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Robert W. Lane |
(Speech as Delivered)
Growing Sustainable Businesses
Department of Energy/USDA Renewable Energy Conference
St. Louis, Missouri
Remarks by Robert W. Lane
Chairman & Chief Executive Officer
Deere & Company
October 11, 2006 |
Good morning. First, thank you, Secretary Bodman and Secretary Johanns, for inviting John Deere to participate in this important and timely renewable energy conference.
In addition, it is a privilege to follow the thought-provoking comments of Patricia Woertz and to acknowledge all the distinguished speakers and panelists with whom I am sharing this podium.
I certainly want to acknowledge all of you who have come here at this very important time to address the advancement of renewable energy. As growers, manufacturers, and distributors; investors, policy makers and community leaders, we all have important work to do.
Introduction
It is an honor for me to represent a company whose core values – quality, innovation, integrity and commitment – were first instilled in the business by our founder, and extend to everything we do. In today's environment, these values are more relevant than perhaps at any time in our history as a company.
Our meeting here this morning in St. Louis, in the shadow of the Gateway Arch, brings to mind an interesting connection between this city and John Deere. As you may know, the Gateway Arch was designed by the great twentieth century architect Eero Saarinen.
You may not know that another of his projects is the John Deere Worldwide Headquarters building in Moline, Illinois. Those of us who work there have the privilege of being inspired by Saarinen's creative genius every day.
Saarinen's Gateway Arch here in St. Louis stands as a dramatic symbol of the Westward expansion of the United States in the 19th century, the opening of a vast, new frontier with enormous potential.
John Deere also played an integral part in the development of that vast frontier, through its innovative product offerings and the work of generations of John Deere employees. I think we would all agree that renewable energy is another promising new frontier, with significant potential for the United States and the world.
At John Deere, we are focused on enabling our customers and their communities to participate in renewable energy development. Our goal is to foster competitive, profitable and sustainable renewable energy businesses.
My message to you this morning is that laying the groundwork for growing sustainable businesses is critical to the long-term future of renewable energy in the United States and the entire world. It would indeed be a shame if the promise of renewable energy were not met because our early successes could not be sustained over time, for lack of sound business underpinnings.
Renewable Energy as Good Business
First, I should perhaps address what I mean by a "sustainable business," and why that is so important to the development of a renewable energy sector.
John Deere is in its 169th year of operation. I hope you would agree that we have some credibility on this subject. But, Deere is still in second place among companies on the program this morning. I must also recognize that DuPont, represented by my colleague Chad Holliday, has operated for more than 200 years! And, ADM is now well past the 100-year mark.
Businesses like ours simply don't operate for that long without attending to three critically important constituencies: their customers, employees and shareholders.
The attention to customers requires a particular focus. It often means anticipating market and technological advances, reckoning the specific needs and desires of the customer — sometimes before the customer does, and offering innovative solutions that he or she may not even be aware of.
Sustainability in this context, then, requires that the business provide a high-quality product or service that fully meets the customer's needs; a workplace environment that attracts the best and brightest employees and enables them to realize their potential; and, succeeding with the customers and employees, in this way is a necessary condition for ensuring that shareholders receive attractive returns on their investment.
In short, sustainability requires laying building blocks in the beginning that will serve these vital constituencies well.
I raise this issue because of the nagging question that continues to surround renewable energy. And, that is whether the surging interest in renewable energy development is merely another short term "bubble" in our economy, as we have so often seen before—or whether it is the initial stages of a thriving industry that will contribute both economic and societal benefits, not only today but for many, many generations to come.
Let me just be direct with you—most of us know that there are some serious reservations being voiced today. Some suggest there is little beyond a speculative drive behind renewable energy development—that it is built upon currently volatile world energy markets and the Midwest's outsized political clout, and that it is simply not sustainable.
Upon careful examination, a solid case can be made that these concerns are unfounded. So let's examine how sustainability can be achieved.
We already are beginning to glimpse some of the potentially enormous benefits of long-term investment in renewable energy. We see growing customer demand for quality products and services. We see considerable capital flowing from serious long-term investors to commercial ethanol and bio-diesel production, and some capital beginning to move to wind energy, cellulosic conversion and biorefinery development.
And, we are fast recognizing the growing public goods shared across our society that can come from such investment:
- Environmental benefits;
- Enhanced national security; and
- Renewed rural development.
