What’s Happening With Ethanol?

According to the Energy Information Administration (EIA) approximately 5 billion gallons of ethanol was produced in the U.S. in the first 6 months of 2009. The US also imported 79 million gallons of ethanol during this same period. Based on the first 6 months of production it is estimated that 10.5 billion gallons will be consumed in 2009. The imported volumes from Brazil and the Caribbean for 2009 are estimated to be 157 million gallons.

Current ethanol production capacity stands at 13 billion gallons. The idle production is a result of the financial crisis when some ethanol plants went into bankruptcy. The capacity is being put back into service as they come out of bankruptcy. Ethanol producers were squeezed by escalating corn prices and overcapacity as the industry overbuilt. In late 2008, most producers were at breakeven levels or worse as ethanol prices fell significantly in tandem with crude oil.

Commentary – The ethanol industry was created by the U.S. government by subsidizing it. They protected it from imports by putting tariffs on ethanol from Brazil and other countries. To create demand the government then mandated its use as an additive in gasoline and this triggered the rapid growth of the ethanol industry. In 2008, ethanol has displaced only 3% of our oil usage. The Obama Administration is pushing a big expansion in ethanol, including a mandate to increase the share of the corn-based fuel required in gasoline to 15% from 10%. Apparently no one in the Administration has read a pair of new studies, one from its own EPA, that expose ethanol as a bad deal for consumers with little environmental benefit. A second study — by the Environmental Protection Agency’s Office of Transportation and Air Quality — explains that the reduction in CO2 emissions from burning ethanol are minimal and maybe negative. The government has put a maximum on the amount of ethanol that can be produced from corn at 15 billion gallons. All ethanol is made by the fermentation of corn. To meet the new mandated volumes of 36 billion gallons by 2022 without exceeding the 15 billion gallons of corn-based ethanol, the ethanol industry will be challenged to commercialize cellulosic ethanol technology.