It’s been a rough year for the ethanol industry.
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Everything from bankruptcies to the price of corn has hit the industry hard.
Once a sparkly futuristic answer to our energy woes, ethanol now conjures images of other doomed products from previous futures past, like dot-matrix printers, music CDs and the print newspaper.
A lot has changed in a year.
Oil prices have dropped from their record highs above $150 a barrel; there’s a new occupant in the Oval Office; and a financial and credit crisis that has thrown this fledgling energy alternative for a loop.
Ethanol producers and farmers growing corn to produce this energy supplement have come under sharp attack from environmentalists as well as food activists.
No one argues that when used as a fuel additive with gasoline, ethanol reduces the overall emissions of greenhouse gases such as CO 2. Environmentalists claim that those gains are lost because ethanol production is more energy-intensive than refining gasoline, leading to higher CO 2 emissions from burning fossil fuels in the ethanol distilling process.
Economy vs. Ethanol
Because ethanol absorbs water, it cannot be shipped through existing pipelines used to transport unblended gasoline. The water can separate, causing pipelines and fuel lines to freeze, and perhaps burst, during cold weather. As a consequence, ethanol predominantly must be shipped in specially fitted tankers, all of which run on fossil fuel.
From a strict standpoint of efficiency, there is no debate that ethanol, or grain alcohol, produces 35 percent less energy per gallon than gasoline. This means that the fuel economy of vehicles burning ethanol is lower.
Recently, Consumer Reports tested a Chevrolet Tahoe running on E85 — a blend of 85 percent ethanol and 15 percent gasoline. Fuel economy fell from 21 miles per gallon to15 on the highway; and from 9 to 7 mpg in the city.
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Corn, the major source for ethanol-based fuel in the U.S., is caught in a tug-of-war between its use as a fuel base and its importance as an essential food stuff. Along with soy beans, corn is the most versatile food crop grown in North America. Hundreds of food products rely on corn and corn-based derivatives. Moreover, surplus corn is an enormous component of U.S. food exports and aid to developing countries.
As fossil fuel prices soared last year, corn for ethanol production not only replaced soy beans, but harvested crops were diverted in record levels away from food towards energy. This drove corn prices to record highs and pushed even more farmers to disproportionately plant corn over other crops. Predictably, as energy prices fell, corn prices have collapsed, leaving American farmers with an even greater surplus of grain.
Why Obama Is an Improvement
In the midst of the current economic crisis, federal ethanol subsidies also have come under increased scrutiny. The Bush administration, unlike the Obama White House, supported these massive subsidies to Midwestern farmers. In its push to cobble together a comprehensive strategy out of the patchwork that is U.S. energy policy, the President and his advisors have cooled to the notion of corn-based ethanol as a major fuel component.
Obama and his team of experts, led by his former Nobel Laureate U.S. Energy Secretary Steven Chu, have actively been promoting crops other than corn. They have placed a renewed emphasis on the use of marginal croplands for ethanol production. They contend that plants such as sugar beets not only produce ethanol more efficiently and with less energy inputs than corn, but that they can be grown in areas that will not jeopardize the production of other more vital food crops.
All of this has left the ethanol industry in disarray.
This week in Denver, nearly every ethanol producer in the U.S. and Canada is gathering at a conference to commiserate. With oil prices edging over $73 a barrel and heading back towards $90, ethanol producers still believe that they hold an important key to energy independence.
Even with Gen. Wesley Clark, erstwhile presidential candidate, giving the keynote conference address, the ethanol industry still faces more consolidation, fewer players and the daunting challenge of regaining its premier role in the panoply of U.S. energy policy.
What difference a year makes.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
