Ethanol: Another dose of snake oil?

Another article, from the Star-Tribune, on the hype of ethanol, which summarizes the issue pretty well:

1)Ethanol results in more carbon emissions - "By clearing forests and grasslands [to produce ethanol], they are releasing far more carbon dioxide than is saved by biofuels' lower emissions."
2)"Ethanol production also threatens our underground water aquifers"
3)"Ethanol production is contributing to a steep rise in global food prices"
4)Ethanol does not reduce dependence on foreign oil: "Ethanol production consumes nearly as much energy as it produces."
5)'James Eaves and Stephen Eaves, writing in Regulation quarterly, observe that "if we devoted 100 percent of all corn grown in the United States to producing ethanol, we could displace only about 3.5 percent of current gasoline consumption."'

So why does Governor Rendell continue to push subsidies and mandates for ethanol: "It's is an economic boon for corn farmers and ethanol producers. "

Gov. Rendell's Plan to raise gas prices and subsidize Big Ethanol

Gas prices are high. As previously noted in this blog, part of the reason for high prices is the mandated use of ethanol fuels - forcing refineries to retool.

As Monday's Wall Street Journal adds, the combination of ethanol mandates and tariffs on imported ethanol (added to duties on ethanol sales) drive up gasoline prices while profiting big ethanol producers. Current legislation would eliminate these tariffs, and lower gasoline prices, but faces stiff opposition from the ethanol lobby.

What does Governor Rendell have to say? In a new proposal announced today, he proposes adding an additional mandate on the percent of fuel sales that must be ethanol based. Let me repeat - he proposes adding an additional mandate on the percent of fuel sales that must be ethanol based. He also proposes giving ethanol producers a nice $30 million in taxpayer subsidy.

What could he possibly be thinking, beyond the obvious benefits to ethanol companies supporting his campaign?

Ethanol Gold Rush Carries Costs

The rush to mandate and subsidize ethanol may turn out to be fools gold, from NCPA:

• Last year, about 4.9 billion gallons of ethanol were produced.
• Within a couple of years, that number is projected to rise to about 12 billion gallons, thanks to a building boom in ethanol plants.
• A proposal in Congress would mandate an increase in ethanol production to 36 billion gallons within 15 years.
• That amount of ethanol, using current technologies, would consume virtually America's entire corn crop.
• Even assuming breakthroughs in so-called cellulosic ethanol -- which is made from grasses, wood chips and such, and now costs much more than corn-derived ethanol -- world food supplies would be stressed.

The benefit from all of this is far less clear than ethanol's newly enriched boosters would have you believe, says USA Today. In its first major report on bioenergy, the United Nations concluded that while ethanol and other biofuels can help reduce global warming and create jobs for the rural poor, the benefits may be offset by other environmental problems and higher food prices.

Ethanol's Water Shortage

Wall Street Journal piece with more on the problems with ethanol mandates and subsidies:

Writing in Science magazine, Renton Righelato and Dominick Spracklen estimate that in order to replace just 10% of gasoline and diesel consumption, the U.S. would need to convert a full 43% of its cropland to ethanol production. The alternative approach -- clearing wilderness -- would mean more greenhouse gases in the atmosphere than simply sticking with gasoline, because the CO2-munching trees cut down to make way for King Ethanol absorb more emissions than ethanol saves.

Slowly but surely, these problems are beginning to alert public opinion to the huge costs of force-feeding corn ethanol as an energy savior. The ethanol lobby is still hoping it can keep all of this under wraps long enough to shove one more big mandate through Congress, but the Members need to know the problems they'll be creating.

OECD report on Biofuels

The recent OECD report on biofuels is a must read for lawmakers consider Governor's plan to mandate ethanol use and to subsidize ethanol production in PA:

The conclusion must be that the potential of the current technologies of choice — ethanol and biodiesel — to deliver a major contribution to the energy demands of the transport sector without compromising food prices and the environment is very limited.

...

The difference between production potential and demand is high in South America and to a lesser extent Africa, as these countries that have the potential to export to North America, Europe and Asia (Fig. 6). However, trade barriers and subsidies currently prevent large-scale
trade from taking place.

