APRIL 18, 2009
http://online.wsj.com/article/SB124000832377530477.html
The Ethanol Bubble Pops in Iowa
More evidence the fuel makes little economic sense.
By MAX SCHULZ
Dyersville, Iowa
In September, ethanol giant VeraSun Energy opened a refinery on the outskirts of this eastern Iowa community. Among the largest biofuels facilities in the country, the Dyersville plant could process 39 million bushels of corn and produce 110 million gallons of ethanol annually. VeraSun boasted the plant could run 24 hours a day, seven days a week to meet the demand for home-grown energy.
But the only thing happening 24-7 at the Dyersville plant these days is nothing at all. Its doors are shut and corn deliveries are turned away. Touring the facility recently, I saw dozens of rail cars sitting idle. They've been there through the long, bleak winter. Two months after Dyersville opened, VeraSun filed for bankruptcy, closing many of its 14 plants and laying off hundreds of employees. VeraSun lost $476 million in the third quarter last year.
A town of 4,000, Dyersville is best known as the location of the 1989 film "Field of Dreams." In the film, a voice urges Kevin Costner to create a baseball diamond in a cornfield and the ghosts of baseball past emerge from the ether to play ball. Audiences suspended disbelief as they were charmed by a story that blurred the lines between fantasy and reality.
That's pretty much the story of ethanol. Consumers were asked to suspend disbelief as policy makers blurred the lines between economic reality and a business model built on fantasies of a better environment and energy independence through ethanol. Notwithstanding federal subsidies and mandates that force-feed the biofuel to the driving public, ethanol is proving to be a bust.
In the fourth quarter of 2008, Aventine Renewable Energy, a large ethanol producer, lost $37 million despite selling a company record 278 million gallons of the biofuel. Last week it filed for bankruptcy. California's Pacific Ethanol lost $146 million last year and has defaulted on $250 million in loans. It recently told regulators that it will likely run out of cash by April 30.
How could this be? The federal government gives ethanol producers a generous 51-cent-a-gallon tax credit and mandates that a massive amount of their fuel be blended into the nation's gasoline supplies. And those mandates increase every year. This year the mandate is 11 billion gallons and is on its way to 36 billion gallons in 2022.
To meet this political demand, VeraSun, Pacific Ethanol, Aventine Renewable Energy and others rushed to build ethanol mills. The industry produced just four billion gallons of ethanol in 2005, so it had to add a lot of capacity in a short period of time.
Three years ago, ethanol producers made $2.30 per gallon. But with the global economic slowdown, along with a glut of ethanol on the market, by the end of 2008 ethanol producers were making a mere 25 cents per gallon. That drop forced Dyersville and other facilities to be shuttered. The industry cut more than 20% of its capacity in a few months last year.
What's more, as ethanol producers sucked in a vast amount of corn, prices of milk, eggs and other foods soared. The price of corn shot up, as did the price of products from animals -- chickens and cows -- that eat feed corn.
Texas Gov. Rick Perry reacted by standing with the cattlemen in his state to ask the Environmental Protection Agency last year to suspend part of the ethanol mandates (which it has the power to do under the 2007 energy bill).
The EPA turned him down flat.
The Consumer Price Index later revealed that retail food prices in 2008 were up 10% over 2006. In Mexico, rising prices led to riots over the cost of tortillas in 2007. The United Nations Food and Agricultural Organization and other international organizations issued reports last year criticizing biofuels for a spike in food prices.
Ethanol is also bad for the environment. Science magazine published an article last year by Timothy Searchinger of Princeton University, among others, that concluded that biofuels cause deforestation, which speeds climate change. The National Oceanographic and Atmospheric Administration noted in July 2007 that the ethanol boom rapidly increased the amount of fertilizer polluting the Mississippi River. And this week, University of Minnesota researchers Yi-Wen Chiu, Sangwon Suh and Brian Walseth released a study showing that in California -- a state with a water shortage -- it can take more than 1,000 gallons of water to make one gallon of ethanol. They warned that "energy security is being secured at the expense of water security."
For all the pain ethanol has caused, it displaced a mere 3% of our
oil usage last year. Even if we plowed under all other crops and dedicated the country's 300 million acres of cropland to ethanol, James Jordan and James Powell of the Polytechnic University of New York estimate we would displace just 15% of our
oil demand with biofuels.
