Chuck Haralson and Ken Smith were inducted into the Arkansas Tourism Hall of Fame during the 43rd annual Governor’s Conference on Tourism
WASHINGTON — For most of this decade, Arkansas politicians and many in the state's agricultural community have talked euphorically about the potential of biodiesel, an alternative fuel made from soybeans, to be a bonanza for the state.
But that picture is being questioned by critics who consider both biodiesel and its “big brother,” corn-based ethanol, to be government-subsidized boondoggles that take attention and money away from better solutions to dependence on fossil fuels.
Yet visions abounded — and still do — of a line of biodiesel plants running up and down the Mississippi Delta, adding to local tax bases and generating economic development in rural areas, as well as giving Arkansas farmers a voracious new market for soybeans, the state's second most important crop behind rice.
The state's farm press, university researchers and lawmakers, especially the congressional delegation, have been among the loudest in trumpeting the potential of Arkansas to become a major producer of biodiesel, which serves as either an additive to or replacement for petroleum-based diesel in buses, trucks, farm and other heavy equipment.
It can be labeled anything from “B2,” meaning diesel with 2 percent biodiesel content, to “B100” which is pure biodiesel. There about 65 service stations or other outlets that sell biodiesel in Arkansas, most located in eastern Arkansas and Pulaski County.
Arkansas leaders also talk of the state being in position to make a mark with other “biofuels,” such as “cellulosic ethanol.” The latter is made by breaking down the cell walls of non-edible vegetation such as forest slash, rice hulls or switchgrass to unleash sugars, just as getting sugar from corn is the key to making ethanol.
Scientists view cellulosic ethanol as a more environmentally friendly than corn-based ethanol, although the latter has received federal subsidies for close to three decades and is associated with powerful members of Congress from the Midwest and mega corporations like Archer-Daniels Midland and Cargill Inc.
For Arkansas, the logic behind being a biofuels leader seemed simple. A booming biodiesel industry ought to be a given for one of the top soybean-producing states in the nation. And with the state's abundance of agricultural and forest by-products, finding enough “biomass” to have a booming cellulosic ethanol industry seemed inevitable as well.
Headlines like “Arkansas could be biofuels production center” or “Biodiesel Fueling Arkansas Farms” sprouted like kudzu on many of the state's agricultural websites and regional farm journals in recent years.
But lately, the outlook for biofuels nationally, especially biodiesel and corn-based ethanol, has been clouded by changing economics and controversies over whether they are really environmentally beneficial.
“Since 2006, there has been a dramatic change of perspective,” Doug Koplow, an expert on alternative fuels at Earth Track, an energy research firm in Cambridge, Mass., said.
While optimism about cellulosic ethanol continues, a commercially viable plant still doesn't exist either in Arkansas or the rest of the United States. Production so far has been limited to laboratories and a few pilot plants.
And while production of biodiesel has exploded nationally — largely because of federal subsidies — the industry is off to a slow start in Arkansas.
While Arkansas remains a top 10 soybean-producing state, it ranks only 20th in biodiesel production capacity, according to the National Biodiesel Board, an industry trade group. It's far behind states such as Iowa, Texas and Illinois.
As a result, Arkansas has just three operating biodiesel plants, two of which came on line just in 2008. They are located in Batesville, DeWitt and Crossett. A fourth, in Helena-West Helena, is expected to begin operation sometime this year. Still another plant, built in Stuttgart, was severely damaged by a tornado last year, and it's still not known whether it will be brought back to life, said Richard Bell, the state's secretary of agriculture.
In contrast, Iowa already has 14 plants and many more on the drawing board.
Arkansas' production capacity is about 70 million gallons a year, out of 2.61 billion nationwide. Actual production will only be about 15 million gallons in 2008 out of nearly 500 million nationwide, the state Agriculture Department says. The small volume is due in part to the high price of soybeans, which is driven by intense worldwide demand. A decade ago, a bushel of Arkansas soybeans sold for around $5.50. For most of last year, the price was around $12 or more.
Some observers acknowledge the industry has not taken off in Arkansas as hoped.
“Some were wildly optimistic and it's what I call wishful thinking,” said Chris Benson, who heads energy policy for the Arkansas Economic Development Commission. Benson has stressed that Arkansas's real potential as a biofuels state resides with cellulosic ethanol.
