, I think we veryquickly find ourselves to be a
country that has a lowermilitary expenditure and a whole
lot fewer wars than wecurrently have.
Jim Lenz, GEAPS (12:49):
Wow, what an incredible perspective that
you're at.
I think that is just awakeningto how you just expressed that
there is a lot going on in DC.
I'm sure you and yourorganization has been very
active there.
I spent a lot of time there andyour organization has been very
active there.
I spent a lot of time there.
Could you please share a littlebit more information about 45Z
(13:10):
tax credit?
Let's go under the perspectivethat there are listeners who are
not aware of that.
Start off broad and then what'sthe impact of?
Where are we at right now?
Where do you think we need tohead?
Eric McAfee (13:23):
Absolutely Broadly.
Let's start with the idea ofwhat a tax credit is.
In order to have a tax credit,you have to have income tax
that's owed.
Well, you don't get income taxbefore you have revenue, so you
have to somehow get revenue.
In order to have revenue, youhave to build something.
In order to build something,you have to employ people.
So what is a tax credit?
It means somebody took a riskof employing people, building
(13:46):
something, making revenue,making a profit on that revenue,
and that percentage of thatprofit is owed as taxes.
And a tax credit says maybe wecan get other people to go, hire
people, build things.
That's investment.
Create revenues that meansdomestic cash instead of sending
money to some crude oil guy insome foreign country.
(14:06):
Make enough money that actuallymakes a profit.
And then the percentage of whatotherwise came to the
government, we're going to givesome portion of that back to the
fellow that made the originalinvestment.
Why?
Because otherwise we're justgoing to do what we're already
doing, which is buying fromNigeria and buying from
Venezuela and supporting somenasty regime in Iran.
(14:26):
Indirectly, we're buyingIranian oil, by the way, for
those who don't know about howthey shuffle oil out in the
Straits of Singapore, et cetera.
We're buying Russian and we'rebuying Iranian oil without our
knowledge.
So if we want to change it,then you have to step back and
say okay, look, we either giveequity to guys like Eric.
(14:48):
They do this in China all daylong.
I was in Hong Kong with fivefriends in high school and they
received $50 million directlyfrom the Chinese government
because they were making CD-ROMscarrying music which looked a
whole lot like thin film solarpanels, which looked a whole lot
like thin film solar panels.
So the Chinese government cameinto their business, said here
is 50 million in cash, go buythe equipment you need.
(15:09):
Here's the real estate you need.
I went and visited theirfactory up in mainland China and
it was just a massive openbuilding with a bunch of
unwrapped equipment in it andthey put up no money at all.
The Chinese government said youfive guys know how to make
music CDs.
I want you to make solar panels.
Go do it.
That's a way we could run the USeconomy.
(15:31):
Actually, that's the way we runour military.
We don't really go to peoplemaking tanks and bombs and
airplanes and say I want you tomake a hundred of these and you
know what, if they work on thebattlefield, I'll pay you for
them.
We don't do that.
We say make a hundred of them,whether they work or not, I'm
going to pay for them.
We put equity in our defensesystem because we really care
(15:51):
about defense and I'm completelysupportive of that.
But tax credits are a very looseway of saying look, we really
like to do something, but let'snot take much risk.
Unless that thing becomessuccessful and makes money and
has employed all these peoplemade all this investment.
We're never going to have topay up on the tax credit.
So it's kind of the limpest waythat you can support somebody
(16:15):
to say take all the risk, makethe whole thing happen.
Once you make money, then youdon't have to pay as much as in
taxes.
So up until 2022, tax creditswere just not that successful at
getting people to take a wholelot of risk, especially when you
have a whole lot of benefit ofnot having to fight foreign wars
and not having to send half abillion dollars of cash offshore
(16:35):
.
You'd think the US governmentwould be a whole lot better than
coming up with tax credits.
But from a politicalperspective, it is largely
opposed by the oil industry, andso the concept of biofuels and
renewable fuels, and so this wasable to get through Congress In
2022, there's one littlecomponent of tax credit that
changed the whole arrangement,and that was that they were
(16:58):
allowed to be transferable.
So if I make some money before2022, I had to wait for seven or
eight years before I haddepreciated all my assets and I
was now at a point in which Iwas paying big taxes and then I
finally would get some value outof the tax credit.
Well, that changed in 2022 bymaking them transferable.
(17:18):
What's that mean?
That means if today I make theinvestment, I create the reason
for the tax credit, I can gofind somebody who owes taxes
today and sell them my taxcredits at a discount, so
they're not worth as much asthey think that they're worth.
Why?
Because the guy buying it isgoing to give me cash and so he
(17:38):
wants a discount.
But with that cash, I cannothave to wait seven or eight
years.
It could actually be arelatively short period of time,
like a year, a year and a half,from the time which we make the
investment to when we actuallyare generating tax credits.
So 45Z became effective January1, 2025.
Remember, the law was passed inAugust of 2022.
(18:00):
So two and a half years afterthe law started.
So two and a half years afterpeople like Ametis started
investing money.
The US government then wouldsay, okay, the revenue you're
getting from those investmentsstarting January 1, 2025, will
now be able to have thistransferable tax creditor to
(18:20):
generate another stream ofrevenue to pay you back your
investment, creating jobs andeverything else that you get as
a benefit of renewable fuels.
Unfortunately, the way the taxcredits work is that tax
accountants and tax lawyers haveto agree that the tax credit
calculation is correct, and theformer presidential
(18:42):
administration, after two and ahalf years, had still not issued
a final rule on how youcalculate the tax credit.
So I've been in Washington DCseveral times recently meeting
with senators and with agenciesand industries in the biogas
business and in the ethanolbusiness, et cetera, trying to
get it, et cetera, trying to getit, but in the same page on.
(19:06):
This is exactly how we canexecute now to get this letter
from the US probably eithertreasury or an internal revenue
service saying this is the wayyou calculate your credit.
You can now rely upon this.
So when I sell it to a taxpayerwho owes taxes and they go in
and file their taxes, they don'tget rejected by the IRS.
And you know, you think two anda half years would be long
enough for somebody to issue adocument that's a few pages long
(19:27):
saying here's the formula, thisplus this with this there's
literally three numbers in theformula and unfortunately, for
political reasons and otherreasons, that did not happen.
So as a industry, I look atthis as a value chain.
So something that doesn't happenat an ethanol plant, for
example, an ethanol plant can'tget 45 Z revenue from production
(19:50):
tax credits.
They produced a gallon.
They're supposed to get someinvestment, some of their
investment, back.
When that doesn't happen, thenwhen the corn elevator calls
them and says, hey, you ready tobuy?
They say yeah, but I can't payas much.
So the corn elevator calls themand says, hey, you ready to buy
?
They say yeah, but I can't payas much.
So the corn elevator then tellsthe farmer oh, by the way,
today's spot price wish it wasbetter, but it's not as good as
(20:11):
what it ought to be.
I'm sorry you're having lossesbecause your fertilizer costs
are higher and your diesel costsare higher and the labor costs
are higher.
Everything else, you know, ishigher, but I can't really pay
you anymore for your corn.
I don't really pay you anymorefor your corn.
I don't know why.
Well, I know why it's becausethey changed the regime of what
you're supposed to be investingin and did not perform as a
federal government in deliveringa simple little tax form.
(20:34):
It literally is a little formthat says this number times,
this number times this number.
Please fill out the number atthe bottom.
And that form does not exist ina usable form.
So our need as an industry isto communicate this to Senator
Thune of South Dakota, who caresa lot about biofuels I've met
with his chief staff person onthis one Senator Grassley, a
(20:56):
senior Nebraska senator, andSenator Ricketts.
These five or six senators fromwhat I call the corn and
ethanol states need to be ableto say to the IRS a farmer by
the name of Billy Long from the7th Congressional District is
(21:18):
proposed to be the head of theIRS.
And then you can say, mr BillyLong, if we wait around and tell
the big beautiful tax billlater on this year, that starts
again what happened in August of2022.
They passed laws.
It starts again the IRS andTreasury rulemaking process,
which last time, after two and ahalf years.
They not only didn't have afinal rule or proposed rule,
(21:40):
they literally had an intentionto propose a rule.
That's how far they'd gone intwo and a half years.
So it's not acceptable for us ascorn farmers, as elevators and,
frankly, railroads that make abunch of money on this business,
as well as biofuels producers,an ethanol business for us to
fiddle around with not enforcingfederal law for another two,
(22:03):
three, four years.
Why do I say not enforcingfederal law?
Because it is federal law.
The Congress and the presidentsigned that, starting January 1,
2025, if you produce a gallonof ethanol and if it is
according to the Greek model,this carbon intensity, then this
is what you're going to get incash.
And is there any reason whythat's not happening?
Yeah, somebody is not enforcingfederal law.
(22:25):
So one of the opportunities forthe new administration is to
respect the rule of law and theright to private property and
not select certain federal lawsthat are going to enforce
strictly and other ones that canI kind of ignore.
We've seen what that looks likealready.
Let's actually enforce federallaw.
So this is a multi-billiondollar investment opportunity
(22:48):
that comes through tax credit,so only paid by people making
profits.
