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By Robert Rapier on Sep 8, 2006 with no responses

Venture Beat Article

A while back I was contacted by a reporter from Venture Beat regarding my criticisms of Vinod Khosla. A back and forth e-mail exchange ensued between the reporter, Mr. Khosla, and myself. That exchange has been documented in a story at Venture Beat:

The Oil Drum Debate, Round 1

There were 3 issues in question during this particular exchange:

1). The energy balance of gasoline versus ethanol.
2). Whether Brazil had displaced 40% of their petroleum with ethanol.
3). Whether ethanol is cheaper to produce than gasoline.

When reading through the exchange, I think you will note how Mr. Khosla has difficulty answering the questions put to him. Even in the case of Brazil, in which he has made claims that are clearly wrong, he couldn’t come right out and concede the point.

Regarding the cost of production, I sent the following to the reporter who wrote the story:

I will say that you let him off way too easily on the price issue. My point was that ethanol prices have been higher than gasoline prices for 25 years, not that it just suddenly became more expensive due to the switch from MTBE. And Khosla admits that he is talking about production cost, but then he confuses that with “In 2004 it was selling at $1.40 ‘sales price.’ ” That sales price reflects a discount of $0.51/gallon of federal subsidies, and in most cases $0.20/gallon or so of state subsidies. I am comparing apples to apples by looking at rack to rack prices of ethanol versus gasoline. And I agree with Khosla that “price should reflect cost for any commodity product.” So, look again at that graph I posted, and tell me which has had the higher price for 25 straight years. Then ask Mr. Khosla to explain that graph, if in fact ethanol is cheaper to make. Ask him if he is concerned that ethanol producers are gouging consumers, given that their profit margins are obviously much higher than those “gouging oil companies.”

Anyway, check it out, as well as the comments following the article.