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By Robert Rapier on Sep 15, 2010 with 91 responses

ExxonMobil Says No to Subsidies

Earlier this week I participated in a conference call with ExxonMobil (NYSE: XOM) that was hosted by the American Petroleum Institute (API). It is the first API blogger call I have joined in a very long time, but my schedule was open and I was interested in the subject matter. ExxonMobil would be talking about proposed tax policy changes and how that might impact the oil industry and the economy as a whole. The transcript and audio recording of the call are both available at:

Blogger Conference Call: ExxonMobil Discusses Energy Taxes

I asked several questions, which I will get into below, but first I want to make my position on subsidies clear. I am not against all subsidies. For example, I don’t want to see the U.S. lose our ability to produce our own food because we can’t compete with cheap imports. Thus, I favor policies that help keep farming and rural communities intact. But, I don’t think taxpayers should subsidize the oil industry. I would imagine that is the same way most people feel. I don’t think we should subsidize consumption of a depleting resource. To the contrary, we should promote policies that discourage excess consumption to slow down the depletion of the resource.

Kenneth P. Cohen, Vice President Public Affairs for ExxonMobil, told me that his company would not mind seeing the Volumetric Ethanol Excise Tax Credit expire "as long as it’s uniform and applies across the board and doesn’t create the distortion of only being eliminated for a few large blenders."

But some of the tax deductions that are being characterized as subsidies are only being done so with respect to the oil industry. For instance, businesses are allowed to deduct the salaries of their employees when they are figuring taxes. Would people normally consider such a tax deduction a subsidy? What if the government decided to deny this “subsidy” to the oil industry and nobody else? That is the nature of some of the “subsidies” we are talking about here. That isn’t to say that there aren’t some legitimate subsidies that the oil industry receives, but some of the things being called subsidies for the oil industry aren’t called subsidies when another industry receives the same treatment.

This was part of what was discussed on the call. Internal Revenue Code Section 199 gives a tax break to a wide range of businesses operating in the U.S. Despite the credit being broadly available to main industries, Section 199 is often called a “Big Oil subsidy.” Over the past few years, the energy industry has been singled out for disqualification from receiving the tax break. Perhaps “energy industry” is too broad, because ethanol companies, for example, would continue to receive the tax break. (Have you ever heard anyone list Section 199 as an ethanol subsidy?) Coal companies would also be allowed to keep the tax break, while natural gas companies would not. Most recently Senator Bill Nelson had put forth an amendment to Section 199 that would rescind the deduction for the oil industry, but the amendment did not get enough votes.

Another tax issue discussed on the call was that of double-taxation of foreign earnings. Currently, oil companies that earn money overseas have those earnings taxed by the host governments. Various proposals have been floated to eliminate a foreign tax credit, which would mean that the earnings would be taxed by the foreign government and then again by the U.S. government. So, as an example let’s say ConocoPhillips (NYSE: COP) earns money from their operations in the North Sea (where I previously worked), they would pay taxes to the UK government, and then pay taxes again to the U.S. government without receiving a tax credit for taxes they had already paid on the income. BP (NYSE: BP), across the street, only has to pay for taxes on their earnings to the UK government, thus putting U.S. companies operating overseas at a competitive disadvantage. That is also something that I don’t think we should do — pass policies that put our domestic industries at a competitive disadvantage to foreign competitors.

After an opening statement in which some of these issues were described, the floor was opened to questions. I asked several questions, such as whether the administration understood the possible implications or whether they simply disagreed with them, and the estimated impact on jobs. Eventually the topic turned to ethanol, and then to the subject of the Volumetric Ethanol Excise Tax Credit (VEETC) — the $0.45 per gallon tax credit gasoline blenders get for putting ethanol into gasoline.

Since the gasoline blender receives this credit, it has often been painted as an oil company subsidy, or some have claimed that it benefits the oil industry by helping them pay for ethanol blending equipment. In fact, the ethanol industry has painted it as an oil company subsidy. Vinod Khosla, in his Google TechTalk Biofuels: Think Outside The Barrel characterized it as an oil company subsidy:

Vinod Khosla: Ethanol has a subsidy, but the farmer doesn’t get any of that. What I heard, is that well past midnight when this was being debated in the conference committee, the oil companies inserted 2 words into the language, calling this subsidy a blender’s credit. So the person who is blending it with gasoline gets it. All $2 billion of it last year was collected by the oil companies. Like they needed more money. It’s unfortunate, but that’s the way the system works. I talked to one of the senator’s aides who was in the conference room, and he said they got to 1 a.m., and were still negotiating, and oil guys were willing to stay there.

So, I was interested to hear ExxonMobil’s take on this subsidy, given that they actually collect the money. Here is the exchange:

43:17 MR. RAPIER: I’ve written quite a bit about that actually, the redundant nature of the blenders’ credit with the mandate. But I’m curious as to your view on that. The industry often paints that as an oil industry subsidy since the oil industry or the gasoline blender receives the blender’s credit.

