the Senate's version of the energy bill would have raised the renewablealternative fuel standard to 36 billion gallons by 2022 (up to 15 billion of which can come from corn).

Whats the difference between Alternative and Renewable?

Alternative means that they can make any sort of liquid fuel which isn't conventional petroleum, and people are required to use it.

That includes Coal-to-Liquid, NaturalGas-to-Liquid, Oil Sands, Tar Sands, Oil Shale, and any number of biofuels which may actually increase the total greenhouse emissions.

In short, it's a bait and switch.
They know biofuels can't meet the demand,
http://greyfalcon.net/biolimits.png

But they know that any breakthrough biofuel technology can push forward their favorite "alternative" biomass solid.  Coal.
http://greyfalcon.net/fossilenergy.png

-David Ahlport

The cost of growing corn is rising rapidly.  The supply base really opens the taps when the price of corn goes up.  And the rising price of energy inputs in this high energy system adds significant pressure.  

Expect to start seeing ethanol blends greater than 10%.  This is part of Congress' push to stimulate production of flex fuel vehicles (by giving CAFE credits).  E-85 is not taking up the surplus fast enough.  So why not mandate E-20 blends?  

There has not been a significant corn production failure since the ramp up in ethanol production.  A few inches of rain at the right times spell the difference between a disaster and almost record yields.  

Cellulosic is still a long, long way from commercialization.

All of this is a really bad sign that we have  overreached on oil and grow more dependent on it by the day.  

On top of the tens or hundreds of billions the federal government has already spent propping up ethanol, we'd have to spend lots and lots more to overcome these gaps. The question is, is this a wise use of the public purse in an age of declining oil supplies and climate change?

The answer is clearly no. Using figures from a rather devastating study from U.of Minn., let's say using corn ethanol allows us to emit 12 percent las greenhouse gas than conventional gasoline.

(Actually, that study is generous regarding the GHG benefits offered by corn ethanol--another recent one found ethanol emits more GHG than gasoline!)

OK, in 2007, we churned out 7 billion gallons of ethanol, accounting for 4 percent of the auto-fuel supply. Using the U Minn number, that means we offset a grand total of about a half percent of the GHG emitted by cars. (4 percent times 12 percent equals .48 percent.

And what did it cost us to perform this feat? The federal government grants mixers a 51 cents/gallon tax credit for blending in ethanol, one of the many goodies for the corn-based fuel. So 7 billion gallons at 51 cents a pop gives us more than $3.5 billion out of the public coffers--just from a single perk.

That's more than the annual federal outlay for Amtrak.

You can argue that these investments make sense because they "provide a bridge to a cellulosic future." But cellulosic ethanol remains where it has been for the last 30 years: five years and one more breakthrough away.

Victual Reality

Thanks for the thoughtful reply. Here's my thoughts ...

Subsidies: ok, so ethanol is subsidized. It would be hard to compete in the energy space without subsidies given that all energy is sadly subsidized. But why isolate ethanol? Fossil fuels gets 86% of all energy subsidies between 2005-09, and you're complaining about ethanol? Why the free pass to oil? Heck, even the ethanol subsidy is paid to oil companies. And how come you left out that ethanol demand increased corn prices, which took corn off the corporate farm welfare roles to the tune of $6 billion in 2006? Cherry picking subsidies in the energy space is a useless and not very sophisticated way of advocating for change in my opinion.

Studies: you seem to like studies that hammer ethanol and leave out the ones that dont. Both Minnesota and UC-Berk have said that corn ethanol might only have a 12% benefit over gasoline, but have also admitted that some corn ethanol plants do 40% better. EPA says 21%. DOE says 27-36%. Instead of again screaming bad! why not advocate for carbon standards to incent good ethanol? Then you reference that "ethanol worse" study. I suggested you look deeper into fuel markets to better understand pending legislation. Now I suggest you look deeper into reports to better understand GHG. That report attached all corn production to ethanol's GHG impact. In other words, it falsely assumed that if no ethanol, then no corn, which is of course absurd. If the goal is to quantify the real world impact of ethanol, then assuming that if ethanol goes away corn field will revert back to golden fields is silly. That report is getting hammered for that.

Cellulosic: On what do you base that conclusion? It seems to me you like to make 35K foot statements about things. There's more dough in cellulosic than there ever has been, more companies, more political will, and yes, the cost of enzymatic breakdown has plummeted in the last five years. Call these companies up. You reference the bridge from corn to cellulosic; dont downplay that. Most of the corn ethanol players have major investments in cellulosic.

One last thought: I have to say that I dont understand the "green minds" that wish ethanol would go away. They always seem to forget that if not ethanol, then oil. Oil is an amazing thing to support these days, especially on the Grist. You could throw a dozen more studies at me, but I hope you have dug into them all a little deeper.

Oilies are very good at keeping the focus off them and on the alternatives. You are playing their fiddle nicely.

Get farmers off of welfare!!!

Economic Illiteracy Harms The Planet! www.voicesofreason.info.

It kinda cancels out any environmental benefit.

