SubsidyEye

Biofuel Production Will Continue to Grow

There is one flaw (well, actually, more than one flaw) in your argument, Tdot: had gasoline not been available, it is unlikely that spark-ignition engines would have developed in a big way, period. That is because the scale of grain production that would have been required to feed growth in demand for transport fuels would not have been able to keep up. Even today, if the United States converted all of its corn crop to ethanol, it would satisfy only 12-15% of gasoline demand.

One could just as easily speculate that vehicles powered by EXTERNAL combustion engines (see en.wikipedia.org/wiki/...) would have taken the lead.

"Maybe it isn't to late to just throw down and start to invest the necessary trillions of dollars (over the next few decades) the pursuit of developing the alternative renewable fuels." May we quote you on that figure? And why are you so certain that investing in alternative rennewable fuels -- by which I assume you mean biomass-derived transport fuels -- would be the most cost-effective use of the public's (read: other people's) money, even if your only concern is to reduce dependence on petroleum?

Biofuel Production Will Continue to Grow

User 40970. Got any figures on how much Verenium/BP, Mascoma, BFRE Iogen/Shell, Poet, etc.? are now producing ethanol from waste -- crop waste or otherwise? The sum total is not even equal to one moderate-sized corn-ethanol plant.

Ethanol improves some air pollutants, increases others.

Suggest you do some simple research, User. This from Wikipedia: "by February 2009, the fleet of 'flex' cars and light commercial vehicles reached 7.1 million vehicles, which represents around 21% of Brazil's registered light motor vehicle fleet. The success of 'flex' vehicles, together with the mandatory E25 blend throughout the country, have allowed ethanol fuel consumption in the country to achieve a 50% market share of the gasoline-powered fleet by February 2008. Considering diesel-powered vehicles, sugarcane ethanol represented 16.7% of the country's total energy consumption by the automotive sector in 2007."

Yes, all spark-ignition vehicles in Brazil burn SOME ethanol; they can't avoid it, as it is blended in all gasoline. But the overall share is still only 50% of the gasoline-powered fleet, and less than 20% of the country's total energy consumption for ground transport.

Biofuel Production Will Continue to Grow

WTF? There is so much propoganda and misinformation in this article, I don't know where to begin. "Brazil runs 100% on biofuels, Europe 52% of all new vehicles are biofuel"? Where did you get those figures from? Most new passenger vehicle registered in Brazil are flex-fuel vehicles, but the share of gasoline in the country's total consumption of light transport fuels is still around 50%. And if you are saying that any diesel engine can use at least low-level blends of biodiesel, that is true. But the share of biodiesel actually used in vehicles in Europe is no more than 2%.

You speak of"the "global demand" for biofuels as if it is consumer driven. In virtually every country where biofuels are used, the "demand" is a totally artificial one, created by mandated blending requirements (yes, even in Brazil), subsidies, or usually a combination of both. The only thing that is impressive about the growth in the use of biofuels is, as AlexS puts it, the enormous power of the special-interest groups who promote biofuels, and their influence over powerful friends in high places.

You say that "ethanol production results in nearly twice as much energy than used in its production". That is only true of sugar-cane ethanol. If you are speaking of corn ethanol, it is only true (and then only for the most-efficient plants in teh Midwest) if you phrase it as "corn ethanol production results in nearly twice as much energy than the energy contained in the fossil fuels used in its production." There is energy in the corn kernels themselves, but life-cycle analysts in the United States tend to ignore it, hence the confusion. By the way, elsewhere, you say "Each gallon of corn ethanol today delivers as much as 67% more energy than is used to produce it." That is far below "twice".

Some of your statements are downright bizzare, such as "The bad news is the U.S. plans to cut spending for farm programs, placing a hard cap of commodity program payments of $250,000, phasing out direct payments to farmers with gross sales over $500,000 and making cuts in the federal crop insurance program." Bad new to whom? Millionaire farmers? These are pure rents for land-owners; capping eligibility at those kinds of rates will have virtually no effect on production or prices, though it will save taxpayers some money.