Read: we will have to import ethanol to meet mandated use ... so much for "energy independence"

In reality, however, increased biofuels production to the target levels assumed for the EU, US, Brazil and others will instead lead to upward pressure on feedstock prices.

Hence the higher prices for food, milk, candy, and even beer here in the US.

Most biofuels have an overall environmental performance that is worse than gasoline, though their relative performance differs considerably (Fig. 8). EMPA gave maize-based ethanol in the USA a poor environmental score, whereas it determined that ethanol from sugar beets and sugarcane are only moderately better than gasoline in terms of their overall environmental impacts. Biodiesel scores negatively as well, in general. Only when waste products such as recycled cooking oils are used do their overall environmental performances fare better than that of gasoline. Biofuels made from woody biomass rated better than gasoline in all cases.

And the hits just keep on rolling:

The paradox noted above is also that greater biofuel production may lead to less protection against high petroleum prices. ...

The overall cost-effectiveness of biofuels seems to be low in almost all cases. ...

Governments should cease creating new mandates for biofuels and investigate ways to phase them out.

So if ethanol an biodiesel is bad for the environment, raises prices for food, won't make us "energy independent," why is Governor Rendell pushing it? I think we covered that yesterday (hint: $$$$).

How government makes things worse

Boston Globe piece by Jeff Jacoby covers the "Law of Unintended Consequences" of government intervention. Jacoby takes on government mandates and subsidies for ethanol:

But now comes word that expanding ethanol use is likely to mean not less CO2 in the atmosphere, but more. Instead of reducing greenhouse gas emissions from gasoline by 20 percent - the estimate Congress relied on in requiring the huge increase in production - ethanol use will cause such emissions to nearly double over the next 30 years. ...

Actually, that's not quite the bottom line. Jacking up ethanol production causes other problems, too. Deforestation. Loss of biodiversity. Depletion of aquifers. More ethanol even means more hunger: As more of the US corn crop goes for ethanol, the price of corn has been soaring, a calamity for Third World countries in which corn is a major dietary staple.

Jacoby is also critical of government's role in causing the subprime mortgage collapse:

The crisis has its roots in the Community Reinvestment Act of 1977, a Carter-era law that purported to prevent "redlining" - denying mortgages to black borrowers - by pressuring banks to make home loans in "low- and moderate-income neighborhoods." ...

Banks nationwide thus ended up making more and more subprime loans and agreeing to dangerously lax underwriting standards - no down payment, no verification of income, interest-only payment plans, weak credit history. If they tried to compensate for the higher risks they were taking by charging higher interest rates, they were accused of unfairly steering borrowers into "predatory" loans they couldn't afford.

Trapped in a no-win situation entirely of the government's making, lenders could only hope that home prices would continue to rise, staving off the inevitable collapse. But once the housing bubble burst, there was no escape. Mortgage lenders have been bankrupted, thousands of subprime homeowners have been foreclosed on, and countless would-be borrowers can no longer get credit. The financial fallout has hurt investors around the world. And all of it thanks to the government, which was sure it understood the credit industry better than the free market did, and confidently created the conditions that made disaster unavoidable.

Drunk on ethanol

Los Angeles Times article on politicians love for ethanol - mandating its use and subsidizing its production, while keeping high tariffs on foreign ethanol. They also point out how ethanol is insufficient to replace oil, takes gasoline to produce and distribute, harms the environment as much as helps it, and how ethanol mandates are driving up the cost of food.

Meanwhile the Patriot News has an article on the rising cost of milk-- but fails to identify ethanol mandates as the culprit. (Not to mention for the higher price of beer)

Silly Senator, Corn is for Food!

ReasonTV video looks at the ethanol craze:

Ethanol, especially the corn-based variety, is bad for taxpayers, bad for consumers, bad for the environment, and horrible for the world's poor. In fact, even environmentalists are critical of ethanol subsidies these days. The ethanol craze has distorted markets and increased the price of food worldwide. The only people who still support ethanol subsidies are the ethanol producers—and politicians from both sides of the aisle. Together, they make sure the subsidies keep coming.