Others say the state needs to be more aggressive about developing biodiesel.
“We have to get off our rump … or we will still be at the mercy of people overseas,” added Terry McCullars, general manager of the plant started this year by Arkansas SoyEnergy Group in DeWitt.
And soybean farmer Robert Stobaugh of Atkins, who represents Arkansas on the National Biodiesel Board, said: “I'd be reluctant to call it a big boon [to rural development in Arkansas]. It is part of the puzzle.”
But the state's political elite continue to extol Arkansas's potential.
At an energy conference at the University of Arkansas at Monticello last year, Democratic Rep. Mike Ross proclaimed Arkansas “can be at the forefront in the production of these renewable fuels because of the abundance of raw materials in the state.” He added that it could “trigger an economic and agricultural revival right here in Arkansas.”
Sen. Blanche Lincoln has been fighting for biodiesel subsidies for almost her entire 10-year career in the Senate and the National Biodiesel Board regards her as one of the industry's “champions.”
The group, with offices in Jefferson City, Mo., and Washington, D.C., praised her for “blazing trails” by fighting for a 10-year extension of federal income and excise tax credits related to biodiesel. Lincoln herself says Arkansas is “critically positioned” to be a biofuels leader.
Gov. Mike Beebe has said that Arkansas has the potential to be a “Silicon Valley” of biofuels. Others have echoed the line.
Agriculture secretary Bell has told civic club audiences that biofuels promise to become a “centerpiece” of Arkansas agriculture.
Bell defends the progress of the industry in the state so far, noting that the first Arkansas plant, operated by Future Fuels Corp. at Batesville, did not come on line until 2006. “From where we started we've come a long way,” he said.
Yet Iowa, a similarly-sized state, has seen its biodiesel industry almost match its ethanol plants in terms of rapid development. As early as 1995, an Iowa State University report called for a “build it and they will come” attitude, and the state has proven to be very aggressive in promoting production, including passage of a state “renewable fuel standard” that mandates diesel sold in the state be mixed with certain amounts of biodiesel.
Bell said such a mandate would help in Arkansas too, and that it should be an issue in the 2009 legislative session. Opposition, he said, could come from companies with large truck fleets, including Wal-Mart Stores Inc.
LECG, a worldwide consulting firm, issued a report on Iowa's biodiesel industry that said its expansion “has produced significant economic benefits in the form of Gross Domestic Product, household income, the creation of new jobs, and increased state tax revenues.”
In 2008 alone, it estimated, the bio-diesel industry would add $655 million to the state's GDP, generate $17.4 million in household income and support 3,751 jobs throughout all sectors of Iowa's economy.
Further, it said the combination of federal and state incentives will cause demand for biodiesel in the Hawkeye state to increase from 66 million gallons in 2007 to 218 million gallons by 2012.
Comparable studies about biodiesel's potential effects on the Arkansas economy, produced by researchers at the University of Arkansas and consultants hired by Winrock International, are several years old and do not go into that kind of detail.
The study done for Winrock, however, did call for the state to mandate the use of biodiesel as a way to promote growth of the industry.
Regardless, comparing Arkansas to Iowa is not fair, said Bell. Iowa's soybean growers are more landlocked and have less access to overseas markets. Therefore, they have more incentive to sell their product for fuel production rather than food and that has helped make that state's biodiesel industry more robust.
“We're not going to replace Iowa on biodiesel from soybeans,” Bell said.
Added Benson, “Their cost structures are different up there.”
Bell said Arkansas soybean farmers, being closer to the Gulf of Mexico, have more incentive to sell on the world market, where demand has intensified. Increasing meat consumption in many countries has helped drive that demand. Soybeans are prominent in making animal feed.
So even if the Arkansas biodiesel industry is developing slowly, the state's soybean farmers will not suffer as long as worldwide demand keeps prices high, University of Arkansas agricultural economist Michael Popp said.
But some of the other economic spinoffs from biodiesel plants that could boost rural areas will be missed, experts acknowledge. For instance, biodiesel plants often represent at least an $80 million to $90 million investment, which is a nice sum to add to local tax rolls. Overall, the plants are a “nice shot in the arm [for rural areas],” Benson said.
