The Ethanol Bust

This morning's Wall Street Journal's got an awesome piece on the market collapse of ethanol, the corn-based fuel alternative that environmentalists love to tout:

Little over a year ago, ethanol was winning the hearts and wallets of both Main Street and Wall Street, with promises of greater U.S. energy independence, fewer greenhouse gases and help for the farm economy. Today, the corn-based biofuel is under siege.

In the span of one growing season, ethanol has gone from panacea to pariah in the eyes of some. The critics, which include industries hurt when the price of corn rises, blame ethanol for pushing up food prices, question its environmental bona fides and dispute how much it really helps reduce the need for oil.

A recent study by the Organization for Economic Cooperation and Development concluded that biofuels "offer a cure [for oil dependence] that is worse than the disease." A National Academy of Sciences study said corn-based ethanol could strain water supplies. The American Lung Association expressed concern about a form of air pollution from burning ethanol in gasoline. Political cartoonists have taken to skewering the fuel for raising the price of food to the world's poor.

Last month, an outside expert advising the United Nations on the "right to food" labeled the use of food crops to make biofuels "a crime against humanity," although the U.N. Food and Agriculture Organization later disowned the remark as "regrettable."

The fortunes of many U.S. farmers, farm towns and ethanol companies are tied to corn-based ethanol, of which America is the largest producer. Ethanol is also a cornerstone of President Bush's push to reduce dependence on foreign oil. But the once-booming business has gone in the dumps, with profits squeezed, plans for new plants shelved in certain cases, and stock prices hovering near 52-week lows.

Now the fuel's lobby is pleading with Congress to drastically boost the amount of ethanol that oil refiners must blend into gasoline. But formidable opponents such as the livestock, packaged-food and oil industries also have lawmakers' ears. What once looked like a slam-dunk could now languish in pending energy legislation that might not pass for weeks, if ever.

Read the whole thing.

I'm especially intrigued on how the diversion of corn to fuel production roiled markets for corn-based food production. The bottom line, at least for me, is that markets work. High demand drove prices up, devasting farmers who need affordable feed for their livestock. Futher, oil industry operatives don't like being told by bureaucrats that they've got to boost production of ethanol blended fuels. But now, with the collpase of prices, some of those industry insiders are hoping for a round of legislative mandates for increased ethanol use!

But don't forget the environmentalists, who've lost their lust for the corn-based fuel alternative:

This year, even as the production glut was driving down ethanol's price, critics and opposing lobbyists were turning up the heat. Environmentalists complained about increased use of water and fertilizer to grow corn for ethanol, and said even ethanol from other plants such as switchgrass could be problematic because it could mean turning protected land to crop use. Suddenly, environmentalists, energy experts, economists and foreign countries were challenging the warm-and-fuzzy selling points on which ethanol rose to prominence.

"Our love affair with ethanol has finally ended because we've taken off the makeup and realized that, lo and behold, it's actually a fuel," with environmental and various other drawbacks, says Kevin Book, an analyst at Friedman, Billings, Ramsey Group Inc.

And you've got to get a kick out this U.N. advisor who's calling ethanol market diversion a disaster for the food intake of the Third World's poor!

The hypocrisy doesn't get any better than this! Al Gore to the rescue?!!