Can The Ethanol Market Stand On Its Own Two Feet?

from the etha-what? dept

Tue, Jul 3rd 2007 12:37pm — Joseph Weisenthal

Soaring energy prices have created an ideal climate for alternative energy investment, as evidenced by the boom in that space. You'd think, then, that with the market doing a good job of sorting things out, there'd be little need for the government to intervene. But while entrepreneurs and VCs are seeking to build sustainable, profit-making businesses, the ethanol industry has sought to profit from the largesse of the US taxpayer. The industry has been helped by direct subsidies as well as indirect ones, such as laws that impose added costs on its rivals. While many people champion higher CAFE standards in order to protect the environment, the ethanol lobby has been a particularly big booster of them, because of a 1988 law carved out an exception for vehicles that could run on ethanol. Meanwhile, this favorable treatment towards the industry causes problems in other pockets of the economy. Increasingly, companies have to be concerned with "agflation", the soaring price of agricultural commodities due to the heightened demand for corn (which, as you learned in econ 101, increases prices for corn substitutes, like rice and wheat). If ethanol is going to be a meaningful energy source in the future, it needs to stand on its own in the market. Otherwise, the existing setup appears to be just more counterproductive agriculture subsidies, cynically concocted in the name of national security and the environment.

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Steven, 3 Jul 2007 @ 12:56pm

Greedy.
People are always going to look for a way to make things cost more. They may try and mislead us into believing they're here to help. But this is a cynical society, and too many people are looking out for themselves to realize what the future holds for us all as a single society. If ethanol gains any success it is logical that more people will begin to use it. This will cause even more excuses for the business to make money. Soon the the people selling ethanol will see how large their customer base has grown, and start to gradualy demand more money. Not only will the people selling ethanol make money, but soon people will be charging unreasonable fees to the non so smart consumer to make cars able to run on ethanol. Soon vehicle manufacturers will start making cars that run on both ethanol and gasoline, and charing unreasonable amounts of money. They'll say it's the wave of the future, and you have to pay a little more these days. Soon enough the ethanol business will become to pricey, and we'll all move on to propane, the the next solution, and the next, and the next... Until every single type of potential fuel has been exploited.

This is some what off subject, but there are a lot of consumers out there that don't know very much, and will always be exploited.. They see something in a commercial, and realize for some reason they need it. Maybe it was advertized as classy, or smart, or the new trend of some sort.. Society is becoming less sophisticated all the time making it possible to exploit others. We percieve everything entirely wrong these days.. It's like the new iphone idiot consumers are going to buy one, anduse it for only a few things. But they will never use it to it's full potential because they just bought it to impress their friends. So what if it could make traveling easy by looking up directions, or maybe a network admin could use it similar to a pocket pc to check the server uptime. People in socitey take one look at the commercial, say wow that's neat, buy one, then never realize how amazing it really is. And that's just my opinion on corporations. I'm all for making a profit.. But not for the exploitation of a lesser sophisticated society. And yes.. there are the good people out there that do good deeds, and the corporations that do not exploit. Go honesty!
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SPR, 3 Jul 2007 @ 1:12pm

Ethanol
I oppose our migrating to ethanol for two reasons. Ethanol is not efficiently burned in internal compustion engines. A car tht gets 20 mpg on gas will get 15 mpg on ethanol. Using ethanol is puting our fuel needs in direct competition with our food needs. I have seen estimates that our food costs will increase by as much as 70% by fall. We need to build more refineries, drill for our oil in Alaska, in the Gulf of Mexico and off of the West coast (these are short term fixes), and build more (many more) nuclear power plants. We need to find a renewable energy source that does not compete with our other needs (a long term solution). No one can possibly believe this will be easy or painless, but we MUST do these things.
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discojohnson, 3 Jul 2007 @ 1:23pm

