by B. B. James

Created on: February 21, 2007   Last Updated: March 07, 2007

I have tracked the ethanol industry since the mid-1980s, and I have to laugh at the recent groundswell of interest it has generated. It's the same old story cycle that I've seen many times in the past. And there probably isn't an industry that's benefited from its political connections on both the Democratic and Republican sides of the aisle, and used that leverage to squeeze favorable treatment for an inflated series of promises.

It would be a funny joke...if the consequences weren't so bad.

The confluence of events is this. First, gasoline prices rise. Consumers and politicians complain. Fears of US oil dependency rise. And in swoops the Midwest farm lobby, claiming it can solve fuel-supply problems, pollution problems, and also reduce the need for farm support payments. All we need to do, say the lobbyists, is "wean" ourselves from our dependence on hydrocarbon-based fuels. By turning "excess" corn into fuel, we have a "clean" source of energy that will "revitalize" the economies of the Midwest while "eliminating" pollutants from the environment. Yeah, right, and the Easter Bunny will broker a peace meeting between Sunnis and Shiites in Iraq this year.

Ethanol already receives a 54 cents/gallon federal tax break. But that isn't enough, cry the lobbyists. So states step in with gasoline tax breaks, ethanol refinery investment incentives, and mandates for use of ethanol. A bunch of ethanol facilities are built, and oil companies and (car companies) complain about the negative effects of blending ethanol into gasoline. And then the furor dies down, the refineries operate at half-capacity, and investors are left holding the bag. Meanwhile, oil companies have retooled refineries, pipelines, and fuel storage terminals to handle the new fuel, but no one is offering to help them with the billions of dollars they have to invest just to stay in the business.

Here are the facts, culled from my two decades as an observer of the refining industry (sometimes as a participant):

1. Ethanol is not a cure-all for America's fuel problems. It has some merit, but even with today's technological advances, ethanol is not price competitive with gasoline, and it offers no environmental benefits as compared to today's ultra-low-sulfur and ultra-low-aromatics gasoline blends.

2. Making ethanol from corn is at best a break-even energy proposition. Think about what you've got to do to make ethanol. Grow corn (using fuel for farm vehicles and oil for fertilizer), harvest corn, dry corn, ship

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