Clean Edge Views
Navigating the Ethanol "Maize"by Ron Pernick
August 2, 2006
The biofuels market is burgeoning. As we reported in Clean Energy Trends 2006, the global biofuels market (consisting of both ethanol and biodiesel) reached $15.7 billion in 2005, up more than 15 percent from the previous year. Biofuels now represent a larger global market than two other fast-growing clean-energy sectors -- wind at $11.8 billion in 2005 and solar at $11.2 billion in 2005.
On the ethanol front, the U.S. accounted for nearly half of all global production in 2005 at 4 billion gallons (mostly from corn). The other global leader was Brazil, with an annual output of just more than 4 billion gallons, mostly derived from sugar cane. But this reliance on food crops for energy, especially in light of recent droughts and other climate change-related issues, could become problematic. If we're not careful, the next big issue facing the planet could be "Peak Food" instead of "Peak Oil."
This issue becomes all the more critical when you look at the phenomenal growth rate of the ethanol industry. Agricultural conglomerate ADM, for example, produced 1 billion gallons of corn- based ethanol in 2005, representing nearly a quarter of the company's 2005 operating profits. In 2006, the company named an energy executive, former Chevron VP Patricia Woertz, as its new CEO.
And the boom is just beginning. So far this year, two companies have launched initial public offerings in the ethanol space, VeraSun and Aventine Renewables. Both companies raised approximately $400 million in their market debuts and currently have market caps of $1.8 billion and $1.2 billion respectively. Major auto manufacturers, including DaimlerChrysler, Ford, GM, Mazda, Mercedes, and Nissan now offer flex-fuel vehicles (FFVs) that can run on up to 85 percent ethanol. The National Ethanol Vehicle Coalition reports that 12 new FFV models will be released in 2007, joining dozens of other FFV models already on the market from major automotive manufacturers.
There's a reason for all of this activity. The federal government is requiring that 7.5 billion gallons of the nation's fuel come from ethanol and biodiesel by 2012, nearly twice the 4 billion gallons produced in 2005. The Energy Policy Act of 2005, which includes the aforementioned nationwide renewable fuel standard target, offers a tax credit of 51 cents per gallon of regular ethanol to help reach this goal. Many experts believe we'll reach the government's targets a year or two early.
In 2005, the U.S had more than enough excess corn crop to meet the needs of a fledgling ethanol industry. Approximately 1.6 billion bushels of corn went to ethanol production in 2005 -- about 12% of the nation's total corn crop. In 2006, the amount of U.S. corn processed into ethanol is projected to hit more than 2 billion bushels. But with droughts and heat waves impacting this year's crop, the situation could present some problems for the fledgling industry and highlights the need to pursue the development of non- food energy crops.
A report from the Energy Foundation, The New Harvest finds that: