As predicted, ethanol rears its ugly head again

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How things can change! Less than a year ago, gasoline prices were soaring and so were the fortunes of the corn-based ethanol producers. In addition, the Bush administration had just mandated a steady increase in the annual production of ethanol to 36 billion gallons per year by 2022. If you were a corn farmer or ethanol refiner, you were as happy as a suntan lotion salesman in a nudist camp.

But today, the sun has gone down for the ethanol producers, and some refineries are even shutting down. “We are all struggling, there’s no hiding that,” admitted Scott Pearce, president of Biofuel Energy Corp., in an interview with David Adams of the St. Petersburg Times. “Our timing couldn’t have been worse.”

Pearce was referring to the fact that his firm has just built two new ethanol plants, each capable of producing 115 million gallons per year. Today there’s an ethanol glut!

To all this, I say: Bravo, let ’em all — all 180 plants — shut down. After all, this push for ethanol has been a scam even Bernie Madoff could envy. And finally there are mounting reports raising real questions about both the efficiency and environmental benefits of ethanol. Unfortunately, it’s not going to be that simple.

Enter Growth Energy, an ethanol industry trade association. Retired Army Gen. Wesley Clark recently joined this group and said, “What the industry faces is a political problem. The government needs to raise the limit [the blend cap] to get the next big surge in ethanol.” To that end, Growth Energy recently filed a petition with the EPA to allow blends to be increased from 10 to 15 percent.

We in the marine industry are acutely aware of the destruction and safety problems our marine engines and related fuel systems will face if the blend cap goes above the current E-10. I’ve written about it in this blog several times over the past couple of years, and I predicted we’d see a push for higher blend caps. The push is on.

Pushing back (as reported in Trade Only Today last Friday) is NMMA. It has teamed up with the National Petrochemical & Refiners Association and the Outdoor Power Equipment Institute to oppose any increase above the current 10 percent cap. The groups are calling for comprehensive scientific research, as required by the Clean Air Act, on the possible risks that "midlevel ethanol blends" pose to public health, consumer safety and the environment.

According to NMMA’s legislative director Matthew Dunn, more and more groups are coming out against the corn-based oxygenate, and he thinks the political mood in Washington is beginning to shift. I hope he’s right. But I, for one, see big problems ahead.

Problem: The new Agriculture Secretary is Tom Vilsack, a former Iowa governor and longtime advocate of ethanol. No surprise there, since Iowa has an abundance of ethanol refineries.

Problem: Energy Secretary Stephen Chu also joins the party, another acknowledged proponent of biofuels from cellulose.

Problem: President Obama included $6 billion in loan guarantees in the stimulus package for development of energy technologies including biofuels.

Whether the administration will come to the aid of the ailing ethanol producers is uncertain. But I wouldn’t bet against it. Right now, ethanol supporters are actually trying to circumvent the required process and get an administrative action declaring that E15 is the same as E10.

Finally, since Growth Energy has filed a petition, EPA is now required to publish a notice in the Federal Register, schedule a public comment period, and draw up a formal proposal to authorize the waiver. When that happens, it will be critically important for individual dealers, as well as organizations like MRAA, the state Marine Trades Associations and consumer boating groups, to become fully engaged.

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