What is your position then on the expiration of the credit at the end of the year? You know it’s scheduled to expire. Do you object to that expiring? Would you be happy to see that expire? What’s your view?

43:49 MR. SPELLINGS: I think we would be content for it to expire. We do not see ourselves as the beneficiary of that subsidy. We think in the marketplace today, that subsidy probably flows through to the consumer. We do not see how it’s a subsidy that benefits us or a subsidy that benefits ethanol refiners or farmers that produce the corn, although some folks continue to think that this is a subsidy that benefits either ethanol producers or corn producers.

We have a hard time seeing how in a world where you have a mandate, that the subsidy ends up flowing through to those folks.

44:39 MR. RAPIER: I agree with that.

44:41 MR. SPELLINGS: It sounds like you’ve reached the same conclusion.

44:43 MR. RAPIER: Yeah, I’ve been writing about that since they put the mandate in place. It’s completely redundant. So the headline here is “ExxonMobil Ready to Give Up Subsidies.” They will allow the blender’s credit to expire without protesting it.

44:59 MR. COHEN: As long as it’s uniform and applies across the board and doesn’t create the distortion of only being eliminated for a few large blenders. There’s enough distortion in the market. This is Ken speaking. As long as it’s a rational, across the board, industry-wide –

45:20 MR. SPELLINGS: And the one thing – this is Jaime. The one thing I’d want to add is I’d want to make sure the headline did not characterize this as our subsidy because in a pre-mandate world, I would have seen this as a subsidy that flowed through to corn producers or ethanol producers.

In a post-mandate world, I would say it flowed – probably flows through to consumers. But in neither one of those worlds was it a subsidy that actually benefited the oil and gas refiners who were buying the ethanol to blend into gasoline.

So there you have it. This subsidy which has been sometimes portrayed as an oil industry subsidy — and which the oil industry does collect — is one that they would be happy to give up provided it is eliminated across the industry. So the next time you hear someone call the blender’s credit an oil industry subsidy, just point out that this is one that will be easy to eliminate.

  1. By Rufus on September 15, 2010 at 9:57 pm

    They were supposed to send the Treasury a big check in April weren’t they? Did they happen to mention how much that was?

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  2. By rrapier on September 15, 2010 at 10:14 pm

    They were supposed to send the Treasury a big check in April weren’t they? Did they happen to mention how much that was?

    Are you still implying that they didn’t pay taxes for last year’s income? I almost put a note up on the blog asking for reader suggestions for questions to ask. I would have asked that.

    But you have the transcript; here is what they said:

    Many don’t realize that ExxonMobil’s U.S. tax burden is already very large. Over the last five years, our U.S. tax bill was $63 billion and that exceeded our U.S. earnings by $19 billion.

    The industry as a whole pays considerably more in taxes than the average manufacturing company or the average Fortune 500 company. The industry’s 2009 income tax expense averaged 48 percent, compared to 28 percent for the S&P Industrial companies.

     

    $63 billion is a lot of money, don’t you think? Just what is it that you wish to imply, Rufus? That XOM doesn’t pay enough taxes?

    RR

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  3. By mac on September 15, 2010 at 11:30 pm

    The burning question is not “blenders credits” or whether the oil companies are willing to give them up.

    That all falls into the category of “Let’s debunk the ethanol industry”

    You never answered OD’s question. So let’s change the subject by offering a new post.

    Maxwell and Hirsch say “Look out, Here comes peak oil, but offer no solutions to the seeming dilemma.

    There are numerous solutions to the peak oil THING, namely electric vehicles, vehicles run on CNG. and bio-fuels. These are all real. They are all here. NOW.

    Are CNG vehicles science fiction.?
    Are electric vehicles just a fantasy ?
    Are bio-fuels just a delusion ?

    I don’t think so…. They are HERE, right now in the marketplace. You can buy a flex-fuel vehicle, an electric car or a vehicle that runs on CNG today. No science fiction involved……

    The only reason we listen to prophets of doom is out of fear.

    People like Maxwell and Hirsch and others make a huge mistake in their reasoning by assuming that the consumer is just going to sit idly by until gas rationing stamps are issued and all the world’s economies collapse.

    If we allow oil companies to dictate our consumption habits, we will no doubt face a supply/demand crisis where the oil companies plan to get rich with the so-called “windfall profits”. that Maxwell mentions.

    The alternatives to this scenario have already been mentioned, and long before Maxwell’s $15 dollar a gallon gas scenario ever takes place people will flock to CNG, biofuels and electricity.

    It’s already beginning to happen. Three years ago, the number of CNG vehicles in use worldwide stood at about 6 million. In just three years the number has doubled to 11,3 million.

    The movement away from petroleum based gasoline has already begun.

    You didn’t answer OD’s question at the end of the last post and Maxwell and Hirsch.don’t have an answer either..

    I still eagerly await an answer to OD’s question…….

