Producers seek ethanol blend to boost market

WINDSOR – The ethanol industry is pushing the federal government to increase the maximum blend of ethanol in motor vehicle fuel from 10 percent to 15 percent, and that’s sweet music to Dan Sanders’ ears.

Sanders, who began operating Front Range Energy, an ethanol production facility in Windsor, in June 2006, said such a move could be a lifesaver for the struggling ethanol industry as it fights to establish a foothold in the U.S. energy picture.

“Basically, what it means is the industry is at the ‘blend wall,’ so to speak, so expanding or raising the blending cap makes sense,” Sanders said. “It helps keep existing ethanol plants operational and it promotes new growth and investment in the industry.”

On March 6, ethanol industry advocacy group Growth Energy called on the U.S. Environmental Protection Agency to raise the cap on ethanol blended into gasoline to 15 percent, saying the move would help reduce dependence on foreign oil and create badly needed jobs.

“Increasing the ethanol blend up to E15 is a commonsense solution to our economic, energy and environmental challenges,´ said Wesley Clark, retired U.S. general, former presidential candidate and Growth Energy co-chairman. “Raising the cap to E15 is supported by sound science. If the EPA acts swiftly, a higher blend of ethanol will help us jumpstart the economy while further reducing our dependence on foreign oil.”

Ups and downs

The ethanol industry had been doing well in recent years, enjoying a federal subsidy and plentiful investment as gasoline prices rose, culminating last summer when the price of gas topped $4 a gallon.

But rising corn prices and falling oil prices over the last seven months have hurt the industry. In some markets, the price of E85 ethanol even momentarily topped that of unleaded, wiping out its usual 25-to-50-cent ethanol price advantage.

Demand for ethanol shrank, and some ethanol giants were hit hard. VeraSun Energy Corp., one of the nation’s largest producers, filed for Chapter 11 bankruptcy on Oct. 31. Other producers have cut back on production and plans for new plants have been shelved until the market improves and credit loosens.

The federal government has set a goal of producing 36 billion gallons of renewable fuels annually by 2022, and in spite of recent setbacks, the Renewable Fuels Association said Feb. 24 that the renewable fuels industry remains on target for meeting that goal. The production target for 2009 is 11.1 billion gallons, up from the 9-billion-gallon requirement for 2008.

The ethanol/renewable fuels industry has some heavy hitters behind it now, with President Barack Obama and new Secretary of Agriculture Tom Vilsack firmly supporting its expansion.

Steve McNinch, chairman of the Kansas Association of Ethanol Producers and a spokesman for Growth Energy, said those endorsements bode well for the struggling industry and a cap increase. “The recent comments from Secretary Vilsack about the need for higher blends are very encouraging to our industry,” he said.

McNinch said raising the blend cap to 15 percent would mean two billion more gallons of ethanol would be needed each year to meet expected national gasoline consumption, including 300 million gallons of cellulosic ethanol.

“That opens the door to additional construction and helping the economy,” he said. McNinch noted that the EPA has 270 days to rule on the proposed ethanol blend increase, with extensive public comment part of the process.

Corn use criticized

Corn growers, currently by far the largest source of ethanol, have been accused by some of taking food out of the market to make fuel, resulting in higher prices for groceries and livestock feed. The American Meat Institute has been especially critical of using corn for fuel.

“We have concerns over what policies of corn-based ethanol do to the supply of corn,´ said Dale Nellor, AMI spokesman. “The amount of corn going into ethanol makes the price very volatile and increases feed costs for (livestock) producers.”

A coalition of food industry organizations, including AMI, the National Pork Producers Council and the National Chicken Council, is urging the EPA not to increase the ethanol blend cap. The food groups have requested the EPA to instead encourage support for cellulosic ethanol technology and production.

Cellulosic ethanol is that produced from non-food sources, such as corn cobs, stalks, switchgrass, wood chips and other organic materials. Colorado State University researchers are studying rice as a step toward the use of switchgrass or some other non-food source for future ethanol production.

“While rice is a food crop – and a widely grown one at that – it is the information from its genes that could speed the development of new crops for cellulosic biofuels,´ said Jan Leach, lead researcher at CSU, in an interview with High Plains/Midwest Ag Journal.

However, the immediate future of cellulosic is cloudy. An $80 million cellulosic ethanol plant planned for Grand Junction was put on hold in early February, but two Colorado companies – ZeaChem and CH2M Hill – announced Feb. 23 they planned to build a cellulosic ethanol plant in Oregon with $34 million in venture capital. And the USDA announced in mid-January that it had approved its first-ever loan guarantee to build a commercial-scale cellulosic ethanol plant.

Plenty of corn

Corn-based ethanol has been a boon to American corn farmers in recent years, and the price of corn has more than doubled as the ethanol industry has grown to consume about one-third of the corn crop. But Mark Sponsler, director of Colorado Corn in Greeley, said there’s not been a corn shortage and prices have recently fallen to about $3 a bushel due to overproduction.

“There’s no sector that uses corn that doesn’t have what it needs,” he said. “The growth in corn production exceeds the need in use production.” Sponsler also noted that waste from the production of corn-based ethanol is converted into a premium animal feed, putting some of the corn back into the food cycle.

Sponsler said raising the blend cap would be welcome by Colorado corn growers. “It would be an important, positive step for corn producers,” he said.

And while most agree that moving to a cellulosic, non-food-based ethanol industry will be a better production model, that day is still a few years away and may be resisted by corn farmers as it gets closer to reality.

“Ethanol has gotten to the point that, as ethanol goes today, so goes the agricultural economy,” McNinch said.

“I don’t think grain ethanol is ever going to go away,” he added. “Studies indicate a grain supply could reduce our dependence on foreign oil by 30 percent by 2030. It’s really that platform that leads to other initiatives in the industry.”

Meanwhile, Front Range Energy’s Dan Sanders said lifting the ethanol blend cap to 15 percent is a vital step along that path.

“It’s moving in the right direction, and if (ethanol) is ever going to grow, we need to do things like this,” he said. “If there’s going to be additional research in cellulosic, we need to do something like this.”

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