The energy agenda in Washington has been long dominated by oil interests, but in a reversal of political fortunes, these days it is Big Oil fighting to preserve its tax incentives and the ethanol industry that is adding new ones.

President Bush may up the ante tonight in his State of the Union address, many analysts think, by setting new targets for ethanol use or encouraging automakers to shift to engines capable of handling E85, a fuel that is 85 percent ethanol.

The ethanol industry is already on a roll: This year’s production will surpass the mandate set for 2012 — 7.5 billion gallons — in the Energy Policy Act of 2005. And investors drove up the stock prices of ethanol companies yesterday in anticipation of Bush’s speech. Though the stock market fell, shares of VeraSun Energy Corp. soared 7.2 percent and Pacific Ethanol Inc. jumped 7.6 percent. (One senator has invited VeraSun’s chief executive to attend Bush’s speech.) Bush may have trouble matching proposals made by Democratic lawmakers and farm-state Republicans. Sens. Tom Harkin (D-Iowa), Barack Obama (D-Ill.), Richard G. Lugar (R-Ind.), Joseph R. Biden Jr. (D-Del.) and Byron L. Dorgan (D-N.D.) have proposed raising to 60 billion gallons a year the amount of ethanol that oil companies must mix into automotive fuel supplies by 2030. That would amount to 3.9 million barrels a day, more than a third of current gasoline consumption.

Bill Wicker, communications director at the Senate Energy and Natural Resources Committee, said that biofuel and ethanol executives and lobbyists keep the committee’s fuels expert busy "from the time she gets in in the morning until the time she grabs her coat to go home. It’s a pretty steady stream of customers."

But an increasing number of economists and energy experts are questioning whether the benefits of producing ethanol — especially ethanol made from corn — have been oversold. They say that rising ethanol production is driving up corn prices, adding to summer smog and draining investment from other energy projects.

"We think that corn-based ethanol will grow to about 10 percent of the total gasoline pool, which is a significant number. It’s the same level as Indonesia’s oil production," said Daniel Yergin, chairman of Cambridge Energy Research Associates. "But then you really do run into the fuel-versus-food tradeoffs, which we’re already beginning to see some signs of."

There are 111 ethanol refineries nationwide, with the capacity to produce more than 5.4 billion gallons annually, according to the Renewable Fuels Association. There are 78 ethanol refineries and eight expansions under construction with a combined annual capacity of more than 6 billion gallons.

Lester R. Brown, president of the Earth Policy Institute, said that existing ethanol refineries plus refineries under construction will gobble up half the U.S. corn harvest in 2008. That in turn will set up a global competition between rich automobile users and poor food consumers, Brown said.

Even at current levels, ethanol production is driving up demand for corn, and corn prices as a result. Many foods rely on corn feed and corn sweeteners, so prices could rise as well for a wide variety of goods. Because the United States accounts for 40 percent of the global corn harvest, higher corn prices here will affect consumers worldwide, Brown said. Last week, Mexican President Felipe Calderón sought to defuse anger over the rising price of corn tortillas by persuading producers to accept voluntary price controls.

Ethanol also has foes in the environmental community. Because ethanol is a less stable compound than other additives, in the summer it evaporates easily and contributes to greater smog levels.

Meanwhile, an effective tariff protects American-made ethanol from cheaper imports from Brazil and elsewhere.

Many ethanol boosters say that the industry will move away from corn to cellulosic sources. But it remains unclear whether that technology will work. In December, when the Joint Committee on Taxation calculated the five-year cost of a tax break for the builders of cellulosic ethanol plants, the low cost suggested that it expected no more than one plant up and running by 2012.

Economists have also been warring over the question of how much energy it takes to produce ethanol. Most experts say that distilleries produce slightly more energy than they consume. But growing more corn has other costs, such as greater soil erosion and pesticide use. The numbers vary widely depending on process and location.

While the controversy continues, so does the boom. An economist at Iowa State University has calculated that when the ethanol distilleries under construction in Iowa are complete, the state will become a corn importer. But with the early start of the 2008 presidential fray, few politicians will suggest putting the brakes on corn ethanol for fear of alienating voters in Iowa caucuses, the first contest for presidential candidates.

Via Washington Post