All in all, this is an over-long, infomercial for the biofuel industry. Seeking Alpha can do better.

Ethanol Stocks: The Good News and the Bad

"It seems that biodiesel has a much better future than ethanol. There is too much government involved in ethanol." -- bobjou

You need to read up on biofuel policy, bobjou. Federal support for biodiesel is as heavy as for ethanol, granting it $1.00 per gallon in tax credits, compared with $0.51 per gallon for corn ethanol. In addition, most producers benefit from a $0.10 per gallon Small Producers Credit on the first 15 million gallons they produce in any given year. Producers in Kentucky get an additional $1.00 per gallon, and producers in Pennsylvania $0.75 per gallon.

First-generation biodiesel would have no future (except as a botique fuel made from waste cooking oil) were it not for these subsidies. The price of feedstock accounts for 80% or more of the cost of producing biodiesel, and that cost is today almost 3x what it was three years ago.

Biodiesel from algae may have a bright future ... eventually. But it is still in the pilot and demonstration stage.

Is the Ethanol Mandate Likely to be Repealed?

Bouzerdad: The Amish use, essentially, organic growing methods. Great if more producers can adopt those, but lot's of luck. The percentage of U.S. land planted to corn on farms that are certified organic is a fraction of 1%.

Is the Ethanol Mandate Likely to be Repealed?

I'm increasingly under the impression that Tim Plaehn just pulls his information from thin air. He writes,

"Has anyone figured how much more energy farmers are using to harvest the same amount of corn that they harvested before ethanol became a major user of corn. I would guess that energy usage in the farm belt has not changed since the ethanol boom. The corn raised is just going for a different purpose. The same number of corn acreage is still being planted."

This is an interesting comment in itself, because if it were true, it would underscore the argument that fuel is competing with food (or, to be accurate, feed). But the same corn acreage is NOT being planted. New acreage, some not previously plowed (e.g., former pastures or orchards), has been planted to corn over the last several years. Other acres have been planted to corn that were previously planted to wheat or soybeans. Overall, 19.5% more acres were planted to corn in 2007/08 than in 2006/07. See the graphs on this USDA web page:

www.ers.usda.gov/brief...

Generally, corn requires more fertilizer and more machinery fuel per acre (not necessarily per ton) than wheat. Not a lot more, but some more. And certainly corn cultivation requires a lot more fuel than grazing cattle.

Tim Plaehn then claims,

"[A]t the present time Brazil has enough excess ethanol capacity to provide less than 10% of the U.S. demand and are already shipping most of their excess capacity to the U.S. It would take them several years to tear up enough rain forest to plant enough sugar and build enough plants to make a major dent in the U.S. usage."

This is a self-serving argument, one frequently used by protectionists: "There is no point in lowering trade barriers, because our foreign competitors wouldn't have the capacity to supply us!" Well, if that would be the case, what's the worry? But of course, this is circular logic. If Brazil could count on trade barriers staying down, it would of course build up that capacity.

But that capacity would bot be in the Amazon but in the Cerrado (Brazil's savannah). Despite Brazilian experts explaining this to every person they meet, I guess that fact hasn't yet registered with Tim.

Ethanol Is Dead: How You Can Still Profit From It

"And remember, the government subsidies for ethanol are minor in comparison to those paid to the oil industry."

Measured how? According to the Energy Information Administration's latest study on "Federal Financial Interventions and Subsidies in Energy Markets",

www.eia.doe.gov/oiaf/s... ,

federal subsidies (including tax expenitures) for natural gas and petroleum were $2.15 billion in 2007 (p. xii), against $3.35 billion for biofuels, mainly ethanol (p. xviii). Many people would contend that the EIA's estimate for petroleum is an under-estimate, but so is its estimate for biofuels.

According to an in-depth study produced for the Global Subsidies Initiative by Doug Koplow (who also authored the 1998 investigation into oil subsidies for Greenpeace),

www.globalsubsidies.or...

total federal and state support for ethanol was at least $6.9 billion in 2007, or $1.05 per gallon. In energy terms, that comes to $1.40 per gallon of gasoline equivalent (based on a generous conversion rate of energy equivalence).

