Was It Ever Gone? Ethanol Makes Another Comeback

Turmoil in the Middle East may turn out to be the biggest news story (apart from the tragic events in Japan) of 2011. Libya, Yemen, Egypt – unrest and conflict seems to have been the dominant theme in these countries.  In the United States, we follow the stories on TV but we also see the results at the fuel pump. Any little disturbance or even the mere hint of a disruption has the potential to cause fuel prices rising, and American drivers have seen the results of this first hand.

One group that is certainly not being hurt by the rise in fuel prices are the ethanol producers. Plants that closed down during the economic downturn in 2010 are reopening. As of the beginning of March 2011, 17 ethanol plants have reopened.  Their capacity is needed to contribute to the estimated 15 billion gallons of ethanol that will be needed to fuel the increase from 10% to 15% ethanol content in gasoline that the EPA has mandated to start this year. 

And U.S. lawmakers aren’t looking back when it comes to ethanol. Within 11 years (by 2022), the ethanol mandate is estimated to represent 36 billion gallons.  That’s a remarkable boon for ethanol producers and boosters, who lobbied hard for politicians like Al Gore Jr. to kick back renewable fuels tax credits to these producers.  You may recall that Mr. Gore and some of his old political allies like Bill Clinton are erring now on the other side of the debate, acknowledging the troubling conflict with using 35-40% of our national corn supply to produce automotive fuel instead of food.

The only factor which could foreseeably derails this continued ethanol resurgence is a decision by Congress not to extend these favorable terms.  As other costs to the nation spiral out of control, that could be a possibility to watch out for.  A $0.50 - $1.00 a gallon credit for 15-36 billion gallons of ethanol is a large chunk of change that the American taxpayer has to shell out. Stay tuned on that issue in the coming years.

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An Inconvenient About Face on Ethanol in Gasoline by Al Gore