Re: Ethanol
while i don't buy into the increased food costs, the fuel efficiency comment from the parent makes a good point. can anyone source this? it sounds like a pretty big deal breaker for everyone i know that i've been trying to convince not to buy one of those damn flex fuel cars
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cutter892, 3 Jul 2007 @ 1:50pm

Re: Re: Ethanol
Actually corn based ethanol does increase food prices here in the US because corn is used for everything feeding live stock espically cows. Have you noticed the price of milk go up it's because more corn is being used for ethanol and is being taken out of th food supply. The price of corn goes up the farms pay more for it and to compinsate the price of dairy products goes up. It is estimate to meet the congressional mandates for ethanol use every last acre of corn growing land will have to be used. Which means we will have to import all are corn because we are burning it for fuel. On a side note it takes more energy to make ethanol than ethanol actually puts out at the very best it's about even. OH where is the Back to the Future Mr. Fusion when we need it.
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sonofdot, 3 Jul 2007 @ 1:50pm

Re: Re: Ethanol
Decreased fuel efficiency when running on ethanol is a fact. In Brazil, people buying fuel for their cars determine which is cheaper, gas or ethanol, with some consideration for the lower mileage when using ethanol. I'm not sure if the difference is as much as 25%, but it's definitely enough that you'd notice the difference.

But I don't think that's necessarily a deal breaker. It's more a matter of who you want to support -- oil companies or ethanol companies, and perhaps how concerned you are about the environment, given that ethanol burns much cleaner than gasoline.
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Anonymous Coward, 3 Jul 2007 @ 2:01pm

Re: Greedy.
"Soon vehicle manufacturers will start making cars that run on both ethanol and gasoline, and charing unreasonable amounts of money."

Soon? WT1999
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Anonymous Coward, 3 Jul 2007 @ 2:02pm

Ethanol is crap
Like cutter metioned, ethanol requires a whole lot of energy to produce. It is very inefficient.

Tell your friends to support hybrid high-temperature nuclear power plants/hydrogen production plants.
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Sorry Off Topic, 3 Jul 2007 @ 2:06pm

This is some of the best discussion there has been
I just wanted to point out that it was civil and informative.
thanks team
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Davis Freeberg, 3 Jul 2007 @ 2:13pm

Substitutions creating substitutions
I have already seen a lot of companies move away from corn. Tostitos is trying to convince people that all flour tortilla chips are cool and I'm pretty sure that Doritos is using more flour in their chips now.

It's funny to see the price of flour go up, because the price of corn went up, because the price of oil went up. Considering that there aren't a lot of direct substitutions in oil, it's almost surprising to see so much demand for a product create so many problems for other industries. I still don't understand why hydrogen hasn't been a viable solution, but that seems like the right way to go for me. Either way though, I hate to see the subsidies, taxpayers just end up paying it when they go to the grocery stores instead.
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Ian Andrew Bell (profile), 3 Jul 2007 @ 2:28pm

Hear, Hear!
Great summary ... I went into the issue with a little more depth last month here.
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SPR, 3 Jul 2007 @ 2:31pm

Re: Substitutions creating substitutions
I'm not sure about the Hydrogen fuel option. How do they produce the Hydrogen? Do they extract it from water, you know, H2O? If that is the case, then we are adding water shortages to the problem. Not much of a solution.
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yack39, 3 Jul 2007 @ 2:38pm

Ethanol
There are actually two products being produced by Ethanol refineries. One is the alcohol and the other is the grain meal. The ground corn without the ethyl alcohol is still used to feed animals. The feeding of livestock has not been effected. There is a decrease in fuel efficiency, but it is a newer technology movement. All automobile manufacturers are working on increasing fuel efficiency. I am sure they can work on creating more efficient flex fuel vehicles as well. I think a solution would be to run hybrid vehicles - electric with and ethanol back up.
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cutter892, 3 Jul 2007 @ 2:40pm

