Jim Lenz, GEAPS: 0:49
All right. Today we’re diving into a topic that’s making waves across the industry the 45Z tax credit and its impact on biofuels in the grain sector and I can’t think of a better person to guide us through this than our guest, Eric McAfee. Eric is a highly respected entrepreneur, venture capitalist and a global leader in renewable energy. He’s the founder and CEO of Aemetis Incorporated, a company at the forefront of biofuels and renewable energy solutions. Over the years, Eric has founded and funded more than 30 companies across sectors like renewable energy, agriculture, medical devices and technology. Beyond that, he’s played a significant role in advancing biofuel technologies and shaping policies that affect industries like ours. He is a frequent speaker at major events worldwide, from the National Corn to Ethanol Research Center to Abu Dhabi Future Energy Summit, and today we are fortunate to have him here with us. Eric, welcome to the Whole Grain Podcast. It’s a pleasure to have you with us.
Eric McAfee: 1:50
Hi Jim, good to talk to you today.
Jim Lenz, GEAPS: 1:56
Our listeners can vary within the grain handling and processing industry, but it’s good to provide just an outlook, because what you do and who you serve and who you connect with has such a big impact on the livelihood of those that the Grain Elevator and Processing Society GEAPS supports. So let’s start off a little bit broad and then dig in a little bit deeper. We’re so fortunate and lucky to have you here today. So if you could provide some background, an overview of Metis, a little bit about the background, the history and the founding principles and mission of AE Metis.
Jim Lenz, GEAPS: 2:26
Yeah, thanks, Jim. Ae Metis is really our second biofuels company. First one was Pacific Ethanol, which I co-founded in 2003 and was focused on corn ethanol. We built four corn ethanol plants. We acquired four In 2006,. We wanted to focus on waste feedstocks and so sold out of my ownership. We’d taken Pacific Ethanol public by then and started Aemetis.
Jim Lenz, GEAPS: 2:48
Aemetis is focused on primarily carbon negative waste feedstocks. So our portfolio of activities includes owning the largest ethanol plant in California, about a 65 million gallon corn ethanol plant. But from that corn ethanol plant we have about 80 dairies and 100,000 dairy cows that we feed with the wet distillers grant from our plant. And that gave us an opportunity about six years ago to launch a dairy renewable natural gas business that now has 50 signed dairies, 16 operating dairies, 36 miles of biogas pipeline in the ground and a central cleanup hub which happens to be co-located with our ethanol plant, and we inject that carbon negative renewable natural gas into the natural gas pipeline. So we’re a provider of transportation fuel that actually came as methane from dairy digesters and we plan to, if possible, satisfy all 80 of our customers plus some more. So over the next five years this will be probably doubling to the 100 dairies for our project, and these are all connected by a network of pipelines to come to central cleanup opportunities. So the ethanol business is uniquely positioned to provide carbon negative fuel. Our average carbon intensity is negative 380 for capturing this methane that otherwise would go up in the atmosphere as a greenhouse gas.
Jim Lenz, GEAPS: 4:13
We also happen to be the largest biodiesel 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 that company public as we expand it into new sectors in India beyond biodiesel, and have populated with a growth-oriented management team. We’re excited about the country of India and we happen to be, I think, the only US operator operating in the biofuels industry in India and that helped us get a global perspective on supply chain. It gave us a bunch of advantages about bringing, for example, talo in the US to support some of our activities here.
Jim Lenz, GEAPS: 4:50
And the last thing I want to note is we do have a sustainable aviation fuel and renewable diesel plant that’s fully permitted and a carbon sequestration well that has already been fully permitted for the first phase and we’ve actually started the first phase of drilling on the carbon sequestration well, and that’s because all the activities I just described produce carbon dioxide, and when you capture carbon dioxide and sequester it permanently underground, you can essentially reverse climate change. Essentially, what you’re doing is sucking CO2 out of the atmosphere, and the oil industry is very much in support of this. It’s not only used for enhanced oil recovery, but also just pure sequestration as decarbonization of fuels and chemicals, and so we have emerged as one of the leading California carbon sequestration businesses, and we’re the largest renewable CO2 producer about 150,000 tons a year from our ethanol plant. So we’re very well positioned to finance and operate these wells because we produce the initial roughly 200,000 tons out of a 1.4 million ton per year injection well system that we’re building.
Jim Lenz, GEAPS: 5:55
That’s just incredible the wealth of experience that you have personally gained and all your team members, from supply chain to really examining a variety of options and peripheral opportunities and maybe duties to improve the environment and provide solutions. A couple of things just to keep in mind there. I’m just curious what does in India, where you said how many years have you been? 18 years, 18 years, and there’s been some governmental initiatives. Can you tell us about that and the impact that will have on renewable fuels? Tell us about that and the impact that will have on renewable fuels. What’s the focus in?
