It wasn’t too long ago that the U.S. began subsidizing the production of ethanol as a fuel alternative, and Brazil was held high as a global leader in the space.
Yet today, thanks to the weak dollar and rapid U.S. industry growth, the U.S. is now producing far more cost-competitive ethanol than it can consume, and is the largest producer in the world at 37 million gallons per day.
The $7.7 billion of subsidies given to the industry in 2009 may have worked too well:
The US government mandates 12 billion gallons in the fuel supply this year, but a decline in American driving and a 10 per cent cap on how much can be blended into motor fuel has created a glut.
“The domestic market here in the US is essentially saturated. We are looking for a home for the surplus,” says Geoff Cooper at the Renewable Fuels Association, a US trade group.
European ethanol producers are now being threatened by surging U.S. ethanol exports, which for the nine months ending September were double that of a year ago according to CNBC.
However, subsidies alone aren’t to blame for the glut of supply:
US demand for ethanol could grow after the Environmental Protection Agency raised the blending cap to 15 per cent, for cars sold since 2007.
But fuel retailers are reluctant to adopt the changes, and a coalition of food groups – concerned that ethanol production is driving up the corn price – last week sued to overturn the decision.
The US Department of Agriculture forecasts ethanol production will consume 4.8 billion bushels, or 38 per cent, of the US’s 12.5 billion bushel corn crop this year.
Thus the glut of ethanol is the result of both subsidies for the ethanol and with regulatory manipulation by opposing food producers who are trying to prevent a more widespread adoption of the fuel.
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