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.