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Commentary Co-op business model well suited for next-generation biofuel development By Dallas Tonsager, Under Secretary the Midwest, we should USDA Rural Development also consider the economic opportunities Editor’s note: The following commentary is based on remarks afforded by a regional Tonsager delivered in January at the Fourth Annual Iowa energy system. The Renewable Fuels Association Conference in Des Moines, Iowa. production and use of renewables on a regional hen Congress passed the Energy basis make economic sense Independence and Security Act of 2007, it and represent a historic economic opportunity for established a significant challenge to the agricultural producers and rural America. nation to produce 36 billion gallons of How do we do this? biofuels by 2022 to power cars, trucks, jets, By working backward from the 36 billion-gallon target, ships and tractors. However, only 15 billion of the 36 billion using a regional supply-chain approach. We should focus on a gallons can come from corn ethanol. We are nearing that diverse group of dedicated feedstocks, including: 1. perennial point. The Energy Information Administration predicts that grasses; 2. energycane (similar to sugarcane); 3. biomass ethanol production will grow from about 11 billion gallons in sorghum; 4. oil seed crops and algae; 5. woody biomass. In 2009 to 12.95 billion gallons in 2010. using crop residues and planting special “energy crops” to This poses a substantial challenge to the nation as we tap produce biofuels, we must do so in a way that doesn’t deplete other renewable fuel sources. But we can achieve it if the soil fertility or create problems for other crops (see page 19 technology and lender confidence are there. of this issue for more on this topic). Biofuel production is an evolutionary process. As with A business model similar to how we developed the ethanol computer technology, the newest version is always just ahead industry can be used in this effort. Capital was found for of us. To reach our goal, second-generation biofuel ethanol projects in the 1990s by issuing proposals that asked technologies will need to become commercially viable, for public participation in a project. With the membership including those that turn crop residue (such as corn stover) fees paid, business plans were developed and prospectuses and energy crops (such as switchgrass) into ethanol. Third- were issued to sell stock in a company. generation biofuel technologies that turn feedstocks into If enough people were willing to invest, we would be able advanced biofuels will also be needed. USDA’s Research, to complete a project. We could spread the investor risk and Education and Economics Service is researching the the credit risk as widely as possible. technology needed for this effort, while USDA Rural To encourage public support, cooperatives are a great Development is working to forge the necessary business business model. New-generation cooperatives, unlike deals.
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