Necessary Roughness

Since the federal government has offered to subsidize and give tax credits to the alternative fuel industry, BusinessWeek reports that farmers are planting the most corn ever and that a problem looms in the near future: not enough transportation for the ethanol.

“There’s tremendous capacity coming online, but the infrastructure isn’t there to keep up with it,” says Michael Waldron, an oil markets research analyst at Lehman Brothers who co-authored the report. “We need a nationwide system to pipe it, and until that happens, we’ll likely have an excess of product.”

Waldron says the problem isn’t a lack of demand for ethanol, which remains high, especially given that the federal Renewable Fuel Standard mandates at least 4 billion gallons, or about 3% of all U.S. transportation fuels, to come from alternative sources today, and nearly double that amount, or 7.5 billion gallons, by 2012. Lawmakers are expected to give the mandate a significant boost later this year. Rather, the problem is getting ethanol to consumers in various parts of the country. Ethanol requires a separate piping system from gasoline, and since Uncle Sam hasn’t appropriated funds to build such infrastructure, ethanol is now primarily transported by rail. But the rail system extends only to major metropolitan areas—not to mention the dual problems of its high cost and carbon dioxide emissions.

Where there is a need, there is an opportunity for the private sector to come through. We don’t need to be funding ethanol-anything. Someone has a chance to deliver innovation, either by building more rail cars, trucks, or by negotiating land deals and building a pipe line. If the goverment gets involved here also, competition will be squashed, and whatever we pay for will underperform. Some things don’t happen on their own not because we are cruel and want to harm the environment — more often than not, the solution costs too much for everybody.