Corn-based ethanol's dream days are over, says the chief economist of the U.S. Department of Agriculture.
Starting this year, the industry will plateau at an annual output of 15 billion gallons (56.8 billion litres), marking the end of a seven-year growth spurt that saw its corn purchases grow by an average 500 million bushels a year.
Speaking to ag economists in Ottawa last Thursday, USDA's Joseph Glauber predicted the corn ethanol industry will hold onto its gains, but further growth is against the odds.
The main reason, Glauber said, is that corn isn't anywhere near as efficient as feedstocks such as sugar at reducing greenhouse gas emissions.
Indeed, while a combination of U.S. subsidies and regulations have the U.S. transportation fuel sector on track to use a total 36 billion gallons (136.3 billion litres) of biofuels by 2022, corn ethanol will only qualify for the bottom 15 billion gallons of the market, Glauber said.
In fact, corn ethanol sales might be even smaller than that. Lawmakers based their targets on a 150-billion gallon transportation fuel market. Because of the 2008 recession and the purchase of more fuel-efficient cars, the fuel market has actually shrunk at 132 billion gallons.
With the bulk of corn gasohol usage capped at a 10 per cent ethanol blend, that puts a 13.2 billion gallon limit on the domestic market, Glauber said.
Current U.S. Environmental Protection Agency (EPA) standards say corn ethanol could technically be used in blends of up to 15 per cent in cars made in 2001 and later, but older cars still account for 25 per cent of U.S. gasoline sales, so gas stations are reluctant to switch their pumps.
More sophisticated blender pumps could let car drivers dial up the right blend for their cars, but installing those pumps would cost up to $1 million per station.
Washington's 2007 Energy Independence and Security Act was passed with the assumption that new cellulosic sources would come onstream that would generate much higher greenhouse gas savings than grain-based corn ethanol.
Five years later, Glauber says, those sources are still nowhere in sight.
Ironically, that means the U.S. corn ethanol industry might lock in more exports to Brazil, since U.S. refiners may be forced to import large amounts of Brazilian ethanol made from sugarcane in order to meet new greenhouse gas standards.
It also means Washington may subsidize U.S. fuel makers to import Brazilian cane ethanol in order to meet the provisions of the U.S. law.
In Canada, Laval University economist Bruno Larue says the ethanol plateau in the U.S. should have little impact on grain prices. Based on a series of studies, Larue says price hikes over the past three years have been driven by international food demand, not North American ethanol use.
Yet Larue says it makes sense for governments to insist the ethanol industry move beyond corn. Corn ethanol produces just 1.3 to 1.6 times the energy required to grow and refine the corn, he says. By contrast, the ratio for sugar cane ethanol is 8.3 to 10.2 times.
In fact, says Larue, if Canada's objective is to reduce greenhouse gases, governments would be wiser to stop spending the estimated $250 million a year they spend on ethanol support, and focus instead on taxing greenhouse gas emitters.
Glauber meanwhile sees some good news coming out of the U.S. ethanol plateau. "Hopefully we can start rebuilding corn stocks, which are the lowest they have been since 1973," Glauber said. "It would be good to begin to moderate feedgrain prices."
-- Tom Button is editor of Country Guide at Ridgetown, Ont.
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Higher ethanol blends would hit livestock sector: study, Feb. 1, 2012
Ethanol industry blamed for skyrocketing corn prices, Feb. 10, 2011