After Backlash, Ethanol Industry Is Thriving

Five years ago, ethanol was seen as the next big thing to wean the U.S. off foreign oil. Then some studies on the corn-based fuel cast doubt on its environmental benefits, and auto companies turned their attention to hybrids and electric cars. The hype died off, but the ethanol industry is alive and well, driving a big change in America's corn consumption.

Rising up out of the corn fields outside Lake Odessa, Mich., is the ethanol refinery for Carbon Green Bioenergy. The company's CEO, Mitch Miller, says a lot of refineries were popping up when this one was built in 2006.

"Five years ago, ethanol was a craze. It was the next best thing," he says. Now, not so much. Refineries aren't being built. Politicians aren't stopping by with platoons of reporters.

Yet when the ethanol hype went away, the ethanol industry got bigger than ever.

'A Dramatic Change'

On a tour of the refinery, Miller points out a storage silo as big as an office building. From there, the corn is broken down, starch turns into sugar and, well, the process is basically like distilling moonshine — chemically precise, 200-proof moonshine.

Miller says there's plenty of demand to keep this massive plant busy.

"This was built as a 40-million-gallon plant. We're running at 50 million gallons per year, so we have not reduced capacity at all," he says.

A 45-cent-per-gallon government subsidy for ethanol producers ended earlier this year, but there's still a mandate that forces refineries to blend ethanol with gasoline. Before the mandate, refineries used about half as much ethanol as they do today.

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And this isn't the only ethanol plant that has been busy. Last year, for the first time ever, more corn in this country was used to make ethanol than to make livestock feed.

University of Missouri agricultural economist Ron Plain says that's an incredible change.

"Ten years ago, we were using about eight times as much corn to feed livestock and poultry as we were to make ethanol. And now we're using more corn to make ethanol. So it's a dramatic change," he says.

Five years ago, the federal government projected that in 2012, ethanol production would use up 30 percent of the nation's corn supply. Last year, it used 40 percent.

But that huge growth didn't come about because of E-85, the ethanol blend that starred in political speeches and TV commercials. It happened because ethanol makes up about 10 percent of almost every gallon of gasoline sold in this country. You use it every time you fill up your tank.

Policies And Subsidies Playing A Role

Government policies have played a huge role in this. For years, ethanol producers received a 45-cent-per-gallon subsidy. That subsidy ended earlier this year, but there's still a mandate that forces refineries to blend ethanol with gasoline.

Plain, the economist, says ethanol would still be around without the mandate. But before the mandate, refineries used about half as much as they do today.

Ethanol advocates hope the next step is a 15 percent blend of the fuel. The EPA already approved it for use in all vehicles built after 2001. But not everyone is betting big on it.

Craig Hoppen, the president of J&H Oil, a company that owns 36 filling stations in West Michigan, expects this new blend to do about as well as E-85.

"Is it a real up-and-coming business? No, no, it's still a niche business," he says.

That will please some environmentalists, who say ethanol isn't any cleaner than gasoline, when you consider what it takes to raise corn. Some livestock farmers are also rooting against ethanol, since corn prices have tripled in the past decade, raising their feed costs. Hopes that corn stalks, or switch grass, could replace corn as the feedstock for ethanol have mostly come up empty.

So for now, ethanol will continue to be made from corn. And maybe the biggest expansions in the industry are behind us. Then again, ethanol projections have been wrong before.

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