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    A group of Spanish investors is building a new bioethanol plant in the western region of Extremadura that should be producing fuel from maize in 2009. Alcoholes Biocarburantes de Extremadura (Albiex) has already started work on the site near Badajoz and expects to spend €42/$59 million on the plant in the next two years. It will produce 110 million litres a year of bioethanol and 87 million kg of grain byproduct that can be used for animal feed. Europapress - September 28, 2007.

    Portuguese fuel company Prio SA and UK based FCL Biofuels have joined forces to launch the Portuguese consumer biodiesel brand, PrioBio, in the UK. PrioBio is scheduled to be available in the UK from 1st November. By the end of this year (2007), says FCL Biofuel, the partnership’s two biodiesel refineries will have a total capacity of 200,000 tonnes which will is set to grow to 400,000 tonnes by the end of 2010. Biofuel Review - September 27, 2007.

    According to Tarja Halonen, the Finnish president, one third of the value of all of Finland's exports consists of environmentally friendly technologies. Finland has invested in climate and energy technologies, particularly in combined heat and power production from biomass, bioenergy and wind power, the president said at the UN secretary-general's high-level event on climate change. Newroom Finland - September 25, 2007.

    Spanish engineering and energy company Abengoa says it had suspended bioethanol production at the biggest of its three Spanish plants because it was unprofitable. It cited high grain prices and uncertainty about the national market for ethanol. Earlier this year, the plant, located in Salamanca, ceased production for similar reasons. To Biopact this is yet another indication that biofuel production in the EU/US does not make sense and must be relocated to the Global South, where the biofuel can be produced competitively and sustainably, without relying on food crops. Reuters - September 24, 2007.

    The Midlands Consortium, comprised of the universities of Birmingham, Loughborough and Nottingham, is chosen to host Britain's new Energy Technologies Institute, a £1 billion national organisation which will aim to develop cleaner energies. University of Nottingham - September 21, 2007.

    The EGGER group, one of the leading European manufacturers of chipboard, MDF and OSB boards has begun work on installing a 50MW biomass boiler for its production site in Rion. The new furnace will recycle 60,000 tonnes of offcuts to be used in the new combined heat and power (CHP) station as an ecological fuel. The facility will reduce consumption of natural gas by 75%. IHB Network - September 21, 2007.

    Analysts fear that record oil prices will fuel general inflation in Kenya, particularly hitting the poorest hard. They call for the development of new policies and strategies to cope with sustained high oil prices. Such policies include alternative fuels like biofuels, conservation measures, and more investments in oil and gas exploration. The poor in Kenya are hit hardest by the sharp increase, because they spend most of their budget on fuel and transport. Furthermore, in oil intensive economies like Kenya, high oil prices push up prices for food and most other basic goods. All Africa - September 20, 2007.

    Finland's Metso Power has won an order to supply Kalmar Energi Värme AB with a biomass-fired power boiler for the company’s new combined heat and power plant in Kalmar on the east coast of Sweden. Start-up for the plant is scheduled for the end of 2009. The value of the order is approximately EUR 55 million. The power boiler (90 MWth) will utilize bubbling fluidized bed technology and will burn biomass replacing old district heating boilers and reducing the consumption of oil. The delivery will also include a flue gas condensing system to increase plant's district heat production. Metso Corporation - September 19, 2007.

    Jo-Carroll Energy announced today its plan to build an 80 megawatt, biomass-fueled, renewable energy center in Illinois. The US$ 140 million plant will be fueled by various types of renewable biomass, such as clean waste wood, corn stover and switchgrass. Jo-Carroll Energy - September 18, 2007.

    Beihai Gofar Marine Biological Industry Co Ltd, in China's southern region of Guangxi, plans to build a 100,000 tonne-per-year fuel ethanol plant using cassava as feedstock. The Shanghai-listed company plans to raise about 560 million yuan ($74.5 million) in a share placement to finance the project and boost its cash flow. Reuters - September 18, 2007.

    The oil-dependent island state of Fiji has requested US company Avalor Capital, LLC, to invest in biodiesel and ethanol. The Fiji government has urged the company to move its $250million 'Fiji Biofuels Project' forward at the earliest possible date. Fiji Live - September 18, 2007.

