Ethanol industry struggles through regulatory change

Michael Giberson

Usually I wouldn’t take pleasure in reports an industry is losing money. But when the industry is is a net drag on society sustained almost entirely by governmental action rather than economic contribution — when we’re talking about ethanol — then I will take a bit of pleasure.

Reported by Minnesota Public Radio: “Ethanol industry lurches in wake of lost subsidy, oversupply“:

WORTHINGTON, MInn. — After predicting they would survive the end of a major federal subsidy without problems, it looks like officials at the nation’s ethanol producers may have been too optimistic.

Since the subsidy ended Dec. 31, ethanol profit margins have declined sharply, even slipping into negative territory. Experts see no quick turnaround in sight.

Now that the subsidy has disappeared, the ethanol downturn is being felt nationwide, including in Minnesota. The state’s $2 billion-plus industry ranks fourth in the nation in capacity and production.

At the Al-Corn Clean Fuel ethanol plant in southeast Minnesota, CEO Randall Doyal sees how the loss of the subsidy has hurt this business. He said his profit margin — the difference between the cost of making the corn-based fuel and what he can sell it for — has disappeared.

Unfortunately, it is mostly transitory pain, and the industry will survive this little economic storm under the sheltering arms of the Renewable Fuels Standard.

One part of the problem is that the petroleum refining industry stocked up on ethanol at the end of last year, when the blenders tax credit was still in place. Not surprisingly, demand for ethanol dropped in January (and yet some in the ethanol business seem surprised). In addition, the high price of gasoline is leading consumers to drive less, also reducing demand for the ethanol blended into gasoline.

[Doug Punke, CEO of Renewable Products Marketing Group] said another plus for the ethanol industry is the overseas market. Brazil, a country that produces its own ethanol, but where demand is high, has been a major customer.

“We’re seeing some export demand pick back up, which is necessary for this industry right now to balance out that supply and demand,” he said.

Last year U.S. ethanol companies sold about 8 percent of their production abroad.

What? We’re exporting home-grown American energy? Quick, somebody call Congressman Markey’s office, I’m sure he’ll want to put a stop to it right away!

RELATED: The Des Moines Register , “Ethanol 11 cents per gallon in red in January.”

EPA fines companies for not doing the impossible

Michael Giberson

If you read Jonathan Adler’s post at the Volokh Conspiracy (and reposted at PERC’s Percolator blog), it makes the EPA seem a little silly for insisting on fining companies when it would be impossible for companies to comply with the law.

But don’t blame the EPA, which is just implementing a law that Congress passed and President G. W. Bush signed, the Energy Independence and Security Act of 2007. Here is Bush at the signing ceremony:

The bill I sign today takes a significant step because it will require fuel producers to use at least 36 billion gallons of biofuel in 2022. This is nearly a fivefold increase over current levels. It will help us diversify our energy supplies and reduce our dependence on oil. It’s an important part of this legislation, and I thank the members of Congress for your wisdom. (Applause.)

Blame the younger Bush president, blame the members of Congress for their wisdom – or more precisely, for their failed insights in trying to drive the path of technological progress at consumer and taxpayer expense AND, a special note for anyone involving themselves in electioneering this year, failing to sweep this destructive nonsense out of the law any time in the last four years – but the EPA is only the messenger of this madness.

More from the former President:

The legislation I’m about to sign should say to the American people that we can find common ground on critical issues. And there’s more we can accomplish together. New technologies will bring about a new era of energy. So I appreciate the fact that Congress, in the omnibus spending bill that I’m going to sign later on, recognizes that new technologies will help usher in a better quality of life for our citizens. And so we’re going to spend money on new research for alternative feedstocks for ethanol. I mean, we understand the hog growers are getting nervous because the price of corn is up. But we also believe strongly that research will enable us to use wood chips and switchgrass and biomass to be able to develop the ethanol necessary to help us realize the vision outlined in this bill.

With these steps, particularly in the bill I’m about to sign, we’re going to help American consumers a lot. We’ll help them by diversifying our supplies, which will help lower energy prices. We’ll strengthen our security by helping to break our dependence on foreign oil. We’ll do our duty to future generations by addressing climate change.

And so I thank the members of Congress. I appreciate the fact that we’ve worked together, that we can show what’s possible in addressing the big issues facing our nation. This is a good bill and I’m pleased to sign it.

(The bill was signed.) (Applause.)

Ah, yes, “we also believe strongly that research will enable us to use wood chips and switchgrass and biomass to be able to develop the ethanol necessary to help us realize the vision outlined.” Turns out that the “vision” was a bit off.

By the way, yes it was the Energy Independence and Security Act of 2007 that gave us the standards blocking the sale of 100 MW 100 W incandescent light bulbs, beginning in 2012. Also, coincidentally, the EISA bill was signed in December 2007 and later the business cycle folks at the National Bureau of Economic Research identified December 2007 at the end of a 73-month long economic expansion and the beginning of the recession.

SEE ALSO: Kenneth Green’s post at AEI’s Enterprise BlogFill ‘er up with rainbows and unicorn sweat!, and the Matthew Wald New York Times article cited by both Green and Adler.

[EDIT: As a commenter hints, the reference to 100 MW light bulbs was in error. -MG]