Business Beat: Cheaper oil, financial meltdown toast ethanol industry

Mike Ivey  —  11/04/2008 11:33 pm

Well, one thing about the global recession -- it sure brought oil prices down.

Just a few months ago it seemed certain that gasoline was headed toward $5 a gallon. Now, it's back below $2.50. If it falls much lower, maybe GM will consider reopening its monster truck factory in Janesville.

In all seriousness, however, you hope that cheaper gasoline doesn't distract Americans from the challenge at hand of reducing dependence on foreign oil while curbing air pollution.

But if history shows us anything, consumers have short memories when it comes to anything related to their automobiles.

What the financial meltdown has done though is deal yet another blow to the beleaguered ethanol industry which was just starting to get a real toehold in Wisconsin before the bottom fell out.

Man, this state has got bad timing.

First it completely missed the IT revolution of the 1980s.

Then it largely missed out on the ethanol boom of the 1990s as neighboring states like Iowa and Minnesota jumped in big time.

Now, with Wall Street in turmoil, dollars for new biofuel ventures are even harder to come by.

In June, North Prairie Productions abandoned plans to build a $42 million biodiesel plant near Evansville in Rock County. It would have been the largest in the state, producing an estimated 45 million gallons of fuel annually.

And the story is being repeated across the Heartland.

In Missouri alone, more than a dozen ethanol and biodiesel companies sought state regulatory approval in 2006 to recruit investors for projects in South Dakota, Nebraska, Minnesota, Illinois, Indiana and Iowa. Two years later, as many companies have failed or stalled as have finished their projects, according to a recent Associated Press report.

But I'm not crying over the biofuel bust.

From the beginning, it was little more than a government subsidized boondoggle that only put money in the pockets of huge corn growers like Archer Daniels while diverting attention from producing more efficient vehicles or encouraging transportation alternatives.

Moreover, from an air pollution standpoint, corn-based ethanol now appears to be a serious net loser when it comes to carbon dioxide (CO2) emissions, a major contributor to global warming.

Early studies had estimated biofuels produced a roughly 20 percent reduction in greenhouse gases because crops used to make fuel would themselves capture carbon during the growth of the feedstock. Corn plants are like trees in that sense.

But a new analysis published recently in Science Express said those studies failed to count the carbon emissions that occur as farmers worldwide respond to higher prices and convert existing forest and grasslands to grow new crops to replace the acreage diverted to biofuels.

Instead of a reduction, the report found that corn-based ethanol nearly doubles greenhouse emissions over 30 years. Biofuels from switchgrass, if grown on U.S. corn lands, are only slightly better.

"This result raises concerns about large biofuel mandates and highlights the value of using waste products," said the report, authored by a group of scientists, including one from Iowa State University.

All science talk aside, it always seemed like the best way to reduce dependence on foreign oil and curb air emissions was by upping fuel economy.

I'm no math whiz, but if a vehicle gets 40 miles per gallon versus 20 mpg, you cut both fuel consumption and greenhouse gas emissions.

Hotel 1501 groundbreaking

After nearly four years of delays and setbacks, demolition has begun at the corner of Regent and Monroe streets where developer Bob Sieger is looking to build "Hotel 1501" across from Camp Randall Stadium.

A lane of Monroe Street is now blocked off while crews tear down the existing 16,000-square foot commercial building and former Copper Grid (now Grid Iron) tavern to make way for a four-story, 48-room hotel with underground parking. Mickie's Dairy Bar and the other businesses on the rest of the block will remain.

"Finally," Sieger said last week after obtaining permits from the city to start work.

Sieger first proposed a mixed-use retail/restaurant/housing project but was rebuffed by the city after neighbors turned out in opposition to any kind of sports bar there. He reworked that plan two more times without success.

A year ago, Sieger came back with plans for a five-story hotel but was rejected again by the Plan Commission.

Sieger pressed on, however, reducing the hotel by one story and agreeing to a list of conditions designed to appease neighborhood concerns about noise, traffic and potential partying related to Badger home football games.

Developers hope to have the hotel finished in time for fall of 2009.

Housing self-deception

Just about half of American homeowners think their home's value has increased or at least held steady over the past year. In reality, however, nearly three quarters of all homes in the U.S. lost value over the past year, according to a "Homeowner Confidence Survey," conducted by Zillow.com, a Seattle-based real estate service.

Homeowners in the South and West had the most accurate perceptions of their home values, according to the survey, with most assuming their homes lost some value.

Midwesterners, on the other hand, are somewhat out of touch. The survey found that 48 percent of homeowners thought their property had appreciated or held value over the past year. In reality, 72 percent of homes in the region are worth less now than in 2007.

Last year, Madison property values held steady, with figures from the assessor's office showing an 0.8 percent increase in single-family home values.

New assessments aren't due out again here until April. Maybe our new president will turn everything around by then.

Mike Ivey  —  11/04/2008 11:33 pm