Eric McAfee: 6:35
India. Can you tell listeners about that? India has focused very much on ethanol because they are, I believe, the second largest sugar exporter in the world and so taking sugar, feeding it to yeast yeast makes ethanol is a very viable way for them to help their agricultural sector. They also are a country with no petroleum production. In terms of liquid petroleum. They’ve recently found some natural gas deposits, but they have to import all the petroleum, so any domestic ethanol they can produce can directly offset their import of crude oil to make gasoline, which is very beneficial to the country.
Eric McAfee: 7:10
They have a national biofuels policy that is updated every five years or so, currently targeting a 5% blend of biodiesel. Currently the country is at less than a 1% blend. It’s about 25 billion gallon diesel business, so they’re about a billion gallons short of the biodiesel they need. A 5% blend would be about 1.25 billion and they’re currently at about 250 million. So it’s a growth industry for biodiesel. And then biogas comes from all these agricultural activities, and the animal waste is a big supplier. Municipal landfills is another one, and so capturing that methane and using it as a fuel to replace gasoline and or diesel is quite a large business there. In terms of the grain market. This is a Wikipedia number, but they have the second largest number of cows and water buffalo in the world over 300 million animals and those animals have to get fed somehow. So India is definitely an export market that we all should be paying attention to in terms of animal feed commodities.
Jim Lenz, GEAPS: 8:13
So huge emphasis in there. It’s a lot of work that you did to get to that position. You’ve done a lot of work here in the United States in biofuse or renewable energies. People think about oil companies. They kind of have a couple of choices right they can either buy carbon credits, like from organizations like yours, or they can become active in that renewable energy market as well. Isn’t that true?
Eric McAfee: 8:40
Yes, they can. In 2005, george Bush was looking to stop sending so much cash over to our enemies, essentially, and today we send about a half a billion dollars a day to the Middle East and Venezuela and Nigeria, and it’s completely voluntary. The United States is still dependent on receiving approximately half of our crude oil from imports. And so if you would have thought 50 years ago if John F Kennedy would have said we’re going to go to the moon and we’re going to become energy independent, we’re going to use our waste streams from our agriculture and from our towns and we’re going to optimize, let’s say, fracking, which they didn’t know about 50 years ago. We’re going to optimize the production of oil and natural gas. We’re going to become a country that can export our energy to other countries and not be dependent on them, that can export our energy to other countries and not be dependent upon them. Think about how many wars and military budgets we’ve had to fund in the ensuing 50 years. That would not have been necessary. I do like telling people if it was all about humanitarian work, we would have invaded the Sudan when the Houthis and the Tutsis were killing each other, but we didn’t. And why did we wander into Kuwait with a whole bunch of airplanes and then on to Iraq. It’s clear it’s because of the dependence we have on oil and I think, in terms of running a country, corn soybeans grown on approximately 160 million acres of American soil is a very distinct strategic advantage. If you just look at the globe and you notice that the Sahara doesn’t have a whole lot of corn and soybean being grown, even the jungles of Brazil struggle to have consistent supply chains that can support agricultural development, and you start really looking around the globe China, russia they’re very cold countries, you know. I think San Francisco is about equal to the middle of China, so you’re just not sitting in a globe that can grow a lot of agricultural products and to a certain extent we don’t understand that in the United States is a source of not only food but fuel. And in the United States, from a policy perspective, for at least the last 20 years we’ve struggled with the idea that if you take the starch from corn and turn it into a fuel, you’re somehow starving people.
Eric McAfee: 11:00
My point is that 42% of the American corn crop goes through an ethanol plant so it can be cheaper animal feed. People only eat about 1% of the corn. It’s not actually the field corn that goes through an ethanol plant right, it’s an edible corn product. That’s only about 1% of the corn industry. The rest of it’s an industrial product. It’s how we use that industrial infrastructure to make the food cheaper is what’s interesting. Well, 42% of the corn crop goes through the starch, which is 72% of the corn kernel, becomes sugar, becomes ethanol through yeast, making the other 28% cheaper than any other product in the market.
Eric McAfee: 11:38
Now why do I like to say that? Because we couldn’t sell anything if we just went to our customer and said look, I know you can buy it cheaper elsewhere, but please, just because we’re a bunch of Midwestern farmers and elevators, would you please just pay us a premium over what else you could buy. We wouldn’t sell anything with that sales pitch. We have to be able to be in a position to sell the distiller’s grain, which is the protein, oil and fiber, the 28% of the corn kernel that cannot become sugar and cannot become ethanol. We have to sell that at a lower price than every single commodity that’s in the marketplace, and we do that because we have an ethanol industry. So I don’t know how this works at scale, but I like saying to people.
