What effect will ending ethanol subsidies have?

By Maureen Aylward

With the US Senate taking aim at ending ethanol subsidies, change may be ahead for the ethanol industry. Will ending these subsidies have an effect of the industry? How does the possibility of this action affect global markets? Our Zintro experts help to answer these questions.

R. Santhanam, an expert in biofuels from waste, agrees that ending the ethanol subsidies will remove the bottom line from the ethanol industry based on the US Midwest Corn Belt. And, it may open the door for a new generation of biofuels. “It is possible to manufacture second generation biofuels called cellulosic ethanol. The key issues are the cost of manufacturing, process efficiency, energy, material balance, and overall cleanliness of the process, which should not add to pollution,” says Santhanam. “One such process developed in India has yielded 300 liters of anhydrous fuel grade ethanol from one metric ton of biomass wastes like rice and wheat straws. These technologies require no subsides.”

Amarjit Bakshi, president and CEO of Refining Hydrocarbon Technologies LLC, says that it has been debated for a long time to end subsidies. “This is expected due to the US debt,” says Bakshi. “Stopping the subsidies may have some effect on corn prices as corn investors, ADM, and others, such as oil companies, will think twice before investing in ethanol from corn plants.” He says that this action may slow expansion of new plants, possibly putting less pressure on corn. The US government is still funding research in cellulose to ethanol and algae to biofuels, says Bakshi, so this area will continue to see growth until the major problems in this sector experience progress.

Greg Benz, an expert in fluid agitation for bio/pharma and biofuels, says that unsubsidized ethanol can compete with petroleum on an equal energy basis at a petroleum price of $80/bbl. “The trend of petroleum pricing may be two steps up, one step back, but crude prices are not going to go below $80/bbl except for brief intervals, and the long-term trend will be to stay above $100/bbl,” says Benz.

Dr. Rossano Gerald, DBA, an expert in supply chain management, cites a recent Wall Street Journal article that says most ethanol lobbyists are against tax incentives that do not help the industry increase market shares by allowing a buildup of infrastructure, such as refineries and gas stations where products can be sold.

In addition, Gerald points out that even if the current ethanol’s tax credit was not in place, ethanol would still provide a profit margin close to .31 cents per gallon. “Most marketing research analysts have predicted that the world’s ethanol fuel demand is expected to increase up to 20 billion gallons by 2012,” says Gerald. “These economic factors are driving the demand for ethanol fuel, which include: soaring oil prices, tax incentives, improved technology that lowers production costs, and national energy security concerns. I believe that ending the US ethanol tax incentive will affect the global market because the above mentioned economic factors are influenced by geopolitical policies that are hard to predict.”

By Maureen Aylward

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