Ethanol: Whose subsidy? At what cost?

Foreign Policy, March 7, 2006 features The Green Bullet by Lester B. Lave, W. Michael Griffin. The authors begin: "There's a straightforward way for Washington to end America’s addiction to foreign oil, while reducing greenhouse gas emissions and resolving the impasse on international trade: Turn farm subsides into fuel subsides." Then they offer up minor "economic" and "environmental" roadblocks, that they easily dismiss:

...So what’s the catch? Corn farming is rough on the environment. Soil erosion due to wind and water is rampant. Fertilizer and pesticide runoffs produce algae blooms that result in “dead zones,” including one in the Gulf of Mexico that is so polluted it cannot support aquatic life. Furthermore, building the ethanol processing plants will take 3–4 years, and gas stations would have to commit to providing ethanol. And, because ethanol uses only the starch in corn, not the oil, protein, or other components, converting corn into ethanol is attractive only if there is a market for the byproducts. Opinions differ, but some estimate that byproduct markets could saturate well short of 11 billion gallons of production.

Fortunately, the surplus corn that isn’t economic to convert to ethanol doesn’t have to be grown, because it could easily be replaced with switchgrass. The prairie grass that President Bush mentioned in the 2006 State of the Union Address is naturally resistant to many pests and diseases, requiring far smaller amounts of chemicals and fertilizers. It’s also drought-tolerant and can grow in poor soil. Most important, it can be used to produce ethanol. If the current federal subsidy given to corn were extended to switchgrass, farmers would realize approximately the same income per acre as they do growing corn today. The new crop would use less fertilizer and pesticides, resulting in less erosion. Fertilizer and pesticide runoff would be dramatically reduced, and much of our motor fuel would be renewable.

To be sure, producing ethanol from switchgrass uses new technology that isn’t fully developed. There are pioneer plants in Canada and Brazil, but the costs of commercial production are unclear.

… And the best part: It can be done without Washington spending a dime more than it already does.

Others are not so sanguine. Robert Bryce's Corn Dog, Slate, July 19, 2005, is subtitled "The ethanol subsidy is worse than you can imagine." Bryce cuts quickly to the chase:

...The stickiest question about ethanol is this: Does making alcohol from grain or plant waste really create any new energy?

The answer, of course, depends upon whom you ask. The ethanol lobby claims there's a 30 percent net gain in BTUs from ethanol made from corn. Other boosters, including Woolsey, claim there are huge energy gains (as much as 700 percent) to be had by making ethanol from grass.

But the ethanol critics have shown that the industry calculations are bogus. David Pimentel, a professor of ecology at Cornell University who has been studying grain alcohol for 20 years, and Tad Patzek, an engineering professor at the University of California, Berkeley, co-wrote a recent report that estimates that making ethanol from corn requires 29 percent more fossil energy than the ethanol fuel itself actually contains.

See also Science Daily, April 1, 2005 , Study: Ethanol Production Consumes Six Units Of Energy To Produce Just One,
And, especially, Ted Patzek's collection of Biofuel Literature.

Obviously my bias lies with the skeptics. Are we wrong?

Comments

[David Jeffery]

I think we have to be very careful with subsidies and that includes environmental subsidies. For all its faults, the free market imposes a certain discipline: if some method of producing energy is inefficient, it will usually also be unprofitable (assuming the producer faces the costs of that inefficiency). If producing ethanol requires more fossil fuel inputs than producing fuel directly from fossil fuel sources, it won't be profitable and it won't be made. However, that changes if there are large subsidies in place. If there are subsidies on the use of fossil fuels in agriculture and subsidies on the products of agriculture, you can get some perverse outcomes.

[Tracy W]

David makes a good argument for taxes on pollutants rather than subsidies for "environmentally-friendly" technologies. It's more generally applicable. (E.g., do windmills cost more in energy to make than they produce in their lifetime? If you subsidse windmills directly you may be increasing non-renewable energy use).

[mart m]

i glanced at this post and would just say that Pimental and Padzyck are not to be trusted as unbiased analysts. Padzyck works for 'big oil' (indirectly) and as a result sees no reason to grow biofuel. look at his web site. (Also, the corn analyses is likely a non-issue, since there are better sources available such as switchgrass. possibly alot of junk science papers could be thrown in too.)

my last empirical study also showed that this year is '2006'. the paper from science is from '2005', and using quantitative methods, this suggests its 'history'. of course i could be wrong. (if the universe operates via a big crunch, then perhaps 2006 is history). there is a big, much more recent paper in science also; its interesting that an 'expert' might have missed it---its also from UCB but a different depaRTMENT. (the 'groovy' one.)

(Padzyck has these somewhat amusing papers on his web site discussing 'thermodynamics' and 'entropy' of fuel cycles which are pure fluff---and useful camoflage. 'See, PV=nRT, so i'm smart, so do what i say. you know, like entropy. ABRACADABRA'. Tomorrow he'll have one based on Statistical mechanics and tsallis entropy, and, maybe to appeal to other audiences, a discussion of how the Left Behind series can be used to derive rigorous efficiency estimates for biofuels, using facts like the known biblical age of the earth. 'we show that because of 7 days for genesis, and a 4000 year old earth, we can run through a standard nonlinear multiple regression including all known factors of analyses, including Freud, to yield a p-adic zeta function for the siolution of the generating function, so assuming standard parametrs, we find that the efficiency of ethanol is -.9. As a corrolary, we find that Exxon-Mobil stocks should appreciate at 15%/year.' let them eat steak. )

Padzyck has a made a big deal when discussing ethanol that the real issue is not 'alternatives to oil' but rather how 'we' need to 'get off oil', but from his work studying oil drilling it seems he doesn't think this righteous position need apply to his own behavior.