It's the agribizz corps on welfare.  The real farmers who ride the tractors and feed the animals are actually hurt by corn/ethanol subsidies.

It's an important distinction.  The board rooms of agribizz are not manned by farmers.

http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin

As for my conclusion on cellulosic, here goes.

Although cellulosic-based production of renewable fuels holds some longer-term promise, much research is needed to make it commercially economical and expand beyond the 250-million-gallon minimum specified for 2013 in the Energy Policy Act of 2005.

That's from a USDA analyst writing in September. "Some long-term promise"? The USDA, cellulosic ethanol's great champion and patron, seems a lot less enthusiastic than rbcololeman.

Victual Reality

The "if not ethanol then oil" comment is an on-the-ground reality. Paraphrasing your line, that you wish ethanol would just go away, what are we going to use instead right now, on-the-ground? Oil. There is simply no question about it.

As for public transportation, are you seriously blaming ethanol subsidies for this? I believe history shows that our policy commitment to the automobile, fired by petrol, together with a little inside politics by auto, tire and oil companies, is the culprit here. Ethanol? Ethanol was an illegal beverage when these decisions were being made.

On fantasy island, where we could simply flip a switch and stop burning liquid fuels all together, I would agree with you. Neither. Internal combustion is not exactly the vanguard in transportation technology. But we're currently 200 billion gallons per year of liquid fuel combustion away from fantasy island (aka blog island).

While ivory tower positions look good on the Gristmill and probably fire up the unplugged, this will be the only domain of the green movement if those positions don't become more based in political and economic reality. Just an opinion.

Most of the subsidies to petroleum are on the exploration and production side, via tax breaks. These increase the amount of oil produced domestically (as opposed to imported), but do not materially affect the end-user price of oil, which is determined largely by developments at the international level.

There may be some differential tax treatment at the retail level, but if anything those breaks (exemptions from or reductions in fuel taxes or in sales taxes) are greater for biofuels than for petroleum fuels. If you have an example of the reverse, please bring it to our attention.

The point is, eliminating the subsidies to the U.S. oil industry would be good for the environment and for taxpayers, but it would not materially affect relative prices between petroleum products and biofuel prices.

These are only my personal opinions.

There also remains to be discussed the claims made by Brazil that should be taken into consideration.  If corn is a gateway to cellulose, then it seems that subsidizing domestic corn would  make it harder to transition to a cost-effective  market for cane sugar fuel in America, since Brazil's cheap and vast fuel supply would hurt the domestic value.

It seems eminently reasonable to invest in up-to-date trains, stronger communications infrastructure, limited-tillage farming systems, high-milage cars and renewable energy sources.  All of these things would reduce our reliance upon carbon and polution-intensive fuels.

The key is to demand that the government be eminently reasonable, and to combat car industry and corn industry noise by showing that the economy can grow under such conditions and that American workers can build windmills instead of tilting at them.

A group like us can do that, right?

--Judd Franklin

First, I am not accusing Tom of defending oil subsidies, I am accusing him of giving them a free pass. Oil is the subsidy KING, yet ethanol is the symbol of pork? You guys are like the WSJ. A story every other day about ethanol pork and never a story about feeding oil companies billions of taxpayer dollars while they have record profits. Then WSJ gets quoted here. Why cant a Grist writer see the absurdity of that?

Second, I dont understand your explanation of oil subsidies. Because the subsidy is applied closer to the retail point it has more of an impact on retail price? So if oil companies paid the same effective corporate tax rate as everyone else, actually paid extraction fees in all states, defended their own pipelines, paid royalty fees, etc. ... that cost would not make it to the pump? Who would pay for that, Lee Raymond? States exempt biofuels from fuels taxes because there is an economic benefit to promoting local fuel production and use. Biofuels are bad because states give them more tax breaks? I am sorry, but this type of argument is totally baffling.

I think we are reaching the point of diminishing returns here, so I will summarize my impressions of your writings (it's not personal):

1. You guys dont really understand fuel markets at the granular level, and your critique of ethanol in particular is extremely superficial.

2. Biofuels are not clean enough for you to warrant inclusion in the clean energy discussion, and it ticks you off that people have been over doing it on the green stuff, so you over do it on the criticisms.

3. Your anger at biofuels would be better directed at the oil companies, that are stealing your wallet while you scream to the world that biofuels are not as clean as people think.

4. Communities like this are increasingly marginalized, because they rarely know the score.

   We will add another 2 billion plus to a planet that will face increasing agricultural problems caused by global warming.

   How can it make any sense, when we face potential food shortages, to make them worse by using that potential food as biofuels?

   Biofuels are the enemy of the human race.

patrick in Beijing

Not immediately.  If these tax breaks were eliminated, the oil companies would do less domestic exploration and development.  This would reduce the supply of oil to the market and cause the price to rise, but it would take some time for the impacts to show up, because it takes 3-10 years to find, develop and exploit a new resource.
These resources would, of course, eventually become economic to develop even without the tax subsidy, but probably not until we're clearly past peak.  So as a side benefit, eliminating the subsidies would probably help flatten the oil production curve and preserve our domestic supplies for when we really need them.

