SubsidyEye

How to Invest in Cellulosic Ethanol

Interesting that somebody would write an article on investing in cellulosic ethanol without even once mentioning the dependency of the industry's very existence on government policies. The oil price is, of course, a factor. But so is the $1.01/gallon producer tax credit for cellulosic ethanol (unlike the VEETC, it is not available for Brazilian ethanol), the 2.5% + $0.54/gallon import tariff on fuel ethanol, and the federal blending mandates, and the subsidies to farmers who convert over to growing feedstock for cellulosic ethanol production. In addition there are numerous state-level schemes supporting biofuels, some specifically targetted at cellulosic ethanol.

Yet at least some of those policies have expiry dates. And while the U.S. Congress has so far shown its willingness to keep extending the subsidies and tariff barriers, can it be counted on doing that indefinitely, especially once (if) the industry starts scaling up? Unlike subsidies for capital investment, the volume-related subsidies on which the ethanol industry relies have to be paid out year after year. With tight budgets, is Congress going to be willing to commit indefinitely to subsidize driving at several tens of billions of dollars a year?

As for Europe, don't be so sure. Europe does not have a large amount of "surplus" ligno-cellulosic biomass to turn into ethanol, and its environmental groups will not accept a big shift from growing crops for food and feed to growing crops for energy. Finally, and perhaps most important, its transport sector is much more dependent on middle distilates (diesel and jet kerosene) than it is on gasoline.