Sunday, February 15, 2009

Economic Downturn Affects Ethanol Production

In 2007, Congress passed an energy law that set targets for increased usage of alternative fuels such as biofuels. The law mandated that refiners blend ethanol into the nation's fuel supply in increasing amounts - by 2015, corn ethanol targets are 15 billion gallons, which is twice the current usage. In answer to the controversy over corn ethanol's affect on food prices, Congress also mandated that ethanol be produced from biomass alternatives to corn such as straw and wood chips. The initial targets of advanced biomass start small: 100 million gallons in 2010 and 250 million gallons in 2011, but build to 2 billion gallons of biomass ethanol by 2022. However, these goals which appeared modest in rosier economic times now seem overreaching. 

In today's slower economy, drivers are using less fuel and the ethanol industry is faced with excess capacity. Oil and gasoline prices have plummeted since last summer while corn prices have remained relatively high. Blending  ethanol into fuel is no longer the smart economic choice it was months ago, and refiners are only buying enough to meet federal blending mandates, which is a level far below industry capacity. Energy experts predict that gasoline usage in 2009 and 2010 may be 6% or more below 2007 consumption levels. At current ethanol blending requirements, there would be no need for increased ethanol production. 

One of the largest producers of ethanol halted production at 75% of its plants. Three ethanol producers have declared bankruptcy.  The president of the Renewable Fuels Association estimates that 24 plants out of the nations' 180 plants have shut down recently. Private funding of pilot advanced biofuel plants has been another casualty of the recession. Unless ethanol blending targets such as those established in the 2007 energy law are boosted, development of these fuels may slow considerably. However, there is a glimmer of hope on the horizon for alternative biofuels. POET, a South Dakota-based ethanol producer, just announced an $8 million pilot plant to produce cellulosic ethanol from corn cobs which it plans to open in 2011. 


lima charlie said...

It's a shame to see how the recession has affected all sectors of alternative energy. I recently blogged on how funding is being cut to construct solar farms in California, which will detain to reach its goal of having at least 30 percent of its energy be renewable energy.

What I liked best about your blog is that you do point out another avenue in fulfilling the goals of alternative energy. One thing I did want to point out regarding cellulosic ethanol is how low the enviornmental and health costs are compared to gasoline and corn-ethanol fuel. These costs are about 71 cents per gallon for gasoline and corn-ethanol can range anywhere from 72 cents to $1.45. Cellulosic ethanol, however, costs roughly 19 cents to 32 cents for production.

The Federal government and investors should consider these low costs of producing cellulosic ethanol. This could help in staying on task of transferring to use more renewable energy.

University of Minnesota (2009, February 3). Cellulosic Ethanol May Benefit Human Health And Help Slow Climate Change. ScienceDaily. Retrieved February 15, 2009, from­ /releases/2009/02/090202174934.htm

Michael E. Webber, Ph.D. said...

Zoe, it looks like the ethanol industry is going through a boom-bust cycle just like petroleum did 100+ years ago. Actually, it looks like the petroleum industry is still going through the boom-bust cycle.