(apparently the geology and environmental departments at UCB live in different universes, suggesting that the 'multiverse' theory of Deutsch is correct. But I guess this is obviuous from listening to Bush and his critics. ).

It can also be mentioned that Piemental who has done alot of good work on diet and energy use also aligend himeself with the anti-immigration forces attempting to turn the Sierra Club into a front for many 'green nazi' types. (Typically he claimed he had no idea actually who was supporting him. reminds me of all those lobbying checks.)

Also, Pimental while promoting at times vegetarianism as a green choice, when he appeared with Padzyck on a CSPAN aired program on ethanol, he then became a pro-coal use and pro-meat diet advocate, pointing out that if we grow corn for fuel then the animal farmers will lose out, and also that burning coal is very efficient (though he didn't mention that some object to land-use/pollution problems caused by minor issues like strip mining). He was also very concerned about pollution caused by corn farming when the corn is used for fuel, but without explaining it to the (obviously incompenent) CPAN audience these problems magically go away so long as the corn knows its destined to be turned into beef and methanol. 'gawd i(t)s great'.

there is a good question about what conbstitutes a good cost benefit analyses and expert.

[Dave I]

Yesterday I saw a TV news splash on Ethanol. Featured was Vinod Khosla, co-founder of Sun Microsystems right there in front of all cheering on Ethanol. Here's a little writeup on the matter:

INTERNATIONAL HERALD TRIBUNE
"New distillation method fuels interest in ethanol"
By Norm Alster
The New York Times
SUNDAY, MARCH 26, 2006
http://www.iht.com/articles/2006/03/26/business/biofuel.php#

Vinod Khosla was a founder of Sun Microsystems, and then as a venture capitalist he helped a host of other technology companies get off the ground.

These days, Khosla is still investing in technology, but much of it has nothing to do with the world of network computing in which he made his name. He is particularly excited about new ways of producing ethanol, which he says could rapidly displace gasoline.

"I am convinced we can replace a majority of petroleum used for cars and light trucks with ethanol within 25 years," he said. He has already invested "tens of millions of dollars," he said, in companies that are developing methods to produce ethanol using plant sources other than corn.

Khosla is not the only one with a big stake in ethanol: add the names Richard Branson and Bill Gates to the list.

Branson, the chairman of Virgin Group, plans to invest $300 million to $400 million to produce and market ethanol made from corn and other sources, said Will Whitehorn, a director of the company. Virgin expects to announce the site of its first production facility soon, probably in the Eastern United States, with a second one likely to follow in the West, Whitehorn said.

And Cascade Investment, Gates's private investment firm, has declared its intention to buy $84 million in newly issued preferred convertible securities in Pacific Ethanol, said William Langley, its chief financial officer. The company, based in Fresno, California, says it hopes to become the leader in the production and distribution of ethanol in the Western states.

Ethanol derived from corn now accounts for 3 percent of the U.S. automotive fuel market. Most cars in the United States can already handle fuel that is up to 10 percent ethanol, and as many as five million can use E85, a flex- fuel that is 85 percent ethanol and 15 percent gasoline.

The excitement over ethanol derives from research that has cut the cost of converting nonfood plant matter like grasses and wood chips into alcohol. Khosla says such cellulosic ethanol will eventually be cheaper to produce than either gasoline or corn-derived ethanol.

…many ethanol companies are privately held, making them inaccessible to most investors. And there is certainly room for skepticism about ethanol's future. After all, corn ethanol has been around for years, and even with a current spike in demand, the industry commands only a 3 percent share of the market.

Khosla counters that soaring energy prices have made corn-based ethanol more competitive, while research advances in breaking down cellulose into simple sugars have cut the cost of making ethanol from other sources.

"Ethanol is cheaper to produce, unsubsidized, than gasoline today," he said. "As these technologies ramp up, they will be cheaper, unsubsidized, than gasoline even if petroleum drops to $35 a barrel."

[GreenGOP]

True, there's lots of back and forth on ethanol. Here's a report, also from Berkeley, that says ethanol is better than gas, but not by a lot. http://www.greencarcongress.com/2006/01/uc_berkeley_stu.html

[Craig]

Many say we will see $3.50/gal this summer. If you factor in Iran, who knows how high it could go. Everyone knows America MUST get off the oil. After September 11, 2001 I expected our President to call on Americans to GET OFF THE OIL. I was expecting a speech like the one JFK gave that motivated us to reach for the moon. As you know, this never happened. Eventually I realized that the only way this is going to happen is for us to do it ourselves. To that end I created this idea and have been trying to make it a reality..

The EPA is offering a research grant opportunity that I believe is a perfect fit for this idea. I have sent an e-mail to a hand picked list of university professors who have experience with government research projects. I’m looking to form a research team to apply for the EPA grant, conduct a social-economic experiment and surveys to determine to what extent the American public will support it, project the economic potential of WPH, and identify logistical, social and political obstacles as well as opportunities.

All government grants are awarded based on merit of the proposed research. I believe WPH has merit but your help is needed to verify it. You can help by posting your feedback. Let the professors and the EPA know what you think about WPH. Do you think this idea is worth pursuing? We need to know if Americans will support a plan like this.

Do you have any ideas to improve the plan?

Share any and all of your thoughts.

Tell your friends and family about this Blog post and ask them to post their thoughts on WPH

http://wepayhalf.org

Thank you

Craig