Ethanol: still not worth the price

Hat tip to my old friend James, who is a Berkeley alumnus.

Study Says Ethanol Not Worth the Energy

Farmers, businesses and state officials are investing millions of dollars in ethanol and biofuel plants as renewable energy sources, but a new study says the alternative fuels burn more energy than they produce.

Supporters of ethanol and other biofuels contend they burn cleaner than fossil fuels, reduce U.S. dependence on oil and give farmers another market to sell their produce.

But researchers at Cornell University and the University of California-Berkeley say it takes 29 percent more fossil energy to turn corn into ethanol than the amount of fuel the process produces. For switch grass, a warm weather perennial grass found in the Great Plains and eastern North America United States, it takes 45 percent more energy and for wood, 57 percent.

It takes 27 percent more energy to turn soybeans into biodiesel fuel and more than double the energy produced is needed to do the same to sunflower plants, the study found.

"Ethanol production in the United States does not benefit the nation's energy security, its agriculture, the economy, or the environment," according to the study by Cornell's David Pimentel and Berkeley's Tad Patzek. They conclude the country would be better off investing in solar, wind and hydrogen energy.

The researchers included such factors as the energy used in producing the crop, costs that were not used in other studies that supported ethanol production, said Pimentel.

The study also omitted $3 billion in state and federal government subsidies that go toward ethanol production in the United States each year, payments that mask the true costs, Pimentel said.

Ethanol is an additive blended with gasoline to reduce auto emissions and increase gas' octane levels. Its use has grown rapidly since 2004, when the federal government banned the use of the additive MTBE to enhance the cleaner burning of fuel. About 3.6 billion gallons of ethanol were produced last year in the United States, according to the Renewable Fuels Association, an ethanol trade group.

The ethanol industry claims that using 8 billion gallons of ethanol a year will allow refiners to use 2 billion fewer barrels of oil. The oil industry disputes that, saying the ethanol mandate would have negligible impact on oil imports.

Ethanol producers dispute Pimentel and Patzek's findings, saying the data is outdated and doesn't take into account profits that offset costs.

Michael Brower, director of community and government relations at SUNY's College of Environmental Science and Forestry, points to reports by the Energy and Agriculture departments that have shown the ethanol produced delivers at least 60 percent more energy the amount used in production. The college has worked extensively on producing ethanol from hardwood trees.

Biodiesel can be used in any diesel engine with few or no modifications. It is often blended with petroleum diesel to reduce the propensity to gel in cold weather.

Also check out this better news story from Cornell's own site. It has a few great soundbites from one of the researchers, Prof. David Pimentel:

"The United State desperately needs a liquid fuel replacement for oil in the near future," says Pimentel, "but producing ethanol or biodiesel from plant biomass is going down the wrong road, because you use more energy to produce these fuels than you get out from the combustion of these products."

Although Pimentel advocates the use of burning biomass to produce thermal energy (to heat homes, for example), he deplores the use of biomass for liquid fuel. "The government spends more than $3 billion a year to subsidize ethanol production when it does not provide a net energy balance or gain, is not a renewable energy source or an economical fuel. Further, its production and use contribute to air, water and soil pollution and global warming," Pimentel says. He points out that the vast majority of the subsidies do not go to farmers but to large ethanol-producing corporations.

"Ethanol production in the United States does not benefit the nation's energy security, its agriculture, economy or the environment," says Pimentel. "Ethanol production requires large fossil energy input, and therefore, it is contributing to oil and natural gas imports and U.S. deficits." He says the country should instead focus its efforts on producing electrical energy from photovoltaic cells, wind power and burning biomass and producing fuel from hydrogen conversion.

Throwing money at ethanol producers was supposed to help the little guy. But like all other subsidies, it's the big special interests that benefit. They lobby for taxpayer money under the guise of "needing help," because it's easier than having to compete. Meanwhile, the costs are distributed

This new study may or may not be true. If it is, it's another nail in ethanol's coffin; if not, there are already many reasons to eschew ethanol in favor of gasoline. Some of you may recall a recent flurry of comments where someone touted the benefits of ethanol, which, well, are simply based on bad economics and some wishful thinking. Even before this study, certain facts remained. I'll only summarize them here, not wishing to repeat everything I said, but those of you who didn't follow the discussion may wish to check it out.