History is replete with illustrations of where sound public policies have proven essential to the emergence of economic, political and social environments that enable good businesses to evolve and become sustainable. Renewable energy with all its benefits should be no exception.
Let me be clear on this point. There can be a highly useful partnership here between government and the private sector. There need not be an inherent contradiction between government and business nor a perpetual dependence. Public policies can provide useful "pump priming" for new, evolving industries, creating the infrastructure needed for markets to develop and businesses to grow. Tax and regulatory incentives can provide needed planning stability while business conditions evolve, facilitating the growth of new business ventures. Over time, as markets and businesses mature, the need for these incentives will recede and a transition away from these policies is appropriate.
Now, I know there are detractors who will say "This is perhaps all true but a subsidy once started is a subsidy that never ends." This is a risk, of course, but one that can be anticipated and mitigated. They might well cite the currently much-discussed farm subsidies of the developed countries. Let me be forthright in addressing this. The U.S. government has long provided public support for the farm sector but now, along with others, is aggressively looking for ways to effect an "intelligent transition," to have an orderly phasing out of trade distorting subsidies in a way that enables all producers to compete fairly for the fast growing world markets. Our government now has on the table in the Doha negotiations a proposal for phasing down and eliminating trade distorting subsidies in exchange for expanded access to markets. In fact, President Bush has twice called upon other developed country leaders to accept this challenge.
And, while the trade talks are suspended for the moment, we at Deere, along with many others in the business community, are fully supportive of their quick revival and conclusion of an ambitious, robust Doha agreement. The potential benefits to the agriculture industry worldwide from freer trade simply are enormous. And, we would like to see renewable fuels assume an important role in the international market place, with fully defined standards and trading rules, as well.
Secretary Johanns, I want you to know that we are most appreciative of your personal leadership and steadfast participation in these important talks.
If you then accept my arguments about developing a sustainable renewable energy sector, then we should turn our attention in public discussion to how best to invest public resources to achieve the promise of renewable energy. Clearly, we at Deere believe that the public or societal benefits to be derived from a thriving, sustainable renewable energy industry – cleaner air, reduced dependence on foreign oil, greater energy diversification, and vigorous rural development – justify this investment.
John Deere and Wind Energy
Patricia Woertz earlier provided us with a great review and outlook for the biofuels sector. I'd like to spend a few minutes on another example of renewables development, by highlighting John Deere's experiences in growing a sustainable wind energy business.
John Deere has looked carefully at how to help our customers unlock the potential of wind energy in North America. We have formed a new business unit to provide project development, debt and equity financing, and other services to those seeking to harvest wind power.
The potential for wind power is enormous. And, the United States can become a global leader in wind energy. The United States has all of the required elements: reliable wind sources in acceptable locations; cutting-edge technology; capital; and the entrepreneurial spirit to develop projects that provide economic products to the customer and benefits for the country. Moreover, rural interests are uniquely positioned to benefit enormously from this opportunity.
John Deere's Wind Energy business has successfully partnered with farmers and developers to bring on line almost 60 megawatts of wind-generated power. In addition, our business today has projects under construction or approved that will generate another 434 megawatts. By the end of next year, John Deere expects to become one of the leading owner/operators of wind energy projects in the United States.
We call our model the "Community Wind" business model. It allows us to partner with farmers, landowners, communities and developers to identify and evaluate potential projects, and provide capital and business know-how to bring viable projects on line. Our model delivers economic prosperity to farmers and to the broader rural community.
Our financial strength also enables us to secure a stable supply of wind turbines. Over time, our partners—often our farmer customers—typically gain an ownership interest in the project's assets, and share the economic benefits they generate.
In fact, we have found that such partnerships and community engagement greatly facilitate developing these projects into sustainable businesses.
One good example is right here in Missouri, where John Deere has successfully partnered with the Wind Capital Group of St. Louis and Associated Electric Cooperative of Springfield to develop the Bluegrass Ridge project.
The project will begin electricity production later this year. When fully operational, Bluegrass Ridge will generate almost 57 megawatts of electricity per year, enough to power as many as 34,000 homes.
This project exemplifies the broader win-win possibilities for wind energy. Through a land-lease program, it provides a steady revenue stream to farmers who site the turbines on their land. For the community, it adds to the local tax base and generates significant new revenues –to improve schools and other local services.
