The Ethanol Mess

One of the perks of being an M.I.T. graduate is that I get an automatic subscription to the magazine Technology Review. I highly recommend it to anyone with a curiosity about science and technology. It is not technical or hard to understand (like, say, Scientific American). Rather, it is loaded with fascinating articles about cutting edge advances in technology, written for numskulls like me.

The most recent issue has an excellent discussion of the impact of government subsidies for ethanol (a topic we’ve written about before). According to recent calculations, if oil prices fall back down to $40 per barrel, the implied tax paid by consumers because of ethanol mandates will be over $15 billion.

The article lays out nicely the simple economics behind the mess we’ve created for ourselves. I wish that I was teaching intermediate microeconomics this term, because this would be a perfect exam question.


Ben

Did a paper on this last semester for my Natural Resource Economics class. My final paper for that class was on how going vegetarian was a more efficient way to combat global warming and cut our use of fossil fuels than buying a hybrid car.

Robert R Reynolds

Ethanol, a stupid solution to a non-problem,Global Warming, using precious acreages of cropland to the detriment of starving millions in the third world, and an economic disaster we can ill afford.

charles

My rightfully unresearched, uninformed, and completely ignorant opinion is that Corn is the earthly manifestation of the seeds of Satan. I'm thinking Steve might be a farmer or an options trader long in corn, and consequently is in cahoots with Corn, Satan's seed. It won't be long before we are planting corn in our suburban yards and on our roofs, and it will have been the Steves of the world, those likeable fellows always chastising others for not doing enough "research" to come to their Steveish conclusions, who end up responsible for everywhere and everything looking like a drive through Iowa. Mostly, I'll be pissed that Fritos are going to end up going for $700 bucks a bag.

Chris H

What I would like to know is: Given that the US biofuel policy is ill-advised, how do you unravel it without causing a farm crisis?

The US economy is in a rough enough shape already without another factor bringing it down.

Chance

You think Scientific American is hard to understand? I admit it is a bit more in depth than Popular Science, but if you want to see a hard to understand magazine, try reading American Scientist.

Steve

What a bunch of ill informed comments. Where do I start? The Cornell (Pimentel)study is the only one of a dozen studies that came to a conclusion that ethanol production uses more energy than it produces. It just isn't so. In 2007 the ethanol industry created $1.2 Billion dollars more in Federal tax revenue than it paid in subsidies. This does not include state and local tax revenue. Corn is not the ultimate feedstock to use to produce ethanol but it is providing the financial resources to create cellulosic ethanol in the future. The only solutions I have heard are to keep sending our dollars to countries that will use them to support terrorism, then spend more dollars to combat the terrorism.
Do some research on both sides of this issue before you form your negative opinions.
The price of corn is another topic that has been blown out of proportion. Food prices are influenced twice as much by energy costs than the actual product that goes into the food. There is about five cents worth of corn in a box of Corn Flakes. Increased corn prices will increase food costs, but not as much as increased oil prices. Corn should not be as expensive as it currently is. If you look at the supply and demand of the world grains, there isn't a shortage. A significant increase in the price of grains is a result of the amount of money invested in those markets at this time. The weakened dollar has caused funds to pull money from the stock market and invest it in commodities. The housing problem has been a big factor in this. So instead of blaming everything on ethanol, it is time to look at whole picture and realize the influence the industry has had on the country as a whole.

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Kyle

It may seem like an inefficient resource, but the fact the it can be replenished every year with a new crop makes it attractive. Plus, I assume we will increase our efficiency in the production.

Paul

Yes, Michael, the "Flyover States" have an inordinate amount of power in our electoral system ... as opposed to, say, Rhode Island, or Delaware, or New Hampshire, or Vermont, or Maine, or Maryland ...

Seriously, though, that argument is based on the idea that, because of the two-senators-per-state rule, states with less of a population have more electoral votes per capita than states with a larger population.

