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By Robert Rapier on Dec 1, 2006 with no responses

Last Post on Corn Ethanol Boondoggle

OK, for a while. I am trying to work on a post on energy subsidies in general, but ethanol has been a hot topic today. A newspaper in Lincoln Nebraska published a story in which a skeptic discussed what he foresees for the ethanol industry:

Ethanol skeptic sees painful realities ahead

There is also a lively debate going on after the story. Some excerpts:

What he can’t see coming from his seventh-floor office window in downtown Lincoln, Doug Carper can usually piece together on the four, super-sized computer screens at his desk.

Having pored over all the charts and graphics, and having weighed the numbers against his many years as an agricultural commodities broker, the 56-year-old Carper sees trouble coming for Nebraska’s ethanol industry.

He sees more of the same for much of the agricultural economy that supports ethanol.

“I’m not posturing. I have no agenda,” Carper said in a Tuesday interview in his office. “I see trouble looming here in the American heartland and a lot of good, well-intentioned people facing some terrible and ruinous losses.”

“For what constructive purpose are we disrupting agriculture in this manner?” he asked. “For what constructive purpose have we embarked on this dangerous public policy initiative?”

Even if every bushel of corn in the United States were turned into ethanol, it wouldn’t make much of a dent in overseas oil dependence, he said.

“It’s a delusion that somehow we are solving the country’s energy needs when, in fact, at the extreme, ethanol could never be a substantial solution to the nation’s energy requirement. It’s patently wrong and absurd to think we can.”

On this topic, I had an exchange with an ethanol supporter at The Oil Drum. He wrote in part:

Jobs galore, new rail development, increased land prices, increased grain prices, increased rural incomes, strengthened rural communities, increased skill and labor set, positive (albeit minimal) environmental/GHG impact, net decrease in petroleum usage…

My response to this:

So, you support this fiasco? I thought you were a gasification guy. Let’s run some numbers. Right now, we are making around 4.3 billion gallons per year of ethanol. At an energy return of 1.3, that means we only net 0.3 BTUs of output for 1 BTU of input. Therefore, you consumed 3.3 billion gallons worth of ethanol to produce 4.3 billion gallons. So, the net of the 4.3 billion gallons is only 1 billion gallons. Of course that net includes massive amounts of animal feed co-product, which you can’t burn in a car. In reality, the fossil fuel input is almost equal to the ethanol output. That’s per the USDA’s most recent estimates.

But I am going to give the benefit of the doubt and give you 1 billion gallons of net ethanol. Since ethanol has 65% of the BTU content of gasoline, the energy equivalent number is 650 million gallons of gasoline. We use about 140 billion gallons of gasoline, so the gasoline displacement is only 0.46%. Apply that only to our oil consumption, and the displacement is down around 0.3%.

But wait, there’s more. We paid a $0.51/gal direct subsidy on the ethanol. Not the net, mind you, but the gross which is mostly recycled fossil fuels. So the direct ethanol subsidy, from taxpayer pockets, is $2.2 billion dollars a year. Of course we also have a multi-billion dollar per year corn subsidy. To be extremely generous, we are paying taxpayer costs of $3 billion a year to displace less than half a percent of our gasoline usage. That’s about $3.60 in federal subsidies (of course most corn states throw in their own subsidies) for each gallon of gasoline displaced.

But you get bonuses: Like depleted water tables, increased pesticide and herbicide runoff (responsible for a large dead zone in the Gulf of Mexico), increased soil erosion (wait til we have a drought – Can you say “Dust Bowl”?), and the kicker: Higher food prices for everyone and reduced corn exports. (Hope nobody needs extra corn this year). All of this to displace 0.46% of our gasoline consumption and line the pockets of some farmers, ethanol producers, and ag conglomerates! And that’s presuming you could burn animal feed in your car.

For that kind of money spent and those kinds of externalities, I would sure hope some jobs have been created.

And people wonder why I get worked up over this boondoggle.

The sad thing is that I see no end in site to this madness. But this is a trajectory that simply can’t continue.

OK, taking a break from ethanol. But this will continue to be a hotly discussed topic in the media.