Ethanol as an energy source has always needed government subsidies to exist in the marketplace. Now that Republicans control the House of Representatives, some major ethanol tax breaks for producers and blenders may go away for good in 2011.
In the long run doing away with the ethanol tax benefits will be a good thing. Using our food supply to run our vehicles was never a wise use of limited resources. And hopefully more research will be devoted to more productive and cost efficient alternative energy sources.
Will the recent increase in allowable ethanol blending formula to 15% have any affect on helping the ethanol production industry stave off imminent layoffs? Not anytime soon. Vehicle warranties are voided if gasoline is used with more than a 10% ethanol blend. So until vehicles adapt to the higher blends, gasoline marketers will not take the chance on selling 15% ethanol blended gas until they are comfortable law suits will not follow this new product.
With an expected decrease in US corn harvest, falling US dollar, and slowly rising US fuel demand, ethanol is likely to hold spot price support and according to Morgan Stanley, will average $2.59 per gallon next year. Ethanol like all other commodities will likely continue on the bid supported by the $600 billion Fed bond purchasing.
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