HAPPY INDEPENDENCE DAY TO EVERYONE!
Sorry for missing posts readers! Been "under the weather" for the past week.
As I've covered in several recent articles, the ethanol industry is "suffering" and more and more plants are being "idled". There is also growing pressure in Congress to limit the EPA's mandates on continuing to increase the number of gallons to be produced each year.
Here's yet another article describing the issues with the ethanol industry:
Peak
ethanol - so now what?
PEAK ethanol has
arrived. As an alternative to petroleum based fuel, ethanol has fallen off its
pedestal. After 15 years of growth, consumption in the US is starting to
decline and production plants are closing down.
The industry
invested heavily in new capacity based on assumptions that fuel consumption
would continue to rise and ethanol’s share would increase, underpinned by laws
requiring a certain proportion of ethanol to be blended into petrol. But petrol
consumption is not increasing and, with ethanol in the US now accounting for
almost 10 per cent of petrol supplies, the legal mandates have almost been
reached.
Meanwhile, the
ethanol industry's once powerful political support has weakened. Congress last
year eliminated about $6 billion in annual subsidies, and critics are pushing
for cuts in the 15 billion-gallon-a-year mandate. The industry’s plan to
increase the mandate to 15pc appears doomed.
The ethanol
industry consumes about 40pc of corn produced in the US, up from around 14pc in
2005, and has contributed to a big rise in corn prices. But with corn
production up and the change in ethanol’s fortunes, the reverse is now
occurring. The price of corn is back to where it was two years ago. Wheat and
barley, which are partial competitors, have gone the same way.
Peak ethanol
has also arrived in Australia. A campaign led by petrol retailers forced the
NSW government to back down on its plan to replace normal unleaded fuel with
E10, although the 6pc ethanol mandate was retained. With the focus now on gas,
there is little prospect it will rise again.
Ethanol’s
course has mirrored the economy, both in the US and here. With prosperity, all
sorts of indulgences can be accommodated. When times are tough, it’s back to
basics.
The idea that
fuel could be grown at home rather than imported from unfriendly foreign
countries appealed to a lot of people. Lining the pockets of Muammar Gaddafi or
Hugo Chavez was never going to win against that. Green groups also argued that
ethanol was renewable and produced fewer greenhouse gas emissions, while the
farm sector pointed to opportunities for “struggling farmers” to benefit from
increased demand for their crops.
There were some
who disagreed. The developing world pointed to the impact of higher food prices
on global hunger, with a UN official describing biofuels as a “crime against
humanity”. The industry responded by promising to shift to cellulosic feedstock
based on non-food crops grown on marginal land.
The elephant in
the room was always the fact that it is a lot more expensive to grow and
produce ethanol than it is to extract and refine petroleum, and cellulosic
ethanol is even more expensive. The only way ethanol can compete with petrol is
with government support. That has been forthcoming in the form of subsidies,
tax advantages and protection through mandated blending.
There is a cost
to this. Subsidies are a direct hit to the budget; tax advantages leave the
government with less revenue; and blending mandates impose extra costs on the
fuel industry. Ultimately the cost is borne by consumers, contributing to lower
economic growth. And that lowers tax revenue as well.
Governments are
beginning to reduce their support not because of sudden concerns about starving
people or the feeling that industries ought to stand on their own feet. Rather,
they can no longer afford to splash money around. They are under enormous
pressure to bring spending into line with revenue. If funding for the ethanol
industry is maintained, there will be less available for schools, hospitals,
roads and bridges.
This situation
will persist for quite a few years. The US and EU budget problems are too big
to be solved quickly, and neither has yet made a serious start anyway.
Australia’s debt is lower, but not insignificant. Unless there is a big
breakthrough in production costs, ethanol has no future as a major fuel.
The case for
greater energy self-sufficiency may have some merit, but ethanol is not the way
to achieve it. Australia has vast quantities of coal and natural gas (both
conventional and unconventional), plus potential for additional hydro power. On
the other hand, it does not have limitless land on which to grow food. Nor does
it have enough taxpayers to fund uncompetitive dreams. It is good that
ethanol’s best days are over.
David
Leyonhjelm is an agribusiness consultant with Baron Strategic Services. He may
be contacted atreclaimfreedom@gmail.com
"Pete" Landry..........comments welcome at .............way2gopete@yahoo.com