Okay. But if you make that argument, you also have to agree that it's unfair for Oregon to have more influence than Indiana, and for New Jersey to have more influence than Illinois, and for Nevada to have more influence than Kansas. It cuts both ways.

frankenduf

what's with all the nonsensical "we"s?- ADM has demanded kickbacks from the Bush administration (and anyone else who will take their money), whereby public funds are siphoned into ADM's coffers- called "ethanol subsidies"- this is all corrupt legislation and has nothing to do with what "we" would do

Jackie

A study from Cornell University that I read recently concluded that it takes the equivalent of 1.3 gallons of gasoline to produce 1 gallon of ethanol. This is stupidity in action -- and I live in a corn field!

mgroves

Yes the electorial(sic) system clearly favors Wyoming over California by any measure you can think of.

Aubrey M

Ethanol production is on course to account for some 30% of the US corn crop by 2010, dramatically curtailing the amount of land available for food crops and pushing up the price of corn flour on international commodity markets. Look for a power struggle in the commodity markets.

Adam

Holy smokes, oil is above $40 / gallon? Things are getting bad... I remember when oil was just breaking $100 / barrel.

kevin

$40 a gallon??? I guess you mean barrel, but I don't expect to see $40 a barrel oil anytime soon.

AaronS

Carl Johnson, a nuclear phsicist (www.mb-soft.com) has asked a very important question? Why are we seeking to use a third of our cropland to grow crops that will only reduce our energy dependence by perhaps 3%?

As you might imagine, that will cause the cost of food to spike, could have repercussions for world hunger, and could be quite damaging to America in terms of economic ripples and, in a catastrophe, in terms of hunger.

Michael

Corn is a totally inefficient crop to convert to ethenol as it take too much energy. It'd make much more sense to invest those subsidies in alternative energies which can co habitat with crops, such as wind. As right now its just pork for the flyover states which have an inordinate amount of power in america's electorial system.

Allan Ramesh

Put a stiff tax on gasoline and let the market decide what wins out in reducing our dependence on foreign oil. I bet it will be:

1. Cars with better milage
2. Carpooling and ride share
3. Bicycling
4. Buses and trains
5. Living closer to work
6. Redesigned cities for higher densities
7. Telecommuting
8. Improved scheduling of non-essential trips.

That tax should be high enough to make a difference. Say a $4 per gallon. Use the proceeds to make the options listed above become more realistic. Help address climate change while you're at it. Its a no-brainer. Tax "bads" and promote "goods". Remove the need to fight in Iraq and Iran.

Doug Wolkon - Author of The New Game

Are we really sticking food in cars. Duh!

JR

Two comments on recent comments. Ethanol was never intended to be a lower-cost alternative to gasoline. The goal of crop-based ethanol production was to reduce our oil imports and cut our greenhouse gas emissions. Given that it takes about 1 gallon of petroleum to produce 1 gallon of ethanol, the price will never be lower (it is indeed much higher, but this fact is hidden by the subsidies). And given that ethanol production and consumption releases more CO2 than does the use of gasoline, ethanol won't reduce CO2 emissions either.

We have lots of coal, but it's a very dirty, dangerous and expensive fuel. The current costs of electricity production don't show the real price, because our current mining and consumption practices don't reflect all the costs. Coal mining is devastating to local communities and to the environment, but coal companies are not required to mine in a safe and clean manner, nor to restore the mountains and streams they destroy to get at the coal. Burning coal releases not just billions of tons of CO2 each year, but also mercury, acid rain and other pollutants that have serious long term effects on the environment. Here in New Hampshire we have to limit the amount of fish that we catch and eat each month, to reduce the danger of nerve & brain damage from mercury pollution. Pregnant women and young children are warned not to eat any locally caught fish at all. Most of the mercury polluting the fish in New Hampshire's lakes and streams comes from coal plants in the mid-west, as does much of our acid rain. If we enforced clean & safe mining of coal, and required coal plants to reduce smoke stack emissions of pollutants to zero, coal consumption would cost several times as much as it does now.

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Bob

This is a perfect example of politics triumphing over science. The politicians get to appear to do something about a major problem. Various people get paid off from the public coffers. And, very little progress is made toward actually solving the problem.