Ethanol fueling action in Congress

Chicago Tribune
April 1, 2007
By Stephen J. Hedges

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WASHINGTON -- Ethanol has long been a favorite of lawmakers mindful of the Midwest's political clout. But with oil prices and Mideast tensions rising it is becoming the darling of the new Washington in a way rarely seen before.

At least 23 pieces of legislation have been offered to promote and provide new subsidies to the fast-growing ethanol industry, which was built largely on the back of a 54-cent-a-gallon tax break to begin with.

Presidential hopeful Sen. Hillary Clinton (D-N.Y.) is now backing biofuels, despite her earlier concerns that ethanol tax breaks would not benefit New York. Another candidate, Sen. John McCain (R-Ariz.), has abandoned an earlier stance that derided ethanol for one that endorses it.

Sen. Barack Obama (D-Ill.), too, has recognized the importance of the new ethanol economy not only for his home state but also for neighboring Iowa, which holds presidential caucuses in early 2008. Obama has proposed legislation that emphasizes ethanol as a means of reducing U.S. dependence on foreign oil.

It's not just the presidential candidates. The new chairmen of the Senate and House agriculture committees have put ethanol -- and other "cellulosic" fuel made from grasses, grains and wood -- at the top of their agendas. "Energy is going to be the engine that drives this farm bill, that pulls it through," said Sen. Tom Harkin (D-Iowa), chairman of the Senate Agriculture Committee, referring to a massive agriculture bill he is helping to craft. "It's out front."

The industry got a boost when President Bush recently endorsed the growth of biofuels, and the Energy Department has proposed spending $385 million to develop six biorefineries over the next four years. Bush has proposed spending $150 million on "biomass" fuel research and set a national goal of producing 35 billion gallons of ethanol by 2017.

Harkin and Sen. Richard Lugar (R-Ind.) have also set an ambitious goal -- 60 billion gallons by 2030.

In addition to the continuing questions about ethanol's economic viability and energy efficiency, some say the U.S. cannot even produce enough corn to meet those far-reaching goals.

Ethanol, a combustible alcohol distilled from corn, has been under development since the late 1970s, when President Jimmy Carter promoted it after the oil crisis of that decade. While ethanol producers have always relied heavily on tax breaks and government subsidies, the fuel leaped into favor last year with the dramatic rise in oil prices, unrest throughout the Mideast and new concerns about global warming.

As oil prices climbed to more than $70 a barrel, outside investors rushed into ethanol, financing new plants and trying to buy older ones.

Ethanol production jumped to more than 5 billion gallons a year in 2006, and industry experts predict that an additional 6 billion gallons will be available when ethanol plants now under construction come on line in a year or two.

Business is so good that a typical ethanol plant, which costs about $100 million to build, can pay for itself in just a few years.

"What's limiting the number of [ethanol] plants being built is basically a lack of stainless steel and contractors, engineers; they're booked up until 2010," said Rep. Collin Peterson (D-Minn.), chairman of the House Agriculture Committee. "If it wasn't for that, they'd be building more. There's thousands of people getting into the business."

Twenty-one states now have ethanol plants, according to the Renewable Fuels Association, and more states are expected to build plants when the use of grasses and wood becomes more common.

The U.S. farm economy is feeling the effects of the ethanol boom, and it's not all good news. Corn prices have skyrocketed above $4 a bushel, a boon to corn farmers but a severe penalty for chicken, hog and cattle producers, who face rising feed costs and possible feed shortages.

The U.S. Department of Agriculture predicted Friday that the number of acres planted with corn would jump 15 percent over last year, with a nearly identical drop in soybean acres planted. The USDA's 2007 spring prospective plantings report also said that the number of Illinois acres planted in corn this year would jump to 12.9 million acres, compared to 11.3 million in 2006.

That's a record for Illinois. It also puts the state second only to Iowa in number of corn acres planted. Iowa farmers are expected to plant 13.9 million acres of corn this year.

Art Bunting, who farms 2,000 corn and soybeans acres in Dwight, Ill., about 50 miles southwest of Chicago, said he plans to increase his corn acreage by 10 percent this year. "There's more profit in the area of corn at the current prices than there is in soybeans," Bunting said.

In Congress a number of the bills, like Obama's, back ethanol as a means to securing energy independence. They include proposals to change the Clean Air Act to demand more renewable fuel use, require federal agencies to use ethanol when it is available, and "expand infrastructure necessary to increase the availability of alternative fuels," to quote one Senate bill.

While those proposals stand a good chance of finding their way into ethanol legislation, Harkin and Peterson, who head Congress' powerful agriculture committees, also intend to press for incentives to switch ethanol's reliance on corn to prairie grasses and other crops, to ensure that high corn prices do not cripple livestock producers.

"Poultry, hogs, cattle -- we can't destroy that industry," Harkin said. "If it comes to a point where corn prices become exorbitant, we don't want any food inflation going on in this country."

Peterson and Harkin say the federal incentives, new congressional funding and the market's continued interest are all necessary to pave the way for the next phase of ethanol production.

"There's really so much money being made that it's really the dot-com bubble of our time here," Peterson said. "You've got all this Wall Street money trying to get in, foreign money trying to get in."

NOTICE: In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving this information for research and educational purposes.

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