Ethanol Development On The Front Burner


Much of the debate and discussion in Congress and elsewhere in the coming months regarding the next Farm Bill and other ag policy issues will likely focus on having enough corn supply to meet the growing needs for ethanol production in the coming years, while at the same time maintaining an adequate supply of corn for food, and as a feed resource for the livestock industry. Currently, there is bi-partisan support in Congress, as well as support from Secretary of Agriculture Mike Johanns and the Bush Administration, to greatly enhance renewable energy production and distribution in the U.S. in the coming years. While there is long-term hope for development of ethanol from cellulosic sources, biomass and other sources, we are a long way from those sources of ethanol being commercially available. So, in the short-term, most of the rapidly expanding needs for renewable fuel will be derived from ethanol production utilizing corn.

As recently as two years ago, when Congress was debating and finalizing the Federal Energy Policy Act of 2005 (signed into law in August, 2005), there was a lot of apprehension by some members of Congress, some of the Bush Administration, some state governors and the general public regarding the long-term viability of renewable energy resources generated in the U.S. having a significant impact of our nation’s dependence on foreign oil to meet the country’s future energy needs. Now, early in 2007, nearly every politician at the federal and state level is talking about renewable fuels, nearly every major newspaper in the U.S. and all the TV news shows are doing regular feature stories on renewable energy and the general public has a much higher awareness of the importance of bio-fuels and renewable energy. There are several factors that have come together to cause this change, including the ongoing and increasingly unpopular Iraq war, the rapid rise in oil prices in late 2005 and early 2006, the increased attention to global warming and ways to address it, and the political changes in Washington, D.C., and in some states. Consider some of the following recent developments related to expanded bio-fuels production:

· Governors from 37 states jointly signed and sent a letter to President Bush calling for a boost in the level of renewable fuels required to be used in the Nation’s fuel supply. The Governors’ proposal would require fuel sellers to increase the use of renewable fuels to 12 billion gallons per year by 2010. The current federal requirement mandates that fuel sellers use 7.5 billion gallons of ethanol by 2012. In addition, the proposal calls for an increase in required renewable fuels use in the U.S. to 15 billion gallons by 2015, and to 35 billion by 2025. They also called for added incentives to promote the development of cellulosic ethanol, and for an enhanced strategy to greatly improve the availability and awareness of E-85 ethanol-blended gasoline.

· In response to increasing concerns related to global warming, Gov. Arnold Schwarzenegger has released a plan to cut at least 10% of the carbon content of motor-vehicle fuels used in California by 2020. This plan would largely be accomplished by replacing existing gasoline with fuel blends from ethanol and other renewable fuels sources. A lot of changes will have to take place in California to meet this goal. Currently, there is a very limited supply of flex-fuel vehicles available in California, and there are only a few gasoline pumps in the entire state with E-85 gasoline available. It is estimated that the state has about 9,800 gas stations and 30 million vehicles statewide, so the impact of this proposal could be huge for the renewable fuels industry.

· Iowa Senator Tom Harkin wants to write a new Farm Bill with a very strong Renewable Energy Title, which would target 30-60 million gallons of renewable fuels annually in the U.S. in the future.The goal of producing 60 million gallons of renewable fuel by the year 2030 is 10 times greater than the current ethanol production capacity in the U.S., which means that the U.S. will rapidly need to develop other sources of renewable fuels, in addition to ethanol production from corn, to meet these lofty goals. Senator Harkin has stated that the next Farm Bill will be quite different from past Farm Bills, and that the focus will be on “food, fiber and fuel”.

· President Bush announced plans in his recent State of the Union Address to be much more aggressive in promoting enhanced production of renewable energy, development of new sources of renewable fuels and greater acceptance and distribution of renewable energy sources. The President called for a 20% reduction in our dependence on foreign oil in the next 10 years, which would be mainly accomplished by replacing 15% of our current gasoline consumption with renewable fuel sources.

The U.S. produced an estimated 5.4 billion gallons of ethanol in 2006, at 111 ethanol production facilities that are currently in operation. There are currently 78 new ethanol plants and eight ethanol plant expansions in various phases of planning or construction, which will add approximately 6 billion gallons of ethanol production capacity in the U.S. in the next 2-3 years. Approximately 386 million gallons of gasoline are used each day in the U.S., so our current ethanol production represents about 4%, or 14 days, of the total annual gasoline use in the U.S.

Editor’s note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at kent.thiesse@minnstarbank.com.