Re: Substitutions creating substitutions
Hydrogen is far more volitial than gasoline. In fact liquid gas is not even explosive (do not try this at home) thats why in the dead of winter you can throw lit cigrattes into a bucket of gas and it won't explode, but if you do it on a warm day the fumes are highly flamable. Also there are only a few ways of harnessing hydrogen for power Nuclear fission (Homeland Security would love to hear about a car using that), elctrolisis and fussing hydrogen and oxygen together for water or taking hydrogen peroxide exposing it to stainless steel and burning the now seperated hydrogen and Oxygen for fuel(this is how a Soviet nuclear sub sank. The torpedos used this method for proplsion. The fuel leaked the liquid broke down and a spark blew the entire sub to the bottom of the ocean). What I'm trying to say is hydrogen is just to dangerous (remember the Hindenberg).
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SPR, 3 Jul 2007 @ 2:47pm

Alternate fuels and alternative vehicles
I have a Prius and am very pleased with averaging 46 mpg, even though I don't have a light foot. The max of 60 they advertise is based on driving more gently, and not running the AC (This is not a complaint, just a comment). I think it is time we realize that our backs are against the wall (and have been for more time than we care to admit) and make some tough decisions that are guranteed to displease someone, no matter what we do. 1. Many more nuclear power plants using more modern technologies than existed in the 70's and 80's. 2. Legislatively mandate that all vehicle manufacturers must produce vehicles that yield a minimum of 75 mpg. 3. Open the Alaskan oil fields for drilling and extraction (I've seen the pictures and stories that provide evidence that the ALaskan pipeline is actually helping the wildlife, and I believe this to be true.) 4. Uncap the federally sealed oil wells in Pennsylvania, Ohio, West Virginia and Kentucky.
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The Man, 3 Jul 2007 @ 2:50pm

The final straw for Ethanol
When milk prices go up due to higher feed costs, I can manage. But when my tequila price goes up, we have got to draw the line.

In Mexico, they have started to push (ag talk for pulling trees or crops out of the ground) Agave plants in order to plant corn. They are doing this because corn is going for such a high price right now. Less agave = higher fuel price.

Another issue regarding Ethanol, is that we don't fully understand the toxins release by it. It is like MTBE, the greens had to have that in the fuel, they rush it to market and pass laws to force its use. Then they realize it is worse for the enviornment. Millions of dollars later they make laws forcing MTBE out. Ethanol already has some negative testing.

http://www.scienceblog.com/community/older/1997/A/199700109.html

Also, if Ethanol were to be main stream, every piece of open ground in America would have corn growing on it. What do you think is worse for the environment, a hole in the ground or displacing hundreds of thousands of acers of animal habitat to grow corn?

I did not even mention the old stand by, it takes more oil based fuel to plant, grow, harvest and refine Corn into ethanol that the fuel it would create gallon to gallon.
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HealthyBreeze, 3 Jul 2007 @ 3:07pm

there's better and worse bioethanol
It's true that today corn ethanol only yeilds about 1.3x as much energy as it takes to grow and make it. There are start ups that make ethanol from wheat straw, wood chips and other cellulosic matter that yeild 8-12x as much energy. They should be ready to scale up in the next couple years.

It's also true that ethanol has only about 70% as much energy per gallon as unleaded gas. However, Butanol, a slightly longer chain alcahol, can also be made from biomass and has closer to 90% of the energy per gallon, and cars can run on it without having to be "flex fuel." The cost of butanol can soon be much lower than gasoline, without raising food costs.

I think a big challenge will be taking good new technology from "start up" to replacing gasoline. That requires a lot of production and distribution capacity. Some big oil companies, like BP, see that their oil reserves will eventually run out and are looking to make the transition to biofuels. Hopefully those types will help scale up biofuels quickly. We should also close the CAFE loophole for Flex Fuel vehicles, so we don't get Ford Excursions that are capable of running on biofuel, but really using standard petroleum and getting 13 miles per gallon.
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Mike, 3 Jul 2007 @ 3:08pm

