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By Robert Rapier on Jun 10, 2007 with no responses

Ethanol Roundup

A couple of interesting ethanol articles that were recently brought to my attention. First off, we have Iowa State saying something I have been saying for a while:

Corn ethanol unprofitable by 2008, says Iowa State

Personally, I thought their article was awesome. :-)

Biofuels industry observer Robert Rapier (author of Cellulosic ethanol vs. biomass gasification) told Inside Greentech that problems in corn ethanol had been clear since last summer.

“Capacity was being built well in excess of the mandated amounts. This ends up squeezing producers on both ends. I have been predicting for at least a year now that there will either be a massive shakeout of ethanol producers—or more likely there is going to be a massive bailout by the government. I also see a high probability that the mandated numbers will be increased to help the producers.”

Of course, that last bit is now almost a certainty considering the State of the Union address and the legislation that is being debated right now.

Second, an article by Steven Mufson and Dan Morgan at the Washington Post:

Switching To Biofuels Could Cost Lots of Green

Mufson interviewed me a few months ago for an ethanol story he was doing. I think my contribution ended up as “Some sources say…..” :-)

Anyway, this story is just adding up the costs for the mandates that we have, and for those that are in the pipeline.

If the current tax credits, grants and loan guarantees are extended, the package would cost taxpayers $140 billion more over the next 15 years. New proposals under consideration in Congress could raise that tab to $205 billion.

The final article addressed the politics of all of this in some detail:

Biofuels or Bio-fools?

That one covers a lot of ground that I have often covered here – including a look at Vinod Khosla’s role. But there was a bit that I thought was novel and interesting. Some edited excerpts:

…regulations that captured the public’s imagination and managed to endure…evolved not because of rational cost-benefit analysis, Yandle wrote, but because of odd alliances between what he called “Bootleggers and Baptists.”

The theory goes like this: during America’s long debate over alcohol in the first part of the 20th century, religious folks—in shorthand, the Baptists—provided a moral narrative for limit­ing sales. They sincerely believed government should support sobriety. They lobbied their rep­resentatives to enact Prohibition. That belief, however, sealed them into a marriage with the bootleggers, who were, in effect, rent-seekers profiting from rules that prevented law-abiding competition.

Yandle suggested that most regulations could be viewed in this light. Groups with moral motives provide cover for those who benefit eco­nomically (groups that, unlike bootleggers, typically operate within the law), even if the two sides don’t have much else in common. So far, this dynamic has propelled etha­nol from obscurity to the center of American energy policy. Environmentalists play the Baptist role, urg­ing governments to force us to be moral in our fuel choices. The Natural Resources Defense Council, for instance, has called ethanol “energy well spent.” Corn farmers and ethanol industrialists become the boot­leggers, quietly enjoying the monetary green their questionable green status confers on them.

Vinod Khosla has become the most visible face in this Baptist-bootlegger hybrid movement. Khosla and his colleagues have plenty of money to throw around in politics, but despite the exu­berance, there’s a learning curve to climb. Khosla’s first big battle, over a California ballot initiative last year that would have taxed oil companies in order to fund research and development in alternative fuels, ended in defeat. Khosla contributed about $1 mil­lion to support the measure, called Proposition 87. In the end, it was the most expensive referendum in American history. But the rent-seeking was too obvious; even the Los Angeles Times cautioned voters against this “new form of corporate welfare.”

It seems like the mainstream media, as slow as they sometimes are, are coming around.