America's ethanol future in doubt

Corn-based ethanol was seen as such an ideal solution for our transportation fuel that Congress leaped to write it into law. In 2007, Congress mandated a fivefold increase in biofuels -- 42 % of it from corn -- in 15 years.
An industry quickly sprang up: Nearly 200 ethanol refineries have been built, and an estimated 70 % of gas sold in the United States contains at least some ethanol.

But as its limitations became clearer, the long-term future of corn ethanol has been clipped. Investors have concluded the industry can only be a niche player, engineers question the practicality of the fuel, scientists doubt its usefulness in reducing global warming, and the federal government is seeking to stop the industry's growth.
The first real splash of cold water on ethanol fever came from the market. Last summer, the price of corn peaked above $ 6 a bushel, and many ethanol producers were locked into high-priced contracts for their raw material. Then the price of gasoline plummeted and suddenly ethanol refiners found themselves struggling to break even. As the deepening recession cut off business credit, the industry plunged into wholesale bankruptcies.

Even as the survivors in the industry slowly begin to emerge from last year's squeeze -- gasoline prices are inching up and their input costs have eased -- ethanol faces a limitation from the "blend wall," a federal rule that limits ethanol to 10 % of gasoline.
The alcohol in ethanol burns hot and is tough on gaskets, hoses and the computers of modern cars, a danger that prompted the 10 % limit. That rule effectively caps ethanol production. Ethanol producers are lobbying Congress hard to increase the blend wall, but automotive engineers are raising red flags. Congress watchers say, at best, the ethanol industry will get a slight increase in the blend wall.

To add to its problems, the EPA has proposed a rule to enforce a congressional provision in the 2007 Energy Bill, largely ignored under the Bush administration, requiring any new biofuelto be at least 20 % lower in greenhouse gas emissions than the gasoline it replaces.
The rule requires that a new fuel, including ethanol, must account for all of its far-flung carbon impact, including that of forests cut down in distant lands by farmers replacing lost food crops.

It is a startlingly bold rule and the industry is crying foul. The administration has offered corn ethanol refiners -- a grandfather clause that will exempt the existing refiners from the rule.
But new corn ethanol production would not pass the greenhouse gas test, according to EPA calculations. The EPA is following a path pioneered by California that reflects accumulating research that finds corn-based ethanol is unlikely to reduce greenhouse gases.

The ethanol industry complains the research counting indirect costs assumes too direct a link from US corn growers to land cleared by farmers in, say, Africa. In a bow to that argument, the administration is setting up a scientific panel to review the question, prompting head-shaking among environmentalists.
But Wall Street already has pronounced its verdict. While the administration's grandfather clause will prop up the value of the existing ethanol plants, financiers are not putting money into any further growth of the industry.

"I think what this does is really sets a defined end to the corn era," said Sander Cohan, transportation fuels analyst at Energy Security Analysis, near Boston. "There's going to be a very active market in controlling and owning the plants that are grandfathered in. Those plants are going to have an enormous premium. But you can't build any more of these old corn ethanol plants."
The ethanol industry isn't giving up: Ethanol producers have regrouped and are striking back by taking a page from the EPA's playbook. The EPA, charged by the US Congress with calculating carbon pollution from fuels, maintains that the ethanol industry is responsible for more than just the emissions generated from producing ethanol and burning it in vehicles.

Ethanol could have another environmental impact. That is, by taking corn out of the global food supply, ethanol producers are indirectly inducing people in other places, such as the Amazon rainforest, to clear forests to plant more crops to replace the lost corn. Now the ethanol industry is saying oil-based gasoline has its own indirect effects in places like Canada's oil sands, where oil companies burn through massive amounts of energy to extract and refine gunky oil.
In a recent report, the Renewable Fuels Association, ethanol's main industry trade group, argues that the corn-based fuel's environmental credentials should be measured against gasoline made with that kind of oil, not with the lighter and more easily refined crude grades, which are becoming scarcer. That comparison makes ethanol look a lot greener.

The issue is far from settled-the EPA is waiting for public comment before making its final determination.
Corn ethanol seems like an excuse to avoid conservation.