Ethanol Producers Press for Higher Limits

A VeraSun ethanol plant in Charles City, Iowa, last April. VeraSun, once the nation's second-biggest producer, filed for bankruptcy protection last fall after losing hundreds of millions of dollars on a bad bet on corn prices.
A VeraSun ethanol plant in Charles City, Iowa, last April. VeraSun, once the nation's second-biggest producer, filed for bankruptcy protection last fall after losing hundreds of millions of dollars on a bad bet on corn prices. (By Michael Williamson -- The Washington Post)
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By Steven Mufson
Washington Post Staff Writer
Friday, March 6, 2009

The nation's ethanol producers are urging the Obama administration to raise the 10 percent limit on ethanol in motor fuel to 15 percent or more, a move they hope will create new demand at a time when many distilleries are idle.

The producers say higher ethanol blends would help create jobs and reduce petroleum imports. Moreover, without a change in the 10 percent limit, ethanol makers say it could be difficult to fulfill a congressional mandate for renewable fuel use and the makers of new forms of ethanol, which rely on raw materials other than corn, could be locked out of the fuel market.

"This is about jobs, energy security for America, improving the environment and meeting our legal responsibilities under the 2007 energy bill," said retired Gen. Wesley Clark, co-chairman of a group of ethanol firms called Growth Energy.

Growth Energy plans to formally request a waiver today from the Environmental Protection Agency to raise the ethanol content of motor fuel to 15 percent.

Under the existing 10 percent limit, ethanol production would theoretically top out at 14 billion gallons a year based on current fuel consumption trends, or less because of transportation constraints that limit ethanol deliveries in many parts of the country. That falls far short of the targets in current law, which requires refiners to use 36 billion gallons a year of ethanol by 2022, up from the current 10.5 billion gallon production level. President Obama said during the presidential campaign that he favors a 60 billion-gallon-a-year target.

But many critics say the push for higher ethanol limits is really about propping up the heavily subsidized ethanol industry and giving a boost to venture capital firms that are still struggling to come up with an economically competitive way to produce other forms of ethanol made from plants that do not compete with food products.

In addition, the American Petroleum Institute and some carmakers say they want to wait to make sure that higher percentages of ethanol in gasoline won't damage vehicles' engine parts.

Edward B. Cohen, vice president of government and industry relations at American Honda, said questions remain about the effect on existing engines in motorcycles, lawn mowers and weed trimmers.

"What is the implication for those engines of using a higher blend, which has more water and is therefore more corrosive?" Cohen asked. "I think that displacing petroleum with ethanol is a plus, but before moving precipitously, we need to make sure that the products are going to continue to perform and that emissions will not be adversely affected."

Not all automakers oppose the change. In a letter two weeks ago to the chief executive of ethanol maker POET, Ford said it would endorse an immediate increase in ethanol blends up to 15 percent.

The ethanol industry's push comes as the Obama administration appears to be leaning toward lifting the ethanol ceiling slightly, perhaps to 12 percent, while research on higher concentrations is done.

"The only issue is what auto companies say about the damage it could do to engines," Energy Secretary Steven Chu told reporters at a recent forum sponsored by the trade publication Platts.

Many ethanol producers are pressing for a decision quickly. The industry has the capacity to produce 12.5 billion gallons a year of corn-based ethanol, about 9 percent of the nation's motor fuel supply and three times as much as was produced in 2005.

But it is falling about 2 billion gallons short of that capacity as prices have tumbled in the economic downturn. VeraSun, once the nation's second-biggest producer, filed for bankruptcy protection last fall after losing hundreds of millions of dollars on a bad bet on corn prices. It accounts for about half of the nation's idle capacity.

Other firms have been hit too. Last week Pacific Ethanol, struggling to negotiate new loan terms with Wachovia and other lenders, announced that it would suspend operations at two 60 million-gallon-a-year facilities, one in Stockton, Calif., and one in Burley, Idaho. Pacific Ethanol had already suspended operations at a 40 million-gallon-a-year plant.

"It's because of the economic climate," said Matt Hartwig, a spokesman for the Renewable Fuels Association. Companies are struggling to get operating capital and profit margins are being squeezed. "Things are bad," he said.

Congress might soon weigh in on the issue. Yesterday, Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-N.M.) said the issue was under discussion, adding "it's unlikely that I would want to roll back" the renewable fuels standard Congress set in 2007.


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