Eric McAfee: 12:21
You know when you eat a donut you’re eating starch. We really don’t need to give as many donuts to dairy cows as what we currently do. So why don’t we take the donuts out, make that into fuel and then sell the protein, oil and fiber at a discount Out here in California? It’s almost a 10% discount. We sell to every other available commodity from any location on the planet Earth and I think with that mentality we’re now thinking like a country that can use our agricultural lands to provide lower cost energy.
Eric McAfee: 12:54
By the way, our ethanol sells for a net price of about $1.80. I go across the street and I buy it back. The same molecule we just shipped I pay over $4 a gallon for here in California. So if we could just figure out that we should not be importing this crude oil and all the damage of environment and terrorism and, you know, supporting bad regimes and all the stuff that goes on, but instead fund the american corn farmer, the american elevator, american railroad and trucking. That’s really physically who we’re funding with that money, right, uh, I think we very quickly find ourselves to be a country that has a lower military expenditure and a whole lot fewer wars than we currently have.
Jim Lenz, GEAPS: 13:36
Wow, what an incredible perspective that you’re at. I think that is just awakening to how you just expressed that there is a lot going on in DC. I’m sure you and your organization has been very active there. I spent a lot of time there and your organization has been very active there. I spent a lot of time there. Could you please share a little bit more information about 45Z tax credit? Let’s go under the perspective that there are listeners who are not aware of that. Start off broad and then what’s the impact of? Where are we at right now? Where do you think we need to head?
Eric McAfee: 14:10
Absolutely Broadly. Let’s start with the idea of what 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 tax before you have revenue, so you have to somehow get revenue. In order to have revenue, you have to build something. In order to build something, you have to employ people. So what is a tax credit? It means somebody took a risk of employing people, building something, making revenue, making a profit on that revenue, and that percentage of that profit is owed as taxes. And a tax credit says maybe we can get other people to go, hire people, build things. That’s investment. Create revenues that means domestic cash instead of sending money to some crude oil guy in some foreign country. Make enough money that actually makes a profit. And then the percentage of what otherwise came to the government, we’re going to give some portion of that back to the fellow that made the original investment. Why? Because otherwise we’re just going to do what we’re already doing, which is buying from Nigeria and buying from Venezuela and supporting some nasty regime in Iran. Indirectly, we’re buying Iranian oil, by the way, for those who don’t know about how they shuffle oil out in the Straits of Singapore, et cetera. We’re buying Russian and we’re buying Iranian oil without our knowledge. So if we want to change it, then you have to step back and say okay, look, we either give equity to guys like Eric.
Eric McAfee: 15:35
They do this in China all day long. I was in Hong Kong with five friends in high school and they received $50 million directly from the Chinese government because they were making CD-ROMs carrying music which looked a whole lot like thin film solar panels, which looked a whole lot like thin film solar panels. So the Chinese government came into their business, said here is 50 million in cash, go buy the equipment you need. Here’s the real estate you need. I went and visited their factory up in mainland China and it was just a massive open building with a bunch of unwrapped equipment in it and they put up no money at all. The Chinese government said you five guys know how to make music CDs. I want you to make solar panels. Go do it.
Eric McAfee: 16:16
That’s a way we could run the US economy. Actually, that’s the way we run our military. We don’t really go to people making tanks and bombs and airplanes and say I want you to make a hundred of these and you know what, if they work on the battlefield, 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 defense system because we really care about defense and I’m completely supportive of that.
Eric McAfee: 16:41
But tax credits are a very loose way of saying look, we really like to do something, but let’s not take much risk. Unless that thing becomes successful and makes money and has employed all these people made all this investment. We’re never going to have to pay up on the tax credit. So it’s kind of the limpest way that you can support somebody to say take all the risk, make the whole thing happen. Once you make money, then you don’t have to pay as much as in taxes. So up until 2022, tax credits were just not that successful at getting people to take a whole lot of risk, especially when you have a whole lot of benefit of not having to fight foreign wars and not having to send half a billion dollars of cash offshore. You’d think the US government would be a whole lot better than coming up with tax credits. But from a political perspective, it is largely opposed by the oil industry, and so the concept of biofuels and renewable fuels, and so this was able to get through Congress In 2022, there’s one little component of tax credit that changed the whole arrangement, and that was that they were allowed to be transferable.
Eric McAfee: 17:47
So if I make some money before 2022, I had to wait for seven or eight years before I had depreciated all my assets and I was now at a point in which I was paying big taxes and then I finally would get some value out of the tax credit. Well, that changed in 2022 by making them transferable. What’s that mean? That means if today I make the investment, I create the reason for the tax credit, I can go find somebody who owes taxes today and sell them my tax credits at a discount, so they’re not worth as much as they think that they’re worth. Why? Because the guy buying it is going to give me cash and so he wants a discount. But with that cash, I cannot have to wait seven or eight years. It could actually be a relatively short period of time, like a year, a year and a half, from the time which we make the investment to when we actually are generating tax credits.
