Can the Ethanol Industry Save the Renewable Fuel Standard?

The ethanol industry is organizing a Day of Action on January 23 to raise support for retaining the established Renewable Fuel Standard (RFS). The call for action is in response to the Environmental Protection Agency (EPA) proposal to cut the amount of ethanol in the U.S. fuel supply by 3 billion gallons. The nation's largest ethanol producers including Archer Daniels Midland Company (NYSE: ADM  ) , Poet, and Green Plains Renewable Energy (NASDAQ: GPRE  ) are essentially in a battle with the nation's largest oil producers, who are collectively being represented in the clash by the American Petroleum Institute (API).

The impact on ethanol
The RFS program calls for annual increases in the amount of renewable fuels to be blended into transportation fuels. The overall goal of the program is to reduce greenhouse gas emissions by replacing petroleum-based fuels with renewable fuels. The newest RFS proposal, however, calls for what amounts to nearly an 18% decrease in the amount of ethanol to be used for domestic fuel supplies.

Though there are intense ethanol skeptics who cite that corn production resources (fertilizer inputs, fuels used during planting and harvesting, etc.) make ethanol not-so-green, the API is cautious to not bring greenhouse gas emissions into the discussion regarding the merits of the RFS. The basic chemistry involved in gasoline combustion versus ethanol combustion processes is able to clearly show a decrease in overall greenhouse gas emissions through the use of ethanol.

Interestingly, the proposed call for decreases in ethanol production coincides with a time of low corn futures and higher margins for ethanol production that have enabled potential for a record production amounts. If the legislation was strictly a response to control greenhouse gas emissions, as it was originally written to be, then there would be little question disputing the validity of the RFS, and ethanol producers would be in position for record earnings.

Unfortunately for the ethanol industry, the more political side of things seems to be interfering with reality.

Support for modifying the RFS
The petroleum industry is, not surprisingly, the group most in favor of reducing overall ethanol production for use as a fuel. The situation now changes to determine what will be done to appease Big Oil while addressing the still very relevant issues of greenhouse gas emissions. The arguments made by the API are that increasing the amount of renewable fuels blended into petroleum-based fuels creates both compatibility as well as negative economic issues.

The engine performance and longevity issue is one that has been brought up time and again by ethanol opponents to counter the environmental arguments of the pro-ethanol crowd. Expanding the market for an E15 fuel blend (a blend of gasoline with 15% ethanol by volume) is a viable way to work within the originally intended confines of the RFS, but is a contentious issue.

Though E15 has been approved as a fuel for safe use in all vehicles produced after 2001, the API disagrees. In spite of extensive, government-funded testing that confirms E15 use without resulting engine issues, the API still argues that "the EPA rushed through approval of an up to 15% ethanol blend (E15) without adequate testing, leading to compatibility problems with E15, poor consumer acceptance and significant infrastructure and cost challenges."

Most recently, the argument regarding small-engine compatibility was used by Wisconsin governor Scott Walker to explain why, unlike the rest of the governors in the corn-growing Midwest, he would not support the ethanol industry in their efforts to be heard in the RFS debate.

The other most widely debated consideration in the argument against ethanol is the fact that it is predominantly produced from corn. Economic evaluations, impacts on food and gas prices, and environmental implications have all been exhaustively reviewed and argued by both sides, with the end result most often being that the two sides agree to disagree. Technologies converting cellulosic feedstock into ethanol are under continual development, and plants capable of producing commercial-scale amounts of cellulosic ethanol are planned goals for the upcoming year for Poet and other ethanol producers.

Past EPA projections on cellulosic ethanol production have not been realized, but it is appropriate to keep cellulosic ethanol as part of the discussion when considering the future of blending requirements and the broader environmental impacts.

The takeaway
Archer Daniels Midland Company is a giant corporation capable of holding its own in the world of renewable fuels, but going up against Big Oil is a different story. The expanded Renewable Fuel Standard implemented just over five years ago has enabled stable growth for Archer Daniels Midland Company along with other ethanol producers across the country. The future growth of corn-based ethanol producers will be greatly affected by a proposed decrease in ethanol production for fuel use, and toiling deeper into the world of politics is the only thing that can prevent the proposed decrease.

Take advantage of surging American energy production
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 




Read/Post Comments (37) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 20, 2014, at 2:44 PM, bobthegoodone wrote:

    Ethanol Industry is destroying everything it touches , causing to much inflation especially in food , and not helping any gas mileage either

  • Report this Comment On January 20, 2014, at 4:13 PM, jacamar wrote:

    What does the auto manufacturers say about cars made after 2001 and E15? Are they OK with it. All I hear is that the oil companies are opposed. Where to the auto companies stand?? They are the ones that should speak out on the subject.