Bush's Split Personality

Last night's State of the Union Address showed the two faces of President Bush. On the one hand, his health care proposal, which includes tax benefits for individual health insurance purchases (and limiting tax benefits on "cadillac-style plans"), association health plans, liability reform, and price transparency, follows closely the principles of the free market. In fact, these are ideas the Commonwealth Foundation has supported.

Unfortunately, Bush also proposes government mandates to buy "alternative fuels" including ethanol. This departure from free-markets in favor of big government is disappointing, given, as readers of this blog are well aware, ethanol producers already depend on government subsidies; ethanol mandates are driving up the cost of fuel and food; foreign ethanol faces high tariffs; and ethanol production, use, and transportation use more gasoline than ethanol saves. Not exactly the way to become "energy independent"

Study: Ethanol may add to global warming

Another study finds that ethanol and biofuels are not "green" and will only increase greenhouse gasses:

The study said that after taking into account expected worldwide land-use changes, corn-based ethanol, instead of reducing greenhouse gases by 20 percent, will increases it by 93 percent compared to using gasoline over a 30-year period. Biofuels from switchgrass, if they replace croplands and other carbon-absorbing lands, would result in 50 percent more greenhouse gas
emissions, the researchers concluded.

Not all ethanol would be affected by the land-use changes, the study said.

"We should be focusing on our use of biofuels from waste products" such as garbage, which would not result in changes in agricultural land use, Searchinger said in an interview. "And you have to be careful how much you require. Use the right biofuels, but don't require too much too fast. Right now we're making almost exclusively the wrong biofuels."

For some reason, Gov. Rendell continues to push more mandates on ethanol use and more taxpayer subsidies for ethanol produces.

HT: Tax Foundation Blog

Ethanol and Rendell

Many are calling for an end to ethanol mandates because of how they drive up food costs:

Aid workers and others contend diverting more than a a quarter of the U.S. corn harvest to make ethanol is making food much more expensive the world's poor. A leading agriculture research group said a moratorium on grain- and oilseed-based biofuels would help cut crop prices substantially.

"Our models analysis suggest that if a moratorium on biofuels would be issued in 2008, we could expect a price decline of maize by about 20 percent and for wheat by about 10 percent in 2009-10. So it's this significant," Joachim von Braun, heads of the International Food Policy Research Institute, told reporters in a briefing.

Meanwhile, Governor Rendell is calling on more mandates for ethanol use and taxpayer subsidies for producers. He also calls them "more cost-effective" - yet they need taxpayer subsidies to compete.

Read John Lott's commentary on ethanol, and check out our Policy Point on energy.

The Politics of Ethanol

NY Times article on The High Costs of Ethanol. If the typically liberal NY Times opposes the political games of ethanol, why does Governor Rendell continue to push for more ethanol subsidies and mandates?

Could it be because the top donor to his campaign plans to build a new ethanol plant? Could there be a little payback there?

(Good thing that we have campaign finance disclosure, but not limits, so it is easy to see who the big special interest donors are.)

Senate Votes to Keep Ethanol Tariff

Andy Roth of The Club For Growth on a US Senate vote to keep a tariff on ethanol imports. If lawmakers believe ethanol is good for the environment (the evidence is mixed, but government mandates and subsidies for ethanol indicate that lawmakers support ethanol use) and reduces "dependence on foreign oil", why have a tariff?

I noted that both PA Senators (Specter and Casey) voted to oppose free trade, and the presidential candidates (McCain, Obama, Biden and Brownback) all did not vote - not with the Iowa primary coming up.

The Clean Energy Scam

Time Magazine blasts the ethanol craze that has politicians (including Governor Rendell) demanding more subsidies and mandates for biofuels than they already get (HT: Carpe Diem):

But several new studies show the biofuel boom is doing exactly the opposite of what its proponents intended: it's dramatically accelerating global warming, imperiling the planet in the name of saving it. Corn ethanol, always environmentally suspect, turns out to be environmentally disastrous. Even cellulosic ethanol made from switchgrass, which has been promoted by eco-activists and eco-investors as well as by President Bush as the fuel of the future, looks less green than oil-derived gasoline.

