Illinois’ Democratic Sen. Barack Obama says that ethanol will have to be a commercially viable alternative to gasoline if it is to significantly reduce U.S. dependence on foreign oil in the long run.  The U.S. government, he added, is going to have to make substantial investments to make that happen.
 
Obama, like other lawmakers, wants to see a lot more cars in the U.S powered by E85, which provides only about two-thirds of the mileage that gasoline does (ethanol has less energy content).  Ethanol is now primarily used as an oxygenate additive in gasoline. Cars that run on E85 are relatively rare in the U.S., but Obama said he owns one.

President Bush called for a 35-billion-gallon per year ethanol production standard by 2017 in his State of the Union address.  Many grain and biofuel analysts agree, however, that the U.S., in order to meet the president’s ethanol standard, will have to produce ethanol from cellulosic sources: wood chips, corn stalks, certain vegetation, ect.
 
In an interview with Dow Jones Newswire, Obama said: “I don’t think we want to end up in a situation which we are producing tons of ethanol that are simply having to be subsidized to support the infrastructure that’s already there. We want to make sure that it actually supplements and ultimately helps to replace our dependence on  foreign oil.  And that is going to require an investment on the front end.”
 
The U.S. Department of Agriculture announced Wednesday its intention to fund $1.6 billion worth of research into improving renewable fuels, but didn’t provide details on what kind of research would be supported.
 
Congress has begun debating how to further support the ethanol industry as lawmakers begin work this year on a new multi-year farm bill that is expected to contain a strong energy title. The U.S. implemented a 51-cents-per-gallon federal Volumetric Ethanol Excise Tax Credit in January 2005 that will be in place through 2010. There is also a 54-cents-per-gallon U.S. tariff to discourage ethanol imports that expires at the end of 2007.
 
 

Yesterday, Agriculture Secretary Mike Johanns announced plans to propose $1.6 billion in new funding for renewable energy, with a focus on cellulosic energy research and production, as part of the Administration’s 2007 farm bill proposals.

This funding will support President Bush’s goal of reducing gasoline usage by 20 percent in the next ten years and will compliment an array of renewable energy-related efforts underway at the USDA.

USDA spent nearly $1.7 billion on energy-related programs between 2001 and 2005, and last year alone, USDA spent over $270 million on these programs in areas such as commercialization, research, infrastructure development, and technical support. Currently, there are 110 operational ethanol plants in 19 states with another 73 under construction and new proposals at an astounding rate.

USDA’s Agriculture Research Service (ARS) scientists have developed improved fermentation organisms and are making other significant steps toward achieving the technology needed for commercial production of cellulosic ethanol. ARS scientists have genetically modified a strain of lactic acid bacteria that produces increased levels of ethanol from cellulosic biomass. The research findings demonstrate that metabolic engineering has the potential to create new biocatalysts to convert biomass to biofuels.

Johanns plans to provide additional information about the proposal to provide $1.6 billion in new funding for renewable energy within the next few weeks when he unveils the Administration’s full package of 2007 farm bill proposals.

Lawmakers say ethanol produced from corn and new feedstocks such as switchgrass will be one of the forces driving Congress’ new farm bill.
 
House Agriculture Committee Chairman Collin Peterson, Rep. Stephanie Herseth, and Sen. John Thune were among those who attended the annual South Dakota Corn Growers convention Saturday.
 
“I tell farmers, in 10 years, you’re going to be growing 25% switchgrass,” Peterson said.  Herseth said directing more U.S. corn to ethanol production “should untangle some of the challenges we face with trade policies,” and Thune said research into using biomass products such as switchgrass should not adversely affect the corn-based ethanol industry.
 
Corn growers at the conference also spoke with seed company representatives about new corn varieties, though panel members said such new technologies will take time. The panel told growers that corn will be better able to shrug off heat, sustain high yields with limited moisture, and make the best use of expensive nitrogen fertilizer.
 
“We’re on the threshold of making research pay off we’ve been investing in for a number of years,” said Gary Weber, Pioneer Seed research coordinator. “There was a time we thought we would discover magic bullets just lying there. We’re rediscovering our genetic principles.”

The Brazilian government, in hopes of lowering global trade barriers on ethanol, is looking to re-classify ethanol in the international trade arena as a fuel commodity, not an agricultural commodity.  Brazil, the world’s top ethanol exporter and lowest-cost producer, would benefit immensely from lowered trade tariffs on the biofuel. 

If ethanol were considered an energy commodity, then it could receive the same treatment as petroleum, said Celso Amorim, the country’s Foreign Trade Minister last month.  “No one, if it’s not for fiscal reasons, and this occurs in few cases, places a tariff on petroleum imports, because that would penalize the whole productive process of the country,” he added.
 
The U.S., the top buyer of Brazilian ethanol this year, imposes a hefty 54-cent-per-gallon duty on direct ethanol imports, as well as a 2.5% ad valorum tariff.  The E.U., expected to be Brazil’s top purchaser of ethanol next year, imposes a tariff of 10.2 euros per every 100 liters for denatured alcohol, and a tariff of EUR19.2 per 100 liters for undenatured alcohol.  Both types of alcohol can be used for biofuel production.
 

According to representatives of the U.S. ethanol and corn sectors, the U.S. ethanol industry is expected to continue to prosper, even as the Democrats seize the House of Representatives.
Republicans have been strong supporters of the growth of the alternative fuel industry, but Matt Hartiwg, spokesman for the Renewable Fuels Association, says that there is just as much support from the Democratic side.
 
Hartiwg noted such key congressional members as Nancy Pelosi, D-Calif, (who will take over as Speaker of the House ) and Colin Peterson, D-Minn., (who will take over as chairman of the House Agriculture Committee) as strong proponents of ethanol and renewable fuel production.
 
Renewable energy firms’ stock prices rose last Wednesday following the Democrats’ victory in the House. The Andersons Inc. (ANDE) is up $2.15 to $37.25, while Pacific Ethanol Inc. (PEIX) shares are currently trading at $16.91, up 69 cents. VeraSun Energy Corp. (VSE) is up $1.41 at $20.12, Xethanol Corp. (XNL) is up 6 cents at $2.960, and Archer Daniels Midland (ADM) is up $1.90 to $35.43.
 
The U.S. Agriculture Department is predicting that the ethanol industry will consume 2.15 billion bushels of this year’s corn crop, which is 20% of the total U.S. corn harvest.