Re: Re: Re: Ethanol
I read with interest your conclusions as to the rise in food prices taking place in the U.S. today. I have worked in the agriculture industry for the past 35 years and I would like to share my thoughts on your comments.Corn prices today are rising never before in history reason being supply and demand.Poultry and swine demand much higher use of corn meal than dairy or beef cattle.Milk prices today at the farm level are the highest in history also dictated by supply and demand not feed or energy costs.After 2 years of extremely low prices the dairy industry has developed more markets around the world for their products those efforts are paying off with increased demand.Dairy farming is a business and must be profitable to survive, the costs associated with developing these new market have come fees collected from dairy farmers payments for their milk.
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SPR, 3 Jul 2007 @ 3:26pm

Re: Re: Re: Re: Ethanol
What you say is all true, Mike, and that just means that there is even more upward pressure on our food costs when you add in the factor of increased demand for feed corn and whatever else is used to produce ethanol. All I am saying is that ethanol is not a good alternative to carbon based fuels. We need other alternatives.
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Anonymous Coward, 3 Jul 2007 @ 3:29pm

Re: Re: Substitutions creating substitutions
The volatility of hydrogen is a problem. That's why we are working on fusing it into a solid matrix that is not, which can be extracted for fuel cell propulsion.

How does nuclear fission harness hydrogen for power? It doesn't. It's the other way around, and only in a large scale nuclear/hydrogen production plant.
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Overcast, 3 Jul 2007 @ 3:37pm

Yeah - that's the thing.. As the price of corn skyrockets, more and more food companies will get away from it.

Heck, Milk's getting pretty pricey now too. I've been going non-dairy for coffee lately and starting to shy away from other products I see creeping up in price.

The best explanation I heard was this:

First - ask yourself - what would the 'perfect' fuel be?
* Answer's pretty simple - being able to make a fuel out of something that's already waste or not needed for anything else, is renewable, and in plentiful supply, eg: Garbage.

So - from that respect, Corn's horrible - as we use it for so much else right now. However; it's renewable and it's in plentiful supply - well, for now... :)

You know, I read a while back about a 'Fuel Vaporization' system for cars - wonder why it's not looked at more seriously --> http://www.rexresearch.com/ogle/1ogle.htm

US Patent# 4,177,779

Obviously - there must be *some* way of completely vaporizing gasoline and since the fumes are far more volatile than a 'spray', it would burn far cleaner and deliver more energy..
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Joe Smith, 3 Jul 2007 @ 3:38pm

Subsidies
We're subsidizing the farmers to grow the corn and we're subsidizing the producers to turn it into ethanol. Both those subsidies should be stopped. Ethanol from corn is never going to be able to stand on its own merits. Ethanol from lower quality inputs (straw, wood waste) might eventually be viable or bio fuels made using heat and pressure to convert bio mass into hydrocarbons might eventually be viable. We need to be doing more research on the methods that use low quality inputs.
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Anonymous Coward, 3 Jul 2007 @ 4:09pm

Re: Subsidies
Actually we subsidize far more for NOT growing corn.
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Anonymous Coward, 3 Jul 2007 @ 4:17pm

Efficiency
Gasoline at one time was far less efficient than it is now, it got more efficient over time. But let's give up on ethanol...because it isn't as efficient as gas.

As for the 75 MPG minimum efficiency stated above...yeah right . The combustion engine is not a proprietary invention, if they could be that efficient, someone would have done it. No one, and I mean no one, has invented an engine capable of that efficiency short of all electric cars, and until this country understands that nuclear energy is not Satan's battery , that is a pipe dream.

People need to understand, wind power, solar, nuclear, ethanol, and other renewables all in combination is the only real route available. We can't put all of our eggs in one oil well ever again.
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Anonymous Coward, 3 Jul 2007 @ 5:30pm

We will consider anything except really small cars, less driving, and inconveniences of any kind.
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David Sternlight, 3 Jul 2007 @ 7:05pm

Who is responsible?
Ethanol from corn is a scam. In Brazil they have lots of waste biomass; here corn is a food and feed grain subject to the vagaries of the weather. In times of low production of corn, dependence on it for ethanol will push not only auto fuel up in price, but meat, food, then through cost-of-living clauses the entire economy, resulting in devastating inflation and unemployment.

