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Ethanol, once darling, is losing some luster

/ Source: The Associated Press

Ethanol's wild ride has brought it quickly from political golden child to scapegoat for everything from soaring food prices and world hunger to pork-barrel spending.

This week, the Republican Party in its national platform called for an end to ethanol mandates in just the latest shot at a fuel alternative that, in some circles, has grown more targeted than treasured.

High ranking politicians, including presidential candidate John McCain, have publicly opposed ethanol subsidies before, but the platform approved during the Republican convention in St. Paul, Minn., marks the first time a major U.S. party has taken an official stance against publicly funded ethanol incentives.

It was just four years earlier that the Republican platform called for "efforts to expand the use of biodiesel and ethanol, which can reduce America's dependence on foreign oil while increasing revenues to farmers."

Sen. John Thune, R-S.D., said his party "got it wrong" on this issue, and he doesn't see how cutting the mandate fits with reducing the country's dependence on foreign fossil fuels.

"That's a big mistake," Thune said. "If we keep doing what we're doing, we're going to keep getting what we're getting, and right now we're 70 percent dependent on foreign oil."

David King, a lecturer in public policy at Harvard's Kennedy School of Government, said party platforms in many cases reflect the presidential nominee's interests, but the documents are not followed or paid attention to by party regulars.

"You would be hard pressed to find any Republican in Iowa, for example, who would in any way embrace this as something in their party's platform," King said. "It wouldn't change their behavior."

But whatever maneuvering landed that paragraph on the Republican platform may spill out in other venues, King said.

"This implies there's a coalition strong enough to care about this issue that might want to get it on the agenda in Congress or push it through an executive agency, even before the elections are up," he said.

Divisions over the high-octane fuel once widely considered to be America's answer to high oil and gas prices have grown.

Earlier this year, the Grocery Manufacturers Association assembled a diverse coalition of cattlemen's groups, hunger-prevention organizations and environmentalists to launch a relations campaign against ethanol.

Jeff Broin, chief executive of privately held Poet LLC, the nation's largest ethanol producer, said opponents are looking for a scapegoat for consumer discontent over rising food prices.

Droughts, a weak dollar, oil prices, and speculation in commodities markets have a larger effect on food prices compared with demand from biorefiners, said Broin, who added that the platform language seems to be based on outdated and inaccurate information.

Texas Gov. Rick Perry in April wrote the U.S. Environmental Protection Agency asking it to suspend the nation's renewable fuel standard, which was expanded by Congress in 2007 to require a total of 36 billion gallons of biofuels to be blended into gasoline by 2022.

The EPA denied Perry's request last month, saying the mandate "remains an important tool in our ongoing efforts to reduce America's greenhouse gas emissions and lessen our dependence on foreign oil."

Kevin Landis, manager of the Firsthand Alternative Energy Fund, said subsidies and tax credits work well to encourage initial investment in burgeoning industries such as ethanol, wind and solar, but businesses eventually need to compete without them.

"Subsidies are like training wheels," Landis said. "They're great to get you going but eventually you've got to let go."

Although the corn used to produce ethanol isn't the same corn munched on at family barbecues, it is used to feed cattle. And when ranchers have to pay more for livestock feed, consumers may pay more for milk, meat, eggs and cheese.

When VeraSun Energy Corp. and other companies produce ethanol, they also make distillers grains, a high-protein ethanol byproduct used as a livestock feed.

"We're only using the starch," said Verasun Chief Executive Don Endres. "The protein, the fat, the vitamins, the minerals, we're passing that on to the feed market as distillers grains."

Many in the industry expect ethanol opposition to wane as energy companies move from corn-based to cellulosic ethanol, which is made from perennial grasses or plant waste such as corn cobs or wood chips.

But both VeraSun and Poet, which are working on cellulosic add-ons to their existing corn-based plants, expect corn ethanol to remain the foundation of the industry.

Broin said seed companies are continuing to improve crop yields, and he believes higher corn prices will help bring about a billion acres of idled cropland online across the world.

"Grain-based ethanol is the foundation for cellulosic ethanol," he said. "And grain-based ethanol is the reason that the world price of grain is above cost of production for the first time in decades. That's a good thing, not a bad thing."

Verasun's Endres said ethanol mandates have begun to pay off, and that the industry is already fostering next-generation biofuels development.

"If we dismantle the current policies, the market will view our leaders as no longer supportive of alternatives, be it wind, solar, or biofuels," Endres said.