Most days, main street in the tiny farm community of Yuma, Colo., is slow, save for a few folks meandering from Hardware Hank's to the coffee shop and maybe some pickup trucks poking along, the better to avoid a stray dog or loose child.
But this agricultural town of 3,400, where Colorado's greenest acres gently slope into Kansas and Nebraska, is placing itself smack in the middle of the global energy game. Farmers are plowing their fields, planting corn and feeding cattle while work continues on the first of two multimillion-dollar corn-ethanol plants that could transform Yuma into one of the more vibrant alternative-fuel production centers in the Western U.S. The timing couldn't be better, with gasoline prices well over $3 per gal. as the summer driving season begins. But the choice of corn-based ethanol is one that might not play out in the energy future, from either an environmental or an economic standpoint.
A new ethanol-distilling plant owned by the locally backed Yuma Ethanol, whose investors include farmers, ranchers and other businesspeople from the area, is scheduled to open in July. Another plant is scheduled to break ground later this year, according to Dallas-based Panda Energy International. Together, these operations, which represent $250 million in capital investment, plan to chew up at least 55 million bu. of corn each year and pump out 200 million gal. of what President George W. Bush, Corn Belt politicians, A-list investors and farmers hope will cut the U.S.'s reliance on foreign oil, clean up the air, slow global warming, promote rural job growth and all but turn water into wine.
Little wonder, then, that Yuma is a tad giddy these days. "Bill Gates isn't coming out here to open a Microsoft plant, so we have to use what we have," says Doug Sanderson, Yuma's city manager. "The ethanol operations are a good synergy with our corn, water, waste treatment, hardworking people, our transportation. It's a good fit."
Ethanol, which is little more than alcohol distilled from fermented corn mash, had been a curiosity for the past century before hitting the Green Revolution's radar a few years ago, when it was added to the U.S. gasoline supply with the goal of reducing vehicle emissions. In January, when oil was passing the $55-per-bbl. mark, the President called for the production of 35 billion gal. of renewable fuels annually by 2017, which would reduce U.S. gas consumption 20%. The Energy Act of 2005 mandated a market for ethanol by asking refiners to churn out 7.5 billion gal. per year of the stuff by 2012.
But corn-ethanol critics have doubts about the fuel as a short- and long-term energy solution. As U.S. vehicles burn through 9 million bbl. of gasoline a day, cornfield Cassandras fear that the home-brewed replacement may be only a pricey stepping-stone to a new generation of more efficient, lower-cost power sources like other biofuels, solar cells, wind and ethanol made from farm waste or other sources. Brazil, for instance, brews sugarcane-based ethanol, which is more efficient than corn-based.
Indeed, corn ethanol is no slam dunk. It costs more than gasoline to manufacture. It breaks down in existing pipelines, so it has to be trucked. It gets about 30% fewer miles to the gallon than gas. And ethanol does little, on balance, to reduce greenhouse gases. Nor does it help that corn ethanol's success depends on imponderables like subsidies, commodity prices, the weather, Congress, the geopolitics of oil and a limited distribution network. "Corn ethanol is clearly flawed," says Daniel Kammen, director of the Renewable and Appropriate Energy Laboratory at the University of California, Berkeley, noting the billions of dollars in subsidies that Uncle Sam has been funneling to distillers for years. "Everything we're seeing is politically expedient; [ethanol is] a scientifically naive choice."
That leads to two big questions: If ethanol does develop into a major fuel, will there be enough corn to satisfy the demands of distillers, cattle feeders and food manufacturers? If so, at what price? The answer to the first part is "probably," as advances in genetically engineered corn fatten yields. U.S. farmers also are planting 90.5 million acres of corn this season, up 15% from last year.
The price issue is more problematic. Demand has driven corn prices from $2 per bu. to more than $4 in the past 15 months. Those prices have since fallen back to about $3.70. But if they climb again as a result, for example, of a drought that cuts the yield, then ethanol distillers, cattle feeders, hog and dairy farmers will be the first to pay the price. Shelling out more for corn would eventually translate into more expensive ethanol, as well as higher prices for beef, pork, chicken, eggs and milk--movement that the market is already seeing. Hormel Foods, for instance, recently warned investors that higher grain costs were eating into its bottom line.
And what happens to prices in Yuma will be felt in Zambia, because corn is a worldwide commodity. In some ways, it's a very nasty food-or-fuel struggle. "The line that used to separate food grain from the grain being used for energy is being erased," says Lester R. Brown, president of the Earth Policy Institute, an environmental think tank in Washington. "The stage is now set for direct competition for grain between the 800 million people who own automobiles and the world's 2 billion poorest people."
Today 119 U.S. plants produce 6.14 billion gal. of corn ethanol a year, according to the Renewable Fuels Association (RFA), an industry trade group. An additional 86 plants are being built or are expanding, which could account for 6.4 billion gal. more a year. But William Tierney, a risk-assessment consultant with John Stewart & Associates who specializes in corn ethanol, estimates that an additional 400 projects in various stages of development could add 28 billion gal. to the RFA's conservative figures. Add 5 billion to 10 billion unannounced gal. that Tierney expects to hit the market in a few years, and "we'll have excess capacity before 2012," when Bush wants at least 7.5 billion gal. available. "That means margins will get squeezed and there's a glut," Tierney notes, adding that it may take five years for such a market to sort itself out.
Still, in Yuma County, where gasoline costs around $3.35 per gal. in recent weeks--ethanol E85 fuel was $2.43 per gal.--seldom is heard a discouraging word. Even Brad Rock, who is being hit hard by rising feed prices for the 4,000 head of cattle on his Box Elder Ranch in nearby Wray, admits that the ethanol projects "are good for the community from a jobs perspective."