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Boom boom bust: ethanol glut looms

Filed under: Business

ethanol.jpg
The Strib's Matt McKinney has a swell piece in today's paper about the dimming economic prospects of the ethanol industry. With corn prices rising, ethanol prices tumbling, and production exploding, it may take years to correct the looming market imbalance. Slate also ran a nice primer on this topic last week.


The specific numbers are eyepopping. Currently Minnesota has 17 ethanol plants with a production capacity of 675 million gallons per year. According to the Minnesota Pollution Control Agency, four other facilities are currently under construction with the ability to produce an additional 400,000 gallons annually. What's more, 11 plants are in the planning stages with a potential production capacity of 900,000 gallons each year. In other words, by 2010 Minnesota could be producing some 2 billion gallons of ethanol annually--equal to nearly a third of the country's current ethanol consumption.

The numbers nationwide are similar. Since just the beginning of 2006 ethanol production has jumped by nearly 50 percent. According to the Renewable Fuels Association, there are presently 140 ethanol plants operating with a production capacity of roughly 6.9 billion gallons per year. However, there are plans underway to build or expand 84 plants, increasing the annual production capacity to 13.5 billion gallons in the near future.

What do these numbers mean? Consider that currently there is a 10 percent federal cap on ethanol levels in standard gasoline. Furthermore Americans presently consume roughly 130 billion gallons of gasoline per year. In other words, even if every gallon of gasoline sold were to contain the 10 percent maximum of ethanol, there would still be an overabundance of corn-based fuel on the market in the coming years.

So who's going to consume all of this ethanol? One (unlikely) possibility is that the EPA could raise the percentage of ethanol allowed in standard gasoline to 20 percent--a policy touted by Gov. Tim Pawlenty.

A more likely scenario is a massive increase in flexible-fuel vehicles, which can run on fuel that is up to 85 percent ethanol. David Morris, of the Institute for Local Self Reliance, and a strong supporter of corn-based fuel, points out that converting vehicles to flex-fuel only costs manufacturers about $100. Barack Obama, for one, is pushing for a mandate that all new automobiles be flex-fuel vehicles.

Posted by Paul Demko at October 10, 2007 1:02 PM

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Comments

Ethanol is not much more than Yet Another Farm Program that not only 'burns' food for fuel (stooopid) but is draining the aquifers at rates unheard of.

Better to use scrap celluose and sawgrass grown on otherwise fallow farm fields than to 'invest' seed, ag chemicals, and costly fuel (all derived from petroleum, BTW) in Ethanol.

In the greater scheme of things, when an already heavily subsidized industry like corporate farming comes around with a Good Idea that requires tax and production subsidies to be viable, the idea really isn't viable. The market works, let it work.

Posted by: Joe at October 10, 2007 1:50 PM

Wrong, Joe. There is not a single commercial cellulosic ethanol plant in the US right now. Why? Because cellulosic ethanol is MUCH more difficult and complicated to brew, and would cost -- conservatively -- four times as much as corn ethanol does now (for the exact same end product). Potential? Yes. Reality? Not really. I support cellulosic ethanol research, it just isn't ready to replace corn anytime soon.

The market IS working for E85 in Minnesota. Minnesota drivers -- by choice, not mandate -- choose to buy more than 18 million gallons of E85 last year, much more than in any other state.

Bob Moffitt
Communications Director
Clean Fuels & Vehicle Technologies Program
American Lung Association of Upper Midwest

Posted by: Bob from ALAMN at October 10, 2007 3:18 PM

David Morris writes in to clarify his viewpoint on ethanol plants:

"You are
right that I support corn derived ethanol, but my main focus is on
locally owned biorefineries, as well as locally owned almost
everything else. That is what the Institute for Local Self-Reliance
works on. So from my perspective, I am OPPOSED to the 4 100 million
gallon, absentee owned corn derived ethanol plants that are now under
construction in Minnesota. And I would be opposed to absentee owned
cellulosic ethanol facilities as well. There was a time, 10 and
perhaps even 5 years ago, where scale and ownership and support of
ethanol in Minnesota were virtually identical. But that is no longer
the case."

Posted by: Demko at October 11, 2007 11:46 AM

Hey, why not just buy this ethanol from 3rd world countries in Central and South America? Brazil, for instance, is the world's number one producer of sugar cane, and, since the 1970s, have had a great experience on ethanol fuel. Cars here run mostly on sugar-cane ethanol AND less and less on gasoline engines. They've developed engines which run on both fuels...

Posted by: Wander Frota at October 11, 2007 12:08 PM

Bob, it's all well and good that you support Ethanol, but it's the source feedstock and the resulting environmental damage it causes that is the issue.

And don't pretend that E85 isn't heavily subsidized at all stages of the supply chain; production, delivery, and sale. How much of that E85 is used by government vehicles by mandate when compared to 'free market' drivers actually choosing to buy it?

18 million gallson. :woot: That's less than 1/2 of 1 percent (%0.5) of the yearly total of gasoline (not to mention diesel) sold in Minnesota over the course of a year.

Ethanol, when produces from waste including 'surplus' food crops' is likely a fine, short term stopgap fuel. But when the farms start producing cultivation-intensive biomass (corn, etc) specifically for Ethanol and stockpiles of corn are diverted away from hungry mouths to the Ethanol plants, all at heavily subsidized rates, well that starts to smell an awful lot like a personal enrighment program for the individuals involved in the 'industry'.

Just because US companies haven't invented and own more appropriate Ethanol technology doesn't mean it doesn't exist. It exists and works well in Brazil. But low and behold, Brazil uses sugar cane, that highly-capable competitor to King Corn. The Brazilians have developed no-cultivation methods of growing it and refining processes that use the whole plant. But US Farm interests have all but banned (via friendly legislation) the large-scale cultivation of sugar cane in the US.

As with most controversial government programs, Follow the Money. In the case of Ethanol it all leads back to corporate farms and tax/subsidy parasites.

Posted by: joe at October 11, 2007 12:34 PM

anyone with two eyes and a brain sees the shortfalls with ethanol. look at supermarket prices. most of the corn grown for ethanol was grown for feed. this has caused a price-spike of nearly all livestock products: meat, cheese, milk, etc, etc, etc. I left this country in May and came back in September to find milk costing $4.00/gallon, bread at $2.50 and cheese out of this world! And gas is STILL cheaper (by far) than bottled water!

Get a grip people. The cost of things nowadays has ABSOLUTELY NOTHING to do with their actual value. Ethanol is a black hole. It requires more to produce than it yields, plus it takes from an area that cannot give (see: food).

As long as we remain addicted to personal transportation the only affordable (when not subsidized) form is electric transportation.

Posted by: bryce at October 15, 2007 12:12 PM

Bryce,

There are several studies out there that put to bed the notion that increased food prices are the result of corn being diverted to ethanol production. The price of food has gone up because of the price of gasoline.

As for ethanol requiring more energy in than you get out, you are right. However, the first law of thermodynamics also applies to petroleum. As for water usage, gasoline isn't "water-free". Lastly food vs. fuel. The food vs. fuel advocates need to come to terms with the types of food corn finds its way into. Folks like to craft these visions of corn being diverted from starving third world mouths, when in reality, plenty of our corn crop is currently used to make soda pop. The food vs. fuel debate is a straw man.

Posted by: biofuel hawk at October 16, 2007 1:33 PM

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