Bad News for New Ethanol Plants

Current conditions pose formidable challenges for new plants

Local officials hope ethanol plants will bring jobs

by Tom McKinney

Full Disclosure: The author was previously employed as an environmental engineer with the North Carolina Dept. of Environment & Natural Resources and was intimately involved with the review and issuance of the state air permit to Clean Burn Fuels LLC, the proposed ethanol plant for Hoke County.

September was a rough month for the ethanol business. For communities expecting new ethanol plants, the key question is not simply "when will construction begin," but "can they survive" under current economic conditions and technology constraints.

The current oversupply of ethanol has resulted in falling prices and investor sell-off, and there are continuing concerns about the ethanol distribution challenges, limited capacity for blending ethanol with gasoline, and the intense demand for corn. (link to www.forbes.com) For new ethanol plants, the rising prices for corn, combined with the sinking prices for ethanol, create significant economic pressure.

Officials in both Hoke County and Robeson County have counted on proposed ethanol plants to help with local economic development efforts and to provide jobs to area residents. Plans for an ethanol plant in Cumberland County were withdrawn earlier this year after significant public opposition that focused on concerns about odors and the impact on nearby residential areas.

Compared to the controversy in Cumberland County, the public debate in both Hoke and Robeson County has been less heated, with supporters of new ethanol plants pointing to the urgent need for economic development and new jobs, while opponents express concerns about location, odors, or the generous economic incentives provided by local governments.

Adding to the ethanol and corn price challenges are the weaknesses in the current transportation and distribution systems for ethanol. Although ethanol plants in coastal states like North Carolina are closer to large, fuel-demanding, population centers than the new plants in midwestern corn states, such as Iowa, there is a long backlog in orders for the specially-designed rail cars needed to transport the ethanol. (link to www.nytimes.com for 09/30/2007)

Most public debates about fuels and ethanol include a discussion of air quality and the environment. However, the detailed analysis of the "environmental advantages" of ethanol in gasoline appears inconclusive when the full range of air pollutant emissions associated with ethanol production are taken into account. (link to www.nationalgeographic.com for October, 2007) Nonetheless, reliance on "foreign oil" will certainly continue to be factored into any national debates about energy and fuels.

Of course, government subsidies and tax advantages have played a fundamental role in driving up ethanol production and creating the current oversupply. With the coming presidential election, and the importance of the Iowa caucus in determining the political frontrunners, some expect calls for even more government assistance to the ethanol industry.

One thing seems fairly certain. Any decision to proceed with the building of a new ethanol plant in Hoke or Robeson County under current conditions will involve calculations with significant uncertainties and considerable risk.