Meanwhile, by diverting grain and oilseed crops from dinner plates to fuel tanks, biofuels are jacking up world food prices and endangering the hungry. The grain it takes to fill an SUV tank with ethanol could feed a person for a year. Harvests are being plucked to fuel our cars instead of ourselves. The U.N.'s World Food Program says it needs $500 million in additional funding and supplies, calling the rising costs for food nothing less than a global emergency. Soaring corn prices have sparked tortilla riots in Mexico City, and skyrocketing flour prices have destabilized Pakistan, which wasn't exactly tranquil when flour was affordable.

More on Ethanol.

More tax money to ethanol

Central Penn Business Journal on the announcement of $31 million in taxpayer-financed state grants for "clean energy projects," primarily going to ethanol and biodiesel companies.

Appearing yesterday on the Cato Institute's blog was yet another story on how ethanol subsidies are not working - in this instance driving up the cost of meat for US consumers (as cattle and poultry farmers are paying more for feed).

Previously this blog has noted that ethanol mandates and subsidies lead to more gasoline use and polution (as ethanol must be transported by truck and cars that run on E-85 get worse mileage).

Big Oil vs. Big Ethanol

Everyone in Pennsylvania (save the Amish, who are also unlikely to be reading this blog) must have heard or seen the Barack Obama, anti-"Big Oil" ad dozens of times (including the Tribune-Review who editorialized on it today).

Obama claims that he doesn't take money from oil companies, which is true because no one does. It is illegal for corporations to contribute to political campaigns, though FactCheck.org points out that Obama takes plenty from oil company employees. And as the Tribune-Review rightly points out, Obama's windfall profits tax won't reduce the cost of fuel or make us "energy independent", but would rather increase the price of gasoline and make us more reliant on foreign gasoline producers (we have written more on this issue here).

But Obama's frequent citation that he opposes tax cuts for oil companies but supports subsidies for "alternative fuels" is what really needs responding to. The 2005 energy bill did provide some tax credits for oil companies, but according to the CBO report (see page 17), was more than offset by tax increases on refineries. In contrast, the lion's share of tax credits went to "Renewable Energy and Alternative Fuels". In fact, the total taxpayer subsidy for ethanol in the US is estimated to be between $9 and $11 billion dollars.

As readers of this blog should be well aware by now, ethanol is bad for air quality, increases the cost of food and gasoline, increases water shortages, won't make us energy independent, and is a bad deal for taxpayers.

So which candidate will start denouncing "Big Ethanol"?

Ethanol Vehicles A Health Hazard

Summary of a research report by Mark Jacoboson:

"We found that E85 vehicles reduce atmospheric levels of two carcinogens, benzene and butadiene, but increase two others - formaldehyde and acetaldehyde" he explained. "As a result, cancer rates for E85 are likely to be similar to those for gasoline. However, E85 significantly increased ozone, a prime ingredient of smog."

Noting federal and state subsidies for ethanol:

"Today, there is a lot of investment in ethanol," Jacobson said. "But we found that using E85 will cause at least as much health damage as gasoline, which already causes about 10,000 U.S. premature deaths annually from ozone and particulate matter. If we're not getting any health benefits, then why continue to promote ethanol and other biofuels?"

Texas Is Fed Up With Corn Ethanol

Texas Governor Rick Perry in the Wall Street Journal on why the EPA needs to suspend the mandate to produce more ethanol - which is, according to Perry and others, partly to blame for the spike in food prices (and economic losses tied to that).

Ethanol has also been shown to add to global warming, increase smog, and lead to water shortages.

Price of Candy is Up!

So I went to our office snack tray to buy an afternoon snack and notice that the price had gone up, and there was a note about the price of candy increasing. A quick web search identified the culprit. You guessed it -- Ethanol.

The same Ethanol than Gov. Rendell is laying off state workers so that he can subsidize. The same Ethanol that President Bush and Congress have mandated we buy and have placed tarriffs on imports to keep prices high.

Big Farm whips Big Oil

Great editorial on how "Big Farm" companies dominate "Big Oil" as a special interest, having both "record profits" and government subsidies for ethanol in the wake of a global food crisis.

NRO Online has an article on ethanol mandates and subsidies, and why they are bad public policy.

And Insider Online adds Don’t Forget the Other Reasons Ethanol Is a Bad Idea.