It takes energy to convert corn to ethanol; the source is usually fossil fuels; thus ethanol is not yet a 100% renewable fuel, contrary to popular belief. Further energy (fossil fuel) is required to transport raw material (corn or equivalent) to the plant (by trucks or trains) and transport finished product to end users. A little advertized fact is that ethanol has a lower BTU value than gasoline which means any vehicle burning ethanol would have lower fuel efficiency compared to a conventional gasoline vehicle.

All energy, and raw material processing and transportation raise the cost of ethanol and make it comparable to gasoline cost; worse if gasoline were cheaper. The industry is heavily dependent on government subsidies which may be coming from taxpayers. As more farmers decide to produce corn for ethanol, the supply curve for all other commodities that use corn shifts resulting in higher prices for corn based products.

Blending of ethanol has issues as well. Many car engines (except Flex-Fuel vehicles) are not made to handle high ethanol concentrations. Ethanol, being an alcohol, is corrosive and requires special materials to avoid engine degradation. Same goes for the pumps pumping ethanol into our vehicles, pipelines, and other materials that ethanol comes in contact with during production and distribution. Ethanol has a higher affinity to water and particulates compared with gasoline. These factors mandate huge infrastructure improvements in order to sustain continued ethanol growth. Where does this money come from?

I agree that ethanol can serve its purpose being the additive to oxygenate fuel in place of methyl tertiary butyl ether that presents serious water contamination hazards. I also agree that ethanol can reduce U.S. dependence on foreign oil. But I do not agree that this can be achieved in a cost-effective manner based on current technologies. Technologies need to be developed to produce lower cost ethanol, using resources like cellulosic material that do not alter the global food supply curve, without heavy subsidies from the government, and keeping associated greenhouse gas emissions to a minimum. Only then can ethanol really be sustainable in the US or around the world.

Ethanol is not economically viable in the longer term unless the US commits to creating a pipeline system to transport the fuel from refineries to fueling stations. From a value-added perspective, ethanol provides more benefit as a fuel additive in place of MTBE than as a pure combustible fuel. So, it is important to prevent its costs from significantly exceeding a unit of gasoline.

The most variable costs of ethanol are organic matter for distillation and transportation costs. Currently, ethanol is almost entirely dependent on the freight rail system for its transport, estimated by the National Renewable Energy Laboratory (NREL) to cost producers 13 to 18 cents per gallon. In contrast, the transport of oil through pipelines only costs 3 to 5 cents per gallon. A change from rail to pipeline is the most cost-efficient method to transport the liquid.

Furthermore, the 51 cent per gallon tax subsidy has dropped to 45 cents now that the 7.5 billion gallon production level has been achieved. However, this subsidy expires at the end of 2010. Tough choices must be made, for the current status quo is not practical to be extended indefinitely. There needs to be some resolution that accounts for the strategic, economic, environmental, and political issues surrounding ethanol.

Foresight needs to be employed to create a proper infrastructure, if ethanol is to subsist on its own merits. Since 2008, ethanol manufacturers Verasun Energy, Cascade Grain Products LLC, Northeast Biofuels, Hereford Biofuels, and Aventine Renewable Energy went bankrupt. These companies were unable to manage through a boom period in oil prices. If the business model for ethanol producers struggles despite the advantages of both tax subsidies and high oil prices, then without a dependable, low cost, midstream solution to reduce transportation costs, the model should be determined unfeasible.

Brazil, the second largest ethanol producer behind the US has had success with ethanol pipelines. Brazil’s state-run Petrobras plans to invest $400 million on ethanol conduits. So far, in the US, Kinder Morgan is the only company to successfully complete a test demonstrating the commercial viability of transporting batched denatured ethanol in its 16-inch diameter gasoline pipeline. This shows that a pipeline is possible, but the US must get serious about a long-term ethanol transportation solution.

A 2006 NREL report estimated the costs of constructing ethanol pipelines at $1 million per mile ($2 billion) from the Midwest to the East Coast, where strong markets exist. Financing a pipeline can be accomplished by issuing government guarantees on project debt, equity participation, tax incentives, or some combination of these various methods.

Merely extending tax subsidies on ethanol production, without an established distribution infrastructure, fails to secure ethanol its autonomy. If ethanol has a legitimate place in the overall energy plan, then bona fide arrangements must be undertaken to morph it from a pipe dream into a pipeline.