BIOFUEL PUSH MAY HURT AT PUMP
May 25, 2007
The current shortages of fuel could become a long-term problem, leading to stubbornly higher prices at the pump. Oil industry officials point to a surprising culprit: uncertainty created by the government's push to increase the supply of biofuels like ethanol in coming years, says Jad Mouawad in the New York Times.
The biofuel push -- encouraged by federal subsidies and grants - has led to plans for dozens of ethanol distilleries. But given farmland constraints, problems exist:
- Only 6 billion gallons of ethanol can currently be produced annually; this is as much ethanol as can possibly be produced from corn, according to the ethanol industry's own calculations.
- Given the new investments the industry should increase the annual production from corn to 15 billion gallons by 2012.
- Nonetheless, ethanol producers recognize that it is not clear how an additional 20 billion gallons of ethanol -- the amount President Bush has called for by 2017 -- will be produced.
Lawrence Goldstein, an energy analyst at the Energy Policy Research Foundation, says this uncertainty will be the culprit of higher prices. He has been warning for nearly a year that the government's twin goals of encouraging refiners to increase production and promoting increased supplies of biofuels work against each other.
"If we get a bad corn crop, we will end up paying for it at the pump and on the food shelves," says Goldstein. "We are not buying security. We are increasing volatility."
Source: Jad Mouawad, "Oil Industry Says Biofuel Push May Hurt at Pump," New York Times, May 24, 2007.
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