BW: Ethanol mandates run into the "blend wall" (2007)

The 2005 Energy Bill requires refiners to use 7.5 billion gallons of ethanol per year by 2012. Combined with the existing 51 cents-per-gallon tax credit and soaring oil prices, that provision has triggered an ethanol investment boom. Production leapt to 5 billion gallons in 2006, and the industry will have the capacity to make more than 11 billion gallons by 2008.

The problem: That capacity bumps up against the so-called blend wall. Auto fuel that contains more than 10% ethanol is too corrosive to use in existing gas station pumps. Without new pumps, and cars capable of running on high-ethanol fuel, the U.S. can't use more than 8 billion to 10 billion gallons of ethanol a year.

~ BW, "Memo To Congress: First, Do No Harm; Capitol Hill's rush to promote alternative fuel could yield some damaging legislation," January 29, 2007, by John Carey and Eamon Javers

IBD on ethanol subsidies, winners and losers

Oil companies and meat producers cringed when the Energy Policy Act was signed into law in August 2005. The law mandated refiners blend an increasing amount of ethanol into gasoline mixes, with a minimum annual requirement of 7.5 billion gallons of ethanol in gasoline by 2012.

The Renewable Fuels Standard enacted in December upped the ante to 9 billion gallons of ethanol this year, and mandated 15 billion gallons a year by 2022. The two programs also included vast subsidies for refiners and ethanol producers, by some estimates as high as $1.38 per gallon of the corn-based biofuel.

For oil companies, the rules created an immediate dependence on corn producers and ethanol refiners, led by Archers Daniels Midland ADM and privately owned Poet. For beef producers, it promised a future of soaring feed prices. Corn growers and fertilizer producers read the edict as an all-aboard for the gravy train.

~ Investor's Business Daily, "Fuels Rush In; Ethanol Boom Faces Price Bust," February 11, 2008, by Alan R. Elliott