Thursday, August 24, 2006

Ethanol a Rip-Off, a Political Payback for Farmers Votes, or Both?

In an earlier blog, I recommended that those of you who read me and are concerned about your capital management, subscribe to Perkins Capital Management, Inc. newsletter. You can reach them at www.perkinscap.com One paragraph titled, “The Great Ethanol Debate” dated April 26, 2002 is revisited. In Perkins’s July newsletter, they bring the reader up to date with an article titled “Ethanol Revisited”. Quoting the current newsletter “We called it a bureaucratic boondoggle then (2002); today nothing has changed other than the boondoggle is bigger. The government today gives over $2 billion in subsidies to producers and blenders via a 51-cent-per-gallon credit. Demand for ethanol has caused its price to rise to about $4.50 per gallon currently which makes it far more expensive than gasoline with which it is blended, which today is about $3.00 at the pump. And recall that congress is mandating that ethanol use MUST grow to a minimum of 7.5 billion gallons by 2012.” The Perkins letter goes on “Then there is an inherent inefficiency of ethanol as a vehicle that gets 20 miles per gallon on gasoline, gets about 15 miles on the blend. Then consider the other unintended consequences, the higher price of corn due to increased demand translates to higher price you pay for all other products connected to the use of corn such as beef and cornflakes.”

Sum up: Ethanol is not as efficient as gasoline, costs more than gasoline, and requires more energy to produce. As usual, the consumer pays for it in the end, thru higher taxes for the subsidies, higher gasoline prices, reduced mileage and higher prices for products using corn. Since ethanol cannot be transported by pipeline, ethanol haulers help cog the highways and put more wear and tear on the infrastructure.

Brazil is held as a shining example of ethanol production by using the entire sugarcane plant. No corn. The Brazil scenario came from an overproduction of sugarcane in 1975 causing the government to mandate that surplus sugarcane be converted to ethanol.

We are searching for other products that can be converted into ethanol for less cost. That would be a good thing is there were no subsidies.

On 4/28/04, Alan Greenspan is quoted as repeating the medical creed “government should do no harm”. Quite often, the government does harm. Competitive harm.

8 comments:

C. J. Summers said...

I thought the push for ethanol wasn't so much to lower the cost of gasoline, but to reduce our dependence on foreign oil. If we can produce more and more of the fuel we need in this country instead of importing it from the Persian Gulf, isn't that better for America?

I agree that it would be better without subsidies, but don't you think some subsidies are in order to get things started, and that over time we'll become more and more efficient at production and transportation of it so that subsidies will no longer be necessary?

Knight in Dragonland said...

I don't have any specific refutations of the data provided in the PCM newsletter, but they used the exact same table in 2002 as they do in 2006. When I Googled "Limits of Biomass Utilization" by David Pimentel, I came up with the original article ... from August 2000. So the data is AT LEAST 6 years old, and probably older.

Since Ag departments at many large Midwestern universities are putting major dollars into studying ethanol production, I have a hard time believing that efficiency in producing ethanol from corn has not improved one iota in a half dozen years (or more).

Also, there is no direct comparison to the cost of petroleum. Crude oil has to be extracted, transported, refined and transported again. There are certainly costs and energy expended in each of those steps, and we are provided with no direct comparison.

I also think C.J. has a major point here … this is not just about energy efficiency. Our dependence on petroleum is HUGE hindrance to the spread of democracy. Name one functional (I repeat, functional) democracy that is a major oil producer … OK, I’ll name a few – Norway, Canada, the U.S. and the U.K (all of which were democracies BEFORE they became major oil producers). Mexico is a democracy, but with a lot of problems with corruption. Nigeria is similar, although even more corrupt and only newly democratic. What about Saudi Arabia, the number one producer? Clearly a dictatorship. Russia, the number two producer? It’s a democracy in name only, with Putin using the opportunity provided by high oil prices to increase his already tight grip on power. Venezuela? It’s no longer a democracy since Chavez took over. Again, he’s able to keep his grip on power and shoot his big mouth off in opposition to the United States all over the world because he can buy the people of his coutnry off with oil profits. Iran? (sounds of hysterical laughter)

The world’s dependence on oil allows these dictatorships to remain in power and oppress their people … who then come over to our country and fly airliners into skyscrapers. Our dependence on oil makes us hypocrites – a democracy supporting tyranny so that the price of oil remains stable.

