It's Now 'Official': Ethanol Is a Scam

Paul Krugman in the NY Times, "Grains Gone Wild":

Where the effects of bad policy are clearest, however, is in the rise of demon ethanol and other biofuels. The subsidized conversion of crops into fuel was supposed to promote energy independence and help limit global warming. But this promise was, as Time magazine bluntly put it, a “scam."

This is especially true of corn ethanol: even on optimistic estimates, producing a gallon of ethanol from corn uses most of the energy the gallon contains. But it turns out that even seemingly “good” biofuel policies, like Brazil’s use of ethanol from sugar cane, accelerate the pace of climate change by promoting deforestation.

And meanwhile, land used to grow biofuel feedstock is land not available to grow food, so subsidies to biofuels are a major factor in the food crisis. You might put it this way: people are starving in Africa so that American politicians can court votes in farm states.

OK, now that Paul Krugman's on board by coming out against ethanol, it's now official: Ethanol is a complete and total scam.

Anytime you have Paul Krugman agreeing on ethanol with such a diverse group as the WSJ, Reason, Magazine, the Cato Institute, Investor's Business Daily, Rollingstone Magazine, Christian Science Monitor, the New York Times, John Stossel, The Ecological Society of America, the American Enterprise and Brookings Institution, the Heritage Foundation, George Will, and Time Magazine, you know that ethanol has to be one of the most misguided public policies in U.S. history.

So who is left out there supporting ethanol? You sure won't find very many scientists, economists, policy groups, or editorial page contributors. But, ethanol has been very, very good to corn farmers and ethanol producers like Archer-Daniels-Midland (ADM), the largest producer of ethanol in the United States. ADM stock has quadrupled over the last five years, from about $10 to about $40 per share, and increase of 300%, while the S&P has only increased by about 50% during the same period (see chart above).

Disclosure: no positions

Comments

[pk de cville]

Boy, this one is one for the record books. Policy and laws driven by ADM and ag state politics. Stinks to heaven.

Being optimistic, maybe our political leaders will take this lesson to heart and notice the impact of the next lobbyist driven policy initiative.

Also, being optimistic, maybe this is the price we pay, as a country, when the leadership at the top is woefully not close to being up to the job AND maybe, whoever comes next, John, Hillary, or Barack, will return us to a government based on reason, goodwill, competence and integrity.

Our 8 year long experiment in 'faith based' leadership is soon, thankfully, coming to an inglorious end.

2008 Apr 10 06:34 AM

[User 162922]

No, that's why the French have the saying, "Plu cest change, plu cest le meme chose." Political Science 101-A politician's most important job function is to get re-elected. Neither party will change their policy supporting ethanol until after the election because of the votes. I'd bet you'd find ADM's political budget split relatively evenly between the parties.

2008 Apr 10 07:10 AM

[Britishsteel]

Baaaaaaa baaaaaa baaaaaa all you sheeple LOL everything in this country seems to be a scam

2008 Apr 10 07:26 AM

[Chungst]

Check out this link: www.coskata.com/Proces...

Coskata claims:
"Environmentally superior - The Coskata process reduces carbon dioxide emissions by as much as 84% when input materials such as grass, agricultural waste or woodchips are used (Argonne National Laboratory). The Coskata process has no back-end solid waste to dry and handle like enzymatic approaches, and water and wastewater treatment requirements are low due to significant water recycle and energy conservation. The Coskata process uses less than one gallon of fresh water per gallon of ethanol produced, versus 3-5 for corn, and as much as 7 gallons of water per gallon of ethanol for enzymatic routes."

"Lowest cost target in the industry - Coskata's process delivers the next-generation of ethanol at the lowest cost target in the industry - under US $1.00 per gallon."

The company is in a partnership with GM.

2008 Apr 10 07:57 AM

[haydete]

The salvation is when ethanol can be cheaply produced from things other than corn (i.e. the corn husk and other previously discarded material.) The ethanol from corn mandate was too specific and technically easy. At least part of the infrastructure is now in place.

2008 Apr 10 08:02 AM

[huskerbob]

Sorry, but ethanol isn't causing starvation in Africa. Corn prices have risen so much that they will soon be paying ten cents per pound. OMG! How can anyone afford to eat when corn is a whopping ten cents a pound! I guess the few farmers who are left can. Not sure if you noticed but the prices for all ag inputs have more than tripled in the past few years. Only a few years ago the price of corn was at it's lowest point in US history(inflation adjusted).
This is all beside the point. People will still eat corn at 15 or even, god forbid, 20 cents a pound. But there won't be a single ethanol plant operating at those prices.
And for the record, I agree: yes,ethanol from corn is so stupid that it borders on criminal. But no one is being priced out of eating because corn is $6/bushel. I am getting sick of hearing people bitch about the price of groceries. There is 8 cents worth of corn in a $4 box of corn flakes, and less than 10 cents worth in a pound of tortillas! You can't have ridiculously cheap food for all eternity!