This happened once before when El Nino caused the anchovies off Peru, the primary source of fish meal cattle feed, to disappear. We had the above chain reaction resulting in massive inflation.

So let's "follow the money". Whining about the "ethanol lobby" is speaking in the third person invisible. The real culprit is the major force and beneficiary of ethanol lobbying, Archer Daniels Midland. Public contumely directed there would be more effective than against the "ethanol lobby" since the broad range of their products are much more susceptible to economic resistance than that of some semi-invisible lobby.

David Sternlight, Ph.D.
Los Angeles
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David Sternlight, 3 Jul 2007 @ 7:43pm

Re: Efficiency
The limitations of the internal combusion engine aren't the pacing factor in auto efficiency. Toyota, for example, is widely expected to introduce the next generation of Prius in 2008 or 2009, with efficiency reportedly of 80-95 miles per gallon, through use of more lightweight lithium ion batteries and refinement of the hybrid synergy drive, still at a very early stage of technological efficiency. The Camry now is also available in a hybrid synergy drive that will only improve over time.

This expected tripling or quadrupling of gasolene consumption efficiency has the effect of doubling or tripling the world's oil supply used for transportation without spending a penny on exploration or extraction. We aren't going to run out of oil any time soon. Economics teaches us that as resource supply declines, increased efficiency and substitutes appear. The "Chicken Little's" of the past have repeatedly been proven wrong. There was a widespread panic about copper shortages, for example, some years ago, to the extent that smart people at the then AT&T went to poorer performance alloy wires. Now with the advent of cellular, microwave, fiber optics, we hear little or nothing about the "copper shortage" and copper prices in real terms are in the toilet.

Initial quick-fix technological reactions to perceived impending shortages have often been wrong, in retrospect. Just so with some of the approaches to oil. The tar sands development in Canada have made that country the leading emitter of Carbon pollution. Ethanol (in the US) is a scam which benefits mostly Archer Daniels Midland at the price of massive inflation and unemployment if the weather creates a shortfall in corn production. In contrast we are just getting started with increased auto efficiency and there the problem is public taste and entrenched obsolete production capacity in Detroit and not technology. Amory Lovins showed us how to produce comfortable 100 mpg cars well over 20 years ago; we are just getting started.

"We have met the enemy and they are us" to quote Pogo, not some "oil shortage".

By the way, reducing gasolene demand through increased auto efficiency is a far better and less costly national security strategy than any other. The Arab oil producers are the marginal producers of OPEC, and the Saudis and other countries with large reserves are the marginal producer of the marginal producers. Swings in oil demand are very leveraging on them. Buying a hybrid car will save the lives of untold numbers currently threatened by terrorists who are ultimately funded by oil money.

David Sternlight, Ph.D.
Los Angeles
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Steven, 3 Jul 2007 @ 7:49pm

Re: Re: Greedy.
The point i was meaning to get across was run better on ethanol.. and when i said wave of the future.. I was getting at how these commodities have already been around, but people are idiots...
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Hoeppner, 4 Jul 2007 @ 8:08am

there's an artifical shortage of corn caused by the govt( so they don't kill each other by haveing the value of corn go down to much from oversupply). a good deal of farmers have corn that they've been keeping for years and years. and are most likely still over producing.
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Anonymous Coward, 4 Jul 2007 @ 2:02pm

Re: Re: Efficiency
"We have met the enemy and they are us" to quote Pogo, not some "oil shortage".

Really? With the oil rich nations lining up against the U.S. on an grand scale, you had better be worried about a shortage.