Eric McAfee: 18:38
So 45Z became effective January 1, 2025. Remember, the law was passed in August of 2022. So two and a half years after the law started. So two and a half years after people like Ametis started investing money. The US government then would say, okay, the revenue you’re getting from those investments starting January 1, 2025, will now be able to have this transferable tax creditor to generate another stream of revenue to pay you back your investment, creating jobs and everything else that you get as a benefit of renewable fuels.
Eric McAfee: 19:15
Unfortunately, the way the tax credits work is that tax accountants and tax lawyers have to agree that the tax credit calculation is correct, and the former presidential administration, after two and a half years, had still not issued a final rule on how you calculate the tax credit. So I’ve been in Washington DC several times recently meeting with senators and with agencies and industries in the biogas business and in the ethanol business, et cetera, trying to get it, et cetera, trying to get it, but in the same page on. This is exactly how we can execute now to get this letter from the US probably either treasury or an internal revenue service saying this is the way you calculate your credit. You can now rely upon this. So when I sell it to a taxpayer who owes taxes and they go in and file their taxes, they don’t get rejected by the IRS. And you know, you think two and a half years would be long enough for somebody to issue a document that’s a few pages long saying here’s the formula, this plus this with this there’s literally three numbers in the formula and unfortunately, for political reasons and other reasons, that did not happen. So as a industry, I look at this as a value chain.
Eric McAfee: 20:30
So something that doesn’t happen at an ethanol plant, for example, an ethanol plant can’t get 45 Z revenue from production tax credits. They produced a gallon. They’re supposed to get some investment, some of their investment, back. When that doesn’t happen, then when the corn elevator calls them and says, hey, you ready to buy? They say yeah, but I can’t pay as much. So the corn elevator calls them and says, hey, you ready to buy? They say yeah, but I can’t pay as much.
Eric McAfee: 20:52
So the corn elevator then tells the farmer oh, by the way, today’s spot price wish it was better, but it’s not as good as what it ought to be. I’m sorry you’re having losses because your fertilizer costs are higher and your diesel costs are higher and the labor costs are higher. Everything else, you know, is higher, but I can’t really pay you anymore for your corn. I don’t really pay you anymore for your corn. I don’t know why.
Eric McAfee: 21:13
Well, I know why it’s because they changed the regime of what you’re supposed to be investing in and did not perform as a federal government in delivering a simple little tax form. It literally is a little form that says this number times, this number times this number. Please fill out the number at the bottom. And that form does not exist in a usable form. So our need as an industry is to communicate this to Senator Thune of South Dakota, who cares a lot about biofuels I’ve met with his chief staff person on this one Senator Grassley, a senior Nebraska senator, and Senator Ricketts. These five or six senators from what I call the corn and ethanol states need to be able to say to the IRS a farmer by the name of Billy Long from the 7th Congressional District is proposed to be the head of the IRS. And then you can say, mr Billy Long, if we wait around and tell the big beautiful tax bill later on this year, that starts again what happened in August of 2022. They passed laws. It starts again the IRS and Treasury rulemaking process, which last time, after two and a half years. They not only didn’t have a final rule or proposed rule, they literally had an intention to propose a rule. That’s how far they’d gone in two and a half years.
Eric McAfee: 22:33
So it’s not acceptable for us as corn farmers, as elevators and, frankly, railroads that make a bunch of money on this business, as well as biofuels producers, an ethanol business for us to fiddle around with not enforcing federal law for another two, three, four years. Why do I say not enforcing federal law? Because it is federal law. The Congress and the president signed that, starting January 1, 2025, if you produce a gallon of ethanol and if it is according to the Greek model, this carbon intensity, then this is what you’re going to get in cash. And is there any reason why that’s not happening? Yeah, somebody is not enforcing federal law.
Eric McAfee: 23:13
So one of the opportunities for the new administration is to respect the rule of law and the right to private property and not select certain federal laws that are going to enforce strictly and other ones that can I kind of ignore. We’ve seen what that looks like already. Let’s actually enforce federal law. So this is a multi-billion dollar investment opportunity that comes through tax credit, so only paid by people making profits. You don’t make a profit, the tax credit is completely worthless. So you have to find somebody who’s making a profit to fund somebody that wants to make an investment and create new jobs and create new domestic products and unless that system works, there’s no tax credit cost to anybody. And I’m very interested in as many people as possible calling their congressmen saying 45Z production tax credit started January 1, 2025. Why is it we don’t have an IRS private letter ruling, an IRS ruling on how to do that?