But President Barack Obama, an ethanol fan, is leaving current policy in place and has set $6 billion aside in his stimulus package for federal loan guarantees for companies developing innovative energy technologies, including biofuels. It's part of his push to create "green jobs." Archer Daniels Midland and
oil refiner Valero are already scavenging the husks of shuttered ethanol plants, looking for facilities on the cheap. One such facility may be the plant in Dyersville, which is for sale. Before we're through, we'll likely see another ethanol bubble.
Mr. Schulz is a senior fellow at the Manhattan Institute.
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Reader comments from Lucianne.com
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This should be a warning as a pre-cursor to the windfarm boondoggle we're about to embark on.You can't create a phony market for something no matter how much money you spend on it.Building windmills is the easy part. Wiring them into a grid that could produce enough power for the country is quite another and massively expensive.The liberals don't even want to use nuclear for a supplement. Something that even Europe does.
There have been and currently are, bigger scams around, but biofuels is one of the biggest. It takes food from the mouths of the hungry to make a product that decreases the efficiency of the engine in your car. It required auto makers to spend R&D money on engines that can use this crap. And once again, a few prosper while many do not.
Except that ethanol plants are not "refineries" (where do these reporters learn these things?), a good article. Anybody but a dunce could see this happening.
Years ago, perhaps the greatest thinker since Leonardo, Buckminster Fuller stated we should look at nature's system to understand the directions to take: Nature does the most with the least.
Nature is efficient, very much so.
Therefore, when you spend a dime to produce something that sells for a nickel...whoops!
Letting government underwrite, subsidize, bolster--use whatever cute wording that comes to mind (think mass transit), a loser is just that, a loser!
But if I can pull the wool over your eyes, keep you focused on my left hand while my right goes into your wallet...
When the government wants to do something in the economy the free market is not doing beware! The question should be: if it makes sense why wasn't it being done before, pay no attention to politician's explanations not based on solid facts. The Ethanol boondoggle will cost Americans trillions of dollars. Obama has some more schemes waiting that cost more and makes even less economic sense.
Remember last summer's high gas prices? The prices were high but there was supply.
Now remember jimmah carter's administration when prices were high plus there were shortages? The long gas lines, fist fights over the precious juice and even/odd day rationing
Why do I have a bad feeling about this?
If this idiot of a president isn't going to stop his insane march to his socialist utopia more than an ethanol bubble will burst this summer.
But according to Keith and Janeane I'm just a racist right wing extremeist radical. I'm actually just a member of the vast right wing conspiracy.
I'd love this if I were certain it wasn't deliberate on the part of the Leftist greeniewhackos:
That's pretty much the story of ethanol. Consumers were asked to suspend disbelief as policy makers blurred the lines between economic reality and a business model built on fantasies of a better environment and energy independence through ethanol. Notwithstanding federal subsidies and mandates that force-feed the biofuel to the driving public, ethanol is proving to be a bust.
"Force-feeding" is right, and is the signature word for this entire Administration. Everyone in the country is or will be force-fed something they don't want. The purpose is to hijack our freedoms and place them under a one-man rule. I'm not sure the man is Obama; it's probably whomever is pulling his strings.
Still, we are being forced to pay higher and higher taxes, often hidden, to subsidize scientific, energy and climatatic hoaxes. We're being told that we must work until the middle of every year to pay the government for all of its taxes on OUR paychecks.
What is wrong with this picture?
Reply 10 - Posted by: Aggie57, 4/18/2009 8:03:50 AM (No. 5447011)
Max...I spent 38 years with Exxon (Humble Oil and Refining), and I know refineries...this is no refinery.
This is another boondoggle.
All these simple solutions to the world's problems right under the noses of we simpletons. We simply needed obama to show us the way!! /S
Recognize it people! Your "gut" already knew this anyways...
PS: This 'good news' should translate very soon into cheaper T-bone steaks, KFC chicken, porkchops and barbecue, and Frosted Flakes not to mention cake, pie, bread, and any other agricultural product that was being bastardized by the GreenScam Industry....
The 'wind farm' nonsense is just as bad, more inefficient and a greater polluter of the environment than the coal plants. Imagine your view of the Grand Tetons obscured by the sight of thousands of wind mills. It is happening. They take up more space and cover over valuable farm and ranch land. Of course, us rubes out here in fly over country don't count. Just keep our grocery shelves full and we won't notice.
And Congress is doing, uh, WHAT about this? Studied ignorance.
Ethanol problems
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