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By Staff | Dec 18, 2009

The Obama administration talks up its support of biofuel, but elements within it undermine any gung-ho support for its development.

They are very careful when expressing support for ethanol to differentiate between corn based and cellulosic ethanol. The corn-based ethanol industry is here, it’s real and it’s not going anywhere. If left unnourished to wither on the vine, the cellulosic ethanol industry that they still profess to embrace, will never see the light of day either.

The ethanol standard is for 15 billion gallons of corn-based ethanol and 16 billion gallons from cellulosic production. Cellulosic development has only barely begun. The corn-based industry is well developed and works. We can produce 15 billion gallons of corn-based ethanol and still produce an abundant supply of corn for food and export demand.

Just the yield improvement met ethanol consumption growth next year. The corn-based ethanol industry is near completion of the current phase of growth. There are a number of plants that represent the last of this wave of expansion that will come on line this year, but the pipeline of new construction has run dry as investment returns from ethanol went negative last year.

It will take a sustained period of strong industry profitability before plans shelved by the industry fallout or any new plans to build corn-based ethanol plants are written.

The corn-based ethanol industry has to be financially successful in order to create an investment story surrounding cellulosic ethanol that will attract investors.

The Obama administration doesn’t appear to grasp that reality. While the federal government was ready to give cellulosic developers financial assistance, I don’t think the government is going to capitalize a 16 billion-gallon cellulosic ethanol industry. Wall Street was burned, investing in public ethanol companies and will hold a strong grudge against cellulosic ethanol from association.

The government has a knack of weakening at the knees anytime strong ethanol policy is called for, so all investors maintain a healthy skepticism over the Obama administration’s professed support of all types of ethanol.

They support the concepts of biofuel, but are easily distracted by misinformation such as indirect land use changes against corn-based ethanol.

The EPA wimped out again, kicking the can down the road over a decision to boost the blend limit with gasoline from 10 percent to 15 percent. There is a blending wall that will be hit if the blending limit is kept at 10 percent that will block the industry from reaching the 15 billion gallon standard set.

The ethanol organization, Growth Energy, had petitioned EPA for an increase to 15 percent to give the industry the market access that it needs to reach the mandate.

The EPA did not say “no,” but wanted more tests on older vehicles, delaying the decision. “The Department of Energy is conducting tests on 19 newer-model vehicles manufactured in 2001 and later to examine the long-term effects on engines and emissions using higher ethanol blends.

“That study is expected to be completed by August 2010.”

EPA signaled encouragement that they would eventually approve the raise, but I don’t think I’m alone in my skepticism over such weak assurances.

Growth Energy bought it, spinning the EPA response as positive, only held up by technicalities.

I’m concerned that the delay just gives them time to make up other excuses not raise the blend cap. Brazil is the testing ground for ethanol usage.

They have consumed mid-range ethanol blends for years with no consequence, leading adoption of biofuel consumption.

EPA says that it has to gather all the necessary science before making its decision. No wonder Brazil’s economy is now growing faster than ours. It’s amazing that we have now created such a bureaucracy that impedes progress.

U.S. Ag Secretary Tom Vilsack has pushed the EPA for approval. Unfortunately, USDA is not the regulatory body on this issue.

The Iowa Renewable Fuels Association cut the EPA some slack saying, “I can’t sit in the cheap seats and be critical. The President has a lot of other things on his plate, and frankly, I was surprised that Vilsack came out as outspoken in favor of E15 as he has been.”

Sen. Chuck Grassley, R-Iowa, more reflects my thoughts saying, “It’s unfortunate that given the overwhelming scientific evidence supporting higher blends, the EPA has chosen to obstruct a move that would immediately lower our dependence on dirty, imported fossil fuels.”

Ethanol opponents are happier with the EPA decision than the ethanol industry has reason to be. Growth Energy President, General Wesley Clark, is a Democrat which I believe colored his polite response to the EPA non-decision.

I expect that they would lie to generals, too.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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