  • Report this Comment On January 20, 2014, at 4:51 PM, paulito wrote:

    Ethanol is the biggest scam perpetrated on the American public in my lifetime. Archer Daniels Midland is responsible for it. How much of the corn crop is used in production? I'm sure that since Monsanto has the stranglehold on corn, they must be in some way affiliated with ADM.

  • Report this Comment On January 20, 2014, at 4:52 PM, joepet54 wrote:

    Ethanol is killing our engines and we are dumping our food in our gas. Stop the use of ethanol now. I am not a politician. I work on boat motors and ethanol is 90% of all trouble with engines.

  • Report this Comment On January 20, 2014, at 5:04 PM, Paulson545 wrote:

    Only in America do we spend billions on food stamps and billions of taxpayer dollars on ethanol. We use food for fuel which drives up the cost of food stamps and ethanol and the cost of food it's like living the movie Groundhog Day.

  • Report this Comment On January 20, 2014, at 5:08 PM, pogo8702 wrote:

    I have burned through two carbs in an ATV and destroyed one in a very nice Honda generator over the last two years.

    That's an economic liability. There is nothing to redeem that. The straight numbers of the fuel modification do not take into consideration the disaster for users.

    Please, Please, Please .... get rid of the ethanol. There has to be a better way (can anyone spell 'retorted shale'???)..

  • Report this Comment On January 20, 2014, at 5:24 PM, unclej652 wrote:

    All I know is Ethanol has gummed up and destroyed 2 lawnmowers, 2 weed eaters, 1 generator, & a chainsaw. Ethanol destroys small engine carburetors, and is costing consumers a ton of money in the process. I hate thinking about what it is doing to my fuel injectors......

  • Report this Comment On January 20, 2014, at 5:44 PM, hrouldwolf wrote:

    the effect of diverting over one half the world's largest corn crop to ethanol has been a price disaster for poor countries world-wide that import food. If the World Court attempted to mediate issues of equity, on behalf of the world's poor, I'd sue the United States over this and ask for $500 billion a year in damages.

    Imho, in fairness to the non-US poor [the "poor" in the US simply get more food stamps because of the price increases], the use of ethanol in motor fuel should be abandoned, completely.

  • Report this Comment On January 20, 2014, at 5:53 PM, Jimh77 wrote:

    Shut it down. It uses more resources than it's worth.

    You want to create bio fuel, use something that doesn't require vast resources to create.

    I hope the EPA shuts them down. That would be the first right thing they have done.

  • Report this Comment On January 20, 2014, at 6:00 PM, tomdiesel wrote:

    If they want to use more Ethanol they can march over to John Deere and tell them to make all of their equipment run on it.

  • Report this Comment On January 20, 2014, at 6:25 PM, luckyagain wrote:

    Of course the oil companies HATE ethanol. It competes with gasoline. It makes gasoline cheaper because not as much gasoline is getting used. Last year, I read article after article stating the production of ethanol was causing the price of corn to be high without a word about the drought hitting the corn belt. Once the drought ended the price of corn fell from about $7/bushel to about $4/bushel.

    Do a search for "Five Ethanol Myths, Busted" by By Forrest Jehlik, Argonne National Laboratory to see why ethanol is good for Americans.

  • Report this Comment On January 20, 2014, at 6:31 PM, Katsdad wrote:

    Isn't it amazing how loudly the people who bribe "our" legislators can squeal when they won't STAY bought ? The "ethanol industry" did not even EXIST without government mandates for fuel standards which cost every American more in many ways. The corruption and deceit of elected officials never ceases to amaze me................

  • Report this Comment On January 20, 2014, at 7:42 PM, billgc63 wrote:

    Ridiculous. Could someone here read the united nations food projected food reports for 2040. At the rate we are going the world population will run out of food by then. The united states is projected to have 400 million people by then and we can sustain ourselves. also we will only be spending about 15% of our incomes on food at that point. Whereas China, India and Africa as a whole will be unable to feed their populations. Those poor people will be spending about 80% of their yearly income on food alone if the report is accurate and I believe it is.

    This is not just a federal feel good report. This is a world class economic study.

    Why would you develop an entire industry which will have a shelf life of less than 25 yrs?

    Stupidity incarnate.

