On Monday, Pavel Molchanov, a Houston-based analyst with Raymond James & Associates issued a report that should be required reading for every member of Congress. The first few lines of Molchanov’s report, “Corn Ethanol’s Slow-Motion Train Wreck: What Will Follow In Its Wake?” are classic examples of both sharp thinking and razor-sharp writing: “Finito. Kaputt. Sayonara. However you say it, we think there is no denying the fact that America’s corn ethanol industry is finished… the industry is finished in the sense of no longer being seen as a ‘game-changing,’ long-term solution to the structural imbalance between oil supply and demand.”

Molchanov goes on, saying that as other alternative fuels, like compressed natural gas get more political support, “it is likely that corn ethanol will be increasingly relegated to the big grain elevator in the sky.”

This kind of plain talking from a Wall Street analyst like Molchanov about the corn ethanol scam is long overdue. The ongoing robbery of US taxpayers via the corn ethanol mandates has achieved the one thing that the ethanol boosters promised. Specifically, it has not resulted in a reduction in US oil imports. For more on that, read Robert Rapier’s killer analysis which we published last month. Or, also see my piece, published in Slate, in November 2008 on the same subject.

Despite the facts about the corn ethanol, Congress continues to give political cover to the corn ethanol scammers, a point that Molchanov makes very clearly:

Notwithstanding all the controversies surrounding ethanol in recent years – its impact on global food prices, to name just one – Washington continues to provide Midwestern farmers (many of whom live, amazingly enough, in electoral swing states) with lots of goodies. The three big ones are the blenders’ tax credit, the ethanol import tariff (helping keep out Brazilian sugar ethanol), and most importantly, a guaranteed floor for demand via the Renewable Fuel Standard (RFS). Originally enacted in 2005, the RFA was upsized in the December 2007 energy bill by a Democratic Congress and a Republican president – showing that if there is one thing the parties can agree on, it’s pandering to farmers.

Ah yes, pandering to farmers – one of the oldest of the Washington professions. For a classic example of that pandering, recall that the Waxman-Markey cap-and-trade bill which passed the House in June included a provision – which was reportedly inserted at the behest of Minnesota Democratic Rep. Collin Peterson -- that exempts

the corn ethanol scam from any oversight by the EPA on its total greenhouse gas emissions. That’s important because a number of studies have shown that when compared with conventional gasoline, corn ethanol is actually worse in terms of greenhouse gases. In 2008, a study led by Princeton academic Tim Searchinger found that corn ethanol nearly doubles greenhouse gases over a 30-year time period. Another study by Searchinger, published last month in Science, also underscored the need for more rigorous accounting when it comes to biofuels and their total greenhouse gas emissions. (See here for an interview I did with Searchinger in March 2008.)

The US now has 202 ethanol distilleries with a total nameplate capacity of 13.1 billion gallons per year (about 850,000 barrels per day). But according to Ethanol Producer magazine, 23 of those distilleries – with a total capacity of 1.27 billion gallons of alcohol – are now sitting idle. In other words, nearly 10% of total US corn ethanol production capacity is now sitting idle because the economics of the business are lousy. The investors who rushed to build new production capacity back in 2007 now are wondering what to do with their expensive machinery. Of course, the industry has rebounded somewhat in recent months. Back in February, about 16% of total US ethanol production capacity was idle.

But looking forward, Molchanov doesn’t see much relief for the corn ethanol scam. He points out that investment capital is scarce and that the industry may not have enough capacity by 2015 to meet the Congressional mandates, which require US motor fuel suppliers to be blending at least 15 billion gallons of ethanol into gasoline supplies by 2015. “Even if the EPA allows ethanol blending at 12% or 15% rather than 10% – as the industry is aggressively lobbying for – the industry’s poor economics,” will still hamper any new investment in additional distilleries.

And what about cellulosic ethanol, that wonder fuel that everyone talks about but no one ever sees? Here’s Molchanov’s take: As the pitfalls of corn ethanol have become increasingly apparent, cellulosic ethanol developers will have an opportunity to provide a better alternative, but it’s still years away from commerciality, with significant financing and execution risks in the meantime.” Now there’s an understatement. Despite decades of hype from various media darlings including Amory Lovins, cellulosic ethanol still has not achieved anything close to commercial levels of production. And it’s doubtful that it will achieve commerciality at any time over the next few decades.

What does that mean? Well, it means that Congress is going to have to rethink the rules that it laid out in the 2007 energy bill which require fuel suppliers to be blending 21 billion gallons of cellulosic ethanol into the US fuel supply by 2022.

Molchanov’s look the ethanol train wreck is a welcome bit of truth amid an energy debate that is increasingly detached from any semblance of reality.