You don't make a profit, thetax credit is completely
worthless.
So you have to find somebodywho's making a profit to fund
somebody that wants to make aninvestment and create new jobs
and create new domestic productsand unless that system works,
(23:11):
there's no tax credit cost toanybody.
And I'm very interested in asmany people as possible calling
their congressmen saying 45Zproduction tax credit started
January 1, 2025.
Why is it we don't have an IRSprivate letter ruling, an IRS
ruling on how to do that?
Jim Lenz, GEAPS (23:25):
The ripple effect is real.
You expressed that.
So there's a lot of educationyou and your team did, and
others, to get people up tospeed as quick as possible, give
them an overview of the impactit really has.
And we do fundamentally need tosupport where the food chain
starts right With the, or thesupply chain with the, with
(23:46):
farmers, with the producers, andthen it carries through.
So you express that clearly.
Thank you for that.
That's really helpful, I think,for those working in the grain
industry to see people worry atwhat steps need to be taken here
.
So that's great.
Eric, with the recent executiveorders from President Trump,
including the National EnergyEmergency and unleashing
(24:08):
American energy, how do you seethese changes affecting both
Hematis and the broader biofuelsindustry?
I?
Eric McAfee (24:17):
think it's a great opportunity.
Of course, the challenge ineverything is execution not
necessarily coming up with agreat grand vision, but actual
execution.
And I'll go back to ourprevious point, which is Billy
Long, new head of the IRS,farmer from Missouri.
If he decides you know what weneed to get the production tax
(24:37):
credit, which is federal law, tohave a form that people can
fill out and send in, I bet youin about six hours, because he
would just pull out form 3800and you would fill out the cells
below.
They already have a draft ofthe thing, it's just they
haven't completed it, theyhaven't issued it, and so I
(24:57):
personally think in a crisis youknow we all live through COVID
we saw things that were beyondextraordinary.
The government got done invirtually no time at all.
That previously they would havesaid is absolutely impossible.
We can't do that in less thanyears.
Well, they do it in a day or twodays by declaring an energy
crisis and adding biofuelsspecifically in the energy
(25:19):
crisis, and then in item B, thesecond solution was a 15%
ethanol blend up from 10%.
Just open up doors that we'venot had, and if the grain
industry in the United Statesand the grain elevator industry
in the United States wants tosee growth in margins.
You need to offset the factthat the 10% cap on ethanol
(25:43):
blend effectively means all ofthe ethanol is sold essentially
a little bit above cost On theaverage.
It's a little bit above costbecause the supply and demand is
that we have about 18.2 billiongallons of production.
We only produce about 17billion gallons.
We have a billion gallons ofcorn ethanol that doesn't run,
meaning whoever does run betterbe at the lowest cost possible.
(26:04):
Because there's have a billiongallons of corn ethanol that
doesn't run, meaning whoeverdoes run better be at the lowest
cost possible, because there'salways a billion gallons waiting
to come in as soon as there'sany margin, which tells me that
the grain elevator guy getssquashed, which means the corn
guy gets squashed.
Why?
Because the ethanol guy can'tsell all the product he could
produce.
So going from a 10% ethanolblend to 15% adds over 5 billion
(26:24):
gallons of new demand, causingthe oil industry then to say
wait a minute, I've got toactually buy this stuff because
it's domestic, it's lowemissions, et cetera.
Rather than buying a crude oilload from the Saudis, they've
got to buy something from abunch of corn farmers in the
Midwest, and so by taking thelid off of that, we then get a
(26:48):
price competition.
It's not a mandate, it's justthe Exxon station and the Shell
station right across from eachother.
Shell station comes in at 30cents less per gallon, why?
Because he's blending moreethanol and ethanol only costs a
couple bucks $2.20, $2.30.
And the other guy's got fuelthat's costing $3.20.
So, before you know it, pricecompetition means that they'll
(27:13):
buy all the ethanol you canproduce and all the corn you can
produce and you get theseindirect effects which I feel
personally.
I grew up in a rural area, Idon't know, 10 miles from the
nearest small town of 3,000people, and it is leadership
that shows you push moneythrough that small town.
(27:33):
The schools are going to bebetter, the community colleges
are going to be better, thebanks are going to be stronger,
the infrastructure of thosetowns will have a fabric to them
when you have domestic energyas a new driver, not just
competing against Chileanimported foods or Mexican
avocados or whatever.
(27:53):
Which is what has happened tothe agricultural industry is.
It's largely become a global,12-month-a-year industry with a
lot of lack of understanding ofthe strategic nature of the food
and fuel products that ourfarmers actually make here in
the US.
Jim Lenz, GEAPS (28:11):
So this is a big deal.
The domestic energy is critical, and how things are hopefully
going to shape out here willreally help our industry.
And then peripheral industries,like you said, the rail
industry, the transport, allthis, and it goes on and on all
the way.
You even mentioned to thequality of schools and school
districts.
Those are conversations thatare so important for people to
(28:34):
hear and understand, especiallythose who are spending a lot of
time in DC.
So I also want to talk a littlebit about USDA REAP loans and
dairy digesters.
Inmetis has secured significantfunding through USDA REAP loans
and has expanded its dairydigester projects.
What role do you see thesedigesters play in the renewable
(28:56):
energy landscape?
You touched on a little bitearlier, but can you add some
details into how might thisimpact grain producers and the
overall agricultural community?
Eric McAfee (29:06):
Certainly.
Let's start at the end.
California Air Resources Board,for approximately the last 15
years, has run the low carbonfuel standard.
It's basically the highestvalue for the lowest carbon
molecule and on the chart of thehigher carbon molecules to the
lowest carbon molecule, thelowest carbon molecule is dairy
methane.
(29:27):
Dairy methane produces dairyrenewable natural gas and 25% of
the methane in Californiabubbles up out of these lagoons.
The waste lagoons at dairiesbuild a lagoon with a cover and
a liner underneath it, sonothing goes in the groundwater
and you capture that methane.
(29:47):
You end up with a negative inour case negative 380 carbon
intensity fuel, because whenmethane goes up in the
atmosphere it's 84 times worsethan CO2 in the first 20 years.
Methane is very, very good atcapturing heat.
So under the carbon math putout by the Department of Energy
and a lot of other folks, youbasically want to try to not put
(30:09):
methane in the atmosphere.
By the way, it's not good forhealth, it smells bad.
There's a lot of other reasons,but bottom line is it's also
really good at capturing heat.
So dairy is a very attractiveway to have a big impact on the
California low-carbon fuelstandard, as the state of
California is trying to say, ofthe jet fuel, diesel, gasoline
(30:32):
and biogas fuels that we use inthe state.
How do we get lower and lowercarbon intensity?
Well, gosh, it would seem to methat dairy renewable natural
gas is clearly the place youwant to expand as fast as you
can, because you get the biggestbang for the buck.
So six years ago, we had aunique asset, and that was 80
dairy relationships, and I liketo say that the only real core
(30:55):
asset of the dairy renewablenatural gas business is your
ability to have a 35-yearagreement with the dairy farmer.
These tend to bemulti-generational family
businesses, and for them toagree for 35 years that somebody
can come on their propertyanytime of the day or night, any
day of the week, is a verylarge trust relationship, and so
(31:18):
we have signed 50 differentagreements with dairies.
We've built 16 of them.
We're rapidly buildingadditional ones, but the core
asset of the relationship isthat we're strengthening the
dairy sector.
So now let's step back and thinkabout grain and dairy animals.
At the end of the day, animalsaren't like an Amazon delivery.
(31:39):
They don't just show up of theday.
Animals aren't like an Amazondelivery.
They don't just show up.
Animals have to be fed and theyhave to be in a large way, have
to be a part of a supply chainthat's a massive supply chain of
grain growers, and soy meal andcorn meal certainly are key to
that.
Canola meal, of course, isn'tthere as well.
So I look at dairies as beingthe customers of farmers but are
(32:04):
in a large supply chain that,if at the end only make food,
means that their market isskipping the multi-trillion
dollar energy market.
So, at the end of the day, whatwe're doing with dairy renewable
natural gas is we're takingthat 28% of the corn kernel
that's not going into energy andadding another energy market to
(32:28):
it by feeding it to an animal,be it a feedlot which could have
processes that collect manure,or specifically a dairy's, we
are literally allowing dairiesto enter back into the energy
market from the distilled grainthat came out of an ethanol
market that already made animalfeed cheaper Remember we have to
be 10% cheaper than anybodyelse in our solar distilled
(32:49):
grain.
Well, now the dairy itself isselling into the energy market
with methane, into a veryvaluable energy market with
methane, and the value is lowcarbon fuel standard credits,
renewable fuel standard, as wellas 45Z production tax credits,
because it's the lowest carbonintensity fuel that's available
in the marketplace.
So by adding energy in atmultiple steps of the value
(33:13):
chain, the ethanol plant gets anenergy revenue.
It's called ethanol.
The dairy gets an energyrevenue.
It's called dairy renewablenatural gas.
What we're doing is making foodcheaper.
That's what we're doing.
If the dairy didn't have thatrevenue, what would it have to
do?