For gasoline to be benefitting from a similar rate of subsidization, total subsidies for gasoline would have to be on the order of $200 billion a year. I know of no credible estimates that place the subsidy anywhere near that.

Ethanol Is Dead: How You Can Still Profit From It

CORRECTION AND MISSING LINKS:

The sentence in the 9th paragraph should have been "The rate of increase in growth in 2005 slowed slightly, to 79 million metric tonnes."

I gather this web site does not allow comments in HTML. So here are the links that should have appeared in my last comment:


National Ethanol Vehicle Coalition bumper sticker:

www.e85fuel.com/promoi...


"Ethanol and Food Prices -- Preliminary Assessment", by Richard K. Perrin:

digitalcommons.unl.edu.../


FAO price data:

www.fao.org/es/esc/pri...

Ethanol Is Dead: How You Can Still Profit From It

Funny how the pro-biofuel commentators here assume that those asking the hard questions are know-nothings. They clearly think we're stupid. Enes K. writes:

<blockquote>Most of the feed value can be recovered and one of the by-product of ethanol is distiller's feed. This contains 90% of the protein that corn originally had.</blockquote>...

Dried distillers' grains do indeed contain most of the protein originally in the corn, but essentially none of the original starch. (Overall, around 30% by weight of the original corn kernel is left over as DDGs.) That starch, unprocessed, may not be digestible by humans, but it certainly is by hogs and poultry. DDGs, however, is a poor feed for these animals, and only relatively small amounts can be added to their diets. (For cattle, the limit is around 40%.) That is why the pork and poultry producers are so against the subsidization and mandating of ethanol.

Enes K. also also notes that ethanol has a higher octane value than gasoline. Very true. He then points out that "if an engine is operated at higher pressure, it will operate more efficiently and the result will be higher gas mileage". Also true. But no commercial automobiles are being produced in, or imported into, America that are optimized to run on ethanol. Check out the EPA fuel-economy numbers for flex-fuel vehicles -- vehicles that can run on any blend of ethanol and gasoline up to 85% ethanol. They show, consistently, 25% lower miles per gallon running on E85 than on gasoline -- i.e., consistent with the energy difference between E85 and gasoline. Moreover, most of those vehicles have huge -- typically 5.3 litre -- engines. It is not for nothing that the National Ethanol Vehicle Coalition sells bumper stickers that owners can affix to their vehicles, proudly proclaiming them as ethanol guzzlers.

Most curiously, Enes asserts that, because the ethanol credit goes to blenders, "the producers and people developing the technology receive a trickle down effect at best". Gee, then if all the benefit is being pocketed by the blenders (i.e., gasoline wholesalers) why has the Renewable Fuels association and the National Corn Growers Association fought so hard for the continuance and extension of the blenders credit? The reason they have is because the credit does is raise the price that blenders are willing to pay for ethanol (since the blenders credit is like a partial refund), which means higher prices for ethanol producers. Ethanol producers, in turn, are able to pay more for corn, which "trickles down" to farmers. But I suppose those who maintain -- against all logic -- that ethanol has NOTHING to do with the rising price of corn will never believe that.

Avcacio quotes a blogger for his numbers. He should have read the original document more closely, which is an article by Richard K. Perrin, a Professor in the Department of Agricultural Economics, University of Nebraska, Lincoln. Professor Perrin does NOT say that ethanol contributed only 3% to the rise in the price of corn. What he says, in fact, supports my original point:

<blockquote>It finds that ethanol is responsible for no more than 30-40% of the [coarse] grain price increases of the last 18 months. Food prices in the US increased about 16% over the last five years, 7% over the past 18 months, but rising grain prices have contributed only about a 3% cost increase over these periods.</blockquot...

Note, he speaks of a contribution of 30-40% to the increase in grain prices (which themselves essentially doubled in price between January 2006 and January 2008), not 3%. Note Perrin was working on the basis of prices through the early part of the year, and does not take into consider the recent surge in corn prices.