2008 Apr 10 08:08 AM

[NumbersGuy]

Come on huskerbob, tell that to rioting Mexican housewives who have seen tortilla prices go through the roof. Remember an increase of 10 cents per pound can have a huge impact on someone living in poverty in the developing world. It may not matter to joe sixpack in the US, who should probably drop a few pounds anyway. But to a large part of the world that increase does matter.

(I guess the problem to a large extent is that we have Sunilsixpack and Xaiosixpack competing with Joe for hamburgers, but that's another point.)

2008 Apr 10 08:42 AM

[redbaron]

While it is true that the grain ingredient cost of a box of cereal is just a tiny portion of the purchase price, this argument ignores the effect of the increase in transportation costs, that subsidizing ethanol has helped produce. By hanging our hat on the ethanol hook, we have gone in the wrong direction, and contributed hugely to the increase in transportation costs.......just as we did in the 1970-80's. We tried this dance once, and it didn't work then. Why were we not intelligent enough to realize that unless there was some significant new technology to contribute to lowering overall costs, this was doomed to failure again? The first commentor, 'pk de cville', said it all, and best. It is now time to use 'intelligence based' initiative to start to solve this problem.

2008 Apr 10 08:46 AM

[Max Blankfeld]

Nothing, nothing is worst than having someone who is totally ignorant on a subject, write about that subject. The fact that you have a PhD next to your name, doesn't mean that you are qualified to talk about any subject. Yes, producing ethanol from corn is idiotic, as the yield if made with sugar cane, would be 7 times higher. No, ethanol is not a scam, and no, it is not the cause of deforestation in Brazil. Have you ever checked the areas in Brazil where they grow sugar cane? Go do your homework, come back and apologize for your misleading statement. Ethanol from sugar cane is one of our best alternatives to decrease our dependance on oil. We could grow sugar cane in areas of Texas and Louisiana, and remove tariffs to bring oil from the Caribbean region, instead of importing oil from Arab countries and Venezuela, who hate is.

2008 Apr 10 08:50 AM

[johnrich]

Write your congressman - a joke! On 1/31/07 I sent Lugar & Hill, my men, a letter outlining this mess we're in now - and the inflation is just starting. Wait a few more months until the grain fed meat products cycle into the stores and restaurants! The international relief agencies are already out of funds so those starving numbers will jump out of sight. Ah well, the wars must go on!

2008 Apr 10 08:52 AM

[Tim Plaehn]

So we are responsible for feeding Africa. Maybe they could learn to grow their own food!

Right now ethanol reduces our gas consumption by about 4%. It supplies jobs for 1000's of people. Farmers are making good profits and buying machinery, supplies, cars & trucks. Too bad this "scam" provides a good living to so many people!

2008 Apr 10 09:03 AM

[ladders11]

It is, of course, a scam, when you're promoting domestic corn ethanol and imposing prohibitive tariffs on imported sugar cane ethanol. The stated justification for ethanol doesn't mesh with the policy of impairing the easiest way to produce it.

2008 Apr 10 09:42 AM

[WayneS]

I bought "gasohol" in the seventies on the promise it would free us from foreign oil. In college, we were converting carbon dioxide and hydrogen into methane. It was deemed uneconomical and besides carbon dioxide was crucial to earth's carbon cycle. Without CO2, the earth would go into another ice age.

2008 Apr 10 10:07 AM

[Max Blankfeld]

Check this:www.setamericafree.org...

2008 Apr 10 10:07 AM

[huskerbob]

Tim - any solution that helps reduce dependency on foreign oil will provide 1000's of jobs and free up money for spending on items other than fuel. So why not decide to give the tax breaks to a process that is actually efficient and sustainable? All of this arguing is a moot anyway, as eaters can easily outbid fuel producers for corn, beans, or any other popular food to fuel source. Ethanol from corn and soy diesel will soon be strangled by their own inefficiency and better sources of fuel (landfill waste, camelina, sugar, etc). Unless gas prices keep soaring:(

2008 Apr 10 10:11 AM

[huskerbob]

In defense of ethanol, when we started our local plant, no one wanted our corn, and you couldn't give wheat away! No farmer I knew forsaw a future of food shortages and high prices. We thought it was a good way to help America, ourselves, and fight Cargill and ADM (who later sabotaged and bought out our plant for a song).
I think now many farmers (out of the few that are left) realize that ethanol is not the best long term solution but they are desparate not to return to hanging on by their fingernails year after year.

