The effects of higher corn prices and sometimes poor risk management decisions resulted in US ethanol company bankruptcies and idled plants in 2008, but members of the ethanol industry remain bullish that a turnaround is in store for 2009.
Bob Dinneen, president of the Renewable Fuels Association, said that with a rebounding economy, ethanol margins would improve.
Chris Standlee, chairman of the association and executive vice president of Abengoa Bioenergy, said was bullish on the industry long term; otherwise, his company would not still be investing in new facilities.
Although some plants are idle, greater than 87pc of capacity is operational, producing approximately 10.5 billion gallons of ethanol annually, Dinneen said.
He noted that as the industry continues to evolve, consolidation will follow as the industry builds efficiencies.
"Consolidation is a good thing and part of a natural evolution for a rapidly growing industry such as ours, which has seen 25pc increases in production on an annual basis," Dinneen said.
POET, the largest US ethanol producer, successfully weathered 2008 with smart decisions both on plant purchases and risk management decisions.
President Jeff Broin said POET continues to look at acquiring facilities that are going through financial difficulty.
POET was once rumored to be in talks with bankrupt VeraSun, its closest competitor in terms of capacity.
Broin confirmed that POET is "in talks with several companies" but declined to clarify which companies it may be looking to acquire.
Broin said the ethanol industry was going through tough times, and with that comes consolidation, but it would "emerge from this as a stronger industry".
A US bankruptcy court ordered VeraSun to sell seven of its 16 plants in order to secure financing for its remaining plants under a credit agreement with AgStar Financial.
The sale will reduce VeraSun's capacity from 1.6 billion gallons to 1.0 billion.
Lockrem said the "auction process is unrelated" to the earlier intention of interest announcement VeraSun made at around the same time Broin also first noted that POET was interested in acquiring plants.
Energy producer Valero is another talked-about potential buyer.
Blending wall
Standlee said it was important for the country "not to abandon its quest for alternative oil just because prices went down".
In the 1970s, sky-high oil prices spurred investment in other energy sources only to be later abandoned.
Government incentives have lifted ethanol use and replaced oil demand.
Broin said it was important for the nation to stand behind current incentives such as the increased renewable fuels standard laid out in the energy bill passed in December 2007.
Broin said the number-one issue the ethanol industry faces is increasing the blending levels allowed in cars.
Regulations cap blending at 10pc ethanol in standard cars.
If the limit isn't increased, there won't be a market for the higher mandated levels of production.
Standlee added that the regulations may have made sense 30 years ago but are no longer practical.
Preliminary data suggest that vehicles can easily run on 12-13pc blends without any modifications.
Brazil's cars run on 25pc blends.
Standlee said ethanol may become more efficient in these higher midlevel blends, but more time is needed to make a change that significant.
Land use
The US ethanol industry will be closely watching for an Environmental Protection Agency analysis of greenhouse gas emissions produced by biofuels and the sector's impact on land use.
Although originally expected before President George Bush left office, a proposed rule could come this spring, with a comment period and a final rule out potentially by the end of the year, Dinneen said.
In the 2007 energy bill, Congress explicitly required EPA to accurately measure global warming emissions from renewable fuels based on their entire lifecycle, from cultivation to fuel production to vehicle exhaust.
The ethanol industry wants to ensure that the rule is science based and accurately accounts for changes in land use.
Publications ranging from the journal Science to Time magazine have blasted biofuels for significantly contributing to greenhouse gas emissions, calling into question the environmental benefits of making fuel from plant material.
However, a new analysis by Michigan State University scientists shows that these dire predictions are based on a set of assumptions that may not be correct.
"Greenhouse gas release from changes in land use - growing crops that could be used for biofuels on previously unfarmed land - has been identified as a negative contributor to the environmental profile of biofuels," said Bruce Dale, distinguished professor of chemical engineering and materials science at Michigan State.
"Other analyses have estimated that it would take from 100 to 1,000 years before biofuels could overcome this 'carbon debt' and start providing greenhouse gas benefits."
However, as Dale and his co-authors pointed out in their research - "Biofuels, Land Use Change & Greenhouse Gas Emissions: Some Unexplored Variables," which was published in the January online edition of the journal Environmental Science & Technology - earlier analyses didn't consider a number of variables that might influence the greenhouse gas emissions associated with biofuels.
"Our analysis shows that crop management is a key factor in estimating greenhouse gas emissions associated with land use change associated with biofuels," Dale said.
"Sustainable management practices, such as no-till farming and planting cover crops, can reduce the time it takes for biofuels to overcome the carbon debt to three years for grassland conversion and 14 years for temperate zone forest conversion."
The discrepancies between the time it will take biofuels to offer environmental benefits is due to the models used for each analysis, Dale explained.
"How land is managed after it's converted to cropland is very important," Dale noted.
"The authors of the Science paper assumed the worst-case scenario - plow tillage - which we don't think is accurate.
"The actual use of sustainable management practices - no till, reduced till and other approaches - is more than 50pc and increasing."
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