It'd have to have higher price.
Everything right Cheese, butter, cottage cheese, fluid milk,
beef.
I mean just everything thatdairy producers has to be more
(33:34):
expensive.
If they don't have the energyrevenue from the dairy, that
then flows back.
If you do have the additionalrevenue, then they can pay more
to the ethanol plant for thedistilled grain, and the ethanol
plant can pay more to the grainelevator and, I guess,
theoretically, the rail guy whogets their tax on everything.
So I look at it as a valuechain, and where the revenue is
(33:56):
in the value chain is where youcan then figure out what the
commodity prices are going to bethe more energy revenue we
throw into the value chain, thelower cost of the food that
comes out for the consumer andthe higher prices that happen
for the producer.
Jim Lenz, GEAPS (34:10):
That's the key Find out where is the biggest
revenue in this value chain, inthis supply chain.
That's going to help outeverybody.
That's going to help out thefarmers, that's going to help
with the grain elevators and allof the vendors and suppliers in
the industry who, which weserve as well.
California Air Resources Board,carb, had a recent approval for
(34:32):
your dairy digester pathwaysand expected increase LCFS
credits significantly.
How will this impact folks inthe renewable fuel space again?
Eric McAfee (34:44):
The low carbon fuel standard credits in California
have been lacking a perspectiveof what happens over the next
couple of decades and theydelayed, in my opinion, three
years longer than they shouldhave to come up with the
politically acceptable answer towhat's the next 20 years in
California look like November8th of last year, so just a
(35:06):
couple months ago they approvedthe next 20 years through 2045.
And now there's some ability tounderstand.
When you make a renewable fuel,what's the price going to look
like over time.
And when you're trying to,let's say, put together an
ethanol facility today from,let's say, a low-carbon
(35:27):
feedstock corn stover anotherplace in the value chain, would
go to the farmer and pay themfor CSA, which is their special
practices to grow corn withlower carbon intensity.
Well, if that flows through andyou get a production tax credit
that is significantly morevaluable because you have lower
(35:48):
carbon corn in it, you'repushing the production tax
credit revenue from an ethanolplant all the way back to the
grain elevator, to the cornfarmer, because the corn farmer
is doing something different.
You've just created anotherenergy revenue indirectly
because it comes through thevalue chain, but it's the corn
farmer waking up every daysaying you know what I think 10
points of carbon reduction,which is about 20%.
(36:09):
It's going to have a meaningfulimpact in this value chain.
Let me go ahead and do thoselower carbon production
processes.
And so at Amedis, that's whatwe pay attention to a lot is how
do we get, for example, lowcarbon fuel standard credits?
How do we get our carbonintensity lower?
The credit prices are going toincrease now that we have 20
years of visibility and it'svery clear that there's not
(36:31):
enough credits available,starting really about a year.
But within two years it's goingto be.
They're just not physicallythere, so the price goes up
quite a bit as people the oilcompanies are having to scramble
to ship into California, and soour opportunity is that corn
farmers participate in this.
Grain elevators currently don'thave a direct crop management
(36:52):
mechanism, but they couldcertainly be a part of the
education of farmers and will becore to the tracking of these
benefited acres right, you don'tuse certain fertilizer and do
certain no-till, et cetera.
Those acres of corn going intoa corn elevator and tracking
that and doing the book andclaim process is really going to
(37:13):
become a core business of grainelevators in the future.
So the ethanol producers suchas ourselves can say, if I buy
from this grain elevator, so theethanol producers such as
ourselves can say, if I buy fromthis grain elevator, they have
tracked that they have 100,000acres that have CSA benefits of
10 points.
So I'm going to do someeconomics on my side to say, wow
, I could pay a lot more moneyfor that corn than from some
(37:33):
grain elevator that hasn'ttracked that and doesn't
evangelize to the corn farmerabout how they can also
participate in the renewableenergy domestic job creating
community building product thatthey're making.
Because if you make it intoenergy, you're directly not
exporting dollars to oftentimesour enemies.
Jim Lenz, GEAPS (37:58):
Incredible.
Wow, is it safe to say.
I mean or would you agree withthe statement examining lots of
industries out there.
Eric McAfee (38:07):
The grain industry is one of the most efficient
industries and the opportunitynow is, I think that we are
entering into a book and claimworld that is going to require
some new systems and leadershipso that we can quickly transform
(38:30):
the farms into lower carbon,higher value energy producers
and give them the financialbenefit of that.
So I think that the elevatorsthat are at the leading edge of
understanding 45Z production taxcredits, potentially even in
low carbon fuel standard there'sopportunities to have lower
(38:54):
carbon corn, and so I think it'sa little more fuzzy in the low
carbon fuel standard, but 45Zproduction tax credits
absolutely.
You're going to have a CSAcomponent, it's going to book
and claim, and the grain elevYou're going to have a CSA
component, it's going to bookand claim, and the grain
elevators are going to have ahuge business gathering up
billions of dollars of cash fromethanol plants and
disseminating it to 100 millionplus acres of corn and soybean
(39:15):
farmers over time.
So I think there's anopportunity for systems
development, but a lot ofeducation, just educational
opportunities on how a farm canbe better at being an energy
producer.
Jim Lenz, GEAPS (39:29):
Just a tangent here, but maybe not.
You just meant education.
Where do you see if you havesomeone who is in high school
right now who has interest inegg space, has interest in the
world that they live in andworld about energy?
It has an impact in so manydifferent facets and countries
(39:51):
around the world and they, ofcourse, feed and fuel the world
besides energy and produce lotsof products.
What if you're speaking tosomeone who has genuine interest
in entering this space and youare a rare person that has just
depth and broad scope what isyour advice, maybe as an area
(40:13):
that one could enter if theyhave just curiosity in the space
and they want to make impact?
Eric McAfee (40:19):
Well, first of all, if they come from a farming
family, run the family farm, andI'm saying that because we've
had a shrinking population ofactual farmers in the US.
Automation has driven a lot ofthat.
But also it's just the realitythat it's a lifestyle for your
family and if you're not on thefarm then you're giving up that
lifestyle.
And if you grew up on a farm,that's really giving up that
(40:40):
lifestyle.
And if you grew up on a farm,that's really one of the first
choices you get to make in lifeis do I want to invest in that
lifestyle for me and my family?
And if you have an appetite todo that, I can tell you there
are ways for you to directly bein the energy business.
There's ways for you todirectly be in the technology
business.
The process of book and claimand all that is going to require
(41:03):
leadership in your localcommunity on how that is managed
to meet these new initiativesfrom the treasury and IRS on how
you do book and claim, andyounger people are going to be
very well positioned to goaround in their community and
say guys, here, let's worktogether.
I've got this software programand it needs to have that
(41:23):
documentation to work.
Let me be a leader in how to dothat.
We're going to need thatyouthful energy and technology
understanding in order tomaximize the energy industry
outputs of farms, and my hope isthat we would drive yields per
acre so it doesn't require asmany additional acres.
Because you drive yields peracre, we drive lower carbon
(41:48):
intensity practices, so our soilis more sustainable.
So for some of them, it's go toschool and learn all about
sustainability practices inagriculture and then come back
and grow things slightlydifferent than the next one.
If you lower fertilizer inputs,you're lowering natural gas
inputs.
You're lowering natural gasinputs.
You're lowering the carbonintensity of what you're doing
and potentially making the USthat much more independent.
(42:11):
So we have many opportunities inag culture that are at such
massive scale that many peoplecan't comprehend.
160 million acres need to beimpacted by a certain process
and I think some people that areyoung, people that grew up on
farms or in smaller communitieshave an easier time grasping how
(42:32):
to directly impact this uh foodand energy value chain because
increasingly it's adding thatenergy layer in.
It's just going to be a layerof complexity that farmers are
going to have a hard timeadopting to, and I think the
grain elevator is going to becore to that.
The grain elevator, I think, isgoing to need a lot of young,
trained people to go out and toevangelize and then to
(42:55):
systematize and to actuallyexecute on getting more and more
energy revenue coming throughthe grain elevator that then
gets spread around the localcommunity.
Jim Lenz, GEAPS (43:05):
Very nice.
Thank you for that touch.
So many people are new thatcome into the industry and that
can be a challenge.
Any quick thoughts or words ofwisdom in relation to supporting
those who are new to industryand get them to the speed,
because there are jobopportunities there and you know
the struggle is real to findthose curious people and
hardworking people to do that.
Eric McAfee (43:26):
Well, hopefully, what we're going to have this
year is an increasing shortagein ethanol production in the
United States.
Why?
Because if we go to E15, whichthe president is already well in
his energy crisis, he said E15is listed as number two solution
for how to do this.
That would require theconstruction of new ethanol
(43:46):
facilities.
That would require expansion ofour corn production in the US.
There are other feedstocks forethanol that include
agricultural wastes, such ascorn stover, et cetera, and so I
think we could be entering intoa cycle of innovation of how to
make the ethanol molecule.
Ethanol is a great hydrocarbon.
You can turn it into jet fuel,turn it into lots of other
(44:09):
products, so the ability to makeethanol is like a fundamental
chemical building block for evenplastics and other things.
