15 January 2009 17:53 [Source: ICIS news]
By Joe Kamalick
This marks a profound turnaround for the fortunes of bio-ethanol and suggests that the incoming administration of President-elect Barack Obama may encounter political speed bumps in the effort to increase biofuels production and other alternative energy prospects.
In a scathing new study, the Environmental Working Group (EWG) drew on US Department of Energy (DOE) data to ague that corn ethanol and its backers in Congress have hijacked the federal government’s renewable energy efforts, siphoning off subsidies and tax credits to the detriment of other renewables that have a smaller environmental footprint.
“As Congress and the incoming Obama administration plan the nation’s next major investments in green energy, they need to take a hard, clear-eyed look at Department of Energy data documenting corn-based ethanol’s stranglehold on federal renewable energy tax credits and subsidies,” EWG said in a study circulated this week.
The environmental group cited Energy Department data to show that the US corn-ethanol industry received $3bn (€2.25bn) in tax credits in 2007, “more than four times the $690m in credits available to companies trying to expand all other forms of renewable energy, including solar, wind and geothermal power”.
The heavy federal subsidies for corn ethanol continue while “solar, wind and other renewable energy sources have struggled to gain significant market share with modest federal support”, EWG said.
“Corn-based ethanol has accounted for fully three-quarters of the tax benefits and two-thirds of all federal subsidies allotted for renewable energy sources in 2007,” the group said.
EWG contends that under existing federal mandates for biofuel consumption - which require 15bn gal/year of corn ethanol and 21bn gal/year of cellulosic and other advanced biofuels by 2022 - will cost taxpayers more than $5bn/year by 2010.
Current corn ethanol production capacity is around 9bn gal/year, according to the industry trade group Renewable Fuels Association (RFA). The federal mandate for 15bn gal/year of corn ethanol production and consumption by 2022 is based on the general expectation that 15bn gallons is the maximum productive capacity using corn as feedstock.
The mandate for 21bn gallons of cellulosic and other advanced biofuels by 2022 is by most accounts still wishful thinking because the technology for such wide scale commercial production of cellulosic ethanol at competitive prices is still in development.
In the meantime, corn ethanol benefits from a federal tax credit of 45 cents/gal paid to refiners who are required to use the biofuel as an oxygenate, and the home-grown ethanol is protected by a 54 cents/gal tariff on imported ethanol.
“Now the ethanol industry wants even more,” the EWG said. “In recent weeks, the corn ethanol lobby has pushed for billions in new federal subsidies as part of the economic stimulus package.”
The US corn ethanol industry is seeking further federal support because ethanol prices have plummeted in the last six months, forcing the country’s second-largest ethanol producer, VeraSun Energy, into bankruptcy last October and tipping at least five other bio-ethanol makers into bankruptcy as well during the fourth quarter last year.
At least 16 corn ethanol refineries were off line during the last two months of 2008 - among 172 corn-based production units nationwide - and more bankruptcies and project cancellations are expected this year.
Despite those reversals among corn ethanol producers and the existing federal mandate for 15bn gal/year by 2022, EWG notes that “Corn growers and ethanol companies are pressing for dramatic increases in the amount of ethanol Americans will be required to put into their gas tanks”.
In its analysis, EWG also repeated longstanding criticisms of ethanol, noting it provides less energy per gallon than gasoline and, given the amount of carbon-based energy required to produce corn ethanol, that it is not as environmentally friendly as once thought.
“Once touted as the energy equivalent of a free lunch, corn ethanol has proved to be an over-hyped and dubious renewable energy option,” the environmental group charged. “Ethanol made from corn has extremely limited potential to reduce the country’s dependence on imported oil, and current production systems likely worsen greenhouse gas emissions.”
EWG called for a phase-out of the 45 cents/gal tax credit for ethanol and urged that no federal incentives or subsidies be provided for any other biofuel unless it can meet strict climate and environmental protection standards.
The new EWG attack comes after multiple other environmental, petrochemical industry and government studies have levelled broadsides at corn ethanol.
And yet the incoming administration of President-elect Barack Obama is pledged to more than double
But Obama also has vowed to cut US agricultural subsidies. In addition, once unquestioning support for corn ethanol subsidies among members of Congress is showing signs of wear and weariness.
As the new President Obama takes power and moves to fulfil campaign promises to pass climate legislation, cut back subsidies and still advance biofuels, the issue of corn ethanol mandates and taxpayer funding will take centre stage.
It will pose a major test for the new president as he tries to balance the interests and demands of major constituencies - environmentalists, alternative energy advocates and the biofuel industry - that helped elect him.
The Renewable Fuels Association was invited to offer counter arguments to the EWG analysis, but the association did not reply to numerous telephone calls and e-mail queries.
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