October 29, 2009

The Market Speaks But Collin Peterson Isn't Listening
Speaking of techno-fixes, I wonder how things are going on the next-generation, cellulosic ethanol front. According to the Des Moines Register, not well:

The Obama administration has issued just two conditional commitments for such guarantees, one for $80 million and another for $25 million.

"Very few credit providers even with loan guarantees are willing to take much risk at all," Dallas Tonsager, the Agriculture Department's under secretary for rural development, told the House Agriculture Committee.

Plants that would make fuel from crop residue and other sources of plant cellulose will cost far more to build than conventional corn ethanol plants. The capital costs on a traditional ethanol plant run about $2 to $2.50 per gallon of production capacity, while cellulosic facilities will cost "several multiples of that. You're taking larger risk on larger projects," said Tonsager.

The chairman of the committee, Rep. Collin Peterson, D-Minn., said that criticism of corn ethanol and its impact on food supplies and greenhouse gas emissions is discouraging investment in next-generation fuels.

"It's no damn wonder that nobody's investing," Peterson said. "I wouldn't put money in with all this that's going on."

Wait, what? Cellulosic ethanol is so lame that even Collin Peterson wouldn't invest in it? Oh, the irony! Actually, I think he was really just cursing those meddling kids for ruining a good time.

Looks, here's how it works, Collin, my boy. Capital flows along the path of quickest profits for the lowest risk. Having stuck with a ten year time horizon for bringing cellulosic ethanol to market -- for the last twenty years, mind you -- the industry has done a pretty good job of scaring away potential investors. It might be different if anyone had actually managed to produce cellulosic ethanol on any scale. But, no. Nothing yet. Check back in five years!

I wonder if now would be the time to point out that hitching farmers' wagons to ethanol may have worked for a while but really wasn't such a good idea for the long term. In the event that ethanol really starts to founder (not that I'm holding my breath, of course), we can turn our attention to helping farmers truly adapt to climate change and even, dare I say it, reforming ag subsidies?

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