January 25, 2007 in Business

Bert Caldwell: Ethanol excitement isn’t fueled by reality

Bert Caldwell The Spokesman-Review
 

Excitement over the Bush Administration’s plans for ethanol development lasted less than 24 hours.

The shares of companies that produce the fuel rose Tuesday afternoon as the outline of the president’s State of the Union speech became public. Investors apparently believed the president would announce new initiatives that would encourage further development of biofuels.

Although Bush set ambitious goals for ethanol production — 35 billion gallons by 2017 — there was nothing new said about how to get there, and no discussion of the hurdles along the way. Like cost. Nor did he specifically mention biodiesel, the fuel that stirs the hopes of Washington farmers.

Underwhelmed investors responded by selling off the biofuel stocks that were so hot just the day before.

That day-to-day volatility is the trap that has made development of alternative fuel in the United States problematic.

We want the energy independence and cleaner air alternative fuels promise, but we cannot get there as long as the Organization of Petroleum Exporting Countries has its grip on the energy spigot, and is canny enough not to squeeze too tight.

Thirty of the world’s most developed countries cut their oil consumption in 2006 for the first time in 20 years thanks to prices that topped $70 per barrel. The price has fallen to the low $50s.

Give us cheap gasoline, and we tour the countryside in elephantine SUVs. Raise the price, and we’re kicking the tires on a Toyota Prius or Ford Escape, vehicles with high-mileage hybrid power systems.

It’s hard to build a new industry when the old one has all the pricing power.

Congress and the president have created all manner of subsidies to encourage more biofuel development, and those incentives have produced results. Ethanol production has more than tripled since 2000, and many more plants are under construction.

The State of Washington has also kicked in with aid for new plants, and mandates for biodiesel use.

But the fundamental hitch in biofuels’ get-up-and-go remains our old friend petroleum, says David Granatstein of Washington State University’s Center for Sustainable Agriculture & Natural Resources.

The feasibility of new projects changes with each swing in oil prices.

“The Saudis understand that completely,” says Granatstein. Indeed, it is Saudi Arabia that has resisted oil production cutbacks that might lead to a resurgence in prices back toward the $70 per barrel mark.

But, as an expert in sustainable agriculture, Granatstein’s greater concern is the environmental dangers of using corn as an ethanol feedstock. Corn cultivation requires a lot of fertilizer, herbicides and pesticides, with all the harmful side effects use of those products entails.

Those are less a factor in the growing of canola or mustard, the feedstocks for biodiesel in Washington, but there are other challenges.

At Central Washington Biodiesel, Chief Executive Officer Steve Verheysays most Washington farmers can earn more growing food crops than they can growing oil seed. The biofuels industry in Washington must find a way to pay a premium for canola, or refineries will end up relying on imported vegetable oil, which defeats much of the purpose of encouraging in-state biofuels development in the first place.

He says he was disappointed Bush did not address biodiesel because corn-based ethanol is less efficient as a source of fuel. So-called cellulose ethanol produced from agricultural waste or switchgrass — a Bush favorite — might be more efficient, but no plant has yet been built to test the fuel’s economics.

Central Washington will start selling biodiesel within the next week or so, but on a very small scale. With diesel prices down, however, canola-based biodiesel may be at a disadvantage.

Americans are going to have to ante up if they truly want to combat global warming, and the nation’s pitiful reliance on imported oil, with all its painful ramifications.

“What got us into this mess is people not caring where their fuel comes from,” Verhey says. “I would like people to care.”

And not just for a day.


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