Summer Drought May Drown Out Ethanol Requirements

Ken Silverstein | Aug 21, 2012

 

When it comes to subsidies, ethanol has been considered the granddaddy of them of all. And while the major supports were allowed to lapse last December, one big one remains: a federal mandate requiring billions of gallons of ethanol-blended fuels to reduce reliance on foreign oil.

Now, though, the summer drought is drowning out the clamor to keep that mandate in place. Here’s why: Most of today’s ethanol is derived from corn -- a crop that is already in high demand from livestock producers. But the lack of rain has damaged corn, which means that the added demand for it from ethanol makers will only continue to hurt those dairy producers that rely on the grain to feed their animals.

So, some states are asking the U.S. Environmental Protection Agency to suspend the ethanol mandate. EPA, which has until November 13 to make its decision, will consider such factors as to whether the additional demand would cause economic implications or economic hardships, which is actually the threshold to waive that law. Or, the agency could reduce the corn-ethanol requirements.

The background: The Energy Act of 2007 laid out a plan to grow ethanol use from a base of 6.5 billion gallons. In 2008, the federal mandate for ethanol production was 9 billion gallons. By 2015, the directive will be 15 billion gallons and by 2022, it will be 36 billion gallons. Some are arguing that this has skewed markets. Farmers are replacing other crops with corn, thereby creating shortages of other food products.

Interestingly, both major presidential candidates are supporting those ethanol incentives. But the would-be vice president, Rep. Paul Ryan, R-Wis., has consistently opposed such requirements not just for ethanol but also for all other renewable fuels, including wind and solar tax credits. The ethanol mandates are widely popular in the farm states and any opposition could hurt the political future of any national candidate, especially in the rural regions.

Ethanol producers say that they are not starving anyone, noting that the nation's corn crop is flourishing. Total acreage devoted to corn production is up 20 percent from previous years to 90 million acres. World food shortages, they add, are the result of growing demand from developing countries -- not because more corn is now used to make ethanol.

“The desire by livestock groups to see additional flexibility on ethanol mandates may not result in as large a drop in feed costs as they hope,” writes Iowa State Professor Bruce Babcock, in a study for the Renewable Fuels Association.

Alternatively-Fueled Vehicles

Supporters of the mandate are also saying that the policy objectives are working. That is, ethanol-blended gasoline is reducing the nation’s dependence on foreign oil. Moreover, advanced ethanol blends, called cellulosic ethanol, will get commercialized. That involves municipal waste, switch grass and wood chips -- things that will eventually reduce the demand for corn-based ethanol. 

While cellulosic ethanol could potentially be a boon, the conversion process is expensive and underdeveloped. To move it along, the U.S. Department of Energy is investing about $385 million in a handful of projects -- bio-refineries that could produce as much as 130 million gallons of such ethanol a year. BlueFire Ethanol is one such company that received $40 million in federal funds, saying that is taking landfill waste and using it to produce 3.1 million gallons of fuel-grade ethanol a year.

“We don't think the government should be involved, except in the case of research,” says Byron Elton, chief executive of Carbon Sciences, in response to government's participation in ethanol-related endeavors. “We are in favor of funding to find out what technologies will work, but the free market should determine what the winning combination will be,” noting that natural gas is a viable alternative to ethanol.

Indeed, if the goal is to reduce dependence on foreign oil while also improving air emissions, some are saying that the emphasis ought to be on making the transport sector conducive to natural gas-fueled cars. All that shale gas makes such a dream possible, they say. But cars would need to be redesigned and the proper fueling stations put in place. Right now, there’s about 110,000 such vehicles on the road, most which are city buses and private fleets.

Others are suggesting that the emphasis should be on developing and commercializing the all-electric car. That, too, is a major focus of not just the current White House but also the utility sector that wants to generate the power needed to move cars and trucks.

All of the alternatives could make inroads into the transport sector: ethanol, natural gas and all-electric. Like it or not, the weight of each of their respective political lobbies is just as instrumental to their futures as their actual technologies.


EnergyBiz Insider has been awarded the Gold for Original Web Commentary presented by the American Society of Business Press Editors. The column is also the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has been named one of the Top Economics Journalists by Wall Street Economists.

Twitter: @Ken_Silverstein

energybizinsider@energycentral.com