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Special Report: Ethanol

By: Michael Scheibach

When President Bush proclaimed his ambitious plan for renewable and alternative fuels in his State of the Union address, calling for annual production of 35 billion gallons a year by 2017, it brought cheers from both sides of the congressional aisle, as well from a host of organizations supporting the development of alternative fuels. In the Central States, especially, the President’s plan is viewed as an opportunity not only to decrease foreign oil dependency and help the environment, but also to stimulate the economies of small towns, raise household incomes, and increase state tax revenues. In addition, more ethanol production will boost the demand — and price — of corn, thus improving the lot of farmers.

Last year, according to the Renewable Fuels Association, 4.9 billion gallons of ethanol were produced, far below Bush’s goal. The National Corn Growers Association has issued its own “15-15-15” vision: 15 billion bushels of corn used to produce 15 billion gallons of ethanol by 2015. Even this “modest” goal would triple production over the next decade, yet fall significantly short of Bush’s 2017 objective.

So what are the realities? Can ethanol production be increased seven-fold over the next decade? Is the country’s corn production adequate to meet the increased ethanol requirements? How does the use of corn for ethanol affect corn prices and corn exports? What changes need to be made by automakers to accommodate fuels with higher percentages of ethanol, such as E85 (85 percent ethanol and 15 percent gasoline)? What about incentives for gas stations to update their pumps? What about education for consumers, convincing them of the benefits of using ethanol-blended fuel?

Clearly, ethanol production has a significant impact in the Midwest. It’s not surprising that the top four corn-producing states are also the top four ethanol-producing states: Iowa, Illinois, Nebraska, and Minnesota. These states account for some 80 percent of all ethanol produced in the United States. The vast majority of the 112 active ethanol biorefineries are located in these same states. Several of these facilities are being expanded, while 77 are under construction and more are in the planning stage in states from coast to coast.

With mounting awareness of global warming and intensifying concerns over the stabilization of the Middle East, it seems obvious that increased ethanol production would have widespread support. And it does … and doesn’t.

No one questions the need to become less dependent on imported oil. The government is strongly behind the development of alternative fuels. And new technology is being developed that uses “cellulosic” sources, such as grain straw and municipal waste. Yet detractors argue that increased ethanol production means less corn for export to famine-plagued countries. Others point to the increase in corn prices for consumers. And Wall Street pundits warn about the volatility of ethanol profits: as ethanol production increases, demand for corn increases, corn prices increase, and profits of ethanol producers decrease — a classic Catch 22.

Water, perhaps the second most critical environmental issue, is another concern. In Cambridge, Neb., for example, the new ethanol plant under construction is expected to consume two or three times more water than all 1,000 or so residents combined in this drought-plagued community.

Click on the links below to learn more about the ethanol industry, current and future production projections, ethanol's impact on the Central States and the nation, and organizations involved in ethanol issues.

Ethanol-Related Websites

Ethanol Reports and Fact Sheets

Organizations Involved with Ethanol Issues

Copyright (c) March 2007 BankNews Publications


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