Analysis: Ethanol's hurdles

WASHINGTON, Dec. 29 (UPI) -- The emphasis on ethanol this year has seen it promoted as everything from a panacea for U.S. reliance on foreign oil to the fuel that will bring back jobs to the Midwest. And as its supporters and critics battle over its efficacy, there is little doubt that ethanol will remain at the forefront of U.S. efforts to move away from fossil fuels for some time.

Ever since President Bush declared in his State of the Union speech that the United States was "addicted to oil," ethanol's proponents have championed it as an easy way to reduce reliance on foreign oil.

Over the last six years, the number of ethanol plants has risen from 54, which produced 2 billion gallons per year, to more than 100 that produce nearly 5 billion gallons; 44 other plants are being built and are expected to add 3 billion gallons to the mix per year.

But despite the impressive growth, ethanol use is still dwarfed by gasoline's. This year, some 4.6 billion gallons of ethanol were expected to be consumed; the figure for gasoline was 140 billion gallons. More than 45 percent of gasoline sold in the United States is 10 percent blended with ethanol, but the fuel's backers want greater use of E85, which is 85 percent ethanol. They say it is cleaner and benefits the U.S. heartland because it is made from homegrown corn.

"Renewable fuels help to power our nation," Agriculture Secretary Mike Johanns said at a conference on biofuels in St. Louis in October. "They provide income for rural America."

A Democratic Party plan for energy independence called the Clean EDGE Act aims to reduce U.S. petroleum consumption by 6 million barrels a day -- 40 percent of U.S. imports -- by 2020. And, according to a September report released by the liberal Economic Policy Institute and Washington's liberal Apollo Initiative, the plan could create approximately 530,000 jobs when it is implemented in 2009.

There are some hiccups, however.

Ten years ago, less than 5 percent of corn production was used for ethanol. In 2005, 14 percent was used. In 2006, that number was expected to grow to 20 percent, or more than 2 billion bushels, almost the same as the amount of corn exported each year. The soaring demand for corn spiked its price on commodity futures markets to record highs. Financial analysts have warned that the rise in corn prices is likely to affect ethanol's outlook.

Another concern is ethanol's limited availability. There are only some 800 E85 stations across the country that sell the fuel. The soaring demand for ethanol has pushed up the demand for corn, spiking its price on commodity futures markets to record highs. Financial analysts have warned that the rise in corn prices is likely to affect ethanol's outlook.

In a bid to offset some of the pressure on corn, the Bush administration and the biofuel industry is looking to other sources of ethanol -- primarily from cellulosic sources. But before that can become cost-effective, corn is likely the way to go.

Indeed, the Energy Information Administration, the U.S. Department of Energy's data arm, said this month that ethanol production from cellulose was predicted to reach 300 million gallons by 2030, only slightly higher than the 250 million gallons per year required starting in 2013 by the Renewable Fuels Standard in the 2005 Energy Policy Act.

Then there is the issue of subsidies. The federal government subsidizes ethanol by 54 cents a gallon, which critics say is the only reason ethanol is effective. But ethanol's backers say it is competitive with gasoline up to $40-$45 a barrel. Oil is trading at around $60 a barrel, and that should keep ethanol as a feasible addition to the U.S. fuel mix.

In the long run, this is key. Ethanol is unlikely to ever replace hydrocarbons as a source of automotive and other fuels, but it can be a significant part of the U.S. energy mix, along with oil, gas, solar, wind and other forms of energy.

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