Your PH. D. means nothing to me when you can not even see reality. A shortage by any means is a shortage, and we didn't learn from the 70's. We are still petulant and self absorbed and OPEC can damn near crush us overnight. Until we move away from oil we are at their mercy.
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David Sternlight, 5 Jul 2007 @ 1:55am

OPEC can ..crush us overnight
The notion that OPEC can crush us is nonsense. It was argued during the earlier OPEC oil embargo as well. It was claimed that if we didn't tilt away from Israel and toward the Arabs, they would destroy our economy.

What actually happened (I studied the data extensively at the time) was that oil prices moved in response to the tightness or looseness of oil markets in Western Europe. The correlation was perfect. On several occasions we took pro-Israel steps and OPEC did nothing; in contrast, on several occasions we took no action with respect to Israel yet OPEC raised prices in response to high demand in Western Europe. There was zero correlation between US policy toward Israel and oil prices.

Another factor that affects oil prices is the extent of reserves. Saudi Arabia has big reserves and doesn't want high oil prices to kill their long-term market by stimulating conservation and efficiency. Iraq has much more limited reserves and wants high prices; they don't care if the long-term market is ruined because they won't have any oil to sell, relatively speaking, in the long term. By taking advantage of this insight, Prof. Dermot Gately of NYU built an oil price model that was able to forecast OPEC pricing decisions six months in advance.

Finally, we use domestic oil first, then nearby oil, only then if demand isn't satisfied do we use Arab oil (OPEC is not just the Arabs; the Arabs are OAPEC). Similarly in Europe; first they use oil from the North Sea and then from further away. It's pure economics, driven by transportation costs which vary with distance. Oil is fungible; the Arabs have tried to "tag" oil to enforce a boycott, but cannot. Once an international oil trader gets his hands on oil it can go anywhere. We could, for example, stop selling Alaskan Oil to Japan if OPEC tries to embargo us, and let the Japanese buy from the Arabs.

It is OPEC that lives in mortal fear of things like US energy conservation and efficiency increases. If we use less gasolene, the reduction comes entirely out of the Arabs hide; we're not going to reduce our use of Alaskan oil. Thus a small percentage drop in consumption here is a big percentage drop in imports from the marginal producers (the Arabs).

Every so often the Arab Oil producers become desperate aa demand weakens and prices fall. To save them, we bought a lot of oil and dumped it into the ground, calling it the "Strategic Petroleum Reserve".

Please stop making snide remarks about my Ph.D. I spent about 10 years as the Chief Economist of a major international oil company, and this is an area of my expertise.
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discojohnson, 5 Jul 2007 @ 4:43am

Re: Re: Re: Ethanol
I'd rather burn biodiesel, so at least i'm not using any oil, nor am i directly competing with my food.
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Lewis Salem, 5 Jul 2007 @ 6:50am

Not gonna happen.
What happens when we have a dry growing season? The only fuel to replace oil will have to offer little to no compromises. What about all of the additional pesticides and fertilizer that will be used?

The big 2.8 are throwing their weight behind this because they can be perceived as green without much effort.
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Jeff from NJ, 6 Jul 2007 @ 6:10am

It's about the money
Let's remember that NOTHING happens in Washington anymore that doesn't directly benefit some group of campaign donors. Leave it to the corrupt clowns in DC to suggest that our energy problems can be solved by shifting from subsidies of the oil industry (of which there are many) to subsidies of the ethanol industry. Consider why you'll never hear any Washington sleazeball championing wind & solar power in any big way -- there is no scarcity of those resources! Once the infrastructure is built there will be no oil company to claim refining capacity has forced (cough, cough) them to raise prices. We'll soon hear the same about corn prices. Ethanol is just another political scam to support ADM & it's bretheren.
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KHH, 13 Jul 2007 @ 2:44pm

Re: Ethanol
Correction, ethanol is very efficiently burned in an engine. Not only does have a very fast flame front, but produces fewer CBP's. It is, however, less energy dense (meaning fewer BTU's per volume unit). If we were paying for energy instead of volume, ethanol would run about 61 cents on the dollar.
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