  • Report this Comment On January 20, 2014, at 8:47 PM, RickLT wrote:

    Greater than 10% ethanol in gasoline has been shown to corrode the metal in fuel injectors, and rot rubber. That's why adding even more ethanol to gas is a horrible idea. Not to mention that it further reduces fuel economy, engine power, and raises food prices. Remember, it's been proven that the production of ethanol from grown food consumes as much energy as it produces. There is no net gain. It's just a figment of ADM's lobbying fantasy that it's a plus for America's energy supply.

  • Report this Comment On January 20, 2014, at 8:54 PM, spintreebob wrote:

    ethanol is welfare to the rich. Even worse, it raises the price of food for the poor and the gasoline they need to get to work. It causes more CO2 than normal gasoline. Its only redeeming value is that its lobbyists take good care of so many congress critters.

  • Report this Comment On January 20, 2014, at 9:18 PM, axle57 wrote:

    This country is run by the big farm corporations and what they say goes. Take the ethanol and stuff it. give us good gas and get the hell off the alcohol, it's junk.

  • Report this Comment On January 20, 2014, at 9:38 PM, richr wrote:

    How many acres of resvered Perrie Land has Been destroyed,How much Co2 is Created?

    How much Fert, is needed? how much Co2 is Created.

    How much Water? Where does the runoff Go?

    FOOD FOR FUEL? think about it.Our gov't DID. LOL

  • Report this Comment On January 20, 2014, at 9:39 PM, Freddyfreebe1 wrote:

    I believe in and like ethanol , but they should not make it out of food. We have 1000's of miles of vegetation growing in and blocking up water ways in this country , they could use. There is more then enough scamps this country waste to make ethanol, without having to use food we eat. I like ethanol more then i could ever like the oil companies.

  • Report this Comment On January 20, 2014, at 9:58 PM, TLB wrote:

    How many times in ones lifetime are we going to see the same mistakes taken by the same nuts.. They tried this back in the 70s and it didn't work then either...

  • Report this Comment On January 20, 2014, at 9:59 PM, CrazyDocAl wrote:

    My new Lexus ('13) clearly states that only E10 is approved for use. I would guess that the government saying differently will not help me if I need work done because E15 wasn't compatible with the fuel system.

  • Report this Comment On January 20, 2014, at 10:24 PM, Housman21 wrote:

    We should increase the volume of renewable fuels, not decrease. Less oil means OPEC has less influence. Less oil means fewer oil spills in the Gulf, and less pollution and CO2. Production of Renewables like Bio-Butanol are being developed and are greatly improved in efficiency and compatibility.

  • Report this Comment On January 20, 2014, at 11:13 PM, comosichiam wrote:

    Ethanol was and is a total debacle the use of corn to make alcohol was a stupid thing to introduce into the economy. First and foremost the grain needed was diverted to make fuel instead of feeding the population next it is inefficient as fuel and also causes problems with certain engines. In my opinion the whole industry should be shut down.

  • Report this Comment On January 21, 2014, at 2:30 AM, Kingfisher65 wrote:

    BS on the greenhouse gas issue, when running 10% ethanol in 2013 Ford F150 4x4 is see a decrease in fuel mileage by around 8%-10% so I will still burn the same amount of gasoline in the end.

    Also as far as the test proving E15 does not cause any engine problems, this test is done with E-15 that is fresh like in a couple of day's old, Let the E-15 set in that same gas container for 40 -50 days then do the test, results will be a lot different.

    The phase separation issue in E10 cost me over $2000.00 last year on one of the outboards on my boat.

    The only one's with anything to gain because of Ethanol is a very - very small group.

    Just look at the comment's here, about 95% do not want it.

  • Report this Comment On January 21, 2014, at 5:16 AM, pj12 wrote:

    Kick those stupid SOB's to the curb. We don't need to be using corn for gas, when it can be used for food for humans and animal feed. When corn prices go up, meat prices go up. Ethanol causes you to get worse MPG anyway. It's a lose/lose situation. Instead of trying to water down big oil, lets find another viable fuel source that can be used without it.

  • Report this Comment On January 21, 2014, at 6:15 AM, Jimza1Skeptic wrote:

    There is nothing stopping the Ethanol industry from buying or building a refinery. Making their own gasoline/ethanol formulation. Then building gas stations and/or signing up independent gas stations. They can provide their "superior" product and a lower cost which will then solve their problem.

  • Report this Comment On January 21, 2014, at 6:51 AM, Poorthing wrote:

    Ethanol has failed to have a positive impact on our oil dependency on foreign oil. It has done incredible damage to small engines driving everything from weedwackers to outboards. If this misery had been inflicted on the American public by the private sector there would have been congressional investigations and endless hearings. Class action law suits would be countless and justified. Frankly it is also become a form of corporate welfare which is why it is going to be so hard to shut down. You know it's a failure when Al Gore says it doesn't work to reduce our fossil fuel consumption. Last but not least we have been burning our food. That alone should give us pause if nothing else.

