Ethanol Industry Gets a Boost From Bush

A worker at VeraSun loads grain as part of the process to produce ethanol.
A worker at VeraSun loads grain as part of the process to produce ethanol. (By Eric Landwehr -- Associated Press)
By Steven Mufson
Washington Post Staff Writer
Thursday, January 25, 2007

At the State of the Union address Tuesday night, Don Endres relished the strange applause rituals, the pomp and ceremony, and even the dinner in the Capitol beforehand at which he rubbed elbows with leading lawmakers.

But most of all, Endres, the chief executive of the nation's second-largest ethanol maker, relished President Bush's message: that the government should sharply raise the mandate for ethanol use in motor fuels, setting a floor for alternative and renewable fuel use in 2017 that is equal to seven times the current ethanol output.

That is good news for Endres's company, VeraSun Energy, which will nearly triple its capacity by the end of 2008, to 670 million gallons a year from 230 million. VeraSun's shares soared this week. Even after profit-taking by investors yesterday, VeraSun closed at $17.49 a share, up 5 percent since Friday's close.

Endres owns 41.7 percent of the company, which went public in June and has a market capitalization of $1.35 billion. He raised seed money by building and selling companies in the debit card, electronic equipment and Internet payment businesses. Only Archer Daniels Midland, with more than 1 billion gallons a year of ethanol capacity and half again as much on the way, is bigger than VeraSun.

Not everyone thinks Bush's speech is good news. Oil refiners complain about mandates telling them how to blend fuels. Critics of Bush's proposal say it will be impossible to hit the proposed requirement of 35 billion gallons a year by 2017 because the main renewable fuel used now, ethanol made from corn, is already driving up corn prices and will use much or all of the U.S. corn harvest. And technology for producing "cellulosic" ethanol from other feedstocks, such as switch grass, has not been proved on a commercial scale yet.

Ethanol boosters are not counting on available technology, however. They are counting on new advances for making ethanol and continued government subsidies. A tax credit to refiners amounts to 51 cents per gallon of ethanol; without that credit, ethanol makers such as VeraSun, which earned about $1 a gallon in the second and third quarters last year, would have to slash prices to make their product economical.

"My grandfather grew 40 bushels of corn per acre," said Endres, who grew up on that farm in Watertown, S.D. "My father grew 80 bushels per acre. My brothers are getting 160 bushels an acre. Every generation, we double corn production per acre."

Endres says that in addition, more farmland could be devoted to growing corn, including a quarter of the land now used to grow soybeans.

Critics see this as ethanol in the sky, but the VeraSun chief executive also preaches another gospel: that technological advances will make ethanol manufacturing more efficient. "The industry is still in its infancy," Endres said, adding that refineries now get 20 to 30 percent more ethanol from the same amount of feedstock than five years ago.

The prospect of technological advances was promoted yesterday by Bush. After touring a DuPont research facility in Wilmington, Del., where scientists are developing methods for mass-producing ethanol made from cornstalks, switch grass and wood chips, Bush said he was confident that the technology was in place to meet his goals.

"I came wondering whether or not cellulosic ethanol was one of these things down the road that may be happening, may not, could end up being science or science fiction," Bush said. "It's going to be science." DuPont plans to open its first pilot plant to manufacture cellulosic ethanol by next year, and officials say they are confident that the fuel could hit the market two years after that, said Stephanie Jacobson, a public affairs official with DuPont.

Earlier in the day, Bush signed an executive order to reduce the federal government's use of gasoline, increase its use of alternative fuels and buy more flex-fuel vehicles.

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