Tuesday, August 4, 2009


The past two years have been tough for the ethanol industry. The blue portion of the graph above (from Iowa State University) shows typical operating profits for ethanol production; when these profits drop below the black line, a typical ethanol plant starts to have trouble paying back its investors and creditors. The purple part of the graph represents the cost of corn; in 2008, rising corn prices squeezed ethanol producers, but it took the ensuing price collapse to drive leader Verasun and others into bankruptcy. No plants were built in Washington state, but two Oregon producers filed Chapter 11.

Ethanol has been good for corn farmers but bad for just about everyone else. Ethanol-driven high corn prices filtered through to drive up the cost of other agricultural products last year, raising input costs for dairy farmers and clobbering them just as milk demand started to fall. Ethanol production consumed huge amounts of energy (mainly natural gas) in an age-old process where a third of the corn's weight just ends up as carbon dioxide byproduct. Taxpayers provided five billion dollars in subsidies to drive the cost of ethanol low enough to compete with gasoline, but those same taxpayers weren't excited to find this new fuel didn't contain as much energy per gallon.

But until other alternatives actually emerge, corn ethanol is what we have; privately-held and community-owned companies are innovating to avoid the fate of their publicly-traded peers. Surviving leader POET has started up an anaerobic digester at a South Dakota plant to eventually replace natural gas usage, while other plants burn different forms of biomass for process heat. POET is also emerging as the most credible producer of cellulosic ethanol (not made from food products), quietly passing dozens of more-hyped companies working in that space. The industry is still a bit dazed, but all is not lost.

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