Jim Lenz, GEAPS: 24:12
The ripple effect is real. You expressed that. So there’s a lot of education you and your team did, and others, to get people up to speed as quick as possible, give them an overview of the impact it really has. And we do fundamentally need to support where the food chain starts right With the, or the supply chain with the, with farmers, with the producers, and then 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 at what steps need to be taken here. So that’s great. Eric, with the recent executive orders from President Trump, including the National Energy Emergency and unleashing American energy, how do you see these changes affecting both Hematis and the broader biofuels industry? I?
Eric McAfee: 25:04
think it’s a great opportunity. Of course, the challenge in everything is execution not necessarily coming up with a great grand vision, but actual execution. And I’ll go back to our previous point, which is Billy Long, new head of the IRS, farmer from Missouri. If he decides you know what we need to get the production tax credit, which is federal law, to have a form that people can fill out and send in, I bet you in about six hours, because he would just pull out form 3800 and you would fill out the cells below. They already have a draft of the thing, it’s just they haven’t completed it, they haven’t issued it, and so I personally think in a crisis you know we all live through COVID we saw things that were beyond extraordinary. The government got done in virtually no time at all. That previously they would have said is absolutely impossible. We can’t do that in less than years.
Eric McAfee: 25:58
Well, they do it in a day or two days by declaring an energy crisis and adding biofuels specifically in the energy crisis, and then in item B, the second solution was a 15% ethanol blend up from 10%. Just open up doors that we’ve not had, and if the grain industry in the United States and the grain elevator industry in the United States wants to see growth in margins. You need to offset the fact that the 10% cap on ethanol blend effectively means all of the ethanol is sold essentially a little bit above cost On the average. It’s a little bit above cost because the supply and demand is that we have about 18.2 billion gallons of production. We only produce about 17 billion gallons. We have a billion gallons of corn ethanol that doesn’t run, meaning whoever does run better be at the lowest cost possible. Because there’s have a billion gallons of corn ethanol that doesn’t run, meaning whoever does run better be at the lowest cost possible, because there’s always a billion gallons waiting to come in as soon as there’s any margin, which tells me that the grain elevator guy gets squashed, which means the corn guy gets squashed. Why? Because the ethanol guy can’t sell all the product he could produce.
Eric McAfee: 27:06
So going from a 10% ethanol blend to 15% adds over 5 billion gallons of new demand, causing the oil industry then to say wait a minute, I’ve got to actually buy this stuff because it’s domestic, it’s low emissions, et cetera. Rather than buying a crude oil load from the Saudis, they’ve got to buy something from a bunch of corn farmers in the Midwest, and so by taking the lid off of that, we then get a price competition. It’s not a mandate, it’s just the Exxon station and the Shell station right across from each other. Shell station comes in at 30 cents less per gallon, why? Because he’s blending more ethanol and ethanol only costs a couple bucks $2.20, $2.30. And the other guy’s got fuel that’s costing $3.20. So, before you know it, price competition means that they’ll buy all the ethanol you can produce and all the corn you can produce and you get these indirect effects which I feel personally.
Eric McAfee: 28:06
I grew up in a rural area, I don’t know, 10 miles from the nearest small town of 3,000 people, and it is leadership that shows you push money through that small town. The schools are going to be better, the community colleges are going to be better, the banks are going to be stronger, the infrastructure of those towns will have a fabric to them when you have domestic energy as a new driver, not just competing against Chilean imported foods or Mexican avocados or whatever. Which is what has happened to the agricultural industry is. It’s largely become a global, 12-month-a-year industry with a lot of lack of understanding of the strategic nature of the food and fuel products that our farmers actually make here in the US.
Jim Lenz, GEAPS: 28:58
So this is a big deal. The domestic energy is critical, and how things are hopefully going to shape out here will really help our industry. And then peripheral industries, like you said, the rail industry, the transport, all this, and it goes on and on all the way. You even mentioned to the quality of schools and school districts. Those are conversations that are so important for people to hear and understand, especially those who are spending a lot of time in DC. So I also want to talk a little bit about USDA REAP loans and dairy digesters. Inmetis has secured significant funding through USDA REAP loans and has expanded its dairy digester projects. What role do you see these digesters play in the renewable energy landscape? You touched on a little bit earlier, but can you add some details into how might this impact grain producers and the overall agricultural community?
