Gulf spill a boon for ethanol industry?

06/27/2010 12:00 AM

06/27/2010 12:02 AM

ST. LOUIS — The ethanol industry has for years draped itself in the American flag, positioning itself as a cleaner, homegrown alternative to oil. Never has that been more true than today.

With regulators and legislators poised to decide issues that will shape ethanol's future for years to come, the ethanol lobby is increasingly making the scene unfolding in the Gulf of Mexico — with tens of thousands of barrels of crude still flowing daily from BP's deepwater well — a backdrop for the nation's energy debate.

"The choice between the dangers of our addiction to oil and the promise of American renewable fuels is as clear today as the contrast between the blackened estuaries of the Gulf Coast and the sparkling green fields of rural America," said Robert Dinneen, president of the Washington-based Renewable Fuels Association.

Dinneen made the remarks during his keynote speech last week in St. Louis at the International Fuel Ethanol Workshop and Expo, which bills itself as the world's largest and longest-running ethanol conference.

Ethanol use has grown exponentially in the last decade. An estimated 12.5 billion gallons will be produced this year, almost exclusively from corn. In fact, most gasoline consumed in the United States contains up to 10 percent ethanol.

Now, producers and corn growers are looking to expand their market by increasing the level of ethanol in gasoline to 15 percent. The Environmental Protection Agency recently announced it was again delaying a decision, until at least September, to allow the higher level.

The ethanol industry is also lobbying Congress to extend a tax credit for blending ethanol with gasoline and maintain a tariff on imported ethanol — measures implemented years ago to help a fledgling industry grow. Both the tax credit and tariff are set to expire at the end of the year.

Industry officials say the BP spill is another tragic reminder that America's increasing thirst for fossil fuels is pushing the oil industry to drill deeper and explore for oil in more far flung places.

"You turn on cable news right now and people can see the environmental consequences of oil," Tom Bius, CEO of Growth Energy, an ethanol industry group. "I think it's our duty to point out the differences and the benefits of moving to renewable fuels."

Washington-based Growth Energy said the position isn't new. It launched a national advertising campaign just days before the BP rig explosion that stated: "No beaches have been closed due to ethanol spills."

To be sure, ethanol has more than its share of critics. Among them are environmental groups who warn that an increasing reliance on corn-based ethanol isn't the solution to the nation's energy woes.

The push to increase the amount of ethanol in the U.S. gasoline supply also faces resistance from equipment manufacturers, automakers and the oil industry. They say higher blends could degrade older engines, gas pumps and emission control systems.

John Felmy, chief economist for the American Petroleum Institute, the oil industry's main lobby, said retailers and gasoline producers whose logos are on hundreds of thousands of gasoline pumps will be held responsible if 15 percent ethanol blends being considered by the EPA cause problems for motorists.

"What happens when engines are damaged?" Felmy said. "Is the ethanol industry going to step up?"

The API and others have questioned whether the ethanol industry is now large enough that it no longer justifies the tariff to protect domestic producers from ethanol imports and the 45 cent-per-gallon credit for blending ethanol with gasoline — a $6 billion annual subsidy at current levels of production.

Ethanol producers and corn growers disagree. They say government incentives for ethanol are just a fraction of what the petroleum industry gets and are still necessary to help jump-start investment in next-generation technologies, such as new fuels made from agricultural waste and dedicated energy crops.

One example is a 25-million-gallon plant being developed by ethanol producer Poet LLC in Sioux Falls, S.D. The plant, nicknamed Project Liberty, represents the cutting-edge future of ethanol. It will make fuel from corn waste normally left behind on farm fields.

But Poet CEO Jeff Broin said last week the project will not advance unless the company receives federal loan guarantees that help offset what investors see as increased risk associated with new technology.

The Poet project is one of many new investments that won't be made until investors have assurances that there will be a growing market for ethanol and that tax credits and tariff protections currently available will be extended, industry officials said.

"The ethanol industry is still in its infancy," said Growth Energy's Bius. "We can do more."

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