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Thursday, October 30, 2008

Another Bubble Goes Off

Last updated: November 10, 2008

October 30, 2008

A scandal is growing around what is claimed by some as a government's bailout of the US ethanol industry. Fueled by state subsidies and protected by punitive tax against the more cheap sugarcane ethanol from Brazil, the industry was rapidly expanding until it suddenly found itself facing a very different market saturated with cheap gasoline. The next one to go down may be the entire US car manufacturing industry that in recent years was busy dismantling its SUV and similar lines while investing billions in developing solar and hybrid cars. With the price of oil halved in a matter of weeks, the industry's bet on fuel efficient cars may soon reveal itself as a fatal mistake. The US car manufacturers had been struggling long before the current crisis struck, but the failure of the regulators to move in and counter the decline in the price of oil with some kind of a gas tax will plunge the whole industry into an even deeper crisis.

November 1, 2008

The VeraSun Energy Corporation, which accounts for roughly 7 percent of ethanol production capacity in the United States, announced that it had filed for Chapter 11 bankruptcy protection late Friday.

Source: The New York Times

November 10, 2008

Obama to Back Ailing Ethanol Makers, Follow Failed Bush Policy

By Mario Parker and Kim Chipman
More Photos/Details

Nov. 6 (Bloomberg) -- President-elect Barack Obama plans to support unprofitable U.S. ethanol producers and pursue the same policies that failed George W. Bush.

Obama, the Democratic senator from Illinois, the second- biggest corn-growing state, will maintain Bush's goal requiring fuel producers use at least 36 billion gallons of biofuels in 2022, said Heather Zichal, the campaign's senior energy adviser. The ethanol industry, which loses about 66 cents a gallon at current prices, will receive at least as much support as from the current administration, including tax credits to spur consumption, she said.

``Obama recognizes how important the renewable and biofuels industry is to creating jobs and meeting our goal of reducing dependence on foreign oil,'' Zichal said in a Nov. 3 interview. ``He's fully committed to it and sees tremendous value in the renewable fuels standard and continuing down this path.''

Ethanol makers are collapsing after wrong-way bets on corn prices overwhelmed $20 billion in federal aid and government- guaranteed demand for the fuel additive. VeraSun Energy Corp., the second-largest producer, filed for Chapter 11 bankruptcy protection on Oct. 31.

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Source: Bloomberg

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