Eric McAfee: 29:54
Certainly. Let’s start at the end. California Air Resources Board, for approximately the last 15 years, has run the low carbon fuel standard. It’s basically the highest value for the lowest carbon molecule and on the chart of the higher carbon molecules to the lowest carbon molecule, the lowest carbon molecule is dairy methane. Dairy methane produces dairy renewable natural gas and 25% of the methane in California bubbles up out of these lagoons. The waste lagoons at dairies build a lagoon with a cover and a liner underneath it, so nothing goes in the groundwater and you capture that methane. You end up with a negative in our case negative 380 carbon intensity fuel, because when methane goes up in the atmosphere it’s 84 times worse than CO2 in the first 20 years. Methane is very, very good at capturing heat. So under the carbon math put out by the Department of Energy and a lot of other folks, you basically want to try to not put methane in the atmosphere. By the way, it’s not good for health, 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 attractive way to have a big impact on the California low-carbon fuel standard, as the state of California is trying to say, of the jet fuel, diesel, gasoline and biogas fuels that we use in the state. How do we get lower and lower carbon intensity? Well, gosh, it would seem to me that dairy renewable natural gas is clearly the place you want to expand as fast as you can, because you get the biggest bang for the buck. So six years ago, we had a unique asset, and that was 80 dairy relationships, and I like to say that the only real core asset of the dairy renewable natural gas business is your ability to have a 35-year agreement with the dairy farmer. These tend to be multi-generational family businesses, and for them to agree for 35 years that somebody can come on their property anytime of the day or night, any day of the week, is a very large trust relationship, and so we have signed 50 different agreements with dairies. We’ve built 16 of them. We’re rapidly building additional ones, but the core asset of the relationship is that we’re strengthening the dairy sector.
Eric McAfee: 32:17
So now let’s step back and think about grain and dairy animals. At the end of the day, animals aren’t like an Amazon delivery. They don’t just show up of the day. Animals aren’t like an Amazon delivery. They don’t just show up. Animals have to be fed and they have to be in a large way, have to be a part of a supply chain that’s a massive supply chain of grain growers, and soy meal and corn meal certainly are key to that. Canola meal, of course, isn’t there as well. So I look at dairies as being the customers of farmers but are in a large supply chain that, if at the end only make food, means that their market is skipping the multi-trillion dollar energy market.
Eric McAfee: 33:03
So, at the end of the day, what we’re doing with dairy renewable natural gas is we’re taking that 28% of the corn kernel that’s not going into energy and adding another energy market to 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 dairies to enter back into the energy market from the distilled grain that came out of an ethanol market that already made animal feed cheaper Remember we have to be 10% cheaper than anybody else in our solar distilled grain. Well, now the dairy itself is selling into the energy market with methane, into a very valuable energy market with methane, and the value is low carbon fuel standard credits, renewable fuel standard, as well as 45Z production tax credits, because it’s the lowest carbon intensity fuel that’s available in the marketplace. So by adding energy in at multiple steps of the value chain, the ethanol plant gets an energy revenue. It’s called ethanol. The dairy gets an energy revenue. It’s called dairy renewable natural gas. What we’re doing is making food cheaper. That’s what we’re doing.
Eric McAfee: 34:10
If the dairy didn’t have that revenue, 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 that dairy producers has to be more expensive. If they don’t have the energy revenue from the dairy, that then flows back. If you do have the additional revenue, then they can pay more to the ethanol plant for the distilled grain, and the ethanol plant can pay more to the grain elevator and, I guess, theoretically, the rail guy who gets their tax on everything. So I look at it as a value chain, and where the revenue is in the value chain is where you can then figure out what the commodity prices are going to be the more energy revenue we throw into the value chain, the lower cost of the food that comes out for the consumer and the higher prices that happen for the producer.
Jim Lenz, GEAPS: 34:57
That’s the key Find out where is the biggest revenue in this value chain, in this supply chain. That’s going to help out everybody. That’s going to help out the farmers, that’s going to help with the grain elevators and all of the vendors and suppliers in the industry who, which we serve as well. California Air Resources Board, carb, had a recent approval for your dairy digester pathways and expected increase LCFS credits significantly. How will this impact folks in the renewable fuel space again?
Eric McAfee: 35:31
The low carbon fuel standard credits in California have been lacking a perspective of what happens over the next couple of decades and they delayed, in my opinion, three years longer than they should have to come up with the politically acceptable answer to what’s the next 20 years in California look like November 8th of last year, so just a couple months ago they approved the next 20 years through 2045. And now there’s some ability to understand. 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 feedstock corn stover another place in the value chain, would go to the farmer and pay them for CSA, which is their special practices to grow corn with lower carbon intensity. Well, if that flows through and you get a production tax credit that is significantly more valuable because you have lower carbon corn in it, you’re pushing the production tax credit revenue from an ethanol plant all the way back to the grain elevator, to the corn farmer, because the corn farmer is doing something different. You’ve just created another energy revenue indirectly because it comes through the value chain, but it’s the corn farmer waking up every day saying you know what I think 10 points of carbon reduction, which is about 20%. It’s going to have a meaningful impact in this value chain. Let me go ahead and do those lower carbon production processes. And so at Amedis, that’s what we pay attention to a lot is how do we get, for example, low carbon fuel standard credits? How do we get our carbon intensity lower? The credit prices are going to increase now that we have 20 years of visibility and it’s very clear that there’s not enough credits available, starting really about a year. But within two years it’s going to be. They’re just not physically there, so the price goes up quite a bit as people the oil companies are having to scramble to ship into California, and so our opportunity is that corn farmers participate in this.
