Congress gave a big boost to ethanol in 2005, when it mandated that oil refiners blend 7.5 billion gallons of renewable fuels such as ethanol into the nation's gasoline supply by 2012. The farm lobby was united behind ethanol as a way to strengthen rural economies. Environmental groups backed it as a way to fight global warming and lessen the nation's dependence on foreign oil. Even the petroleum industry was supportive.

Since then, dozens of ethanol plants have sprouted around the country, turning corn into fuel. The rise of the industry has helped to boost grain prices and create jobs in farm states.

But ethanol production today is close to reaching the 7.5-billion-gallon level in the 2005 law. Oversupply has forced down prices and driven some ethanol producers into trouble. Producers and corn farmers are lobbying hard for Congress to boost the requirement anew to ensure that demand can soak up the rising production.

Without new legislation, there will be a "natural barrier to growth in the industry," says Eric Washburn, legislative counsel for the American Coalition for Ethanol, a trade group based in Sioux Falls, S.D.

In June, the Senate passed a bill increasing the mandate for renewable-fuels use to 36 billion gallons by 2022, with 15 billion gallons coming from corn-based ethanol. A House bill would leave the current goal in place. Lawmakers in both houses are preparing to work on reconciling the bills, though the timing isn't clear.

Opposition to the ethanol industry's goals has grown significantly stiffer. The so-called barnyard lobby - representing the meat, livestock and poultry industries - says high corn prices are hurting its profits. The price of corn-based animal feed has increased about 60% since 2005, according to the U.S. Department of Agriculture.

"Our single biggest priority is for Congress to reject a new renewable-fuels mandate," says Jesse Sevcik, vice president of legislative affairs at the American Meat Institute, a meat and poultry trade association.

Other groups that were originally sympathetic to ethanol are drifting away. They fear that the fuel's advantages are outweighed by the rise in corn prices, which they say increases the cost of foods ranging from steak to cereal. "Many policy makers were seduced by ethanol," says Cal Dooley, president of the Grocery Manufacturers Association. He opposes increasing federal support for ethanol.

Source: Wall Street Journal Online

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