There is an interesting debate playing out in the United States over its ethanol policy.
Ethanol is highly political in the U.S., given the subsidies at stake and the impact of the industry on corn prices and economic activity in the Midwest.
Canadian farmers might not follow the lobbying and debating points as U.S. ethanol policy evolves, but they are important.
The direction those policies take affects corn prices, and because corn is the foundation of crop markets, it affects the price of the wheat, canola and barley that Canadian farmers grow.
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Remember, ethanol production is expected to consume 40 percent of the 2011-12 U.S. corn crop.
Current U.S. law mandates the growth of ethanol use to 36 million U.S. gallons by 2022, including 15 billion gallons of corn ethanol and 21 billion gallons of advanced biofuel, with the most focus on cellulosic ethanol.
Given that corn ethanol production is already close to 15 billion gallons, the growth is supposed to be in advanced biofuel.
The idea was that although corn ethanol was perhaps not as environmentally beneficial as proponents argue, its development would set the stage for cleaner, more efficient cellulose ethanol.
Corn ethanol would blaze the path, getting the infrastructure in place so that when advanced biofuel was ready, the market would also be ready.
The move to cellulose ethanol is already supposed to be happening. The mandate calls for 250 million gallons this year and 500 million in 2012.
The drawback to these mandates is that no plants in the United States are producing cellulose ethanol. It seems that despite a lot of taxpayer assistance for research and development, the technology isn’t ready, and building a commercial size plant isn’t practical.
We’ve seen this close to home as Iogen, the Canadian cellulose ethanol company, struggles to find the business case to build a commercial scale plant.
In the U.S., petroleum refiners have to pay for a waiver if they don’t meet the requirement for blending cellulose ethanol into their gasoline.
They say that because there is no way to comply with the mandate, the allocation for cellulose ethanol should be scrapped until it is commercially available.
The advanced fuel lobby thinks the mandate should remain to encourage investment in the industry. Investors will be attracted if there is a guaranteed market for the product, they say.
The corn ethanol industry says it should be allowed to qualify as advanced fuel or at least fill in the gap not being filled by cellulose-based fuel.
This debate is played out in the wider context of the threat to U.S. biofuel subsidies.
Legislators are looking for ways to reduce the record U.S. deficit of $1.4 trillion.
Efforts in the U.S. Congress to immediately end ethanol subsidies failed earlier this summer, but the subsidies are set to expire at the end of the year.
There will likely be efforts to continue supporting ethanol somehow, but America’s huge deficit will limit the options.
The question is: will the ethanol industry consume as much corn if there are no subsidies?
Most analysts expect little or no decline in demand because of the mandate, but what has been a trend of growing demand might slow or end unless it can take some of the mandate allocation set aside for cellulose ethanol.
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