Eric McAfee: 37:34
Grain elevators currently don’t have a direct crop management mechanism, but they could certainly be a part of the education of farmers and will be core to the tracking of these benefited acres right, you don’t use certain fertilizer and do certain no-till, et cetera. Those acres of corn going into a corn elevator and tracking that and doing the book and claim process is really going to become a core business of grain elevators in the future. So the ethanol producers such as ourselves can say, if I buy from this grain elevator, so the ethanol producers such as ourselves can say, if I buy from this grain elevator, they have tracked that they have 100,000 acres that have CSA benefits of 10 points. So I’m going to do some economics on my side to say, wow, I could pay a lot more money for that corn than from some grain elevator that hasn’t tracked that and doesn’t evangelize to the corn farmer about how they can also participate in the renewable energy domestic job creating community building product that they’re making. Because if you make it into energy, you’re directly not exporting dollars to oftentimes our enemies.
Jim Lenz, GEAPS: 38:45
Incredible. Wow, is it safe to say. I mean or would you agree with the statement examining lots of industries out there.
Eric McAfee: 38:54
The grain industry is one of the most efficient industries and the opportunity now is, I think that we are entering into a book and claim world that is going to require some new systems and leadership so that we can quickly transform the farms into lower carbon, higher value energy producers and give them the financial benefit of that.
Eric McAfee: 39:25
So I think that the elevators that are at the leading edge of understanding 45Z production tax credits, potentially even in low carbon fuel standard there’s opportunities to have lower carbon corn, and so I think it’s a little more fuzzy in the low carbon fuel standard, but 45Z production tax credits absolutely. You’re going to have a CSA component, it’s going to book and claim, and the grain elev You’re going to have a CSA component, it’s going to book and claim, and the grain elevators are going to have a huge business gathering up billions of dollars of cash from ethanol plants and disseminating it to 100 million plus acres of corn and soybean farmers over time. So I think there’s an opportunity for systems development, but a lot of education, just educational opportunities on how a farm can be better at being an energy producer.
Jim Lenz, GEAPS: 40:17
Just a tangent here, but maybe not. You just meant education. Where do you see if you have someone who is in high school right now who has interest in egg space, has interest in the world that they live in and world about energy? It has an impact in so many different facets and countries around the world and they, of course, feed and fuel the world besides energy and produce lots of products. What if you’re speaking to someone who has genuine interest in entering this space and you are a rare person that has just depth and broad scope what is your advice, maybe as an area that one could enter if they have just curiosity in the space and they want to make impact?
Eric McAfee: 41:06
Well, first of all, if they come from a farming family, run the family farm, and I’m saying that because we’ve had a shrinking population of actual farmers in the US. Automation has driven a lot of that. But also it’s just the reality that it’s a lifestyle for your family and if you’re not on the farm then you’re giving up that lifestyle. And if you grew up on a farm, that’s really giving up that lifestyle. And if you grew up on a farm, that’s really one of the first choices you get to make in life is do I want to invest in that lifestyle for me and my family? And if you have an appetite to do that, I can tell you there are ways for you to directly be in the energy business. There’s ways for you to directly be in the technology business. The process of book and claim and all that is going to require leadership in your local community on how that is managed to meet these new initiatives from the treasury and IRS on how you do book and claim, and younger people are going to be very well positioned to go around in their community and say guys, here, let’s work together. I’ve got this software program and it needs to have that documentation to work. Let me be a leader in how to do that.
Eric McAfee: 42:14
We’re going to need that youthful energy and technology understanding in order to maximize the energy industry outputs of farms, and my hope is that we would drive yields per acre so it doesn’t require as many additional acres. Because you drive yields per acre, we drive lower carbon intensity practices, so our soil is more sustainable. So for some of them, it’s go to school and learn all about sustainability practices in agriculture and then come back and grow things slightly different than the next one. If you lower fertilizer inputs, you’re lowering natural gas inputs. You’re lowering natural gas inputs. You’re lowering the carbon intensity of what you’re doing and potentially making the US that much more independent.
