'Marketplace' Report: Ethanol In his State of the Union address, President Bush is expected to call for a huge increase in the amount of ethanol that refiners mix with gasoline. But, with dozens of new ethanol plants coming online this year, the ethanol lobby may face a shortage of corn.

'Marketplace' Report: Ethanol

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Back now with DAY TO DAY.

In his State of the Union speech a year ago, President Bush said America is addicted to oil. More people started talking about the fuel that's corn-based. It's called ethanol. Now, that industry is likely to get an even bigger boost because tonight, the president is expected to call for a big production increase of this homegrown fuel.

MARKETPLACE's Sam Eaton is with us.

Sam, is this going to be enough to make a dent in the nation's energy needs? How big a boost is the president going to recommend? Do we know?

SAM EATON: Well, Alex, we don't know or we won't know the specific details of President Bush's proposal, of course, until his State of the Union speech tonight. But the expectation is that he'll call for a doubling of the current goal for ethanol production, which is now at 7.5 billion gallons by 2012. And you double that and we're talking about a homegrown fuel source that would supply more than a tenth of the U.S.'s current gasoline needs.

CHADWICK: Is there enough corn to make that much ethanol?

EATON: Alex, the short answer is no. We're talking about tripling current production levels for ethanol. The only way that's going to happen is if scientists can figure out a way to make the fuel from other things, like corn stalks left over after the harvest or switchgrass. This is called - or ethanol made from these products is called cellulosic ethanol. And the problem is it still costs twice as much to make ethanol this way.

So, the real question becomes whether technological advances can bring that price gap down fast enough to offset the need for more corn.

CHADWICK: And what happens if cellulose - if it doesn't work out well enough in time?

EATON: Well, a lot of the economists are arguing that it's already too late. As more and more ethanol plants come online, corn prices have surged to record highs as the demand for corn to go into these ethanol plants increases. And that's sending shockwaves through the entire food economy, which uses corn in everything from things like soda pop sweeteners to livestock feed.

I talked with economist Dan Basse with the Chicago Research from Ag Resources, and he's predicting that the collision between the two uses for corn, energy and food, could ultimately cost the ethanol industry its cherished status among consumers.

Mr. DAN BASSE (Ag Resources): Well, I think, it could politically backfire as food prices start to rise. I think as we start to see corn prices approach four and five dollars and the profitability of ethanol declines and people start utilizing more E85, that you could have problems as we all pay more at the grocery store.

EATON: Now, Basse says we could easily see a surge in things like meat prices anywhere from 20 to 30 percent in coming years. The corn lobby is disputing these predictions saying that technology will ease that or will boost corn production in the coming years.

And coming up later today on Marketplace, we'll find out why the nation's air traffic control systems still relies on 50-year-old technology and how that's about to change.

CHADWICK: Thank you, Sam Eaton for public radio's daily business show, Marketplace, produced by American Public Media.

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