Wall Street Journal sums up problems of ethanol

The Wall Street Journal is the latest media outlet, and perhaps the most influential, to report on the turnaround in the fortunes of ethanol -- once hailed as economic salvation for a large part of rural America, now suffering from sharply declining profit margins (Journal graphic) and a storm of criticism, all summed up by reporter Lauren Etter:

"The fortunes of many U.S. farmers, farm towns and ethanol companies are tied to corn-based ethanol, of which America is the largest producer. . . . A recent study by the Organization for Economic Cooperation and Development concluded that biofuels 'offer a cure (for oil dependence) that is worse than the disease.' A National Academy of Sciences study said corn-based ethanol could strain water supplies. The American Lung Association [see comment below] expressed concern about a form of air pollution from burning ethanol in gasoline. Political cartoonists have taken to skewering the fuel for raising the price of food to the world's poor."

What happened to prices and profit? Because ethanol is usually 10 percent of a blend with gasoline, the market for it became saturated as many new distilleries started up. "Some observers regard the profit squeeze as part of an ordinary industry shakeout that will ultimately leave the best producers in a position to thrive," Etter writes. "As ethanol prices were pushed lower and corn prices stayed high, ethanol profit margins dropped from $2.30 per gallon last year to less than 25 cents a gallon."

Etter goes on to give a comprehensive and authoritative rundown of the situation, including a Washington angle: "The fuel's lobby is pleading with Congress to drastically boost the amount of ethanol that oil refiners must blend into gasoline. But formidable opponents such as the livestock, packaged-food and oil industries also have lawmakers' ears. What once looked like a slam-dunk could now languish in pending energy legislation that might not pass for weeks, if ever." (Read more; subscription may be required)

Steven Mufson of The Washington Post reports, however, that negotiators on the energy bill are nearing agreement. "There has been one change in the biofuels measure. While the Senate bill required that at least 3 billion gallons of "advanced biofuels" derived from sources other than corn be used starting in 2016, escalating to 21 billion gallons by 2022, new language would require that the first advanced biofuels be used in 2013. That might ease demand for corn, which has soared in price, and recognize that companies are making progress in using new feedstocks in pilot projects." (Read more)