In this sense, the impact of the subsidies to oil are very different from the subsidies to ethanol.  The (direct) ethanol subsidies are production credits, which have an immediate impact.  Not so the oil subsidies.
As a consequence, we'd probably wind up

From there, a few additional points to throw into the mix.  My only expertise in the subject is a 10-year out of date MS in biochemical engineering when I tried like hell to get bacteria to cooperate and turn cellulose into ethanol.  So I know a little bit about this stuff, but only a little.

From that perspective, three disjointed comments:

1. You write in your post that the ALA now thinks ethanol worsens air quality.  I don't know anything about the ALA, but there is a subtlety here that deserves note.  The volatile hydrocarbons (e.g., air pollution) released from any liquid hydrocarbon is a function of it's vapor pressure.  Ethanol and gasoline have a very weird mixing property whereby 100% ethanol has a lower vapor pressure than gasoline, but intermediate blends can be higher.  As a result, certain blends of ethanol can worsen emissions of certain non-methane hydrocarbons (NMHCs), but this is a function of the blend used.  And of course, it is utterly unrelated to NOx, CO and other pollutants that come out of the tailpipe - which are really a function of engine technology rather than fuel.  So yeah, you could come to a conclusion that emissions are better and then change your tune, but that's a function of which pollutants you happen to be concerned about and what you assume for blends.  Which isn't to say that ALA is right or wrong, just that it's more complicated than simply saying that they changed their tune.

2. The 10% limit on current auto warranties is a huge issue to follow.  We currently use something like 140 billion gallons of gasoline a year, and as you point out we're now making 7 billion of ethanol.  I've actually heard we're closer to 12 now, but both of our numbers agree that the plants now in construction are going to take us over the 10% (14 billion gallon) limit - at which point we are either going to find export markets for ethanol, change auto mfr warranties or see a price collapse in ethanol as we're oversupplied.  Or maybe all of those.  This isn't the end of the road of course, but it's worth watching anyway.  The ethanol industry right now is really anxious about the shakeout they expect as this supply glut hits - which is part of the reason why ethanol is now so much cheaper than gasoline - and everyone's bracing themselves for a shakeout.  Worth noting that this isn't a subsidy issue - just one of supply and demand, and will be very interesting.

3. As others have noted, the studies that show that ethanol has a net negative balance are all pretty dubious, in no small part because they all get written by the same small handful of academics who get podiums much bigger than the scientific consensus warrants.  Much like global warming in that regard.  The vast majority of the analyses say that corn-ethanol in dry mills is probably something on the order of 12% positive.  (e.g., for every 100 Btus of oil displaced, on a well-to-wheels basis, you consume about 88 Btus of other fossil fuels, netting slightly positive.)  But it bears noting that the fossil fuel use for corn ethanol is concentrated in the farm (natural gas-derived fertilizer) and the factory (natural gas to run boilers & dryers).  There are massive opportunities for enhanced efficiency at the factory that trips this up.  Turbosteam, the company I ran up until last year has done backpressure turbines at ethanol plants to generate power off their steam distribution network to just about eliminate the need for purchased electricity at the mill.  Just doing that - according to a UC Berkeley study of one particular plant - drives the net benefit from ethanol up to 20%.  That can be enhanced further if you stick a gas turbine on the front to make the steam and export a ton of really efficient electricity to the grid, displacing much less efficient power and associated fuel use.   As it turns out, the fossil you displace off the grid is about the same order of magnitude as all the fossil fuel use in the plant, so you end up boosting the overall net to around 70%.   I'm sure other folks are also working on good ideas, but the point is that these plants are all steadily getting more efficient - and have lots of room to do so.  As a result, even if the net-negative argument is true (which it isn't), the trends subverting that logic.

Again, great thread.

To avoid major political, economic and environmental shocks in the coming decades, as a country, we need to move forward aggressively to develop alternatives to petroleum based fuels and coal based electricity.

The debate about alternatives, and specifically the viability of ethanol, should be weighed against the well documented pros and cons of coal and petroleum as energy sources.

Is ethanol perfect? No. Is it incrementally better than petroleum and coal? I think it is for a variety of reasons. Ethanol is cleaner than coal, it keeps dollars in the United States instead of in the hands of governments that are our sworn enemies, provides much needed rural economic development, helps with energy security and because ethanol anchors the further development of biomass based liquid fuel production here in the U.S.

National media has been full of the shortcomings of ethanol lately (hmm wonder how much is due to lobbying from big oil)including, huge subsidies, causing hunger, culprit for higher food costs, using too much water and destroying our grasslands. I could debunk each of these slams on ethanol but suffice it to say for the moment that compared to petroleum and coal, ethanol is a step forward.

What we sorely need as a nation is a comprehensive energy strategy. The center piece of any energy legislation should be increased efficiency for transport, homes and industry.  That's the low hanging fruit, where we're going to get the biggest bang for the buck. At the same time renewable fuel/energy technologies need to be part of the mix.