    The Bowen Group, one of Ireland's biggest construction groups has announced a strategic move into the biomass energy sector. It is planning a €25 million investment over the next five years to fund up to 100 projects that will create electricity from biomass. Its ambition is to install up to 135 megawatts of biomass-fuelled heat from local forestry sources, which is equal to 50 million litres or about €25m worth of imported oil. Irish Examiner - September 16, 2007.

    According to Dr Niphon Poapongsakorn, dean of Economics at Thammasat University in Thailand, cassava-based ethanol is competitive when oil is above $40 per barrel. Thailand is the world's largest producer and exporter of cassava for industrial use. Bangkok Post - September 14, 2007.

    German biogas and biodiesel developer BKN BioKraftstoff Nord AG has generated gross proceeds totaling €5.5 million as part of its capital increase from authorized capital. Ad Hoc News - September 13, 2007.

    NewGen Technologies, Inc. announced that it and Titan Global Holdings, Inc. completed a definitive Biofuels Supply Agreement which will become effective upon Titan’s acquisition of Appalachian Oil Company. Given APPCO’s current distribution of over 225 million gallons of fuel products per year, the initial expected ethanol supply to APPCO should exceed 1 million gallons a month. Charlotte dBusinessNews - September 13, 2007.

    Oil prices reach record highs as the U.S. Energy Information Agency releases a report that showed crude oil inventories fell by more than seven million barrels last week. The rise comes despite a decision by the international oil cartel, OPEC, to raise its output quota by 500,000 barrels. Reuters - September 12, 2007.

    OPEC decided today to increase the volume of crude supplied to the market by Member Countries (excluding Angola and Iraq) by 500,000 b/d, effective 1 November 2007. The decision comes after oil reached near record-highs and after Saudi Aramco announced that last year's crude oil production declined by 1.7 percent, while exports declined by 3.1 percent. OPEC - September 11, 2007.

    GreenField Ethanol and Monsanto Canada launch the 'Gro-ethanol' program which invites Ontario's farmers to grow corn seed containing Monsanto traits, specifically for the ethanol market. The corn hybrids eligible for the program include Monsanto traits that produce higher yielding corn for ethanol production. MarketWire - September 11, 2007.

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Friday, September 21, 2007

Report: U.S. ethanol sector does not need subsidies

The ethanol industry in the United States is booming and has achieved an impressive scale over the past two years. However, many critics have said this growth has come at a high cost for the American tax payer: the cost of all the tax breaks, direct subsidies and other benefits for corn-derived ethanol was estimated to total at least $5.1 billion last year (earlier post). Moreover, the sector is proteced by import tariffs on cheaper and more sustainable ethanol made in the developing world. Recently, a paper written for the 'OECD Roundtable on Sustainable Biofuels' (not affiliated with the OECD) warned that these subsidies are not effective, and that trade barriers prevent more sustainable and competitive biofuels from reaching the market (more here).

However, a new study by Dr Thomas Elam, agricultural economist for consulting firm FarmEcon, now shows that this heavy federal support is in fact not needed. The report titled "Fuel Ethanol Subsidies: An Economic Perspective" [*.pdf], states that with current oil prices, even America's corn-based ethanol, which is amongst the most costly biofuels, can survive without subsidies.
Ethanol is one of the most profitable enterprises in the United States today, but unfortunately a high percentage of those current profits come not from the marketplace, but from the federal treasury. Increased energy prices make it possible for the ethanol industry to thrive on its own. - Dr Thomas Elam, agricultural economist

In the chart above (click to enlarge) the breakeven ethanol value of corn is calculated based on the energy value of ethanol, current ethanol production costs, current ethanol yields and the current relationship between corn prices and distiller's dried grains with solubles (DDGS) prices. The chart uses the historic relationship between crude oil and U.S. wholesale gasoline prices to relate the value of gasoline to the value of crude oil.

At current crude oil and gasoline price levels coupled with the Federal subsidy the ethanol industry can afford to pay about twice the 2003-2005 average price of corn. As long as oil remains above $55 per barrel, and more importantly wholesale gasoline above about $1.90 per gallon, ethanol producers can pay more than 2003-2005 corn prices. If crude oil were to go to $90 per barrel corn would be affordable to ethanol producers at up to $6.00 per bushel, including the Federal subsidy.

