Biofuels; More Than Fulfilling Early Promises.

Summary


This will be a summer of countless negative articles on ethanol in the American press because some significant pieces of ethanol policy are due to expire at year’s end. EPA is also expected to approve an increase of the maximum ethanol blend from 10% to 15%, a 22 billion gallon market for ethanol.

News stories influence public opinion and public opinion drives policy, so it is no wonder ethanol opponents are starting a media war. 22 billion gallons is a market share worth fighting over.

Analysis

Needless to say, as the ethanol industry continues to grow, the level of opposition continues to increase and the battle has become much more visible. Historically anti-ethanol rhetoric has originated from the American Petroleum Association (API) and associated “Big oil” companies but they have now recruited some strange bedfellows of activist organizations to their cause, including the following corporate food interests and environmental groups.

· Friends of the Earth:
· American Meat Institute:
· Clean Air Task Force:
· Grocery Manufacturers Association:
· National Council of Chain Restaurants:
· Natural Resources Defense Council:
· Oxfam America:
· Taxpayers for Common Sense:

These organizations have also found a willing media made up of lazy journalists who will read a few articles, quote a study generated by oil dollars and then write a story repeating the concepts provided to them. A typical example of this is the following article that recently appeared in The Economist.

http://www.economist.com/business-finance/displaystory.cfm?story_id=15773820

Consider these inaccurate excerpts from the article:

“The fact that corn-ethanol production has continued to grow, despite the failure of a number of firms in late 2008 and early 2009, points to the efficacy of the various protections and subsidies it enjoys (falling maize prices helped too), though it says nothing about their efficiency or wisdom.”
The FactsThe author jumps to his own conclusion. The primary reason corn-ethanol continues to grow is because we have huge supplies of corn, we are the world’s low cost producer and we are capable of greatly increasing yields. Contrary to the story, it also does say a great deal about efficiency; because production has become very efficient and the ethanol market price, without any subsidy is currently 35% lower than unleaded gasoline! The April 6 market price for ethanol on the CBOT is $1.51/gallon, unleaded gasoline on the NYMEX is $2.35/gallon. When the $0.45 VEETC tax credit for ethanol is added, ethanol is $1.29 cheaper than gasoline ($2.35 - $1.51 + $0.45 = $1.29).

It also speaks to wisdom, because ethanol is cheaper and can replace a dirty, highly subsidized, imported product like oil that has a negative influence on our foreign policy.

"Despite ample investment, however, production costs remain high"
The Facts: “Ample” means sufficient and no one should consider the current investment in cellulosic ethanol sufficient to build the necessary production infrastructure. All investment dollars to date have been dedicated to R&D with only a handful of demonstration facilities built beyond the pilot plant stage. Efficiency will happen and costs will come down when there is investment capital available to build commercial sized production facilities.

"Ethanol is not a particularly good fuel"
The Facts: Ethanol is a wonderful fuel. It is just not a particularly good fuel for an engine that was designed specifically for gasoline. An engine that is optimized to utilize the 115 octane level and clean combustion of ethanol will outperform gasoline in all respects, including performance, environmental and fuel economy.

“Even if cellulosic ethanol were to get cheaper, though, it would still be ethanol, a poor fuel. The alternative is to produce something better, such as an advanced biodiesel.”
The Facts: It is amazing how quickly various fuels and energy sources can become fashionable and then everyone will jump on the bandwagon. This article endorses biodiesel, despite that it is more expensive to produce than ethanol and it is ready to support algae as the next biofuels answer without any documentation of how many years away it is from commercialization. Algae has potential as a clean energy source but it is at the same stage of development that ethanol was a decade ago. Once algae becomes close to looking like a solution, rest assured, both oil interests and radical environmentalists will oppose it.

“Even as producers have urged the EPA to lift this bar, it has challenged them to move beyond corn and make ethanol from cellulose, the abundant, inedible portion of most crops. Using inedible inputs avoids fights about diverting food crops for fuel, and frees the industry from reliance on a single commodity.”
The Facts: On March 31, USDA came out with the first planting intentions report that projected a 3% increase in corn plantings in 2010. They also projected a huge surplus at the end of this marketing year of 1.8 billion bushels. Corn prices have gone down to $3.45 per bushel on the CBOT and even as low as $3.10/bushel in the country. The amazing productive capability of american agriculture refutes any issue of food vs. fuel and the theory of indirect land use impacts.