So I think from the farmperspective, people looking to
get into the industry couldreally start with watch this
process happen of expandingethanol, and you're going to
(44:29):
just need a lot more cornfarmers, a lot more corn
elevators and a lot more ethanolplants to add another 5 billion
gallons on top of the industrywith only capacity of 18 billion
, and I'm talking about from the18 billion we're going to
export about 2 billion, so we'reseveral billion short 4 to 5
billion gallons short and itcould be a growth cycle that
(44:49):
young people could participatein in many, many ways, as you're
building this new productionand conversion capacity.
Jim Lenz, GEAPS (44:56):
Eric McAbee.
Thank you so much.
I don't want to take any moreof your time.
It's so generous to speak withme the last hour about this.
But any final summarystatements speaking to the grain
handling and grain processingindustry.
I know they're probably waiting.
Every last word you're sayingit's been so enlightening, but
any statements you want toconclude here.
Eric McAfee (45:16):
I think there should be a closer partnership
between the corn farmers and,you know, the corn growers
associations, the elevatorassociations and the ethanol
associations I'd almost throwbiogas in there, because
remember how biogas isdownstream of the ethanol plant
but flows directly back into it.
And I think that the simplefederal policies, such as the
(45:39):
45Z production tax credit, areso common to the interests of
those four different groups thatthey should be a unified voice.
And what's, at least in my view, fairly clear is that the US
Senate is controlled by onlyabout two votes right now.
So if you have Thune, grassley,ernst, ricketts and Fisher,
(46:00):
that all say, yeah, that's whatwe want to do, there's nobody
else to talk to.
You don't have to talk to theWhite House, you don't have to
talk to the agencies, you don'thave to talk to anybody, because
nothing goes through the Senatewithout those five people
saying, yeah, we want to do it.
So I think those four groupsthat I mentioned, talking to the
five people that I've alreadymet with and their staff, we,
(46:21):
the five people that I'vealready met with and their
staffs we can get a lot done andit's all positive, it's all
good, it's all consistent withour current administration's
policy.
It's answering the executiveorders.
It's the way to move forward.
But I think we need to be on thesingle page of paper and
targeted this very narrow set ofsenators Now derivatively yeah,
you end up with some WhiteHouse people involved, I get it,
but you just need those peopleto understand the message and be
(46:42):
committed to it and we're good.
We are absolutely going to getE15 done, production tax credit
done.
We're going to get thetransferability we need.
We'll get CSA for farmers.
We'll get what we need becauseit's a very short list in order
to be very successful in theenergy business.
So my message would be ifyou're having any confusion at
(47:03):
all about what I just said,please just call me, email me,
and my name and my email is allover the InMetis website, et
cetera, and we need to see thisas an opening of an opportunity
by the new administration.
But we have to step through thedoor and I have a strong desire
that the message be simplifiedso we can actually make progress
(47:26):
as we step through the door,rather than coming through with
a lot of confusing messages thatare not actionable.
I think we have some veryactionable messages at this
point.
Jim Lenz, GEAPS (47:35):
Simplify that message and unify, unify, unify,
unify, unify.
What a great message fromsomeone who grew up in a very
rural area of california, like20 30 minutes from the nearest
town, that only had 3 000 people.
Oh my goodness.
Innovator, investor supportingthe energy industry, the food
(47:56):
industry and so many otherproducts eric mcafee.
It has been an absolutepleasure and I'm so excited for
those listeners of Chief's WholeGrain Podcast around the world
listening to this specialepisode.
Thank you so much.
Thank you, jim.
Appreciate your time.
All right.
Today we're diving into a topicthat's making waves across the
industry the 45Z tax credit andits impact on biofuels in the
grain sector and I can't thinkof a better person to guide us
through this than our guest,Eric McAfee.
Eric is a highly respectedentrepreneur, venture capitalist
and a global leader inrenewable energy.
(00:23):
He's the founder and CEO ofAemetis Incorporated, a company
at the forefront of biofuels andrenewable energy solutions.
Over the years, Eric hasfounded and funded more than 30
companies across sectors likerenewable energy, agriculture,
medical devices and technology.
Beyond that, he's played asignificant role in advancing
biofuel technologies and shapingpolicies that affect industries
(00:48):
like ours.
He is a frequent speaker atmajor events worldwide, from the
National Corn to EthanolResearch Center to Abu Dhabi
Future Energy Summit, and todaywe are fortunate to have him
here with us.
Eric, welcome to the WholeGrain Podcast.
It's a pleasure to have youwith us.
Eric McAfee (01:03):
Hi Jim, good to talk to you today.
Jim Lenz, GEAPS (01:09):
Our listeners can vary within the grain
handling and processing industry, but it's good to provide just
an outlook, because what you doand who you serve and who you
connect with has such a bigimpact on the livelihood of
those that the Grain Elevatorand Processing Society GEAPS
supports.
So let's start off a little bitbroad and then dig in a little
bit deeper.
We're so fortunate and lucky tohave you here today.
So if you could provide somebackground, an overview of Metis
(01:32):
, a little bit about thebackground, the history and the
founding principles and missionof AE Metis.
Yeah, thanks, Jim.
Ae Metis is really our secondbiofuels company.
First one was Pacific Ethanol,which I co-founded in 2003 and
was focused on corn ethanol.
We built four corn ethanolplants.
We acquired four In 2006,.
We wanted to focus on wastefeedstocks and so sold out of my
(01:55):
ownership.
We'd taken Pacific Ethanolpublic by then and started
Aemetis.
Aemetis is focused on primarilycarbon negative waste feedstocks
.
So our portfolio of activitiesincludes owning the largest
ethanol plant in California,about a 65 million gallon corn
ethanol plant.
But from that corn ethanolplant we have about 80 dairies
(02:17):
and 100,000 dairy cows that wefeed with the wet distillers
grant from our plant.
And that gave us an opportunityabout six years ago to launch a
dairy renewable natural gasbusiness that now has 50 signed
dairies, 16 operating dairies,36 miles of biogas pipeline in
the ground and a central cleanuphub which happens to be
(02:38):
co-located with our ethanolplant, and we inject that carbon
negative renewable natural gasinto the natural gas pipeline.
So we're a provider oftransportation fuel that
actually came as methane fromdairy digesters and we plan to,
if possible, satisfy all 80 ofour customers plus some more.
(02:58):
So over the next five yearsthis will be probably doubling
to the 100 dairies for ourproject, and these are all
connected by a network ofpipelines to come to central
cleanup opportunities.
So the ethanol business isuniquely positioned to provide
carbon negative fuel.
Our average carbon intensity isnegative 380 for capturing this
(03:23):
methane that otherwise would goup in the atmosphere as a
greenhouse gas.
We also happen to be the largestbiodiesel producer in the
country of India.
It's the first plant I built,actually 18 years ago, and we're
in the process of taking thatcompany public as we expand it
into new sectors in India beyondbiodiesel, and have populated
(03:43):
with a growth-orientedmanagement team.
We're excited about the countryof India and we happen to be, I
think, the only US operatoroperating in the biofuels
industry in India and thathelped us get a global
perspective on supply chain.
It gave us a bunch ofadvantages about bringing, for
example, talo in the US tosupport some of our activities
here.
And the last thing I want tonote is we do have a sustainable
(04:05):
aviation fuel and renewablediesel plant that's fully
permitted and a carbonsequestration well that has
already been fully permitted forthe first phase and we've
actually started the first phaseof drilling on the carbon
sequestration well, and that'sbecause all the activities I
just described produce carbondioxide, and when you capture
carbon dioxide and sequester itpermanently underground, you can
(04:28):
essentially reverse climatechange.
Essentially, what you're doingis sucking CO2 out of the
atmosphere, and the oil industryis very much in support of this
.
It's not only used for enhancedoil recovery, but also just
pure sequestration asdecarbonization of fuels and
chemicals, and so we haveemerged as one of the leading
California carbon sequestrationbusinesses, and we're the
(04:50):
largest renewable CO2 producerabout 150,000 tons a year from
our ethanol plant.
So we're very well positionedto finance and operate these
wells because we produce theinitial roughly 200,000 tons out
of a 1.4 million ton per yearinjection well system that we're
building.
That's just incredible thewealth of experience that you
(05:11):
have personally gained and allyour team members, from supply
chain to really examining avariety of options and
peripheral opportunities andmaybe duties to improve the
environment and providesolutions.
A couple of things just to keepin mind there.
I'm just curious what does inIndia, where you said how many
(05:32):
years have you been?
18 years, 18 years, and there'sbeen some governmental
initiatives.
Can you tell us about that andthe impact that will have on
renewable fuels?
Tell us about that and theimpact that will have on
renewable fuels.
What's the focus in?
Eric McAfee (05:48):
India.
Can you tell listeners aboutthat?
India has focused very much onethanol because they are, I
believe, the second largestsugar exporter in the world and
so taking sugar, feeding it toyeast yeast makes ethanol is a
very viable way for them to helptheir agricultural sector.
They also are a country with nopetroleum production.
In terms of liquid petroleum.