According to the report, this shows clearly that the case can be made that the subsidy for ethanol, if there is to be one at all, should be based on gasoline prices, not a flat amount per gallon of ethanol used for fuel. In fact, if oil prices go high enough the government should consider taxing ethanol used for fuel to alleviate the effects of ethanol demand on food prices:
:: :: :: :: :: :: :: :: ::

According to Elam's study, federal supports, when fully implemented, will drive up the cost of corn and other grains by $34 billion per year. The ethanol boom is driving up the cost of food production, and could eventually cost a family of four about $460 a year in higher food costs.

Federal supports are severely distorting crop prices while adding little, if anything, to the stated goals of the renewable energy program, Elam said. The ethanol program is also increasing the federal outlays and has very little impact on U.S. dependence on foreign oil, the report says.

The study also contends that increased ethanol production will do little to reduce domestic dependence on foreign oil:
On a net energy basis, ethanol will not make a significant contribution to overall U.S. energy production/ If the ethanol industry achieves 100 percent E10 market share in the United States, it would take about 200 million tons of corn annually. This is equal to a 10 percent reduction in the current global grain supply. - Dr Thomas Elam, agricultural economist
The 51 cents per gallon tax credit given to fuel blenders who add ethanol to gasoline has caused significant increases in food costs and distorting farmer planting incentives, the report says.
Ethanol producers can easily afford to compete with U.S. livestock and poultry producers for corn. Even without subsidies, ethanol production would be expanding at a significant rate due to high gasoline prices and the improvements in ethanol production technology in recent years. - Dr Thomas Elam, agricultural economist
The American Meat Institute, National Chicken Council and National Turkey Federation commissioned Elam's study.

Elam, Thomas, "Fuel Ethanol Subsidies: An Economic Perspective" [*.pdf], Report commissioned by The National Turkey Federation, National Chicken Council, American Meat Institute - September 19, 2007.

Biopact: Subsidies for uncompetitive U.S. biofuels cost taxpayers billions - report - October 26, 2006

Biopact: Paper warns against subsidies for inefficient biofuels in the North, calls for liberalisation of market - major boost to idea of 'Biopact' - September 11, 2007


rufus said...

The U.S. is "Saving" about a Billion Dollars/mo on Agricultural Subsidies with the higher ag prices. We're, also, recouping in the neighborhood of $5 Billion/yr in various taxes associated with the ethanol Industry.

This has led us to be able to propose dropping our Ag Subsidy Cap from $26 B down to $13 B to help the Doha Round get restarted.

We'll probably look at the Blender's credit in a couple of years once we're convinced the industry is strong enough that the oil companies can't come in and strangle it.

7:11 PM  
Kenneth said...


I don't think your comment gives the host too much solace.

Assuming some good faith in the first place, telling someone who wishes to produce effective net energy and food in a balanced way from Agro energy, that we (I am also an American) "saved" (or possibly redirected/externalized more accurate) $ 12 billion in agricultural subsidies - if its true - and we are now going to reduce such direct food subsidies going forward isn't really very comforting.

Looking at the true net energy profile of corn ethanol, particularly incrementally (but as Americans - ultimate energy consumers - we never consider energy has a cost so yes its difficult) I wouldn't be quite so sanguine that the long standing blenders credit and import barriers, the former at least I believe only mandated until 2009, will go away soon. But with increasing cost of energy, specifically gas (no matter how appropriate from an equalized energy cost perspective to avoid waste) more "green ethanol" will be made using Coal for heating as a proportion of the total.

While not nearly as aware of the underlying net energy profile of European Biofuels (I prefer Agro Energy) I suspect its not so much better ? and while industrially pragmatic and distribution cost effective using ethanol via ETBE and maintaining a large MTBE oxygenate use and also with large import bariers, Europe isn't so terribly green either.

If you believe even a highly discounted Brazil biofuels net energy calculation and understand how they maximize its use, particularly hydrous (more energy efficient), but don't encourage over consumption in general, and have been quite balanced in food and energy production, they are possibly the only virtuous Agro Energy producer in the world.

12:32 PM  

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