Ethanol’s uncertain future

Cattle Market & Farm Reports, Editorials
Oct 22, 2007
by WLJ

—Studies begin to question sustainability of the ethanol industry.

The ethanol industry, the focus of much attention after corn prices skyrocketed last year, has been experiencing a massive slowdown in recent months. Reports of delayed construction or expansion have caused concern among investors and the industry’s usage of corn may not reach projected levels this year, according to some industry experts.

In 2006, approximately 14 percent of the corn crop went toward the production of ethanol, compared with just 11 percent in 2002. Although there is much debate on the matter, this year, ethanol production could use as much as 20 percent of the total expected crop of 13.3 billion bushels, according to current USDA National Agricultural Statistics Service estimates. In fact, National Corn Growers Association (NCGA) says that by 2015, as much as 30 percent of all feed corn grown—a total as high as 5.5 billion bushels—will be allocated for ethanol. The Department of Energy already has set a goal which states that 30 percent of the fuel used as automobile fuel will be ethanol by 2030. To further that mandate, The House of Representatives recently passed legislation requiring 25 percent use by 2025.

However, there are problems developing in the marketplace. Supply chain problems and rising costs are hampering growth in the industry despite an ethanol production subsidy and a federal mandate requiring increased usage of ethanol. There is trouble ahead for companies involved in ethanol production. Several recent studies have poked holes in what many had hoped was the answer to the U.S. reliance on foreign oil, which last week was nearing $90 a barrel. However, according to recent studies, including one released earlier this year by University of Minnesota (UM) researchers and a Congressional Research Service (CRS) Report, there may be more potential risk ahead for the industry.

“We definitely believe that biofuels have a significant potential,” said Jason Hill, lead author of the UM study. But he added that ethanol should not be viewed as “a savior” to our energy problems and its rapid expansion as a motor fuel has its drawbacks, especially if it is dependent on food crops such as corn and soybeans as feedstock.

If every acre of corn were used for ethanol, it would replace only 12.3 percent of the gasoline used in this country, Hill’s study said, adding that the energy gains of corn-produced ethanol are only modest and the environmental impacts significant.

As a fuel source, ethanol, which produces just 25 percent more energy than it requires to make it—is inferior to feedstocks such as sugar cane which is as much as 400 percent more efficient.

It also widely believed by the public that ethanol presents a environmentally friendly option to fossil fuels, however, both the Minnesota and CRS studies found that increased corn production causes the release of nitrogen, phosphorous and pesticides into waterways as runoff from fields. In addition, ethanol, especially at higher concentrations in gasoline, also produces more smog-causing pollutants than gasoline per unit of energy burned, the researchers said. In fact, in terms of alternative fuels, experts point out that biodiesel represents a far better fuel choice than corn- based ethanol.

However, according to the UM report, “neither can replace much petroleum without impacting food supplies,” the researchers concluded. The study also examined the use of other feedstocks such as cellulosic ethanol produced from switchgrass and found it represents a better choice, but it, too, falls far short of meeting the needs of American consumers. Cellulosic ethanol production, which is only in the research stage, has proven to hold greater energy output with minimal impact on the environment or food sources such as corn or soybeans, the UM paper said.

Biofuels such as ethanol are “not a practical long-term solution,” and their widespread use—even from non-food crop sources—could have a “devastating” impact on agriculture, two researchers at the Magleve Research Center of the Polytechnic University of New York argued as part of a white paper on the subject.

Studies have shown that ethanol produced on as much as 300 million acres of switchgrass still could not supply our present gasoline and diesel consumption. In fact, 300 million acres of switchgrass, which would require shifts of land away from crop production, could be devastating for agriculture, particularly if problems develop in the ethanol industry to further hamper supply and demand. An example of such a problem would be a move by OPEC to lower crude oil prices closer to their current $60 per barrel target price. A downward trend in oil prices would remove the incentive for ethanol production.

For the meantime, however, corn looks to be the primary feedstock for the ethanol industry and corn growers say there is plenty of supply to go around. As proof, they point to flat demand from the animal feeding industry and others which, up until recently, have been the main consumers of the crop.

“There’s absolutely no shortage of corn,” Geoff Cooper, spokesman for NCGA said recently.
NCGA representatives also point to increased yields over the past decade, which are largely the result of improved seed strains, better drought and pest resistance, and improvements in farming practices, as proof that there isn’t likely to be a shortage of corn now or in the future as ethanol production grows.

According to a CRS study conducted earlier this year in advance of the Farm Bill debate, there were approximately 6 million vehicles in the U.S. capable of burning E85 fuel in 2004. Those vehicles consumed 22 million gasoline-equivalent gallons, less than 1 percent of total auto fuel usage in the U.S. One particular concern expressed by the studies’ authors was the distribution of that consumption, which was concentrated in the Midwest. Because ethanol cannot be shipped through the U.S. pipeline network due to its corrosive nature, it must be shipped by rail or truck to distribution points, often far away from manufacturing centers, a problem that isn’t likely to be remedied anytime soon despite plans to build ethanol plants in coastal areas where cities and states are more likely to mandate usage of the fuel.

Although ethanol has been a boon to grain growers, there are significant issues on the horizon for the industry which must be resolved before its use as a replacement for a major portion of fossil fuel usage.

“Although the use of fuel ethanol has been limited to date, to only 2-3 percent of gasoline consumption, it has the potential to significantly displace petroleum demand,” the CRS report found. “However, the overall benefits in terms of energy consumption and greenhouse gases are limited, especially in the case of corn-based ethanol.”

For the time being, it appears there will continue to be concerns about ethanol’s viability and acceptance as a solution to the nation’s energy needs even among the industry’s biggest supporters. — John Robinson, WLJ Editor