(06:08):
They've recently found somenatural gas deposits, but they
have to import all the petroleum, so any domestic ethanol they
can produce can directly offsettheir import of crude oil to
make gasoline, which is verybeneficial to the country.
They have a national biofuelspolicy that is updated every
five years or so, currentlytargeting a 5% blend of
(06:30):
biodiesel.
Currently the country is atless than a 1% blend.
It's about 25 billion gallondiesel business, so they're
about a billion gallons short ofthe biodiesel they need.
A 5% blend would be about 1.25billion and they're currently at
about 250 million.
So it's a growth industry forbiodiesel.
(06:50):
And then biogas comes from allthese agricultural activities,
and the animal waste is a bigsupplier.
Municipal landfills is anotherone, and so capturing that
methane and using it as a fuelto replace gasoline and or
diesel is quite a large businessthere.
In terms of the grain market.
This is a Wikipedia number, butthey have the second largest
(07:11):
number of cows and water buffaloin the world over 300 million
animals and those animals haveto get fed somehow.
So India is definitely anexport market that we all should
be paying attention to in termsof animal feed commodities.
Jim Lenz, GEAPS (07:26):
So huge emphasis in there.
It's a lot of work that you didto get to that position.
You've done a lot of work herein the United States in biofuse
or renewable energies.
People think about oilcompanies.
They kind of have a couple ofchoices right they can either
buy carbon credits, like fromorganizations like yours, or
(07:47):
they can become active in thatrenewable energy market as well.
Isn't that true?
Eric McAfee (07:53):
Yes, they can.
In 2005, george Bush waslooking to stop sending so much
cash over to our enemies,essentially, and today we send
about a half a billion dollars aday to the Middle East and
Venezuela and Nigeria, and it'scompletely voluntary.
The United States is stilldependent on receiving
(08:15):
approximately half of our crudeoil from imports.
And so if you would havethought 50 years ago if John F
Kennedy would have said we'regoing to go to the moon and
we're going to become energyindependent, we're going to use
our waste streams from ouragriculture and from our towns
and we're going to optimize,let's say, fracking, which they
didn't know about 50 years ago.
(08:35):
We're going to optimize theproduction of oil and natural
gas.
We're going to become a countrythat can export our energy to
other countries and not bedependent on them, that can
export our energy to othercountries and not be dependent
upon them.
Think about how many wars andmilitary budgets we've had to
fund in the ensuing 50 years.
That would not have beennecessary.
I do like telling people if itwas all about humanitarian work,
(08:57):
we would have invaded the Sudanwhen the Houthis and the Tutsis
were killing each other, but wedidn't.
And why did we wander intoKuwait with a whole bunch of
airplanes and then on to Iraq.
It's clear it's because of thedependence we have on oil and I
think, in terms of running acountry, corn soybeans grown on
(09:19):
approximately 160 million acresof American soil is a very
distinct strategic advantage.
If you just look at the globeand you notice that the Sahara
doesn't have a whole lot of cornand soybean being grown, even
the jungles of Brazil struggleto have consistent supply chains
that can support agriculturaldevelopment, and you start
(09:41):
really looking around the globeChina, russia they're very cold
countries, you know.
I think San Francisco is aboutequal to the middle of China, so
you're just not sitting in aglobe that can grow a lot of
agricultural products and to acertain extent we don't
understand that in the UnitedStates is a source of not only
food but fuel.
And in the United States, froma policy perspective, for at
(10:04):
least the last 20 years we'vestruggled with the idea that if
you take the starch from cornand turn it into a fuel, you're
somehow starving people.
My point is that 42% of theAmerican corn crop goes through
an ethanol plant so it can becheaper animal feed.
People only eat about 1% of thecorn.
It's not actually the fieldcorn that goes through an
(10:26):
ethanol plant right, it's anedible corn product.
That's only about 1% of thecorn industry.
The rest of it's an industrialproduct.
It's how we use that industrialinfrastructure to make the food
cheaper is what's interesting.
Well, 42% of the corn crop goesthrough the starch, which is
72% of the corn kernel, becomessugar, becomes ethanol through
yeast, making the other 28%cheaper than any other product
(10:50):
in the market.
Now why do I like to say that?
Because we couldn't sellanything if we just went to our
customer and said look, I knowyou can buy it cheaper elsewhere
, but please, just because we'rea bunch of Midwestern farmers
and elevators, would you pleasejust pay us a premium over what
else you could buy.
We wouldn't sell anything withthat sales pitch.
We have to be able to be in aposition to sell the distiller's
(11:12):
grain, which is the protein,oil and fiber, the 28% of the
corn kernel that cannot becomesugar and cannot become ethanol.
We have to sell that at a lowerprice than every single
commodity that's in themarketplace, and we do that
because we have an ethanolindustry.
So I don't know how this worksat scale, but I like saying to
(11:33):
people.
You know when you eat a donutyou're eating starch.
We really don't need to give asmany donuts to dairy cows as
what we currently do.
So why don't we take the donutsout, make that into fuel and
then sell the protein, oil andfiber at a discount Out here in
California?
It's almost a 10% discount.
We sell to every otheravailable commodity from any
(11:56):
location on the planet Earth andI think with that mentality
we're now thinking like acountry that can use our
agricultural lands to providelower cost energy.
By the way, our ethanol sellsfor a net price of about $1.80.
I go across the street and Ibuy it back.
The same molecule we justshipped I pay over $4 a gallon
(12:16):
for here in California.
So if we could just figure outthat we should not be importing
this crude oil and all thedamage of environment and
terrorism and, you know,supporting bad regimes and all
the stuff that goes on, butinstead fund the american corn
farmer, the american elevator,american railroad and trucking.
(12:37):
That's really physically whowe're funding with that money,
right, uh, I think we veryquickly find ourselves to be a
country that has a lowermilitary expenditure and a whole
lot fewer wars than wecurrently have.
Jim Lenz, GEAPS (12:49):
Wow, what an incredible perspective that
you're at.
I think that is just awakeningto how you just expressed that
there is a lot going on in DC.
I'm sure you and yourorganization has been very
active there.
I spent a lot of time there andyour organization has been very
active there.
I spent a lot of time there.
Could you please share a littlebit more information about 45Z
(13:10):
tax credit?
Let's go under the perspectivethat there are listeners who are
not aware of that.
Start off broad and then what'sthe impact of?
Where are we at right now?
Where do you think we need tohead?
Eric McAfee (13:23):
Absolutely Broadly.
Let's start with the idea ofwhat a tax credit is.
In order to have a tax credit,you have to have income tax
that's owed.
Well, you don't get income taxbefore you have revenue, so you
have to somehow get revenue.
In order to have revenue, youhave to build something.
In order to build something,you have to employ people.
So what is a tax credit?
It means somebody took a riskof employing people, building
(13:46):
something, making revenue,making a profit on that revenue,
and that percentage of thatprofit is owed as taxes.
And a tax credit says maybe wecan get other people to go, hire
people, build things.
That's investment.
Create revenues that meansdomestic cash instead of sending
money to some crude oil guy insome foreign country.
(14:06):
Make enough money that actuallymakes a profit.
And then the percentage of whatotherwise came to the
government, we're going to givesome portion of that back to the
fellow that made the originalinvestment.
Why?
Because otherwise we're justgoing to do what we're already
doing, which is buying fromNigeria and buying from
Venezuela and supporting somenasty regime in Iran.
(14:26):
Indirectly, we're buyingIranian oil, by the way, for
those who don't know about howthey shuffle oil out in the
Straits of Singapore, et cetera.
We're buying Russian and we'rebuying Iranian oil without our
knowledge.
So if we want to change it,then you have to step back and
say okay, look, we either giveequity to guys like Eric.
(14:48):
They do this in China all daylong.
I was in Hong Kong with fivefriends in high school and they
received $50 million directlyfrom the Chinese government
because they were making CD-ROMscarrying music which looked a
whole lot like thin film solarpanels, which looked a whole lot
like thin film solar panels.
So the Chinese government cameinto their business, said here
is 50 million in cash, go buythe equipment you need.
(15:09):
Here's the real estate you need.
I went and visited theirfactory up in mainland China and
it was just a massive openbuilding with a bunch of
unwrapped equipment in it andthey put up no money at all.
The Chinese government said youfive guys know how to make
music CDs.
I want you to make solar panels.
Go do it.
That's a way we could run the USeconomy.
(15:31):
Actually, that's the way we runour military.
We don't really go to peoplemaking tanks and bombs and
airplanes and say I want you tomake a hundred of these and you
know what, if they work on thebattlefield, I'll pay you for
them.
We don't do that.
We say make a hundred of them,whether they work or not, I'm
going to pay for them.
We put equity in our defensesystem because we really care
(15:51):
about defense and I'm completelysupportive of that.
But tax credits are a very looseway of saying look, we really
like to do something, but let'snot take much risk.
Unless that thing becomessuccessful and makes money and
has employed all these peoplemade all this investment.
We're never going to have topay up on the tax credit.
So it's kind of the limpest waythat you can support somebody
(16:15):
to say take all the risk, makethe whole thing happen.
Once you make money, then youdon't have to pay as much as in
taxes.