Eric McAfee: 42:58
So we have many opportunities in ag culture that are at such massive scale that many people can’t comprehend. 160 million acres need to be impacted by a certain process and I think some people that are young, people that grew up on farms or in smaller communities have an easier time grasping how to directly impact this uh food and energy value chain because increasingly it’s adding that energy layer in. It’s just going to be a layer of complexity that farmers are going to have a hard time adopting to, and I think the grain elevator is going to be core to that. The grain elevator, I think, is going to need a lot of young, trained people to go out and to evangelize and then to systematize and to actually execute on getting more and more energy revenue coming through the grain elevator that then gets spread around the local community.
Jim Lenz, GEAPS: 43:52
Very nice. Thank you for that touch. So many people are new that come into the industry and that can be a challenge. Any quick thoughts or words of wisdom in relation to supporting those who are new to industry and get them to the speed, because there are job opportunities there and you know the struggle is real to find those curious people and hardworking people to do that.
Eric McAfee: 44:13
Well, hopefully, what we’re going to have this year is an increasing shortage in ethanol production in the United States. Why? Because if we go to E15, which the president is already well in his energy crisis, he said E15 is listed as number two solution for how to do this. That would require the construction of new ethanol facilities. That would require expansion of our corn production in the US. There are other feedstocks for ethanol that include agricultural wastes, such as corn stover, et cetera, and so I think we could be entering into a cycle of innovation of how to make the ethanol molecule.
Eric McAfee: 44:51
Ethanol is a great hydrocarbon. You can turn it into jet fuel, turn it into lots of other products, so the ability to make ethanol is like a fundamental chemical building block for even plastics and other things. So I think from the farm perspective, people looking to get into the industry could really start with watch this process happen of expanding ethanol, and you’re going to just need a lot more corn farmers, a lot more corn elevators and a lot more ethanol plants to add another 5 billion gallons on top of the industry with only capacity of 18 billion, and I’m talking about from the 18 billion we’re going to export about 2 billion, so we’re several billion short 4 to 5 billion gallons short and it could be a growth cycle that young people could participate in in many, many ways, as you’re building this new production and conversion capacity.
Jim Lenz, GEAPS: 45:43
Eric McAbee. Thank you so much. I don’t want to take any more of your time. It’s so generous to speak with me the last hour about this. But any final summary statements speaking to the grain handling and grain processing industry. I know they’re probably waiting. Every last word you’re saying it’s been so enlightening, but any statements you want to conclude here.
Eric McAfee: 46:03
I think there should be a closer partnership between the corn farmers and, you know, the corn growers associations, the elevator associations and the ethanol associations I’d almost throw biogas in there, because remember how biogas is downstream of the ethanol plant but flows directly back into it. And I think that the simple federal policies, such as the 45Z production tax credit, are so common to the interests of those four different groups that they should be a unified voice. And what’s, at least in my view, fairly clear is that the US Senate is controlled by only about two votes right now. So if you have Thune, grassley, ernst, ricketts and Fisher, that all say, yeah, that’s what we want to do, there’s nobody else to talk to. You don’t have to talk to the White House, you don’t have to talk to the agencies, you don’t have to talk to anybody, because nothing goes through the Senate without those five people saying, yeah, we want to do it. So I think those four groups that I mentioned, talking to the five people that I’ve already met with and their staff, we, the five people that I’ve already met with and their staffs we can get a lot done and it’s all positive, it’s all good, it’s all consistent with our current administration’s policy. It’s answering the executive orders. It’s the way to move forward.
Eric McAfee: 47:16
But I think we need to be on the single page of paper and targeted this very narrow set of senators Now derivatively yeah, you end up with some White House people involved, I get it, but you just need those people to understand the message and be committed to it and we’re good.
Eric McAfee: 47:31
We are absolutely going to get E15 done, production tax credit done. We’re going to get the transferability we need. We’ll get CSA for farmers. We’ll get what we need because it’s a very short list in order to be very successful in the energy business. So my message would be if you’re having any confusion at all about what I just said, please just call me, email me, and my name and my email is all over the InMetis website, et cetera, and we need to see this as an opening of an opportunity by the new administration. But we have to step through the door and I have a strong desire that the message be simplified so we can actually make progress as we step through the door, rather than coming through with a lot of confusing messages that are not actionable. I think we have some very actionable messages at this point.
Jim Lenz, GEAPS: 48:22
Simplify that message and unify, unify, unify, unify, unify. What a great message from someone who grew up in a very rural area of california, like 20 30 minutes from the nearest town, that only had 3 000 people. Oh my goodness. Innovator, investor supporting the energy industry, the food industry and so many other products eric mcafee. It has been an absolute pleasure and I’m so excited for those listeners of Chief’s Whole Grain Podcast around the world listening to this special episode. Thank you so much. Thank you, jim. Appreciate your time.