Note also that Perrin takes 2001 as the baseline. In both 2001 and 2002, world use of coarse grains (corn, barley, oats, sorghum) grew by only 20 million metric tons per year. In 2003 it grew by around 50 million metric tons and in 2004 by around 70 million metric tonnes. About three-quarters of that growth came from non-ethanol uses. The rate of increase in growth in 2005 slowed slightly, to 70 million metric tonnes. Over this whole period, coarse grain prices (in $ terms) increased by around 6% per year. (Price data are from the FAO.)

In 2006, however, demand jumped once again, this time by almost 100 million metric tonnes per year. Of that increase, almost 1/3 of the increase was U.S. corn used for ethanol. In 2007, the share of U.S. corn for ethanol in the increase in global coarse grain use was almost 40%. Its share in the increase of corn alone (which accounts for 70% of world coarse grain consumption) was even greater, at least 50%. (Note, also, that additional corn was used for conversion to ethanol in Canada and China.) In 2006, corn prices rose by 24% and in 2007 by an additional 34%. Already, in 2008, average prices for the year to date are 45% above those in 2007.

The reason that the effect of rising grain prices in the United States seems so small is that the contribution to total expenditure on food (45% of which is meals eaten outside the home) is so small is because the denominator, $1.1 trillion per year, is so large. But even a 1.2% to 1.6% increase in food prices translates to an increased food bill of $13 billion to $18 billion per year.

As a percentage of consumer income, the increase in prices comes out to an even smaller share. But I leave the last words to Perrin himself:

<blockquote>The value of grain in US consumers' expenditures constitutes only about one-half of one percent of consumer income, while in food insecure countries it may constitute 20% or more of total consumer income. Thus a doubling of grain prices can absolutely devastate the world's most food insecure families in poor countries and put them at the edge of starvation, even though it constitutes a barely-noticeable inconvenience to most families in the U.S. If U.S. ethanol is responsible for as much as 40% of grain price increases, simple cost pass-through reasoning indicates that ethanol may be responsible for as much as 12% (40% of 30%) of food price increases in food-insecure areas.</blockquote&...

Ethanol Is Dead: How You Can Still Profit From It

Avacio: then provide the link. All the numbers I have seen of that magnitude (3%) have referred either to the effect of the increase in the price of corn on the U.S. food price index, or the effect of the increase in demand for biofuels on world food prices. The latter, I would observe is heavily weighted by food expenditure in high-income countries, where annual expenditure on food is on the order of $4,000 per year. In low-income countries, annual expenditure on food is more like $300 per person per year.

In answer to PoliEco: True, not all ethanol is corn ethanol. But thanks to years of subsidies to the corn industry; state and federal subsidies for the construction of ethanol plants in the corn belt; and tariffs on imports of ethanol from Brazil, 95% of the ethanol produced in the United States is derived from corn.

In answer to Rickrents: the Governor of Texas is not so much concerned about protecting Exxon as in reducing the price of feed for the livestock industry.

Ethanol Is Dead: How You Can Still Profit From It

Avcacio should check his facts. He claims that the use of corn for ethanol has contributed only 3 percentage points to the rise in the price of corn. That is not credible, given that 25% of the corn crop this year is expected to be used for the production of ethanol -- perhaps higher if the Renewable Fuels Standard of 9 billion gallons is not relaxed and the corn crop comes in much lower than normal because of torrential rains and flooding in the corn belt.

Even the industry dares not make such an outrageous and clearly unrealistic claim. Indeed, less than two years ago it was taking full credit for driving up the price of corn by 50% -- above the trigger price for price-linked crop subsidies -- and thus saving the federal government several billion dollars a year in commodity payments. (Of course, the industry generally failed to mention in the same breath that, in its place, the federal government had to spend several billion dollars on ethanol subsidies in the form of tax credits to blenders.)

What the 3% figure refers to is the contribution that the rise in the price of corn has had on the consumer price index (CPI) for food. That may not sound like a large number, but when you consider that consumer expenditure on food in the United States is now on the order of $1.1 trillion a year, 3% is more than $30 billion per year -- far larger than the "savings" achieved by no longer having to pay out counter-cyclical or marketing loan payments to corn farmers.