So up until 2022, tax creditswere just not that successful at
getting people to take a wholelot of risk, especially when you
have a whole lot of benefit ofnot having to fight foreign wars
and not having to send half abillion dollars of cash offshore
(16:35):
.
You'd think the US governmentwould be a whole lot better than
coming up with tax credits.
But from a politicalperspective, it is largely
opposed by the oil industry, andso the concept of biofuels and
renewable fuels, and so this wasable to get through Congress In
2022, there's one littlecomponent of tax credit that
changed the whole arrangement,and that was that they were
(16:58):
allowed to be transferable.
So if I make some money before2022, I had to wait for seven or
eight years before I haddepreciated all my assets and I
was now at a point in which Iwas paying big taxes and then I
finally would get some value outof the tax credit.
Well, that changed in 2022 bymaking them transferable.
(17:18):
What's that mean?
That means if today I make theinvestment, I create the reason
for the tax credit, I can gofind somebody who owes taxes
today and sell them my taxcredits at a discount, so
they're not worth as much asthey think that they're worth.
Why?
Because the guy buying it isgoing to give me cash and so he
(17:38):
wants a discount.
But with that cash, I cannothave to wait seven or eight
years.
It could actually be arelatively short period of time,
like a year, a year and a half,from the time which we make the
investment to when we actuallyare generating tax credits.
So 45Z became effective January1, 2025.
Remember, the law was passed inAugust of 2022.
(18:00):
So two and a half years afterthe law started.
So two and a half years afterpeople like Ametis started
investing money.
The US government then wouldsay, okay, the revenue you're
getting from those investmentsstarting January 1, 2025, will
now be able to have thistransferable tax creditor to
(18:20):
generate another stream ofrevenue to pay you back your
investment, creating jobs andeverything else that you get as
a benefit of renewable fuels.
Unfortunately, the way the taxcredits work is that tax
accountants and tax lawyers haveto agree that the tax credit
calculation is correct, and theformer presidential
(18:42):
administration, after two and ahalf years, had still not issued
a final rule on how youcalculate the tax credit.
So I've been in Washington DCseveral times recently meeting
with senators and with agenciesand industries in the biogas
business and in the ethanolbusiness, et cetera, trying to
get it, et cetera, trying to getit, but in the same page on.
(19:06):
This is exactly how we canexecute now to get this letter
from the US probably eithertreasury or an internal revenue
service saying this is the wayyou calculate your credit.
You can now rely upon this.
So when I sell it to a taxpayerwho owes taxes and they go in
and file their taxes, they don'tget rejected by the IRS.
And you know, you think two anda half years would be long
enough for somebody to issue adocument that's a few pages long
(19:27):
saying here's the formula, thisplus this with this there's
literally three numbers in theformula and unfortunately, for
political reasons and otherreasons, that did not happen.
So as a industry, I look atthis as a value chain.
So something that doesn't happenat an ethanol plant, for
example, an ethanol plant can'tget 45 Z revenue from production
(19:50):
tax credits.
They produced a gallon.
They're supposed to get someinvestment, some of their
investment, back.
When that doesn't happen, thenwhen the corn elevator calls
them and says, hey, you ready tobuy?
They say yeah, but I can't payas much.
So the corn elevator calls themand says, hey, you ready to buy
?
They say yeah, but I can't payas much.
So the corn elevator then tellsthe farmer oh, by the way,
today's spot price wish it wasbetter, but it's not as good as
(20:11):
what it ought to be.
I'm sorry you're having lossesbecause your fertilizer costs
are higher and your diesel costsare higher and the labor costs
are higher.
Everything else, you know, ishigher, but I can't really pay
you anymore for your corn.
I don't really pay you anymorefor your corn.
I don't know why.
Well, I know why it's becausethey changed the regime of what
you're supposed to be investingin and did not perform as a
federal government in deliveringa simple little tax form.
(20:34):
It literally is a little formthat says this number times,
this number times this number.
Please fill out the number atthe bottom.
And that form does not exist ina usable form.
So our need as an industry isto communicate this to Senator
Thune of South Dakota, who caresa lot about biofuels I've met
with his chief staff person onthis one Senator Grassley, a
(20:56):
senior Nebraska senator, andSenator Ricketts.
These five or six senators fromwhat I call the corn and
ethanol states need to be ableto say to the IRS a farmer by
the name of Billy Long from the7th Congressional District is
(21:18):
proposed to be the head of theIRS.
And then you can say, mr BillyLong, if we wait around and tell
the big beautiful tax billlater on this year, that starts
again what happened in August of2022.
They passed laws.
It starts again the IRS andTreasury rulemaking process,
which last time, after two and ahalf years.
They not only didn't have afinal rule or proposed rule,
(21:40):
they literally had an intentionto propose a rule.
That's how far they'd gone intwo and a half years.
So it's not acceptable for us ascorn farmers, as elevators and,
frankly, railroads that make abunch of money on this business,
as well as biofuels producers,an ethanol business for us to
fiddle around with not enforcingfederal law for another two,
(22:03):
three, four years.
Why do I say not enforcingfederal law?
Because it is federal law.
The Congress and the presidentsigned that, starting January 1,
2025, if you produce a gallonof ethanol and if it is
according to the Greek model,this carbon intensity, then this
is what you're going to get incash.
And is there any reason whythat's not happening?
Yeah, somebody is not enforcingfederal law.
(22:25):
So one of the opportunities forthe new administration is to
respect the rule of law and theright to private property and
not select certain federal lawsthat are going to enforce
strictly and other ones that canI kind of ignore.
We've seen what that looks likealready.
Let's actually enforce federallaw.
So this is a multi-billiondollar investment opportunity
(22:48):
that comes through tax credit,so only paid by people making
profits.
You don't make a profit, thetax credit is completely
worthless.
So you have to find somebodywho's making a profit to fund
somebody that wants to make aninvestment and create new jobs
and create new domestic productsand unless that system works,
(23:11):
there's no tax credit cost toanybody.
And I'm very interested in asmany people as possible calling
their congressmen saying 45Zproduction tax credit started
January 1, 2025.
Why is it we don't have an IRSprivate letter ruling, an IRS
ruling on how to do that?
Jim Lenz, GEAPS (23:25):
The ripple effect is real.
You expressed that.
So there's a lot of educationyou and your team did, and
others, to get people up tospeed as quick as possible, give
them an overview of the impactit really has.
And we do fundamentally need tosupport where the food chain
starts right With the, or thesupply chain with the, with
(23:46):
farmers, with the producers, andthen it carries through.
So you express that clearly.
Thank you for that.
That's really helpful, I think,for those working in the grain
industry to see people worry atwhat steps need to be taken here
.
So that's great.
Eric, with the recent executiveorders from President Trump,
including the National EnergyEmergency and unleashing
(24:08):
American energy, how do you seethese changes affecting both
Hematis and the broader biofuelsindustry?
I?
Eric McAfee (24:17):
think it's a great opportunity.
Of course, the challenge ineverything is execution not
necessarily coming up with agreat grand vision, but actual
execution.
And I'll go back to ourprevious point, which is Billy
Long, new head of the IRS,farmer from Missouri.
If he decides you know what weneed to get the production tax
(24:37):
credit, which is federal law, tohave a form that people can
fill out and send in, I bet youin about six hours, because he
would just pull out form 3800and you would fill out the cells
below.
They already have a draft ofthe thing, it's just they
haven't completed it, theyhaven't issued it, and so I
(24:57):
personally think in a crisis youknow we all live through COVID
we saw things that were beyondextraordinary.
The government got done invirtually no time at all.
That previously they would havesaid is absolutely impossible.
We can't do that in less thanyears.
Well, they do it in a day or twodays by declaring an energy
crisis and adding biofuelsspecifically in the energy
(25:19):
crisis, and then in item B, thesecond solution was a 15%
ethanol blend up from 10%.
Just open up doors that we'venot had, and if the grain
industry in the United Statesand the grain elevator industry
in the United States wants tosee growth in margins.
You need to offset the factthat the 10% cap on ethanol
(25:43):
blend effectively means all ofthe ethanol is sold essentially
a little bit above cost On theaverage.
It's a little bit above costbecause the supply and demand is
that we have about 18.2 billiongallons of production.
We only produce about 17billion gallons.
We have a billion gallons ofcorn ethanol that doesn't run,
meaning whoever does run betterbe at the lowest cost possible.
(26:04):
Because there's have a billiongallons of corn ethanol that
doesn't run, meaning whoeverdoes run better be at the lowest
cost possible, because there'salways a billion gallons waiting
to come in as soon as there'sany margin, which tells me that
the grain elevator guy getssquashed, which means the corn
guy gets squashed.
Why?
Because the ethanol guy can'tsell all the product he could
produce.
So going from a 10% ethanolblend to 15% adds over 5 billion
(26:24):
gallons of new demand, causingthe oil industry then to say
wait a minute, I've got toactually buy this stuff because
it's domestic, it's lowemissions, et cetera.
Rather than buying a crude oilload from the Saudis, they've
got to buy something from abunch of corn farmers in the
Midwest, and so by taking thelid off of that, we then get a
(26:48):
price competition.