  • Report this Comment On January 21, 2014, at 8:36 AM, canterburykeith wrote:

    Adding to the long list of people that understand how bad this product has been for this nation. This product has cost the American people by now in the trillions of dollars.

    Number one cause of failure in small engines, marine outboard engines, automotive catalytic converters

    ETHANOL. This product absorbs moister and gums up all small passageways in carburetors, chokes catalytic converters when not driven at highway speeds for long enough periods of time to burn off residue left by Ethanol.

  • Report this Comment On January 21, 2014, at 9:04 AM, lm1b2 wrote:

    Yes definitely keep using Corn in the making of Bio-Fuel,after all who cares if every animal we raise for food eats corn,and because of this food prices keep rising,especially Beef.As long as the Corporate Farmers raising Corn are getting richer,and we keep the small number of people working in ethanol plants who could use any other crop to make ethanol are happy, and the Consumers who pay higher food prices are depressed lets continue using Corn Folks ! Please forget about the people who are dying from hunger worldwide because of this decision,why should that matter Right?

  • Report this Comment On January 21, 2014, at 9:18 AM, JimG wrote:

    Ethanol from corn wastes more fossil fuel than it replaces. Ethanol is bad for engines, requires more money to transport. Using corn for fuel makes nearly every food product more expensive . . especially meat and lastly and the most damning; If ethanol wasn't both greatly subsidized and forced on consumers by the government, it would be in use anywhere. Ethanol is the Obamacare of fuels.

  • Report this Comment On January 21, 2014, at 9:19 AM, markit wrote:

    There is a lot of misinformation in here. a few bullet points to consider:

    1) The 1/3 less energy number seems to grow every year. Go to BIR next

    year and tell me what type of fuel those rail cars run. Petro based or

    alcohol based? AMA Super bikes pushing more than 200HP out of tiny engines

    also run alcohol based fuels. There is actually MORE energy per gallon if

    the engine is tuned to run it. Modern electronics and fuel injection allow

    the engine to adjust on the fly to E85 or E10 with nary a hitch. I have a

    flex fuel car that runs better on E85. The check engine lights go off

    after a tank of E85 has cleaned out the fuel and exhaust systems. I'd run

    it all the time if anyone nearby sold the stuff.

    2) Back in 1999/2000 or

    so gas stations were required to update their fuel storage systems. A lot

    of the smaller mom/pop stations folded because of the cost of updating

    their tanks. What happened to cause this government action? Ethanol was

    pretty new back then and there were dozens of reports of "fuel separation"

    causing expensive outboard engine damage. While that was true, we needed a

    Paul Harvey type "rest of the story" to figure out how to fix the problem.

    What was causing the engine damage was water, not alcohol.

    Remember the days before pay at the pump? Every winter what did you find a

    huge display of at the register inside? Heet, Iso heet, and a variety of

    ALCOHOL additives to prevent your fuel lines from freezing. Haven't seen

    one of those in awhile have you? You don't need it because with E10 the

    alcohol, which absorbs water, is already in your gas. The problem causing

    fuel separation was that while petro and water naturally separate, water

    and alcohol combine. It was the water that caused the separation, and a

    heavy dose of alcohol and water would cause major damage in small engines.

    But why were you putting water in your tank at the gas station??!! You're

    paying for gas and getting water? And the fuel industry blamed it on the

    alcohol? New federal mandate for monitor wells by the buried fuel tanks

    with frequent testing requirements largely fixed this. But it's not 100%.

    We're still buying water at $3.50 per gallon. Improve the storage system

    and the engine damage goes away. In the 90s you were a fool if you didn't

    add alcohol to your gas, a bottle for each tank. Your fuel system

    would freeze up and you'd be dead on the trail. Nobody does that anymore.

    3) The food supply / price argument is ridiculous. The price of food went

    up as the cost of shipping did. There were no out of stock shelves at the

    store. There is no shortage of food. We don't live in Russia. Farm yields

    have doubled in the last 20 years. I'm a farmer. There are very useful

    by-products after the fermentation process that are sold as feed for

    livestock, plastics, etc.. Farmers are excellent at using all of it. As

    farmers find more uses for their grains (like soy ink in newspapers) some

    will complain that farmers should be poor and supply city folks with

    cheaper food. The food supply in the US is cheaper and more abundant than

    anywhere else in the world.

