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Ethanol’s future seems to make people ‘giddy’

Everything ethanol touches seems to get giddy on either the grain alcohol’s future or its fumes.

For example, early last winter several farm groups endorsed a controversial Congressional plan to open America’s outer continental shelf for energy exploration. What dog could groups like the National Corn Growers Assoc. have in the hunt for Gulf of Mexico natural gas?

A big one - more exploration may lead to more natural gas. More natural gas may mean more and cheaper gas-based anhydrous ammonia, corn’s chief fertilizer. More and cheaper fertilizer means more corn and more corn means more ethanol.

So, in the circular logic that drives much of the U.S. ethanol industry, more tax-break driven, environmentally questionable coastal drilling for a natural, clean-burning fuel will now power additional production of a subsidized grain that will then be converted into another, heavier-subsidized fuel.

The legislation passed and, on Dec. 11, NCGA announced that its members were, “very happy with the legislative victories securing more domestic development of natural gas, continuing our positive push for better trade and extending significant tax incentives for the ever-growing ethanol industry.”

If that recipe - a “positive push for better trade and significant tax incentives” - appears at odds with free market policies promoted by groups like NCGA, keep in mind that the Kool-Aid being mixed here includes ethanol.

Indeed, the offshore drilling legislation backed by NCGA also extended America’s 54-cent-per-gallon tariff on imported ethanol through Jan. 1, 2009, thus protecting domestic producers from cheaper, chiefly Brazilian, ethanol imports for another year.
America’s biggest ethanol backer, President George W. Bush, however, had a hard time swallowing the extension. He wanted - and still wants - an unencumbered U.S. biofuel market. It was a point he again made clear in his March 9 meeting (at an ethanol plant near Sao Paulo) with Brazilian President Luiz Incacio Lula da Silva.

When reporters asked Lula if he was going to push the Americans to cut or eliminate the U.S. tariff on ethanol, Bush interrupted to say that Lula, like him, was stuck with the tariff “through the end of my term. It’s not going to happen.”

It’s not going to happen now, but pressure is building for it to happen from three, already apparent directions.

First, even though ethanol is an economically strong 30-year-old, it remains an almost purely political baby. If Latin and South American nations need to export ethanol to create jobs, strengthen their economies and stave off anti-American leaders like Venezuela’s oil-rich populist Hugo Chavez, ethanol’s domestic protection will be dropped like a bad habit.

Second, pressure is building within the United States to make changes.

On Dec. 18, President Bush’s brother, then-Florida Gov. Jeb Bush, along with several prominent South American business and government officials, launched the Interamerican Ethanol Commission (IEC). The IEC’s mission is clear: make ethanol a global commodity and create a free, uninhibited international market for it.

President Bush, perhaps proving for the first time that ethanol, like blood, is thicker than water, took an enormous step in that direction on March 9 with Brazil President Lula when they agreed to share ethanol-making technology and expand its production across the hemisphere.

The third reason is Brazil itself. The nation that dealt U.S. farmers their biggest global trade defeat ever, the World Trade Organization’s ruling to kill U.S. cotton subsidies, possesses abundant land, cheap labor and a clear will to supply gas-guzzling American and European drivers with the fuel all believe is their birthright.

And like America drilling for more natural gas to make more ethanol, Brazil will burn its remaining rain forests to grow more sugar cane to make more ethanol to make it happen.

This farm news was published in the March 21, 2007 issue of Farm World, serving Indiana, Ohio, Illinois, Kentucky, Michigan and Tennessee.