Ethanol produces less energy by volume, which is why cars get reduced gas mileage when using ethanol blends, let alone pure ethanol. Growing corn and converting it into ethanol requires a lot of petroleum, so there still will be a demand for oil. Furthermore, an increased demand for ethanol will increase its price, so it's flatly wrong to think that ethanol will stay this "cheap" (which is courtesy of government subsidies) once it supplants petroleum. High prices encourage more people to become suppliers, and an increased supply of ethanol would decrease prices. But then we come to the ultimate truth: there's just not enough corn in the U.S. to make enough ethanol to power our economy.

Then we have the problem of subsidies. If 50 cents of your taxes go to subsidize a company, and the company can now sell you a product for $1 instead of $1.50, are you really paying only $1? Only those who refuse to consider what is not seen will insist they're only paying a dollar.

The federal government in 2004 gave $3 billion to ethanol producers, who produced 3.41 billion gallons of ethanol that year. [Updated 10/9/2005 with new website and new number for ethanol production.] Consumers do not save 88 cents on a gallon of ethanol versus a gallon of gasoline:Alan Reynolds noted its hefty tax break of 51 to 71 cents, and ethanol's poor fuel economy. So, the subsidy is literally wasting money. Curiously enough, only a few years ago, ethanol was being blamed for making Midwest gasoline more expensive than the national average.

There's no reason at all for government intervention in an economy, save to protect the people from force and fraud. The big oil companies are "powerful" in that they are important to our daily lives, but they're hardly forcing us to buy gasoline. Destroying the myth of companies "forcing" us to buy their products would go a long way toward weaning us from dependency on government. The reason consumers prefer gasoline-powered cars is because they're cheaper overall, and the free market works its magic again, because we know that even though ethanol is officially cheaper.

I am reminded of a Canadian who posted on a bulletin board system I frequented about 10 years ago. He believes and might still believe a few crazy things, like the first cars being electric (they most certainly were not). He once bragged how one of his countrymen invented a car that runs on water, and that you could see it in a museum. Yes, and it belongs in a museum -- as a curiosity, specifically because it's a fancy way of wasting energy. It would never survive out on the open road.

He just never understood that it might "work," but the fuel system required an input of energy far greater than what it generated. Electrolysis breaks up water into hydrogen and oxygen, either of which could be burned as fuel (usually just the hydrogen while the heavier oxygen is expelled as clean exhaust). The problem is that electrolysis requires enormous amounts of electricity, and even burning the hydrogen and oxygen would generate less electricity than what used to split the water molecules. You might as well shine a flashlight on a solar cell, which is basically our problem with ethanol.

Even ignoring this new study, converting ethanol into corn requires so much energy that we gain very little in the end. Reynolds noted that even James Woolsey, the former CIA director who was apparently lobbying for ethanol, admitted that seven gallons of petroleum are required to produce eight gallons of ethanol. Since ethanol kills fuel economy, that's as much of a bargain as all the handbag knockoffs I see every day in midtown Manhattan. But why should ethanol producers care? As long as they receive massive federal subsidies and talk a good talk, they have no reason at all to improve their processes. They'll keep building new ethanol refineries using old technology.

Perhaps some will argue that ethanol should get subsidies because big oil companies are given big incentives in the form of tax breaks. This makes no sense, of course, because the federal government is encouraging oil companies to produce a good, whose consumption is discouraged by high taxes. No, the answer is not more subsidies. Why should government waste taxpayer dollars on financing opposing forces?

The solution is to eliminate all subsidies and special tax incentives, and let the free market sort things out. It maximizes efficiency, and it also eliminates the problem of special interest groups. Bastiat warned us in The Law how these groups come to power, including by overthrowing each other:

Men naturally rebel against the injustice of which they are victims. Thus, when plunder is organized by law for the profit of those who make the law, all the plundered classes try somehow to enter—by peaceful or revolutionary means—into the making of laws. According to their degree of enlightenment, these plundered classes may propose one of two entirely different purposes when they attempt to attain political power: Either they may wish to stop lawful plunder, or they may wish to share in it.

Woe to the nation when this latter purpose prevails among the mass victims of lawful plunder when they, in turn, seize the power to make laws! (emphasis added)

If ethanol companies curry enough favor in Congress, who knows, they might eventually wield as much power as "big oil" does now. I never liked any of Woody Allen's films, but "Sleeper" did have a profound moment. They were participating in a revolution, but their leader would likely turn into the next dictator that they'd have to overthrow too.

As I've said before, the problem isn't with the lobbyists. It's that our federal government has assumed so much unconstitutional power that it sustains the special interest groups -- the plunderers perverting the law from its true purpose as an instrument of justice. And it doesn't help when people think Congress' power to regulate interstate commerce gives it the power to hand out subsidies.