The housing bubble pops, investors stumble over each other trying to find another place to make money and end up buying commodities such as corn and oil. The result is that the prices skyrocket. And when oil prices went up so did gas prices. Then there were cries for domestic alternative fuels such as ethanol and then came the mandates and the subsidies. The mandates and subsidies came along inside the Energy Policy Act of 2005. That energy bill back in 2005 mandated that 4 billion gallons of renewable fuel (you guessed it, mostly corn-based ethanol) must be added to the United States’ gasoline supply in 2006. Then it mandated 4.7 billion gallons in 2007 and 7.5 billion in 2012. This is a huge increase in ethanol use but is still only a teaspoon full when compared to the 140 billion gallons of gas the U.S. burns every year.
Then came the “chicken and the egg” problem. Now we’ll go back to the investors again. Ethanol was supposed to be an alternative fuel that could be produced by many sources including and mostly domestic corn. Investors again stumbled over each other investing in these ethanol plants. Almost overnight ethanol plants started popping up all over the United States and every one of them were designed to use corn. And everything seemed to be going great until the demand for corn went way up as it started to deplete the suppl
y of corn used for our food and for feedstock. This caused the price of corn to rise even more. Once the price of corn went up, this drove the cost to produce ethanol to skyrocket. Then to make things worse, speculators again made a quick buck buying (even more) corn futures which then drove up the price of corn even more. Now the high corn prices, the credit crunch, falling oil prices and decrease consumer demand is causing the opposite to occur.
Just when you thought things were bad enough, another nail in their coffin came as now there were too many plants making too much ethanol. The oversupply of ethanol caused ethanol prices to fall sharply. Ethanol plants that were just finished being built and others that were just starting to be built went bankrupt. It seems like more of them go down every day. John McCain just announced in last night’s debates that he is planning to eliminate the import tariff of 54¢ per gallon on Brazil’s sugar and ethanol imports. And I quote from last night’s debate “”I would eliminate the tariff on imported sugar cane-based ethanol from Brazil.” I don’t know all the answers but I myself can’t really see how this can I help our domestic ethanol industry in any way at all. I think they should be some common ground here somewhere that we could get to. I can’t help but feel sorry for our alternative energy programs. What is going to happen next is anyone’s guess.