Ben said...

I understand C.J. and knight's argument about domestic-corn versus foreign-hostile-oil. Additionally, corn is quite obviously more renewable than oil (within a reasonable-to-human-society timeline, at least).

The problem is that I don't think that anybody has shown conclusively that it doesn't cost just as much fossil energy to produce ethanol as we get out of it. If we powered ethanol plants with pixie dust and plowed the fields with tractors driven by super-strong mutant hamsters in the wheels, then ethanol would be supercalafragalisticexpialadocious. Unfortunately, the growth, manufacturing, and transportation of ethanol are all heavily dependant on fossil fuels.

I don't mean to say that ethanol is a 'bad' fuel, but I don't think it's good enough to deserve $0.51/gallon of taxpayer money. Even if the gov't still wanted to steal that money from us, I think we would get more value by using it for alternative-energy research.

knight in dragonland said...

OK, so I found some information ... obviously biased information, but information nonetheless. The pro-ethanol group called Ethanol Across America put out a publication called Net Energy Balance of Ethanol Production in the Fall of '04. In it they quote 7 studies that show a positive net energy value (NEV) for ethanol production from corn vs. the one study from Pimentel that shows a negative NEV. Now this could be a biased selection of studies given the source, but they present a good case.

Now I'll admit that I haven't done an extensive analysis of either document (my ADHD prevents this). However, I did notice a couple sketchy things while scanning Pimentel's work ... and verified a couple of criticisms presented in the Ethanol Across America publication. The main suspicious thing that I noted was that Pimentel quotes himself a LOT. That's something that jumps out at me whenever I review a scientific article, even though I'm not familiar with this subject matter. Verification by outside sources is always a good thing, IMHO. Secondly, a lot of the sources he references and uses as the basis of his calculations are 20-30 years old. For example, he quotes an average corn yield of 120 bushels per acre. I think the average in 2005 was 144 bushels per acre, and that was a horrible year for corn. The two previous years had an average in the 180s.

Ben, I think you're absolutely right about one thing, though ... we shouldn't put all our eggs in one basket. We should be putting more research effort into other alternative energy sources, as well as improving the efficiency of what we do already. I just think ethanol is worth a try.

interested party said...

The argument that ethanol takes more energy to produce than it provides was recently refuted by a group of scientists--they concluded that ethanol does indeed produce more energy than it takes to refine it. . . .the refining process has improved over the last several years and scientists expect more efficency gains in years to come--and alternatives to corn are being seriously explored including switchgrass which can supposadly provide more energy per acre than corn. . . .and while bio-fuels are one alternative, shouldn't we revisit other attempst at weaning us off foriegn oil. As I remember it, back in the 70's a lot of research was done on things like coal gassification (if there's one thing this country has it's a lot of coal)--but when the price of oil fell in the late 70's and early 80's Ronald reagan discontinued government research on the subject. It was that same energy crisis in the 70's that convinced Brazil to strive for independence from foreign oil--and it's taken them 30 years, but they have succeeded. Every gas station in Brazil is now required to sell alcohol as an alternative to gas--virtually all new cars sold in Brazil are flex-fuel. . . could you imagine if those mandates were in place here today. . .and please don't fall back on the "themarketplace should decide" argument--the marketplace has kept us tied to foriegn oil for lo these many years and the only result has been huge profits for the oil barons. . .their protestations aside that they have nothing to do with setting the price of oil--they have everything to do with keeping the price, and their profits as high as possible.

ben said...

interested party:
I don't think any of us are claiming that it takes more energy to distill/refine ethanol that you get from the finished product. The problem is that refining isn't the only step in the process. It takes a lot of diesel fuel to run a combine, for example.

Mahkno said...

From what I have read, sugarcane is much more efficient than corn in generating ethanol. If Brazil had to use only corn, they would not be so independent.

Promoting mass transit and new urbanist (re)devolopments would go a long way in curbing our use of gas. More so than Ethanol.

ben said...

Mahkno, you're absolutely right about sugarcane. If only we didn't have a ridiculous trade embargo on a nearby nation that grows approximately seven metric shitloads of sugarcane every year...