And those price trends that make Arkansas soybean producers less interested in selling to the biodiesel industry are likely to continue. University of Illinois agricultural economist Darrel Good co-authored a paper in September that argued a permanent upward price shift in soybeans has occurred.
And while this fall's financial crisis has caused soybean prices to fall back under $10 a bushel in recent weeks, commodity analyst Nathan Losey of AgResource in Chicago, an economic forecasting firm, contends that absent a worldwide depression, soybean prices will be climbing to $11.75 to $12.25 per bushel in the near future.
And if per-bushel prices continue to climb, biodiesel producers will likely look for other ways to make their product, industry observers say. Soybeans are the biggest cost factor in U.S. biodiesel production. But the product can also be made from canola or rapeseed — the primary ingredient in Europe's well-established biodiesel industry — as well as from palm oil and animal fats, plus leftover grease from restaurants. Algae harvested from ponds is another possibility, although that technology is even less developed than the one for cellulosic ethanol.
But Stobaugh and others say it's better for rural Arkansas to have it made from soybeans. Biodiesel plant managers add that if price were not an issue, they would prefer soybeans as their “feedstock.”
Brad Dobson, manager of the recently opened Crossett plant, Pinnacle Biofuels Inc., said the price situation causes him to use just 10 percent soybeans and 90 percent animal fats.
The only problem with using animal fats and grease is that it's harder to make large volumes of biodiesel from those “starting materials,” industry experts say.
Koplow of Earth Track said an industry reliant on animal fats or waste oils “may be viable, but only on a small scale.”
The Energy Information Administration, part of the Department of Energy, said biodiesel from restaurant grease, not soybeans, is probably the most cost-competitive with petroleum diesel. But limited availability of “yellow grease” would limit its use for biodiesel.
But then again, biodiesel is not your normal industry, Koplow contends. It is one heavily subsidized by the government. Congress, first in 2005 and then with follow-up legislation in 2007, has showered the biodiesel industry with so many subsides and tax breaks that existing plants will likely be able to survive even in times of very high soybean prices, he said.
Yet even with subsidies, Koplow said, most biodiesel plants have “operated at low capacity utilizations and rarely been profitable.” And if subsides were taken away completely, studies suggest the biodiesel would cease to exist, he and others maintain.
“If you eliminated subsidies, this thing [biodiesel] would be dead in a few seconds,” David Pimentel, professor of agriculture and ecology at Cornell University, said in a telephone interview. “It is way oversold, and the same thing for corn-based ethanol.”
As it is, the business press is littered with reports of more and more bankruptcies filed by operators of both ethanol and biodiesel plants over the last two years.
Subsidies for biodiesel are close to 70 times what they are for petroleum-based diesel, the Cornell professor said. And what the public often doesn't realize is that it takes more crude oil to make biodiesel than it does to make the petroleum-based variety.
In particular, he said, it takes 1.1 gallons of crude oil to produce 1 gallon of regular diesel. But it takes 1.6 gallons of oil to make 1 gallon of biodiesel. That's if soybeans are used, Pimentel said, “and they're the best.”
In short, the Cornell professor charged in an interview, “Your're hurting all taxpayers and not doing anything for energy independence.”
Pimentel's “net energy” argument, however, is disputed by other academics, including Bruce Dale, a chemical engineer at Michigan State University, who said in a paper of his own that it is “dead wrong and dangerously misleading.”
Still, experts like Koplow said it's time to ask if biofuels are worth taxpayer money more than other possible solutions to the nation's dependence on overseas oil.
Koplow in 2007 presented a report to the International Institute for Sustainable Development called “Biofuels — at What Cost? Government Support for Ethanol and Biodiesel in the United States.” In it, he said biofuels will receive in aggregate more than $92 billion in overlapping federal, state and municipal subsidies between 2006 and 2012, with about $10.8 billion of that going toward biodiesel.
The report adds that the biodiesel industry in particular “has grown faster than has demand for the product.” The industry utilizes only about 50 percent of its production capacity and that figure is likely to drop as new plants come on line.
A separate Congressional Research Service report noted that at the federal level alone, ethanol and biodiesel receive support from 18 different federal programs administered by five separate agencies and departments.