It will generate clean electric power and help the County and the state to meet their renewable energy targets, which rise to 15 percent by 2023. So it furthers specific energy, environmental, and security objectives as well. That's a win-win paradigm.
And, as I discussed at the outset, public policy has an important role to play in wind energy development, from the renewable energy standards, now enacted in 22 states; to the federal production tax credit; to USDA Farm Bill grants.
These are specific examples of how public policies can facilitate project planning and investment. They allow project economics to develop so that the business becomes sustainable over the long term. They work best when they are predictable for a period of years and thus facilitate reasonable returns when the projects are well-conceived and well-managed. For these reasons, the federal production tax credit, typically limited to two years duration, should be extended for longer periods.
Liquid Renewable Fuels
Now, let me very briefly address renewable fuels. During the course of this conference you will be hearing from some of the best experts on this subject.
The point I wish to stress is that sound business principles must also be the basis for growing a sustainable biofuels sector, just as they must be in wind energy.
There are many technologies now under development and in the field to convert biomass into various bio-products and bio-fuels. We are seeing some products and technologies advance to commercialization and market acceptance sooner than others. In the end, the technologies and products that provide the most sustainable business proposition – value to the customer and return to investors – are the ones that will emerge as market leaders.
In fact, likely future genetic advances will greatly enhance the welfare of humankind. Thus, there is an opportunity to accelerate the development of cellulosic biomass as a future, sustainable source of renewable liquid fuels, while still meeting food, feed, and export demands. To have a sustainable sector that achieves all the promise of an improved environment, greater national security, thriving rural areas, and generally improving the quality of life for many, we ought to make greater technological advances much faster.
And, I would be remiss if I did not express appreciation now to Secretaries Johanns and Bodman for the research funding already allocated to making this come true.
A 2005 USDA/DOE study clearly outlined the extent of the opportunity to expand biofuels production through the use of cellulosic biomass. That report concluded that by 2030 more than 800 million tons per year of cellulosic biomass could be produced from crop residue and perennial crops in the U.S. And, another 120 million tons annually could be derived from forest residues.
For reference, this biomass would be more than the total amount of grain, oilseed, sugar, and hay crops harvested in the United States last year.
This clearly points to a tremendous opportunity. But, it also presents a significant challenge: how to produce, collect, transport and process such a volume of valuable energy feedstock. To meet this challenge, all of us—government, academia, and the private sector—ought to "pick up the pace" all across the system—in commercial-scale research and development, in harvesting technologies, materials transportation, conversion, and fuels distribution.
The one common denominator among renewable liquid fuel technologies is biomass. It is the essential ingredient, regardless of the product or conversion technology.
This fact reinforces the tremendous opportunity for agriculture and forestry, indeed for rural communities — to participate directly in and derive real value from the creation of great renewable energy businesses, and in so doing, build a viable renewable energy sector from the ground up.
Deere's role as a provider of biomass harvesting and collection systems – our agricultural and forestry equipment technologies – defines but one aspect of our interest in renewable fuels.
In addition, as you may know, John Deere manufactures technologically advanced diesel engines on four continents of the world. Deere is a leader in producing environmentally-friendly, fuel-efficient engines, hence we also have great interest in fuel quality and consistency, which is lacking in some areas. The renewable fuels sector must be built on consistent performance standards and certification regimes that ensure the availability of high-quality fuel products.
Conclusion
At the outset of my remarks, I mentioned the promise symbolized by the Gateway Arch. The Arch is of course a monument to Jefferson and the Westward expansion, but it also exemplifies the vision of its architect.
The biographer of Saarinen describes him as one "who refused to be constrained by any preconceived ideas." When he was tasked to design this monument to the opening of the great frontier, Saarinen said that neither an obelisk nor a rectangular box would do for this purpose, but that "a great arch did seem right."
Saarinen's intent — to create a monument to those moving boldly toward the future — ought to serve as inspiration for all of us as partners to explore and develop this new frontier of renewable energy.
If we can grow great businesses that deliver long-term, sustained performance and endure, I am confident we will meet the promise of renewable energy for our children and their children.
Indeed, businesses that endure over the long run will also contribute to human flourishing through the societal benefits provided to future generations, from expanding agricultural markets and rural development, to enhancing energy security and environmental improvement. This is our opportunity, this is our challenge.
Thank you.
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