The corn-based ethanol industry has suddenly run into serious problems on both sides of the Atlantic from an assortment of governments, interest groups and angry drivers. Let's start with the angry drivers in the nation that first produced the motor car - Germany.
Nowhere else is a car culture so deeply ingrained as in Deutschland. Germans obsess over their cars - they clean, polish and tune them, they trade in and trade up regularly, they join automobile clubs and read automobile press in huge numbers and they drive their prized possessions at insane, yet legal, speeds on the autobahns.
At the moment they have thrown the both the government and the gasoline refiners into a crisis by simply refusing to put ethanol into the tanks of their gleaming cars. The row is over the new 95 octane product called Super E10. The German government wants to reduce oil imports and stimulate farming of energy crops by getting motorists to buy E10, which is a blend of 10 per cent ethanol and 90 per cent gasoline. That's the stuff you're getting in Canada whether you want it or not. Well, the Germans don't want it, won't buy it and won't believe anyone who tells them it's good for them.
German gas stations are required as of this year to begin offering the new Super E10 or face penalties. About half the gas stations have so far switched their premium pumps from the more-expensive 98-octane Super Plus (zero ethanol content) to Super E10 and German motorists are staying away in droves to seek out and buy the old stuff. The government argues that nine out of 10 cars on the road can use Super E10 with no harmful effects on their engines, but it hasn't persuaded car-worshipping Germans that it's worth the risk and the boycott is on.
As a result, supplies of 98-octane Super Plus are running low while refiners and gas stations are sitting on huge tanks of unsold Super E10. In unusual agreement, both ADAC (Germany's powerful auto club) and Greenpeace said the new gasoline may ruin cars and the environment. The German Petroleum Industry Association says that deliveries of Super E10 must be stopped, otherwise "the system will collapse." Chancellor Angela Merkel's government has summoned the chiefs of the oil industry to Berlin for a "gasoline summit" where there will be much hand wringing and calls for further study.
Meanwhile in the United States, the Government Accountability Office, the investigative arm of Congress, suggests that the 45-cent-per-gallon ethanol tax credit is a wasteful program that should be eliminated to help Washington deal with its debt problems. The tax credit, due to expire at the end of 2011 anyway, costs the government nearly $6-billion a year. "The ethanol tax credit was important in helping to create a profitable corn starch ethanol industry when the industry had to fund investment in new facilities, but it is less important now," the GAO said.
The current legislated mandate in the U.S. is E10 while Environmental Protection Agency wants to allow gasoline with up to 15 per cent ethanol for newer vehicles. Environmentalists never fail to criticize E10 and E15, saying energy crops waste scarce farmland and cause higher food prices. In fact, a coalition of food industry lobbyists and environmentalists sent a letter last week to congressional leaders urging them to end the ethanol subsidy. "At a time of spiralling deficits, we do not believe Congress should continue subsidizing gasoline refiners for something that they are already required to do."
These debates will have an impact on Canada. Automobiles and the fuel they burn are global issues with "harmonized" legislative standards. In other words, if the Europeans and especially the Americans, back off ethanol we will undoubtedly do the same. However, renewable fuels have to become more and more important for environmental as well as economic reasons. The United States spends more than $300-billion a year for foreign oil; that's about 60 per cent of the total U.S. trade deficit and equal to half of its defence budget.
The ethanol industry has done a lousy job of explaining its case and justifying its government support; and of course relying almost totally on corn is a big mistake. The game changer will be the commercialization of cellulosic ethanol if it ever comes. I believe it will. Waste for fuel is a far more compelling case than food for fuel. Once municipal waste, farm waste, forestry waste can be converted economically to ethanol I think the opposition will fade away. Even the German car-crazies, with sufficient encouragement from their auto makers, would have to see the ethanol advantage over the ever-increasing price of crude.