Sioux Falls Argus Leader, SD 12-06-07 Big guys step in as ethanol hits a wall By St. Louis Post-Dispatch BAINBRIDGE, Pa. – Brian Utz dreamed of owning a piece of an ethanol plant. So two years ago he rounded up a dozen fellow farmers to find a place for it and finance all the work needed to build one of the first corn-to-fuel plants in the East. But the costs – and the community opposition – grew too much to bear. “We got tired of fighting. You’d have thought we were building an atomic bomb,” says Utz. So Utz and the other farmers got out, and the big guys stepped in. The really big guys. The new investor group aiming to build in southern Pennsylvania includes three billionaires: Richard Branson, the British airline and music entrepreneur; Vinod Khosla, a founder of Sun Microsystems; and Jeffrey Skoll, founder of eBay. The arrival of the “makers and shakers,” as Utz calls them, is part of a sudden change in biofuels, just two years after farmers were chipping in $20,000 or so for shares in ethanol plants sprouting across the Midwest and elsewhere. Since spring, prices for the corn-made fuel have plummeted by one-third. Local opposition has spread, rooted in concerns about pollution, water consumption and the aesthetic impact of refineries on neighborhoods. Plans for new ethanol plants are being scrubbed or delayed as construction costs soar and lenders grow tight-fisted. While the ethanol boom has stalled, billionaire investors like those in Pennsylvania see a bright long-term future for biofuels, and they have the money to withstand the current lull. After rapid, government-fueled growth, ethanol is hitting the wall – the so-called “blend wall,” the maximum amount of corn-made ethanol that the oil industry is able, and willing, to mix with gasoline. Like many times in the past, the ethanol industry is looking to government for help. Soon, Congress will make decisions on a final energy bill that will determine how much ethanol is used in America in coming years and therefore how many more plants are built or expanded. What does the industry want? Completion of legislation already passed by the Senate that would require the nation to use 36 billion gallons of ethanol – 15 billion gallons of that from corn yearly by 2022. The present Renewable Fuel Standard of 7.5 billion gallons will be surpassed early next year. A House-passed energy bill has no such provision, meaning that Senate and House members will be deciding behind closed doors which chamber carries the day or whether a compromise might be reached. Meanwhile, a debate is under way about ethanol’s benefits and costs to society, with questions being raised about how far the government should go to promote biofuels. It pits ethanol makers and corn growers against the oil industry, environmental advocates and segments of the food industry that have seen their costs grow in part because of increased corn prices. Taxpayer advocates are weighing in, too. As it stands, the biofuels industry will benefit from government subsidies valued at $92 billion from 2006 to 2012, according to a recent study by the Global Subsidies Initiative, a Swiss-based nonprofit group that is critical of ethanol subsidies. Doug Koplow, the American economist who wrote the study, argues that the proposed 36 billion-gallon rule would amount to another subsidy because it would require the oil industry and consumers to do something they might otherwise refuse. “It changes people’s choices in the marketplace,” he said. As the debate heats up, ethanol supporters and skeptics alike wonder how a lavishly subsidized industry has reached the doldrums, just as farmers wonder why doors to their participation have all but closed. By many accounts, a gold-rush mentality set in, with new investors eager to reap the benefits of a government-fueled boom. With self-restraint absent in the industry, ethanol production more than doubled to about 7 billion gallons in three years. Meanwhile, demand has leveled off, complicated by the oil industry’s reluctance to give up more of its market share and problems in transporting corrosive alcohol-based fuel. At the same time, the price of corn rose to more than $4 a bushel for a period this year, making ethanol more expensive to produce. “We just got out in front of ourselves. There was a little too much overexuberance,” said Doug Durante, a consultant to the ethanol industry and director of lobby groups promoting renewable fuels. Durante estimates that of 100 or so serious ethanol plant proposals six months ago, at least half have been put on hold and others have virtually no chance of ever getting off the ground. Part of the problem is increased costs of stainless steel, concrete and the energy needed to fuel plants that make ethanol. Echoed Chad Hart, an economist at the Center for Agricultural and Rural Development at Iowa State University: “There’s a squeeze on people in the game and on those who want in.” While farmers can continue to profit from their corn for ethanol, the days of their owning new plants may have passed. And many worry about seeing their cooperatives swallowed up by big business. “We can’t be the first in line anymore,” said Rick Tolman, CEO of the St. Louisbased National Corn Growers Association. “I try to remind members that this is an investment, like other investments. You decide the time to get in and the time to get out.” Bob Dinneen, CEO of the Renewable Fuels Association, observed that eyecatching profits from ethanol turned it from “a Midwest novelty” into a golden opportunity for Wall Street, real estate investors and companies with no experience in the fuels business. Dinneen believes that the industry will stabilize from the opening of new markets in the Southeast and elsewhere and wider gas station availability of E85, a fuel blend of 85 percent ethanol and 15 percent gasoline. And with oil approaching $100 a barrel, Dinneen and others are stressing the importance to national security of buttressing the fuel supply with ethanol. Like others in the business, Dinneen considers it vital for Congress to hike the ethanol use requirement to unplug investments and force oil companies to blend more ethanol. “It will certainly send a signal to what I would consider a broken marketplace today,” Dinneen said.