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The concept of powering automobiles with ethanol or ethanol blended with gasoline is not a new idea. Henry Ford designed his Model T to run on either ethanol, gasoline or a combination of both. Plentiful and cheap petroleum however, resulted in ethanol fading from the market place. The oil price shock of the late 1970s awakened the American public to how dependent we had become on a volatile part of the world for energy. Government and private industry alike began to look around for alternative fuels and the fledgling ethanol industry was created. These early plants were very inefficient and when gasoline prices subsided, the growth in ethanol production slowed. Rapid growth resumed in the 1990s due to the environmental benefits achieved by blending ethanol with regular unleaded gasoline. The Clean Air Act mandated oxygenates be blended with gasoline to reduce carbon monoxide in non-attainment cities. Ethanol and MTBE were both used for this purpose. Cities and states began banning MTBE in the late 1990s due to its tendency to pollute large amounts of ground water. Because it's biodegradable ethanol does not create this problem. The Energy Policy Act of 2005 established a Renewable Fuel Standard mandating that the U.S. ramp up to 7.5 billion gallons of renewable fuel by 2012. The United States will produce approximately 5 billion gallons of ethanol in 2006 which is one billion gallons more than is required by the Renewable Fuel Standard for 2006. We believe the driver for the ethanol market today is its ability to extend our motor fuel supply. Ethanol cannot replace gasoline as a motor fuel, the U.S. consumed over 129 billion gallons in 2005, but it can help supply growing demand. Global demand for crude oil has exploded as China and India’s economy has expanded in recent years. In addition, oil producing nations have not been able to increase production sufficiently to create a price depressing surplus. Some experts argue that global oil production has already peaked, while some argue that the peak is a few years away while a smaller minority maintain we are decades away from maximum production. The latter group points to oil reserves held in shale, tar sands, and in deep water. Regardless of which expert you believe, most people are in agreement that the days of cheap crude are over since these untapped reserves require oil to be over 50 dollars per barrel to be attractive for production. The technology and infrastructure required to transition us from the internal combustion engine is decades away, if ever. The ethanol industry continues to increase efficiency. New corn hybrids that are higher in starch, better fermentation techniques, and new enzymes that will break down more of the corn kernel into ethanol are expected to translate into lower costs per gallon of ethanol produced. The corn industry is expected to be able to supply the necessary feedstock. While there may be price spikes for corn, which is normal for a commodity, corn prices are expected to continue to trade in a relatively traditional range. If the price rises much beyond this range, farmers generally respond by planting more acres, employing new technology, and improving production practices. The average yield for corn steadily increased throughout the 20th century and the rate of yield gain has accelerated in the 21st. We believe this can translate into a bright future for the ethanol industry.
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