It's not a mandate, it's justthe Exxon station and the Shell
station right across from eachother.
Shell station comes in at 30cents less per gallon, why?
Because he's blending moreethanol and ethanol only costs a
couple bucks $2.20, $2.30.
And the other guy's got fuelthat's costing $3.20.
So, before you know it, pricecompetition means that they'll
(27:13):
buy all the ethanol you canproduce and all the corn you can
produce and you get theseindirect effects which I feel
personally.
I grew up in a rural area, Idon't know, 10 miles from the
nearest small town of 3,000people, and it is leadership
that shows you push moneythrough that small town.
(27:33):
The schools are going to bebetter, the community colleges
are going to be better, thebanks are going to be stronger,
the infrastructure of thosetowns will have a fabric to them
when you have domestic energyas a new driver, not just
competing against Chileanimported foods or Mexican
avocados or whatever.
(27:53):
Which is what has happened tothe agricultural industry is.
It's largely become a global,12-month-a-year industry with a
lot of lack of understanding ofthe strategic nature of the food
and fuel products that ourfarmers actually make here in
the US.
Jim Lenz, GEAPS (28:11):
So this is a big deal.
The domestic energy is critical, and how things are hopefully
going to shape out here willreally help our industry.
And then peripheral industries,like you said, the rail
industry, the transport, allthis, and it goes on and on all
the way.
You even mentioned to thequality of schools and school
districts.
Those are conversations thatare so important for people to
(28:34):
hear and understand, especiallythose who are spending a lot of
time in DC.
So I also want to talk a littlebit about USDA REAP loans and
dairy digesters.
Inmetis has secured significantfunding through USDA REAP loans
and has expanded its dairydigester projects.
What role do you see thesedigesters play in the renewable
(28:56):
energy landscape?
You touched on a little bitearlier, but can you add some
details into how might thisimpact grain producers and the
overall agricultural community?
Eric McAfee (29:06):
Certainly.
Let's start at the end.
California Air Resources Board,for approximately the last 15
years, has run the low carbonfuel standard.
It's basically the highestvalue for the lowest carbon
molecule and on the chart of thehigher carbon molecules to the
lowest carbon molecule, thelowest carbon molecule is dairy
methane.
(29:27):
Dairy methane produces dairyrenewable natural gas and 25% of
the methane in Californiabubbles up out of these lagoons.
The waste lagoons at dairiesbuild a lagoon with a cover and
a liner underneath it, sonothing goes in the groundwater
and you capture that methane.
(29:47):
You end up with a negative inour case negative 380 carbon
intensity fuel, because whenmethane goes up in the
atmosphere it's 84 times worsethan CO2 in the first 20 years.
Methane is very, very good atcapturing heat.
So under the carbon math putout by the Department of Energy
and a lot of other folks, youbasically want to try to not put
(30:09):
methane in the atmosphere.
By the way, it's not good forhealth, it smells bad.
There's a lot of other reasons,but bottom line is it's also
really good at capturing heat.
So dairy is a very attractiveway to have a big impact on the
California low-carbon fuelstandard, as the state of
California is trying to say, ofthe jet fuel, diesel, gasoline
(30:32):
and biogas fuels that we use inthe state.
How do we get lower and lowercarbon intensity?
Well, gosh, it would seem to methat dairy renewable natural
gas is clearly the place youwant to expand as fast as you
can, because you get the biggestbang for the buck.
So six years ago, we had aunique asset, and that was 80
dairy relationships, and I liketo say that the only real core
(30:55):
asset of the dairy renewablenatural gas business is your
ability to have a 35-yearagreement with the dairy farmer.
These tend to bemulti-generational family
businesses, and for them toagree for 35 years that somebody
can come on their propertyanytime of the day or night, any
day of the week, is a verylarge trust relationship, and so
(31:18):
we have signed 50 differentagreements with dairies.
We've built 16 of them.
We're rapidly buildingadditional ones, but the core
asset of the relationship isthat we're strengthening the
dairy sector.
So now let's step back and thinkabout grain and dairy animals.
At the end of the day, animalsaren't like an Amazon delivery.
(31:39):
They don't just show up of theday.
Animals aren't like an Amazondelivery.
They don't just show up.
Animals have to be fed and theyhave to be in a large way, have
to be a part of a supply chainthat's a massive supply chain of
grain growers, and soy meal andcorn meal certainly are key to
that.
Canola meal, of course, isn'tthere as well.
So I look at dairies as beingthe customers of farmers but are
(32:04):
in a large supply chain that,if at the end only make food,
means that their market isskipping the multi-trillion
dollar energy market.
So, at the end of the day, whatwe're doing with dairy renewable
natural gas is we're takingthat 28% of the corn kernel
that's not going into energy andadding another energy market to
(32:28):
it by feeding it to an animal,be it a feedlot which could have
processes that collect manure,or specifically a dairy's, we
are literally allowing dairiesto enter back into the energy
market from the distilled grainthat came out of an ethanol
market that already made animalfeed cheaper Remember we have to
be 10% cheaper than anybodyelse in our solar distilled
(32:49):
grain.
Well, now the dairy itself isselling into the energy market
with methane, into a veryvaluable energy market with
methane, and the value is lowcarbon fuel standard credits,
renewable fuel standard, as wellas 45Z production tax credits,
because it's the lowest carbonintensity fuel that's available
in the marketplace.
So by adding energy in atmultiple steps of the value
(33:13):
chain, the ethanol plant gets anenergy revenue.
It's called ethanol.
The dairy gets an energyrevenue.
It's called dairy renewablenatural gas.
What we're doing is making foodcheaper.
That's what we're doing.
If the dairy didn't have thatrevenue, what would it have to
do?
It'd have to have higher price.
Everything right Cheese, butter, cottage cheese, fluid milk,
beef.
I mean just everything thatdairy producers has to be more
(33:34):
expensive.
If they don't have the energyrevenue from the dairy, that
then flows back.
If you do have the additionalrevenue, then they can pay more
to the ethanol plant for thedistilled grain, and the ethanol
plant can pay more to the grainelevator and, I guess,
theoretically, the rail guy whogets their tax on everything.
So I look at it as a valuechain, and where the revenue is
(33:56):
in the value chain is where youcan then figure out what the
commodity prices are going to bethe more energy revenue we
throw into the value chain, thelower cost of the food that
comes out for the consumer andthe higher prices that happen
for the producer.
Jim Lenz, GEAPS (34:10):
That's the key Find out where is the biggest
revenue in this value chain, inthis supply chain.
That's going to help outeverybody.
That's going to help out thefarmers, that's going to help
with the grain elevators and allof the vendors and suppliers in
the industry who, which weserve as well.
California Air Resources Board,carb, had a recent approval for
(34:32):
your dairy digester pathwaysand expected increase LCFS
credits significantly.
How will this impact folks inthe renewable fuel space again?
Eric McAfee (34:44):
The low carbon fuel standard credits in California
have been lacking a perspectiveof what happens over the next
couple of decades and theydelayed, in my opinion, three
years longer than they shouldhave to come up with the
politically acceptable answer towhat's the next 20 years in
California look like November8th of last year, so just a
(35:06):
couple months ago they approvedthe next 20 years through 2045.
And now there's some ability tounderstand.
When you make a renewable fuel,what's the price going to look
like over time.
And when you're trying to,let's say, put together an
ethanol facility today from,let's say, a low-carbon
(35:27):
feedstock corn stover anotherplace in the value chain, would
go to the farmer and pay themfor CSA, which is their special
practices to grow corn withlower carbon intensity.
Well, if that flows through andyou get a production tax credit
that is significantly morevaluable because you have lower
(35:48):
carbon corn in it, you'repushing the production tax
credit revenue from an ethanolplant all the way back to the
grain elevator, to the cornfarmer, because the corn farmer
is doing something different.
You've just created anotherenergy revenue indirectly
because it comes through thevalue chain, but it's the corn
farmer waking up every daysaying you know what I think 10
points of carbon reduction,which is about 20%.
(36:09):
It's going to have a meaningfulimpact in this value chain.
Let me go ahead and do thoselower carbon production
processes.
And so at Amedis, that's whatwe pay attention to a lot is how
do we get, for example, lowcarbon fuel standard credits?
How do we get our carbonintensity lower?
The credit prices are going toincrease now that we have 20
years of visibility and it'svery clear that there's not
(36:31):
enough credits available,starting really about a year.
But within two years it's goingto be.
They're just not physicallythere, so the price goes up
quite a bit as people the oilcompanies are having to scramble
to ship into California, and soour opportunity is that corn
farmers participate in this.
Grain elevators currently don'thave a direct crop management
(36:52):
mechanism, but they couldcertainly be a part of the
education of farmers and will becore to the tracking of these
benefited acres right, you don'tuse certain fertilizer and do
certain no-till, et cetera.
Those acres of corn going intoa corn elevator and tracking
that and doing the book andclaim process is really going to
(37:13):
become a core business of grainelevators in the future.
So the ethanol producers suchas ourselves can say, if I buy
from this grain elevator, so theethanol producers such as
ourselves can say, if I buy fromthis grain elevator, they have
tracked that they have 100,000acres that have CSA benefits of
10 points.
