More Ethanol bashing

[sniper226]

Rather long but still an interesting read.

THE PIPELINE
Etha-not!

In the 1970s energy crisis, the world was given a clear warning that dependence on foreign oil
was not a prudent and sustainable strategy. Responding quickly, Iceland converted much of
the country to non-polluting geothermal and hydroelectric power. France switched to
nuclear and hydro power that now provides over 90% of its energy needs.
Thirty years later, in 2005, the American Congress finally weighed in with its answer to
the ever-growing crisis, the Energy Policy Act. Its a bizarre strategy: burn food. Corn to be
exact, as ethanol. The 2005 bill has already had effects, but none
of them good. The bill did nothing to significantly curtail foreign oil consumption or
reduce green house gases and only served to increase the cost of food dramatically (more on
that below). Faced with these results, the Senate recently
approved the Renewable Fuels, Consumer Protection and Energy Efficiency Act of 2007.
Its a new and improved strategy: burn more food four times as much.
In the previous energy bill of 2005, through the use of subsidies and other incentives, 7.5
billion gallons of renewable fuels were regulated to be consumed annually by 2012.
The new proposal ups the annual requirement to 36 billion gallons of renewable fuels by
2022, with 15 billion gallons drawn from food sources.
Congress new energy bill is stupefying. Anyone paying attention to the science of
ethanol can see its a misguided policy, to say the least. If corn-based ethanol is the answer,
then the question must be Which fuel can worsen Americas energy crisis?
Thats because there are now credible studies which prove that it is not an efficient fuel. Most
studies find that it takes between 0.74 0.80 units of fossil energy to produce a comparable
unit of ethanol energy. However, professors David Pimentel and Tad Patzek have published
research that concludes it takes a total of 1.29 units of fossil energy to create a unit of ethanol
energy. Whether corn-based ethanol production consumes more energy than it produces is still a
topic of some debate, but what is obvious is that ethanols utility as a fuel is marginal at
best.

How Could an Economic Joke Become Government Policy?

The rise in popularity of corn-based ethanol gained force when vote-hungry politicians,
looking to buy favor with farmers, met the irresistible force of cash from agro-businesses
lobbying for an artificial support to crop prices. Special-interest groups, briefcases stuffed with
campaign contributions (read: bribes), have skewed the debate on ethanol.
Archer Daniel Midlands (ADM), an agricultural multinational, is especially talented
with smoke and mirrors, rigging the facts to suit its needs. Of course, ADM has good reason
to encourage energy policies that rely heavily on the emergence of biofuels. It is easily the
biggest beneficiary of such folly, collecting over two billion dollars each year in
government subsidies through the 51-cent-pergallon tax credit given to refiners and blenders
that add ethanol to gasoline.
ADMs chairman, Dwayne Andreas, has done a masterful job of diversifying his investments
between Republicans and Democrats. In the early 1990s, he made contributions to Senate
Majority Leader Bob Dole and Senate Minority
Leader Tom Daschle, both of whom became staunch supporters of ethanol. Then, during the
1992 election, he hedged his bets, as ADM became the third-largest contributor to the
Clinton campaign, and, at the same time, the biggest contributor to the Bush Sr. campaign.
This has ensured that politicians of all stripes babble about ethanol as though it were holy
water, and heap subsidies on the ethanol industry indiscriminately.

Food Shortages and Price Increases as a Direct Result

It has only been two years since Americas politicians created this ruinous scheme, yet
major repercussions are already being felt. Corn prices rose above $4 a bushel in January
and have doubled over the past two years. Because corn is the most common animal feed,
this affects the price of milk, cheese, eggs, meat, as well as corn-based sweeteners and
cereals.
This has resulted in dramatic worldwide increases in food prices. Milk prices have
nearly doubled in the U.S. Butter prices in Europe have spiked by 40%. And pork prices in
China are up 20%. In Mexico this year, there have even been riots, protesting a 400% rise in
the price of corn flour, accompanied by a 60% rise in the price of tortillas.
Thanks to Congress, it appears that hand in hand with peak oil has come the end of cheap
food. More proof of this is that, in six of the past seven years, global grain consumption has
exceeded production. As a result, world grain reserves have dwindled to 57 days. This is the
lowest level of grain reserves in 34 years.Food shortages were already becoming a reality
under the 2005 bill, but if the 2007 bill is allowed to continue, the shock to the planets
food supply will be extraordinary. Could the unintended consequences even include mass
starvation? Only time will tell.
(Ed. note: For those of you interested in investing in the commodities scarcity play,
check out our sister publication, the International Speculator. In the August 2006
edition, back when nobody, but nobody was paying attention to the situation, it
recommended investing in grains... near the exact bottom in prices.)

The Other Missing Benefits of Etha-not

As for reducing greenhouse gases (GHGs), lowering gas prices or reducing U.S.
dependency on foreign energy supplies, ethanol does none of the above.
Corn-based ethanol might cut down your cars emissions, but its impact on the overall
reduction of greenhouse gases is negligible. Thats because corn is one of the most fertilizerintensive
crops to grow. It takes a lot of fossil fuels to make nitrogen fertilizer in the first place,
and when that fertilizer interacts with soil bacteria, N2O a much worse GHG than CO2
is the result.
The U.S. Department of Agriculture (USDA) admits that in its best-case scenario, the rising use
of ethanol will cut Americas overall GHG emissions by all of 0.13%. To add insult to injury,
government subsidies cost taxpayers US$520 per one metric ton of CO2 reduction. If instead these
subsidies were used directly to reduce CO2, they would be enough to buy 8 metric tons in carbon
offsets on the European Climate Exchange, or 45 metric tons on the Chicago Climate Exchange.
Okay, then, what about the idea that ethanol will make America more energy self-sufficient? Nope,
biofuels wont do that either. The main growth in ethanol supply is coming from imports, which
rose from 135 million gallons in 2005 to 653.3 million gallons in 2006. According to the proethanol
USDA, ethanol production in 2006 equated to a reduction of foreign oil independence
by 1.5%, and by 2017, we will max out at 3.7%. So much for making America becoming less
dependent on the rest of the world for its energy needs.
And as for gas prices, we all know how much lower theyve gone recently.

Cellulosic Ethanol

The latest innovation in the biofuel industry is cellulosic ethanol. It has been hailed as much
cleaner and more net-energy positive than cornbased ethanol, but it is no savior waiting in the
wings. Cellulosic ethanol remains significantly more expensive to produce. While corn-based
ethanol costs around $1.50/gallon to produce, production of cellulosic ethanol costs at least
$2.25/gallon (depending on commodity prices). And the capital costs associated with cellulosic
ethanol are seven times higher than those associated with corn. Even with a glut of
government subsidies, developers of cellulosic ethanol are just scraping by, meaning that
cellulosic ethanol will likely never be a viable option either.

The Verdict: Etha-not

Conventional oil supplies are dwindling, and alternative fuels are needed, but corn and
cellulosic ethanol are not the solution. In 2006, ethanol production required between US$13-
$17/MMbtu in subsidies. Thats more than twice as expensive as a comparable unit of energy from
natural gas, which is a much better alternative fuel source for vehicles (as we outlined in last
months Pipeline).
Years from now, America will surely look back at this fad for biofuels as one of its more
embarrassing and costly missteps in the ongoing quest for sustainable energy.

[Gunshow]

Yet another argument for working on all electric car technologies

[Challenger09]

GM did make an all electric car. While I am not a believer of conspiracy theories, I thought the movie "Who killed the Electric Car" to be pretty entertaining. While they did try to blame everyone except the fact the car would only go 60 miles on a charge for its demise, it seemed like a good program for people who live in cities.