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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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