NCPA - National Center for Policy Analysis

Can Ethanol Cut Foreign Oil Imports?

August 31, 2012

The federal government has lent its support to various alternative energy policies as a way to jumpstart an uncompetitive industry. These have taken the form of loans guarantees, grants and other subsidies, says Ken Silverstein, editor-in-chief for Energy Central's EnergyBiz Insider.

The most recent vocal support has come from both presidential campaigns in favor of a Renewable Fuel Standard that mandates an increase in ethanol-blended gasoline. But ethanol would likely disappear from the marketplace absent federal subsidies and mandates, says Sterling Burnett, a senior fellow at the National Center for Policy Analysis.

A large part of the debate centers on whether the ethanol that comes from corn is an efficient fuel source. Furthermore, corn ethanol cuts the overall supply of corn that would otherwise be used to feed livestock, thus driving up food prices.

But proponents of ethanol claim that a next-generation source of ethanol, cellulose, provides promise for the future.

  • Cellulose could supply 130 million gallons a year of ethanol because of its abundant supply.
  • Because of this, the government lent $4 million to Chemtex, a cellulosic manufacturer.
  • This money will construct a refinery to convert 600,000 tons of energy grasses per year into about 20 million gallons of cellulosic ethanol.
  • Oil giant BP says that biofuels could provide up to 23 percent of the global demand for transportation fuel by 2030.

While the outcomes seem promising, there are many reasons to be cautious because of the difficulty of financing large ethanol projects. Take for example past ethanol facilities.

  • In 2007, Colorado-based Range Fuels received a $76 million grant to build a cellulosic factory.
  • However, the facility was forced to close its doors recently.
  • Furthermore, Iogen, another potential ethanol producer, received U.S. funds to team with Royal Dutch Shell to build advanced ethanol facilities in both the United States and Canada.
  • But, the project has postponed all future plans.

Both political parties are kowtowing to the farm vote, which means that it is unlikely that the Renewable Fuel Standard will get eliminated. But the distinction between first-and-second-generation ethanol is important and one that may eventually give wider credence to the ethanol cause.

Source: Ken Silverstein, "Can Ethanol Cut Foreign Oil Imports?" Forbes, August 26, 2012.


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