Instead of haggling over the pros and cons of ethanol or wind energy or biodiesel we should be paying attention to the very real looming energy and environmental crises as Indian and Chinese economies ramp-up and as the earth heats-up. Going forward we're going to need every tool in the tool box.

Ethanol is a long way from being a silver bullet for our energy woes. But its a step in the right direction.

No it's not.
http://greyfalcon.net/lca.png
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http://greyfalcon.net/palmoil
http://greyfalcon.net/ethanol2
http://greyfalcon.net/ethanol5
http://greyfalcon.net/ethanol9

Unless of course the "direction" you want to head in is merely making us "energy independent". Where as we'd be far better off simply turning coal into a liquid.
http://greyfalcon.net/dilbert2.png
http://greyfalcon.net/fossilenergy.png

Also "It's a step" is a pathetic argument to begin with.  We could burn gold and diamonds as an energy source too.  But that would be idiotic.
http://greyfalcon.net/oregon
http://greyfalcon.net/biotaxes.png

I could debunk each of these slams on ethanol

I'd like to see you try.
http://i-r-squared.blogspot.com/2007/08/ethanolalternativ ...

-David Ahlport

The USDA, cellulosic ethanol's great champion and patron, seems a lot less enthusiastic than rbcololeman.

Heh, you should see what the EIA Administrator had to say.

On one occasion he stated that the EIA does not foresee that cellulosic ethanol is going to scale up to even a billion gallons by 2030, and one senator said "Isn't that in direct contrast to what the president thinks?"
http://i-r-squared.blogspot.com/2007/05/comments-on-senat ...

For some context, we consume over 140 billion gallons of gasoline per year right now.

-David Ahlport

Not quite.  We need every tool that will assist us in maintaining a technological society while avoiding the compound ecological catastrophe that is currently unfolding.  It's not clear that ethanol is one of those tools.

Oil is bad, nasty stuff that pollutes both our environment and our politics.  But it's also a mature energy source that is in decline, or close to it, with an immense infrastructure that is already built out and thus represents a sunk cost both economically and environmentally.

Corn ethanol, on the other hand, is a technology that is still in its infancy, but that suffers from several major FUNDAMENTAL problems as an oil substitute:

1. It will not scale.  The US cannot possibly grow enough corn (or any other sugar/starch crop) to offset a large fraction of our motor fuel use.

2. It perpetuates and supports industrial corn farming, which is immensely ecologically destructive, energy intensive, and water intensive.  As a nation, we're starting to wake up to the damage being done by industrial agriculture.  We need to move away from that model of producing calories and find a new way to feed ourselves (which is a whole other discussion).  Corn ethanol moves us further down that wrong path.

3. Whether it's energy positive or energy negative is a matter of quibbling over details.  The very most optimistic estimates give it an EROEI of no better than 1.6:1.  Gasoline production from crude oil has an EROEI of 5:1 or better.  If we want to maintain an autocentric culture (not a given, in my mind) and we want to do it with liquid fuels (very much not a given) then we need something comparable.  No current-generation biofuel gets us there.

4. It requires a whole new distribution infrastructure, because systems designed for gasoline or gasohol aren't compatible with high percentages of ethanol.  (This problem applies to ethanol from any source, not just corn.)

5. It's touted as a "transition technology" to next-generation ethanol sources, but those next gen technologies have been under development for decades without substantial progress.  So you're counting on a breakthrough in a specific field, which is bad policy and poor risk management.

6. All aqueous fermentation systems (whether corn, sugarcane, or cellulose) require substantial distillation energy.  (Cellulose is actually worse in this respect than corn -- the feed is more dilute, so the ferment is more dilute).  As natural gas prices go up, absent a carbon tax, distillers will switch to coal for process heat.

Similarly, the current system is encouraging all kinds of bad investments by attracting people who want to cash in on the production subsidies.  As Sean points out, there are lots of places within the process where careful design could wring out waste and improve the EROEI.  And there are other ways to make ethanol sustainable.  But there's little incentive to do so in the current gold-rush mentality that drives the industry.

So I'm not saying that all ethanol is automatically bad.  What's bad is the way that it's being supported politically, which is encouraging get-rich-quick schemes that are economically and environmentally unsustainable in the long run.

make it harder to transition to a cost-effective  market for cane sugar fuel in America, since Brazil's cheap and vast fuel supply would hurt the domestic value.

You mean Brazil's supply of Petroleum, right?
http://greyfalcon.net/brazil
http://greyfalcon.net/brazil2
http://greyfalcon.net/brazil3
http://greyfalcon.net/cerrado

-David Ahlport

Looks like corn ethanol is not a bridge to cellulosic ethanol.

Who knew?

http://www.greencarcongress.com/2007/11/study-raises-co.h ...

-David Ahlport

 "Ethanol is cleaner than coal, it keeps dollars in the United States instead of in the hands of governments that are our sworn enemies, provides much needed rural economic development, helps with energy security and because ethanol anchors the further development of biomass based liquid fuel production here in the U.S."

