Backlash Dims Ethanol Boom at Critical Time
Monday, October 22, 2007
Printable FormatFood costs are on the rise and experts are warning of environmental threats as Congress considers increasing the usage goal.
Des Moines Register by Philip Brasher
Washington, D.C. -- The golden glow of corn ethanol has faded at a bad time. The ethanol industry faces a price-depressing glut of the fuel and is looking to Congress to increase the amount of biofuels that refiners must use.
A Senate-passed energy bill would require use of 15 billion gallons of ethanol by 2015, more than double what motorists are expected to use this year. The mandate would be raised to 36 billion gallons by 2022.
But the industry is seeing a backlash over rising food prices and warnings about potential environmental damage from increasing corn acreage and biofuels production.
Many environmental groups and a loose coalition representing food companies, livestock producers and the oil industry have raised concerns about the ethanol mandate with congressional leaders.
"You have more and more of our policymakers beginning to hear from all sides. I think the message they're hearing is the right message as far as we're concerned," said Charles Stenholm, a former Democratic congressman who is lobbying against the ethanol mandate for oil and cattle interests.
The House version of the energy bill omitted the ethanol provision. Congressional leaders are now working to reconcile the House and Senate bills.
Ethanol's critics in Washington are getting some outside help. A study issued this month by the National Academy of Sciences warned that increased corn acreage and ethanol production could threaten the availability of water and worsen pollution in rivers and streams. A United Nations expert on food has gone so far as to call for a moratorium on biofuels production, saying it is contributing to world hunger.
In a recent letter to Congress, 22 environmental groups argued that the biofuels mandate should not be increased without "critical environmental safeguards."
"When you have this large of a mandate, 36 billion gallons by 2022, that's going to put a lot of pressure on lands to produce the feedstocks for biofuels," said Jim Presswood, who follows energy policy for the Natural Resources Defense Council.
The president of the Renewable Fuels Association, Bob Dinneen, struck back at his industry's critics in a lengthy statement issued at the beginning of a biofuels conference last week. He said they are "seizing upon every unfounded fear to thwart the worldwide movement toward biofuels."
Dinneen focused his ire on oil companies. He said they fear losing market share to ethanol. But Doug Durante, executive director of the Clean Fuels Development Coalition, warned conference attendees that "there are a lot of questions being asked" about ethanol, even in the Midwest.
An energy bill passed two years ago fueled the ethanol industry's growth by requiring that refiners use 7.5 billion gallons of ethanol annually by 2012. But ethanol plant capacity is expected to outpace that mandate by the year's end.
Ethanol prices have fallen by 50 cents a gallon in Iowa and Nebraska since July because of the developing glut, and plans for several new distilleries around the country have been canceled or postponed as a result. Existing plants are likely making only a few cents a gallon more than their operating costs, according to economists at the University of Missouri.
Nevertheless, 73 plants are under construction around the country and 10 existing distilleries are being expanded, according to the Renewable Fuels Association. When completed, those projects will nearly double the industry's production capacity to 13.5 billion gallons a year.
Industry officials say a higher mandate is needed to guarantee a growing market for ethanol and to encourage investment in higher-cost distilleries that will produce the alcohol from crop residue, wood chips and other sources of plant cellulose.
"If we don't have a strong corn ethanol industry, we will never have a cellulosic ethanol industry," said Gerson Santos-Leon, director of Abengoa Bioenergy New Technologies, which plans a hybrid distillery in Kansas that will make ethanol from grain and various sources of cellulose, like cornstalks and cobs. He said the higher mandate is "super critical" to the industry's development.
Poet LLC plans a similar project in Emmetsburg that will distill ethanol from corn kernels and cobs as well as the starch that's now used.
"Someone is always going to argue against progress and doing something good," said Doug Berven, Poet's director of business development.
With the energy bill seemingly stalled, a stand-alone version of the higher ethanol mandate has been introduced in the Senate by Democrats Barack Obama of Illinois and Tom Harkin of Iowa.
Without the measure, many small ethanol plants "could face increasing financial danger," Obama said.
Stenholm, whose clients include the American Petroleum Institute and the National Cattlemen's Beef Association, said the government should subsidize alternative energy but leave it to the market to determine how much is used.
"We built a lot of ethanol plants where the corn is and not where the market is, and then it's convenient for some to blame the oil industry because they don't have the plants where the market is," he said.
Dinneen said he is still hopeful an energy bill with the higher ethanol mandate will be enacted. "The Democratic leadership is pretty committed to it," he said. "From what I've been seeing and hearing, they're looking to get a bill that the president will actually sign."
Congress also is writing a new farm bill that is expected to contain a package of loan guarantees, grants and tax credits targeted primarily at cellulosic ethanol. To pay for the cellulosic tax credits, which would total $1.28 a gallon or more, the 51-cent-a-gallon subsidy for conventional ethanol would be cut by a nickel.