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Complacency is the ethanol industry's enemy, analyst says

Farmers and other investors attending the American Coalition for Ethanol meeting in Kansas City this week had a lot to celebrate -- favorable press on ethanol, growing consumer support and returns that would have been unbelievable when ACE was formed almost 20 years ago.

But one major investor in the industry on Wednesday warned against too much complacency.

Sometime next year the production of ethanol will exceed demand, said Vinod Khosla, one of Silicon Valley's most successful investors.
Sometime next year the production of ethanol will exceed demand, said Vinod Khosla, one of Silicon Valley's most successful investors.

"We will have a price roller coast and we should do something about it now," Khosla said.

The answer, he believes, is a rapid transition to selling E-85, a blend of 85% ethanol and 15% gasoline.

Like many in the industry, he'd like to see government incentives to require that most cars sold in the U.S. be flexible fuel vehicles that can burn E-85 and rules to require the oil industry to increase the number of E-85 pumps.

But Khosla would also double the Renewable Fuel Standard that requires the oil industry to use 7.5 billion gallons of ethanol by 2012. An RFS of 15 billion gallons would be enough to fill the demand for octane boosters in gasoline. That market uses blends of 10% or less.

Khosla would also do away with the tariff on imported ethanol, only if it's used in E-85, not the 10% blends. That, he said, would do away with opposition to E-85 from members of Congress who represent the coasts.

"That's the solution that gets E-85 started now," he said.

ACE doesn't support ending the tariff, Brian Jennings, Executive Vice President of ACE, said later. The organization does support federal legislation that would encourage more production of flexible fuel vehicles that can burn E-85 and installation of more E-85 fuel pumps across the country.

Farmers and other investors attending the American Coalition for Ethanol meeting in Kansas City this week had a lot to celebrate -- favorable press on ethanol, growing consumer support and returns that would have been unbelievable when ACE was formed almost 20 years ago.

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