Monday, July 26, 2010

Ethanol: Will statist largess tether us to energy meters and food tubes?

By John Sykes

In the mid-1970s Washington was going to save our energy world with ethanol. They were throwing around some really serious money so I my father and I, in the energy business at the time, decided to go after some of it. But first we decided to spend a little of our own to make sure there was some defendable merit, and profit, in the production of ethanol.

We couldn’t find any defense whatsoever for investment in ethanol. We actually turned down the money! I wish this were completely altruistic but we didn’t want to be in a losing proposition. I guess we way underestimated how long our politicrats might take to recognize and admit the futility of the ethanol nightmare .. or how long they would force you to make us profitable.

Our primary conclusion was that hydrocarbon fuels would have to reach a price of well over $100/barrel to justify burning ethanol. Guess what? We’ve now been there and it takes even more. I don’t think I’ve seen any recent replacement figure for our conclusion but suspect we’re still many dollars away from ethanol even being a viable supplement for hydrocarbon fuels.

image One of our secondary conclusions also became quickly obvious. The cost of using corn or any other edible agricultural product to make ethanol would have a very severe impact on the food chain. The acreages required were mind boggling and the effect on the food price of those food products was potentially devastating.

The Wall Street Journal, out today with “Survival of the Fattest - What a deal: Ethanol reduces carbon for only $754 a ton”,  features satisfyingly similar but far more eloquent conclusions:

The best refutation of the theory of the survival of the fittest is probably the corn ethanol lobby, whose annual $6 billion in federal subsidies have managed to outlive both its record of failure and all evidence and argument. So while we doubt another devastating study will result in any natural selection, recent findings from the Congressional Budget Office deserve more attention all the same.

CBO reveals that it costs taxpayers $1.78 in ethanol "incentives" to reduce U.S. gasoline consumption by one gallon—or nearly two-thirds of the current average retail gas price. CBO also estimates that cutting carbon emissions by one metric ton via ethanol runs to $754. To put that number in perspective, the budget gnomes estimate that the price for a ton of carbon under the cap-and-tax program that the House passed last summer would be about $26 in 2019.

Folks, that carbon-cost is 29 times more expensive, 2900% more! In some parts of the world that would feed someone for at least a year.

The WSJ went on to say:

CBO is also honest enough to mention that in reality $754 may be purchasing a net carbon emissions increase. "Because the production of ethanol draws so much energy from coal and natural gas," the authors write, "it can be thought of as a method for converting natural gas or coal to a liquid fuel that can be used for transportation." Meanwhile, the assumptions of their model also exclude indirect land-use changes toward energy-intensive crops that also tend to boost overall CO2.

We do need to be looking at the replacement of portions of our hydrocarbon fuels with substitutes that will probably be more expensive in any money or credit you want to specify. But we need to start with sources that make a modicum of sense. (Read my Energy Demagogues.) Cleaner coal power, natural gas, and nuclear energy are out there. Fuel cells may be on the horizon. Leave our free market economy alone and it will provide the solutions.

If we keep pursuing alternatives that will probably never show some cost effectiveness, we are going to end up right where the current political class would seem to want us – tethered to statist largess controlled by energy meters and food tubes that dispense our needs 30 minutes per day.

Related cartoons

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