    Who are the sworn enemies that you are trying to keep dollars out of the hands of??  I am curious.  It is a pretty strong statement.

    As to providing "much needed rural economic development", that money will largely go to giant agribusiness, who don't really "need" the money, and who develop mainly by gobbling up the competition.

    And so the rich get richer....

patrick in Beijing

Everything that we live on is subsidized in many ways.  The combined effects of government and commerce enable our living well beyond the means of the earth to support it. And the drive toward greater globalization is taking us further out on the limb.  

If we do not think more radically about the basics like the demand for mobility, our physical organization, the needs for maintaining growth in a capitalist system, etc. we are just deluding ourselves and losing the bigger picture.  

As for the specifics of subsidies for corn production if want to really get into the weeds, we could add up a really large list including farmers' exemptions from sales taxes on all their production inputs (at least in Illinois), the subsidized roads and waterways for moving inputs to the farm and their production to markets, their exemptions from stricter environmental regulation, etc. etc.

We really need to think about the implications of making the earth a photosynthetic energy plant to meet the needs of a species that has already appropriated way more than its sustainable share of primary production.  The meaning of the earth is NOT man.  

No need for fuel farmed fuels or coal to liquid.  Oil can be stretched to fill in the 20 year gap by lowering demand.  A plugin hybrid can burn 10% of the oil on average that an equivalent gas guzzler uses.

Light electric rail would be faster than air travel on many regional city to city travel routes.  Saving a lot of oil as well as time and frustration.  As airlines scrap gas guzzling jets because of lower demand, more efficient designs can replace them, like fuel cell/turbine engines and superconducting linear accelerators built into runways to lower the huge fuel demand of take off.

Oil a better, cleaner alternative than ethanol or biodiesel.  Smaller quantities of these fuels can be produced efficiently (without fossil fuel input) from the waste stream using peak wind and solar power.  They will be a signifigant input once liquid fuel consumption is reduced with plugins.

Algae to liquid fuel is also a possibility given much lower liquid fuel demand.  Even compressed biogas or methane could be a useful fuel in hypercar plugin hybrids or long haul trucks and buses and freight trains that can't be converted to electric.

http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin

I was thinking, rather than heat my home with dirty fossil fuels, I'll heat it with renewable ethanol.  So I got out my tractor, planted 10 acres of corn, applied lots of pesticides and herbicides, and petroleum-based fertilizer, all done with petroleum-powered equipment.  I then harvested that corn and toted it up into a hollow in the mountains behind my house.  I set up this "biofuel" machine that converts the starches in the corn by way of fermentation into ethanol.  The problem was that the fuel was like 19 parts water to 1 part alcohol, so I had to distill it.  So I cut down a bunch of trees and burned them to heat up this other apparatus I had developed with an old car radiator and the resulting "ethanol" was pure enough to power my car or home heating system.  But then some federal agents found my still and accused me of intemperance and intention to market my "biofuel" as an alcoholic beverage.  Can you believe that!  Anyways, it turns out they were doing me a favor...oil was better to heat my home anyways.

Il faut cultiver notre jardin.

Great article.

M2k

Atleast the efficiency doesn't suck quite so hard if you just burn the kernals itself.

Although frankly, a grass pellet stove would work better from an ecological standpoint.
http://www.treehugger.com/files/2006/07/pellet_stoves_a.p ...

-David Ahlport

1. Better insulation
   
2. Better building design
   

Nonetheless, a couple of comments from R.B. Coleman's most-recent post deserve to be answered. He writes, "You guys don't really understand fuel markets at the granular level, and your critique of ethanol in particular is extremely superficial.", echoing his earlier remark ("People tend to not understand what actually goes on in fuel markets, and this post is more of the same.")

Presumably he does understand price formation in fuel markets, though he "is baffled" by the explanations given in this string:

I don't understand your explanation of oil subsidies. Because the [ethanol] subsidy is applied closer to the retail point it has more of an impact on retail price?

No, it has more of an impact on the (wholesale) price because it affects marginal production decisions. The Volumetric Ethanol Excise Tax Credit (VEETC) is directly related to the volume blended, and hence supplied (which mainly means produced, since the tariff on imports is stiff). Effectively, it allows ethanol producers and the suppliers of their inputs (mainly corn farmers) to raise their prices.

I get a chuckle at the way ethanol boosters (not necessarily R.B. Coleman) like to pretend that the VEETC goes to oil companies, not ethanol producers or farmers. (It is paid to them, true, but its ultimate incidence is upstream.) Here's a quote from the Ethanol Business blog:

The federal government provides a 51 cent subsidy for every gallon of ethanol that is produced in this country. The critics say, "See, it's obvious that ethanol does not make economic sense because it needs subsidies to be competitive." But guess what? The ethanol producers do not get one penny of that subsidy. It all goes to the companies that blend ethanol and gasoline together.

So, if what the Ethanol Business blog says is true (which it isn't), why isn't the ethanol industry banging down the doors of Congress to rip that outrageous subsidy away from Big Bad Oil?

But I digress. R.B. Coleman continues:

So if oil companies paid the same effective corporate tax rate as everyone else, actually paid extraction fees in all states, defended their own pipelines, paid royalty fees, etc. ... that cost would not make it to the pump?Who would pay for that, Lee Raymond?

Some of those costs would not make it to the pump (because they are wealth transfers). Rather, over time, less petroleum would be produced in America. But say there were a surcharge to recover more of the costs associated with protecting oil supply lines, and of holding strategic stocks. That would increase end-user prices. In that case, we should expect consumers of ethanol to also pay a surcharge for strategic stocks, since the supply of ethanol's main feedstock (in the USA), corn, is also subject to variability in supply -- more so than imported petroleum, according to this recent study.

States exempt biofuels from fuels taxes because there is an economic benefit to promoting local fuel production and use. Biofuels are bad because states give them more tax breaks? I am sorry, but this type of argument is totally baffling.

No, biofuels are not intrinsically bad because states give them more tax breaks. But we should ask what taxpayers are getting in exchange for those transfers to ethanol (and biodiesel) producers. Not much, it seems. For example, according to our recent study, the subsidy per tonne of CO2-equivalent avoided works out to at least $300 for ethanol. That is far higher than the price at which CO2-equivalent offsets are trading.

These are only my personal opinions.

Its instructive to consider who originally framed the food vs. fuel debate. Its not surprising that it was Warren Staley, CEO and Chairman of Cargill who was the major instigator, and as usual in these things, played the role of wise counselor when in reality he and his company are major culprits. I have to laugh because at the same time Staley started this debate back in May 2006, Cargill was busy building 3 mega-ethanol projects in Nebraska, Ohio and Indiana as a joint venture with Ron Fagen (the premier ethanol plant builder in the U.S.). At the same time Cargill began doubling ethanol production capacity at their Blair, Nebraska plant. Over all, while Staley was blasting ethanol, his company was busy tripling its ethanol production capacity in the United States. Typical of Cargill and its ilk, experts in hedging all bets.

Cargill, ConAgra, Dreyfus, Bunge etc. and half a dozen other majors have controlled upwards of 70% of the worlds food supply for a long time now. The major force causing hunger in the world has been and continues to be their manipulation of world markets in pursuit of profits while in cahoots with sovereign governments such as the U.S.A. Since the 60s the US government caught on to using US grain as a foreign policy tool, a good example being the US led grain embargo against the USSR in the 80s.

For decades USDA subsidies have completely distorted pricing of grains and food commodities world-wide; teaching US farmers to overproduce, and many times putting 3rd world farmers out of business. Until the ethanol boom Mexican farmers had just about stopped growing maize. Instead many have become tenant farmers growing things like agave for tequila or have simply packed up and headed north to find work as illegal immigrants. [An aside] My teenage son volunteered in rural Honduras (Lempira) for 6 weeks this past summer, traditionally an agricultural area. It turns out the village of a few hundred people was almost completely populated by women and children. The men were all up north working illegally in the USA because they couldn't make any money working on their land.

Foreign farmers haven't been able to compete with our farmers who year after year have been selling their corn/wheat/soy to Cargill, Dreyfus etc. at 10% to 30% below their production costs. Our farmers sell their grains below cost and the gov't steps in to make the farmer whole - and Cargill - and Dreyfus - and Bunge get richer and richer - while the 3rd world farmer and the poor in rural villages around the world got screwed. Meanwhile the 3rd world country in question came under the thumb of the USA if it wanted any chance of providing food for its people.  

Poverty is the principal cause of hunger world wide. So, the most effective way of fighting hunger is by fighting poverty. In developing countries, still mainly rural, causing prices of local grown ag-products like corn to increase in value allows 3rd world farmers to finally make money farming. The recent rise in ag prices here in the U.S., if sustained, will end up being the single most effective method to fight poverty and thereby hunger world-wide.  

At 12-15 billion gallons of corn to ethanol production annually here in the United States ethanol production will plateau and US farmers will grow the required corn. Ag-prices though, will stay near historical highs world-wide. As ethanol industry production edges up into the 12 BGPY range it will become increasing difficult for developers and producers to add additional capacity. A new dynamic equilibrium will be reached with farm commodities at a higher price point. This new price point will allow 3rd world farmers to make money farming corn and wheat and other grains for the first time in many years.

Oil companies don't pass on a penny they can get away with putting in their pocket. In the present market for ethanol there are very few places in America where the rack prices (wholesale) reflect the cost of the cheaper blend stock (ethanol priced 50 to 60 cents under unleaded) and the 51 cent VEETC.

I get a chuckle at people who think pricing is based on cost plus, especially when it comes to the oil companies.

Yes, sure a lot of the money does go into the hands of agribusiness. I know Nebraska farming real well. I've worked on a number of ethanol projects with farmer groups in Nebraska and the rural communities are booming because of the high corn and soy prices.

Land prices are increasing by leaps and bounds - adding huge amounts of paper wealth to family farmers in the Midwest.

I get a chuckle at people who think pricing is based on cost plus, especially when it comes to the oil companies.