    4) Who do you think is hurt most by increasing the mandate for more

    ethanol? I wonder if the big oil industry could be spreading any of this?

    I defend Big Oil when it comes to drill here, drill now. When it comes to

    fighting the always misinformed tree huggers. When it comes to allowing

    exploration of new fuel sources. But we need to remember that Big Oil was

    all for adding their product to gas, called methanol. They did a pee poor

    job of keeping that out of local ground water supplies and got shut down.

    Suddenly alcohol in gas is a bad idea because they didn't have a finger in

    the profits.

    5) The myth that we burn a gallon of fossil fuel to produce a gallon. It's

    actually pretty close to 1 gallon of gas to produce 1.4 gallon of alcohol

    which is really very good for the environment. But that misses the bigger

    story of how much does it cost to produce a gallon of gas anyway? And will

    that number include the cost to have the Navy parked in the Indian ocean

    for the last 50-60 years?

  • Report this Comment On January 21, 2014, at 11:33 AM, dogjudge wrote:

    I work in the food ingredient industry. I've seen the affect that ethanol subsidies have had on the food industry first hand.

    More to the point. These subsidies were supposed to encourage the use of ethanol, not to be a constant supply of profit for the producers.

    The producers are not mom and pop operations. They are some of the biggest ingredient processors in the world. If anyone thinks that these folks aren't making a profit on ethanol production (with zero subsidies), I've got a bridge to sell you.

    This is outright corporate subsidies at its worst.

  • Report this Comment On January 21, 2014, at 11:46 AM, floydhowardjr wrote:

    We need to put an emissions tax on any intestinal flatulence based on the decibel level of the escaping gasses! Monitoring stations could be created that would contain high amp microphones that would pinpoint any abrupt animal discharges of methane gas. NSA could oversee the technical operations and Homeland Defense could then arrest the miscreants and round up the animals. Studies have shown that most of the methane flatulence comes from Washington DC! We need to tax the government first until they cannot print anymore money and then every living thing that breaks wind.

  • Report this Comment On January 21, 2014, at 11:54 AM, ugo wrote:

    Thank you Iowa , senator Grassley, and your big ag contributors for foisting the ethanol mandates and subsidies on us.

  • Report this Comment On January 21, 2014, at 12:10 PM, jdmeth123 wrote:

    The abundant food aid the third world has enjoyed for decades was paid for American and European crop subsidies that encouraged overproduction and left governments with billions of bushels of grain to dispose of. Remove the subsidies and fuel mandates and let the market decide what blends are most economical.

  • Report this Comment On January 21, 2014, at 9:14 PM, Kingfisher65 wrote:

    While reading Markit's comment above I am thinking to myself, What does this guy have to gain from Ethanol.

    Sure enough he is a farmer, That put's him in that .1% of Americans that love Ethanol only because it put's money in their pocket.

    Ethanol has done nothing but cost me money on engine repairs, Fuel additives I must add to my fuel for my Outboard engine's, more frequent fuel filter changes as per Yamaha Factory suggestions when you are forced to run any % Ethanol mix.

    I have also seen a decrease in my automobiles of slightly under 10%.

  • Report this Comment On January 28, 2014, at 6:38 PM, litesong wrote:

    A minority of drivers, at least one with 115,000 miles of accurate records, state their vehicles have 10% less mpg when using 10% ethanol blends. For their particular engines, the ethanol provides zero power. Ethanol needs high compression ratio(16:1) ethanol engines to get efficient energy out of the ethanol, not low compression ratio(9:1 to 11:1) gasoline engines. I have a decade of accurate fuel records showing that 10% ethanol blends are 8%, 7%, & 5% worse than 100% gasoline. A majority of drivers also having accurate records have similar percentages to mine, some posters very close to mine. One poster had the very same numbers! When only 10% ethanol in gasoline causes a loss of 7%, that ethanol provides poor energy output efficiency. Coupled with the great oil consumption necessary just to produce ethanol, "ethanol in gasoline" is a major inefficient drag on our national gasoline energy. The oil industry never complained overmuch about ethanol being dumped into gasoline supplies. They knew that ethanol production oil consumption plus the lack of energy efficiency in gasoline engines, would consume MORE oil products than "ethanol in gasoline" would save.

  • Report this Comment On February 10, 2014, at 8:51 PM, djconklin wrote:

    @Katsdad: "Isn't it amazing how loudly the people who bribe "our" legislators can squeal when they won't STAY bought ?"

    You can prove bribery?

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2799797, ~/Articles/ArticleHandler.aspx, 12/20/2014 1:07:41 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement