for Michigan Messenger
Lansing MI (SPX) Mar 09, 2009
Gov. Jennifer Granholm's single largest alternative energy project is a long way from proving itself. There is much uncertainty surrounding the plan to burn 375,000 cords of Michigan hardwood every year to create 40 million gallons of bio-diesel fuel annually, raising concerns that it could do more financial and environmental harm than good.
More than $100 million of private investment and another $125 million in public funds have been committed to what is now called the Mascoma project, including an undisclosed equity share from General Motors Corp. (NYSE: GM) and $23.9 million from the Michigan state government, which had been engaged in a heated race with Tennessee to bring the facility to the state.
Michigan won that battle and hopes to be the first state in the nation to produce commercially viable biofuel from forest resources. But examining the costs and benefits, it is unclear if the plan to extract fuel from Michigan's trees will work in the long run.
Those involved in the project, including high-level state Department of Natural Resources officials, cite a key statistic when they trumpet Mascoma's promise: Michigan grows about 2.5 times more wood fiber annually than it harvests.
But that claim may be misleading.
"It's a bogus statistic and they've been using it for years," said Anne Woiwode, executive director of the Michigan Sierra Club. According to Woiwode, if that figure is accurate, which many foresters doubt, it would also have to include wood on private lands - lawns, golf courses, parks, small wood lots and preserves.
Overall, state and federal foresters have not been included in the planning process for Mascoma, and the company has not released details about the planned operations. A Mascoma spokeswoman, Kate Casalero, said an operations plan is still in the works and will be presented to the public sometime this year. In the meantime there are more questions than answers.
An Idea Born in the Lab
Out of that technological find, several venture capitalists created a new Boston-based company, Mascoma, which in turn began gathering additional venture capital and other financing to turn the technology into a commercially viable company.
In 2006 the company issued a Series B bond and in 2008 issued a Series C bond, attracting more than $100 million in private equity funding, most from seven other venture funds. Marathon Oil Corp. (NYSE:MRO) has a $10 million stake in Mascoma, and its senior vice president of supply, distribution and planning, Cliff Cook, is listed as a member of Mascoma's board of directors.
The company has also been able to attract government funding. To date it lists $100 million in federal and state grants. Initial funding went into a laboratory it owns and runs in Lebanon, N.H. With another $25 million grant from the New York state government, it created a demonstration plant in Rome, N.Y.
It then set about copying its method of attracting state funds for a commercial plant and for a period had a two-horse race pitting Michigan against Tennessee, with the Great Lakes State securing the Mascoma deal in June 2008.
The Michigan state government has pledged $23.9 million, which will be matched by another $26 million from the U.S. Department of Energy. But it is unlikely that the Mascoma project will get additional federal funding, including stimulus dollars.
"The company has gotten all the federal money it's going to get," said Nick Choate, a spokesman for U.S. Rep. Bart Stupak, D-Menominee.
The current funding will be used to create a commercial bio-diesel plant in the eastern portion of Michigan's Upper Peninsula at Kinross near Sault Ste. Marie. To date neither the company nor the state is releasing specific information on the project, except their goals to create 50 to 75 jobs and meet production capacity by 2012.
Technically the Mascoma project is called "Frontier Renewable Resources" and is a joint venture between Mascoma and JM Longyear, a 120-year-old Upper Peninsula forestry and development company based in Marquette.
The Local Partner
Before the Mascoma project came about, Steve Hicks, JM Longyear's CEO, had just come off the successful development of a taconite-to-steel plant in Minnesota's Iron Range, a facility that can produce steel on site, bypassing traditional steel mills located hundreds of miles away.
Last year the plant secured the largest air emissions permit in North American history, Hicks said in an interview. Once the company had succeeded with is taconite-to-steel plant, it sold the project to a Mumbai, India-based company, Essar, which has interests in shipping, steel, telecommunications and energy.
Hicks said he heard about the Mascoma project "and invited them to lunch." Out of the talks came a partnership. Mascoma holds 75 percent of the new company and Longyear 25 percent. Hicks is the managing partner and is responsible for finding a construction site at the former Kincheloe Air Force base and for beginning to secure permits to build the facility.
Longyear has been in talks with the Michigan Department of Natural Resources and at least three local governments in the Kinross area. "We hope to break ground by the end of the year," Hicks said in an interview. Full production is scheduled for 2012.
The location is critical: Why Michigan? Why the Upper Peninsula?
Hicks said that although the project operation is still developing, he estimates that the plant will require 375,000 cords of wood every year to manufacture 40 million gallons of bio-diesel.
That cord wood will come from within a radius of 150 miles from the plant's site. This largely rural area includes both state and federal forests, Interstate 75 and access to the Mackinac Bridge, which puts forests in the northern Lower Peninsula within reach. So too are the forests of northern Ontario, via Sault Ste. Marie's international crossing with Canada. The Ontario provincial government hasn't given any grant money for the project and does not have a stake in the Mascoma project.
Questioning Long-Term Success
One federal official who works in the Upper Peninsula's Hiawatha National Forest, when told the amount of "feed stock" required, analyzed the number and said, "That would take the entire annual harvest in the Eastern Hiawatha forest in 180 days."
In Lansing a highly placed state forestry official, who would comment only under the condition of anonymity, also denied having been contacted. And the official is worried: "They're going to need a lot of other sources, probably private, for that much feed stock," the official said.
And that is sparking some concern. Neither Michigan nor federal rules require private landowners to harvest for long-term forest sustainability. Private landowners can simply harvest everything they have, leaving meadows and fields.
One answer is to grow wood quickly. Foresters agreed that a project like Mascoma will pressure forestry planners to concentrate on fast-growing woods and that the state would have to consider "short-rotation energy crops," such as aspen, poplar and willow.
The Sierra Club's Woiwode disagreed: "Again, no one knows the effect. What does it do to the nutrient cycle, to wildlife habitat?"
She cited one of the organization's concerns that repeated aspen growth may not be able to sustain any forest growth after a certain number of rotations.
State foresters are also concerned about how the wood would be harvested. A new term of art in forestry is "bio-harvesting," a process that removes all the trees and undergrowth. In bio-harvesting, none of the nutrients that rotting and decaying remnants create will replenish the forests, the forestry officials contend.
JM Longyear's Hicks is not worried. While state and federal foresters Michigan Messenger spoke with said they have not talked to anyone about the Mascoma project, Hicks said they have "been in contact with Lansing."
The state has put a full-time former forester, Donna LaCourt, on the project as part of the Michigan Economic Development Corp.'s grant. When contacted, LaCourt referred all forest and harvesting questions to Hicks.
Hicks, meanwhile, contended that the project will use only traditional wood harvesting methods and the plant will take only whole logs, which will be chipped in the pre-process. He said the bio-harvesting technique will not be used for the project, which may please state foresters.
According to Hicks, because several wood processors left the area in the last several years, there is more than enough room to expand harvesting. He said shuttered plants, such as Georgia-Pacific's Gaylord facility, used as much as 2 million more cords five years ago and that this project will use only a fraction of that available supply.
Patrick Egan is a former publisher and owner of two small dailies in Michigan's Upper Peninsula. He is a recipient of a William Allen White award for editorial writing.
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