Nobody said anything of the sort. What we said was that there was a difference in the way that different subsidies manifest themselves in end-user prices, and one cannot assume (as R.B. Coleman seems to), that if one eliminated all the tax breaks for domestic oil production that gasoline prices at the pump would rise substantially. On the other hand, if there were a tax that was levied specifically on gasoline, or all transport fuels -- e.g., to recover more of the costs of maintaining strategic stocks -- well, yes, one could expect to see a rise in end-user prices.

But RSK then perpetuates the argument that the ethanol subsidy only enriches oil-company middlemen. Of course they are going to try and pocket as much of it as they can. The question is how much of it they can grab, which will vary by region and according to market conditions. But RSK's subsequent post belies the general claim made by the industry (see my previous post) that "ethanol producers do not get one penny of that subsidy. It all goes to the companies that blend ethanol and gasoline together." Indeed, RSK admits:

[A] lot of the money does go into the hands of agribusiness. I know Nebraska farming real well. I've worked on a number of ethanol projects with farmer groups in Nebraska and the rural communities are booming because of the high corn and soy prices. Land prices are increasing by leaps and bounds - adding huge amounts of paper wealth to family farmers in the Midwest.

Um, that money would not be getting into the hands of agribusiness and Nebraskan farming communities unless rents were being generated in the system and those agribusinesses and communities were capturing a significant share of them.

Whether such transfers are good for America as a whole is an open question. The money that is enriching the ethanol chain comes mainly from taxpayers and consumers from outside the Corn Belt. It is not sustainable.

These are only my personal opinions.

But certainly in the short run.
http://greyfalcon.net/grocerybill.png
(^ The way to cherrypick this is to only pay attention to the red line)

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As for the "Well it's the price of oil!" argument.
Yes, but no.

It's not because the marginal cost of production has gone up much at all.

It's because sellers get more value selling their commodity as a fuel, instead of food.  And in order for them to consider selling it as food, the price of the food has to go up.

The value of ethanol is tied to the value of petroleum.  If the value of petroleum, then the value of corn as fuel goes up.

(Which can also be further delinated toward "The value of growing energy crops instead of food crops"  Since we aren't getting any significant increases in available farmland.)

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But ultimately in the long run it's more of an argument of Fuel versus Rainforrest.  As much of the world's food production is being shifted toward Brazil, Argentina, and Indonesia.

http://greyfalcon.net/soy2
http://greyfalcon.net/cerrado
http://greyfalcon.net/ran
http://greyfalcon.net/tropics3

-David Ahlport

Land prices are increasing by leaps and bounds - adding huge amounts of paper wealth to family farmers in the Midwest.

And of course killing off farmers that rent, and preventing any market entry of new farmers.
http://www.alternet.org/module/printversion/52073

And of course as the price goes up, so does the cost of the inputs.
http://www.seekingalpha.com/article/33925-natural-gas-inv ...

So the marginal return really isn't that different, meanwhile half the farmers are being pushed out of the market.

Great news for ADM.
Great time for land-owning farmers to sell out.
Great time to lose the farm for all the rest.

-David Ahlport

Foreign farmers haven't been able to compete with our farmers who year after year have been selling their corn/wheat/soy to Cargill, Dreyfus etc. at 10% to 30% below their production costs. Our farmers sell their grains below cost and the gov't steps in to make the farmer whole - and Cargill - and Dreyfus - and Bunge get richer and richer - while the 3rd world farmer and the poor in rural villages around the world got screwed. Meanwhile the 3rd world country in question came under the thumb of the USA if it wanted any chance of providing food for its people.  

Oh yeah, and by the way.

Brazil is now the world's largest producer of Soybeans, as of this year.

http://www.nytimes.com/imagepages/2007/04/05/business/200 ...
http://photos.mongabay.com/07/soy_share-600.jpg

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US is still the reigning champ on corn (obviously)

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Wheat I wouldn't be surprised if we lose that to elsewhere.

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Not to mention, you can largely owe much of the remaining holdouts merely because they haven't been sued by the WTO yet.
http://www.organicconsumers.org/ofgu/brazil021605.cfm

-David Ahlport

      There are a number of fallacies in your arguments (but I will only deal with the ones that others haven't already touched on).

      You attribute the Food Vs. Fuel discussion to beginning with Warren Staley of Cargill.  Do you have any evidence for that?  Frankly, the problem began to be discussed and considered as soon as the idea of biofuels came up, certainly long before your date in 2006.  

      Having set up your straw man, you proceed to knock him down.  No big deal, frankly, and irrelevant to the discussion.

      You wisely point out that one of the main causes of hunger is poverty.  You then suggest that making farmers wealthier will eliminate poverty and thus eliminate hunger.

      There is an underlying assumption that the poor are farmers who are hungry.  I don't know anyone who believes this.  Many of the hungry worldwide are poor urban dwellers.  Raising corn prices will keep them poor and make them hungrier.  So, what you say just doesn't make any sense.

      You further say that rising corn prices are making farmers in some parts of America richer.  Maybe.