So I'm going to do someeconomics on my side to say, wow
, I could pay a lot more moneyfor that corn than from some
(37:33):
grain elevator that hasn'ttracked that and doesn't
evangelize to the corn farmerabout how they can also
participate in the renewableenergy domestic job creating
community building product thatthey're making.
Because if you make it intoenergy, you're directly not
exporting dollars to oftentimesour enemies.
Jim Lenz, GEAPS (37:58):
Incredible.
Wow, is it safe to say.
I mean or would you agree withthe statement examining lots of
industries out there.
Eric McAfee (38:07):
The grain industry is one of the most efficient
industries and the opportunitynow is, I think that we are
entering into a book and claimworld that is going to require
some new systems and leadershipso that we can quickly transform
(38:30):
the farms into lower carbon,higher value energy producers
and give them the financialbenefit of that.
So I think that the elevatorsthat are at the leading edge of
understanding 45Z production taxcredits, potentially even in
low carbon fuel standard there'sopportunities to have lower
(38:54):
carbon corn, and so I think it'sa little more fuzzy in the low
carbon fuel standard, but 45Zproduction tax credits
absolutely.
You're going to have a CSAcomponent, it's going to book
and claim, and the grain elevYou're going to have a CSA
component, it's going to bookand claim, and the grain
elevators are going to have ahuge business gathering up
billions of dollars of cash fromethanol plants and
disseminating it to 100 millionplus acres of corn and soybean
(39:15):
farmers over time.
So I think there's anopportunity for systems
development, but a lot ofeducation, just educational
opportunities on how a farm canbe better at being an energy
producer.
Jim Lenz, GEAPS (39:29):
Just a tangent here, but maybe not.
You just meant education.
Where do you see if you havesomeone who is in high school
right now who has interest inegg space, has interest in the
world that they live in andworld about energy?
It has an impact in so manydifferent facets and countries
(39:51):
around the world and they, ofcourse, feed and fuel the world
besides energy and produce lotsof products.
What if you're speaking tosomeone who has genuine interest
in entering this space and youare a rare person that has just
depth and broad scope what isyour advice, maybe as an area
(40:13):
that one could enter if theyhave just curiosity in the space
and they want to make impact?
Eric McAfee (40:19):
Well, first of all, if they come from a farming
family, run the family farm, andI'm saying that because we've
had a shrinking population ofactual farmers in the US.
Automation has driven a lot ofthat.
But also it's just the realitythat it's a lifestyle for your
family and if you're not on thefarm then you're giving up that
lifestyle.
And if you grew up on a farm,that's really giving up that
(40:40):
lifestyle.
And if you grew up on a farm,that's really one of the first
choices you get to make in lifeis do I want to invest in that
lifestyle for me and my family?
And if you have an appetite todo that, I can tell you there
are ways for you to directly bein the energy business.
There's ways for you todirectly be in the technology
business.
The process of book and claimand all that is going to require
(41:03):
leadership in your localcommunity on how that is managed
to meet these new initiativesfrom the treasury and IRS on how
you do book and claim, andyounger people are going to be
very well positioned to goaround in their community and
say guys, here, let's worktogether.
I've got this software programand it needs to have that
(41:23):
documentation to work.
Let me be a leader in how to dothat.
We're going to need thatyouthful energy and technology
understanding in order tomaximize the energy industry
outputs of farms, and my hope isthat we would drive yields per
acre so it doesn't require asmany additional acres.
Because you drive yields peracre, we drive lower carbon
(41:48):
intensity practices, so our soilis more sustainable.
So for some of them, it's go toschool and learn all about
sustainability practices inagriculture and then come back
and grow things slightlydifferent than the next one.
If you lower fertilizer inputs,you're lowering natural gas
inputs.
You're lowering natural gasinputs.
You're lowering the carbonintensity of what you're doing
and potentially making the USthat much more independent.
(42:11):
So we have many opportunities inag culture that are at such
massive scale that many peoplecan't comprehend.
160 million acres need to beimpacted by a certain process
and I think some people that areyoung, people that grew up on
farms or in smaller communitieshave an easier time grasping how
(42:32):
to directly impact this uh foodand energy value chain because
increasingly it's adding thatenergy layer in.
It's just going to be a layerof complexity that farmers are
going to have a hard timeadopting to, and I think the
grain elevator is going to becore to that.
The grain elevator, I think, isgoing to need a lot of young,
trained people to go out and toevangelize and then to
(42:55):
systematize and to actuallyexecute on getting more and more
energy revenue coming throughthe grain elevator that then
gets spread around the localcommunity.
Jim Lenz, GEAPS (43:05):
Very nice.
Thank you for that touch.
So many people are new thatcome into the industry and that
can be a challenge.
Any quick thoughts or words ofwisdom in relation to supporting
those who are new to industryand get them to the speed,
because there are jobopportunities there and you know
the struggle is real to findthose curious people and
hardworking people to do that.
Eric McAfee (43:26):
Well, hopefully, what we're going to have this
year is an increasing shortagein ethanol production in the
United States.
Why?
Because if we go to E15, whichthe president is already well in
his energy crisis, he said E15is listed as number two solution
for how to do this.
That would require theconstruction of new ethanol
(43:46):
facilities.
That would require expansion ofour corn production in the US.
There are other feedstocks forethanol that include
agricultural wastes, such ascorn stover, et cetera, and so I
think we could be entering intoa cycle of innovation of how to
make the ethanol molecule.
Ethanol is a great hydrocarbon.
You can turn it into jet fuel,turn it into lots of other
(44:09):
products, so the ability to makeethanol is like a fundamental
chemical building block for evenplastics and other things.
So I think from the farmperspective, people looking to
get into the industry couldreally start with watch this
process happen of expandingethanol, and you're going to
(44:29):
just need a lot more cornfarmers, a lot more corn
elevators and a lot more ethanolplants to add another 5 billion
gallons on top of the industrywith only capacity of 18 billion
, and I'm talking about from the18 billion we're going to
export about 2 billion, so we'reseveral billion short 4 to 5
billion gallons short and itcould be a growth cycle that
(44:49):
young people could participatein in many, many ways, as you're
building this new productionand conversion capacity.
Jim Lenz, GEAPS (44:56):
Eric McAbee.
Thank you so much.
I don't want to take any moreof your time.
It's so generous to speak withme the last hour about this.
But any final summarystatements speaking to the grain
handling and grain processingindustry.
I know they're probably waiting.
Every last word you're sayingit's been so enlightening, but
any statements you want toconclude here.
Eric McAfee (45:16):
I think there should be a closer partnership
between the corn farmers and,you know, the corn growers
associations, the elevatorassociations and the ethanol
associations I'd almost throwbiogas in there, because
remember how biogas isdownstream of the ethanol plant
but flows directly back into it.
And I think that the simplefederal policies, such as the
(45:39):
45Z production tax credit, areso common to the interests of
those four different groups thatthey should be a unified voice.
And what's, at least in my view, fairly clear is that the US
Senate is controlled by onlyabout two votes right now.
So if you have Thune, grassley,ernst, ricketts and Fisher,
(46:00):
that all say, yeah, that's whatwe want to do, there's nobody
else to talk to.
You don't have to talk to theWhite House, you don't have to
talk to the agencies, you don'thave to talk to anybody, because
nothing goes through the Senatewithout those five people
saying, yeah, we want to do it.
So I think those four groupsthat I mentioned, talking to the
five people that I've alreadymet with and their staff, we,
(46:21):
the five people that I'vealready met with and their
staffs we can get a lot done andit's all positive, it's all
good, it's all consistent withour current administration's
policy.
It's answering the executiveorders.
It's the way to move forward.
But I think we need to be on thesingle page of paper and
targeted this very narrow set ofsenators Now derivatively yeah,
you end up with some WhiteHouse people involved, I get it,
but you just need those peopleto understand the message and be
(46:42):
committed to it and we're good.
We are absolutely going to getE15 done, production tax credit
done.
We're going to get thetransferability we need.
We'll get CSA for farmers.
We'll get what we need becauseit's a very short list in order
to be very successful in theenergy business.
So my message would be ifyou're having any confusion at
(47:03):
all about what I just said,please just call me, email me,
and my name and my email is allover the InMetis website, et
cetera, and we need to see thisas an opening of an opportunity
by the new administration.
But we have to step through thedoor and I have a strong desire
that the message be simplifiedso we can actually make progress
(47:26):
as we step through the door,rather than coming through with
a lot of confusing messages thatare not actionable.
I think we have some veryactionable messages at this
point.
Jim Lenz, GEAPS (47:35):
Simplify that message and unify, unify, unify,
unify, unify.
What a great message fromsomeone who grew up in a very
rural area of california, like20 30 minutes from the nearest
town, that only had 3 000 people.
Oh my goodness.
Innovator, investor supportingthe energy industry, the food
(47:56):
industry and so many otherproducts eric mcafee.
It has been an absolutepleasure and I'm so excited for
those listeners of Chief's WholeGrain Podcast around the world
listening to this specialepisode.
Thank you so much.
Thank you, jim.
Appreciate your time.
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