2008 Apr 10 10:19 AM

[DrCanDo]

Ethanol is a renewable fuel. A bushel of Corn for $6.00. Omigod. Except a bushel of corn is 50 pounds of shucked kernels. Could you? Would you grow 50 pounds of shucked corn kernels for $6.00. Yikes, pretty soon we might be able to stop subsidizing farmers! If you don't like Ethanol, how can you support solar, etc which take more power to make than they produce in their useful life. Biodiesel and Ethanol are good alternatives for fuels to put in our fuel tanks and will get more cost effective as oil prices go sky high. We could just keep liberating countries that have oil, but the world is running out of oil.

2008 Apr 10 10:32 AM

[nerfer]

One thing people forget is that ethanol improves emissions, now that MBTF (?) has been shown to easily contaminate groundwater, so it does have a purpose. But we desperately need to put R&D into cellulosic ethanol instead of tax rebates to big oil and coal! That's just insanity, but Pres. Bush continues to cut funding for clean energy, despite his talk. We're coming up on peak oil, and this is imperative for our economic future! Not to mention we need to quit funding both sides of the war in Iraq.
DrCanDo - how do you think solar doesn't have a positive EROEI? Can you provide something to back up a statement like that??

2008 Apr 10 11:27 AM

[The.Gibbon]

I am writing this in answer some of the debates going on around ethanol at the moment and provide some facts, most of this is mis information coming from research paid for by the oil companies, see TIME last week.

Most research companies who are looking into cellulosic are developing either specific enzyme mixes, chemical processes, a combination of both or micro organism based maceration of the cellulose. NOTE. these companies may develop the technology but they will license it. What is important is the infrastructure to distil the mash and then distribute the ethanol. VSE is in a great position to benefit from this because it has scale and the infrastructure. In addition, Vse is part of a JV which is working on Cellulosic using micro organisms this is medium to long term.

In terms of biodiesel the two primary plants will be on line end 2008 and will help reduce the impact of the corn price giving VSE two revenue streams from one raw material, putting VSE in a strong position.

Finally, corn will come down soon, $6 is a silly price and not realistic, the food verses fuel debate is not real it is being fuelled by the oil companies, look at who bankrolled the article in TIME last week.

The real issue is Energy security, the more ethanol from USA corn in your tanks the less dependant the USA is on foreign imports. This is a no brainer as oil will go up as the middle classes in India and China grows (see India/China automotive growth targets for next 5 years links at bottom). In addition it keeps USD in the USA, this is why Brazilian ethanol is also not a good solution. Every percent of ethanol from USA produced corn in the tank of a USA driver means that money is being retained in the USA economy and that the country is less reliant on foreign imports, don’t be surprised at E/20 at a station near you in the few years.

What I predict will happen is the business will be built using Corn, this will pay for infrastructure. Then more effecient methods of ethanol production will be developed (cellulosic for example) and this infrastructure will be put to work. Production prices will come down and profits will go up.

FACTS DATA LINKS

China is increasingly concerned about an escalating dependency on oil imports. About a third of China demand is met by imports, projected to rise to the American level of 55 percent by 2030. Just a decade ago, China was a net oil exporter.

Link to presentation on India automotive component industry growth acmainfo.com/docmgr/St......

Morgan Stanley Auto and Auto Parts Global Insights www.uscc.gov/hearings/......

Crude oil price increases since 2003 (graph 1994 – 2008 should be the trend setter) en.wikipedia.org/wiki/......

Petroleum Life Cycle of 42 countries dieoff.org/42Countries......

EIA International Petroleum Monthly www.eia.doe.gov/ipm/su...


SUMMARY

Ethanol from corn is not the answer alone, it is a first step.
Ethanol is not that environmentally friendly, but more so than oil, and that isn’t the point anyway.
Energy security is the key issue
Oil prices are NOT EVER going to come back down to 40 or 50 USD per barrel, they will be driven up even further because…..
Demand is increasing and will outstrip production and will continue to do so.
In the end oil prodution will decrease and until it is gone, some people say this started to happen in 2006 some say in 2012 I don’t know but it will definitely happen.
Look at the company NOT the corn from ethanol debate and see if you think the company is best positioned for the future

DISCLOSURE

It is in my interest to pump this company as I own stock however facts are facts, I am a private individual and not a day trader I am based in Europe and am English.

2008 Apr 10 12:04 PM

[jescott418]

Americans are always quick to embrace a well sold solution. Who could complain about something that would help the farmer's. Except for the fact that it would backfire on everday consumer's who end up paying more for food and still have high gasoline prices. Has it really helped anyone but the farmer's and ADM???

2008 Apr 10 12:39 PM