Koplow, in an e-mail, said all he wants from the government is “policy neutrality” toward different approaches to curing America of its oil addiction, “rather than have one politically motivated subsidy after another support a specific, favored industry.”
Meanwhile, biodiesel, like corn-based ethanol, is drawing increasing fire from environmentalists and other scientists at places such as Princeton University, the University of California at Berkeley, the University of Minnesota and the University of Texas at Austin, as well as the United Nations, the World Bank and the International Food Policy Institute in Washington. Contrary to popular belief, biofuels are doing more environmental harm than good, many of them argue. And they are also consuming crops needed by the world's hungry.
The environmental damages range from biofuel plants' own emissions to fertilizer runoff from growing extra corn and soybeans, causing “dead zones” in bodies of water, and greenhouse gas effects that come from clearing additional land so that needs for both fuel and food can be met.
The latter argument got substantial notice in papers written by Timothy D. Searchinger, an environmental scientist at Princeton.
He said production of biofuels drives changes in land use that results in more carbon and greenhouse gases being released into the atmosphere, not less. World demand for food is so high that acreage devoted to growing crops for fuel has to be offset by finding new acreage for food crops. Often, he said, it means disturbing previously uncleared forests or grasslands. The clearing of those lands means carbon previously “sequestered” by the vegetation covering them is released into the atmosphere.
“Making biofuels is a land use decision and the first question is whether the use of land for biofuels removes and keeps more carbon from the atmosphere than its alternative,” Searchinger wrote. About biodiesel production in particular, he concluded that it “dramatically increases greenhouse gas emissions compared to conventional diesel when factoring in emissions from land use change across a broad range of assumptions.”
This net increase in carbon into the atmosphere has been especially associated with land-clearing practices in South America and Southeast Asian countries. In the latter, tropical forests are often burned to make way for biofuels crops. A Business Week reporter in 2007 described “choking haze” in Singapore from forest fires set nearby to clear lands for palm oils.
Before Searchinger's study, it was assumed growing crops for biodiesel would benefit the environment through the plants taking carbon out of the atmosphere.
The release of “sequestered” carbon was never considered.
In reaction to the paper, a group of 10 prominent scientists from leading universities and scientific institutes wrote then-President Bush and congressional leaders warning “that many anticipated biofuels will actually exacerbate global warming.”
Bell, the Arkansas agriculture secretary, said of such arguments, “I don't buy into that all.”
But some members of the Arkansas congressional delegation say it's time to look at some of the criticisms of biofuels. “Some of the advocates have been unwilling to acknowledge the downside,” Demcratic Sen. Mark Pryor said.
And Lincoln, in an interview, acknowledged it was “impractical” to think all fossil fuels could be replaced with biofuels. There isn't enough acreage, she said.
Equally attention-getting have been charges that biofuel production is driving up food prices worldwide, adding to hunger.
President Barack Obama said in a May appearance on NBC's Meet the Press that “there's no doubt that biofuels may be contributing” to food supply and price problems.
The (London) Guardian reported in July that a World Bank economist had estimated a 75 percent increase in worldwide food prices due to biofuels. Lester Brown, president of the Earth Policy Institute, said the grain required to fill the 25-gallon gas tank of a sport utility vehicle would feed one person for a year.
Plans for still more ethanol and biodiesel plants, set the stage for “a battle between the world's 800 million automobile owners, who want to maintain their mobility, and the world's 2 billion poorest people, who simply want to survive,” Brown wrote in an op-ed in The Washington Post.
But the National Biodiesel Board, the industry trade group, and other defenders of biofuels dispute that there is a “food vs. fuel” competition.
The primary factors responsible for global grain price increases, it said, are the price of crude oil (which has lately dropped sharply), increased demand as developing countries grow in population and improve their diets, recent bad weather years in some parts of the world and export restrictions imposed by some countries.
And fuel production is not taking land away from food production, the group said. “The fact is new technologies are allowing farmers to produce far greater yields on the same number of acres,” the biodiesel board said.
But the Federal Reserve Bank of Minneapolis, in a recent review of biodiesel production in the Upper Midwest, noted that the combination of issues surrounding biodiesel, plus its effect on engine performance — harder to start in cold weather and decreased fuel efficiency — means “there are reasons to be skeptical of the biodiesel-as-miracle-fuel story.”