      But perhaps we should talk about two kinds of farmers, land owners and family farmers (the latter actually working the land, the former merely owning it, while others do the work).  Most of the large farms are either corporate owned or owned by families who really qualify as large land owners, not what we traditionally picture as farmers (and man or woman, a tractor, a barn and so on).

      And the land owners may be becoming richer, but what about the farmworkers?  Trickle down hasn't worked any better in agriculture than anywhere else.

      Large 3rd world land owners may indeed become wealthier through higher food prices, but large numbers of 3rd world poor will suffer.

      They seem to be absent from your calculations.

      Final thought, Venezuela isn't MY sworn enemy.

patrick in Beijing

I know Nebraska farming real well. I've worked on a number of ethanol projects with farmer groups in Nebraska and the rural communities are booming because of the high corn and soy prices.

I suspected from your comments that you might be invested in corn ethanol in some way.

National media has been full of the shortcomings of ethanol lately (hmm wonder how much is due to lobbying from big oil)

Well, I will admit that Exxon has been paying me large sums to bash ethanol. But few readers are naïve enough to think that big oil has the rest of the country's writers under its thumb. You are, of course suggesting that anything big oil would say would be biased because they are invested in oil.

Ethanol is cleaner than coal

Ethanol is a liquid fuel for cars. Coal is a solid fuel for generating electricity. Ergo, ethanol is not a replacement for coal. Comparing the two is nonsensical.

[ethanol] keeps dollars in the United States instead of in the hands of governments that are our sworn enemies

As does using less oil. Using ethanol to keep more money in the United States is a comically inefficient way to do it. You fail to point out the cost of using ethanol to achieve that goal. The American taxpayers who are not on the receiving end of these handouts are paying a high price for corn ethanol. We just need to use less oil and using less oil does not require me to hand you my tax dollars to produce ethanol. Not to mention, "using less oil" is vastly superior environmentally to growing corn and would release far less green house gas.

Ethanol ... provides much needed rural economic development, helps with energy security and because ethanol anchors the further development of biomass based liquid fuel production here in the U.S.

It is an anchor alright. You can't make cellulosic ethanol or biodiesel at a corn ethanol plant. You would have to rebuild a large part of it or start over, depending on which would be cheaper. Call me naïve, but most investors I know will fight tooth and nail to keep a competitor out of their market. The bigger corn ethanol gets the harder it will be to displace. All this assuming cellulosic ever arrives of course.

Rural economic development via government largess does not deserve to be prioritized above other areas. Prove to me corn ethanol helps with energy security. Don't just say it.

Instead of haggling over the pros and cons of ethanol or wind energy or biodiesel we should be paying attention to the very real looming energy and environmental crises as Indian and Chinese economies ramp-up and as the earth heats-up. Going forward we're going to need every tool in the tool box

Not sure what you are getting at here but corn is as bad or worse than oil for global warming. We need to throw that one out of the toolbox. You are going to have to stick to your farm welfare, energy independence, and bridge to better fuels arguments, because the global warming one is going down in flames thanks to all of the new science coming in (so are the others but not because of science articles).

First I'll start by debunking allegations concerning ethanol causing hunger and higher food costs.

Its instructive to consider who originally framed the food vs. fuel debate. Its not surprising that it was Warren Staley, CEO and Chairman of Cargill

A CEO at Cargill is responsible for the call for a moratorium on biofuels by the United Nations food expert? Where have you been? Nebraska farmers growing corn to feed government mandated artificial markets are just part of the puzzle. There is a whole planet out there and global warming has connected all of us together.

In developing countries, still mainly rural, causing prices of local grown ag-products like corn to increase in value allows 3rd world farmers to finally make money farming. The recent rise in ag prices here in the U.S., if sustained, will end up being the single most effective method to fight poverty and thereby hunger world-wide.

... Ag-prices though, will stay near historical highs world-wide.

Didn't you just say you were going to debunk the idea that ethanol would raise the cost of food? How can you "logically" argue that "historical highs" in ag prices will result in a decrease in the cost of food?

Who is going to buy this high priced grain they are going to grow? We sure don't need it. Other impoverished third world nations? The world's poor spend up to a third of their income on food. Any price increase is devastating. I wish I had an answer for world poverty, but raising the price of food is sure not it.

I agree with R.B Coleman, you guys don't understand the fuel markets.

rbcoleman (apparently the director of Renewable Energy Action Project) does not appear to know any more about fuel markets than anyone else here. His comment that ethanol is cheaper than gasoline was in error. I checked out his claim and when adjusted for lower efficiency E-85 still costs more than gas. As far as I'm concerned, this shot his credibility on issues of fuel markets right from the start.

This is my formal rebuttal to Brooke Coleman's (director of the Renewable Energy Action Project) comments found in Tom Phillpot's latest corn ethanol article. I'm using my access to the bully pulpit to pull it out of the comments field, like I did the last time a corn ethanol enthusiast joined the discussion.


In the end, it all comes down to biodiversity. Poison Darts--Protecting the biodiversity of our world