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  4. By rrapier on September 16, 2010 at 12:05 am

    You never answered OD’s question. So let’s change the subject by offering a new post.

    I missed the question, so I will go have a look.

    There are numerous solutions to the peak oil THING, namely electric vehicles, vehicles run on CNG. and bio-fuels. These are all real. They are all here. NOW.

    If you search through this blog, you will find that I have written positive essays on each of those themes. As an example:

    http://www.consumerenergyrepor…..-momentum/

    http://www.consumerenergyrepor…..lar-power/

    RR

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  5. By Perry on September 16, 2010 at 12:05 am

    Wow. Nissan’s coming out with an electric van. They say commercial, but it looks like a typical passenger van to me.

    http://livingleaf.info/2010/09…..in-common/

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  6. By Wendell Mercantile on September 16, 2010 at 12:17 am

    If we allow oil companies to dictate our consumption habits

    Mac~

    The oil companies do not dictate our consumption habits.

    * Has an oil company ever forced a man or woman living in the suburbs to drive a 6,000 lb SUV between home and office, carrying only one person?

    * Has an oil company ever forced someone to jump in their car to drive to a drug store or dry cleaner three blocks away?

    The oils companies meet our demand for liquid transportation fuels. So far, gasoline and diesel fuel have been the least expensive and most convenient fuels to use.

    Our love of mobility and the freedom cars have given us has triggered the demand for oil, not some nefarious conspiracy by oil companies.

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  7. By Perry on September 16, 2010 at 12:33 am

    These guys are installing charging stations for home or business. They issue a card for access, and charge your credit card. You can find available stations on the phone or web. I would imagine malls and restaurants will want these. Extra income while customers eat or shop.

     

    http://www.coulombtech.com/

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  8. By mac on September 16, 2010 at 1:54 am

    Wendell.

    Please…..

    Four of the five largest corporations in the world are multi-national oil companies (by revenue) and 8 of the top 20 world’s largest corporations are oil companies, If you think that the oil companies are just going to sit idly by and let alternatives take over “”in the good old American spirit of free enterprise” you are sadly mistaken.

    Oil companies have very deep pockets. They have huge political influence world-wide and when push comes to shove they will undoubtedly strenuosly resist any departure from the current oil paradigm. After all, there are appx 100 Trillion dollars worth of oil still in the ground and there’s lots of money yet to be made,

    !00 Trillion. Now that’s something worth fighting for, isn’t it.

    Don’t worry, the oil companies will get us through Peak Oil and have lots of gasoline to sell us when the supply/demand crunch is over, after the big price run-up to 15 bucks a gallon and windfall profits for oil companies. (and numerous people are arrested for fire-bombing the headquarters of the multi-national oil giants)

    No, the oil companies will resist change from the current energy paradigm to the bitter end,

    I really enjoyed the recent public relations spot.on TV the other day from one of the major oil companies entitled “What we plan to do about Peak Oil” The last statement from the oil spokesman was: “We plan to make a lot of money.”

    Let me see…..Where on earth did I put my Petrobas stock certificates ?

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  9. By mac on September 16, 2010 at 2:54 am

    mac said:

    “I really enjoyed the recent public relations spot.on TV the other day from one of the major oil companies entitled “What we plan to do about Peak Oil” The last statement from the oil spokesman was: “We plan to make a lot of money.”

    Apologies Wendell. The above quotation is a spoof, a put on. I did not actually hear this on TV. I just made it up to make a point.

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  10. By Perry on September 16, 2010 at 3:23 am

    I think big oil wants biofuels to succeed Mac. That way, they can stay in the energy business forever. Even with $300 oil, Iraq will still only pay the oil companies $2 a barrel to get it out of the ground. BUT, if those same companies can make biofuel for $75 a barrel and sell it for the same $300 oil fetches….there’s a ton of money to be made. That $2 a gallon ethanol we see today will cost $7 when gasoline costs $8. On the flip side, if biofuels can’t be profitable at any price, big oil’s days are numbered. People will go electric and gas stations will close up shop for lack of business.

    The EPA says Fiberight will be the top cellulosic producer next year. They make ethanol from municipal waste, and power the process by burning waste. They have a 5.7MMgy facility in Iowa and plan to open refineries at waste sites in areas with 100,000+ population. The “Rufus Plan” in action.

    http://www.fiberight.com/about.php

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  11. By mac on September 16, 2010 at 4:21 am

    Perry,

    Exelon, the largest Nuke outfit in the U.S. just bought out The John Deere Corporations wind farms, Deere had wind farms in 8 states but wanted to get back to manufacturing so they sold out to an energy company.

    The oil companies have deep pockets and they could certainly buy up or build new ethanol plants if the economics warrant it. I think most oil company investment, at least so far, may have been motivated by blending mandates..

    Electric vehicles might already be competitive for fleet applications, Frito Lay just bought 167 of them, A number of companies also use CNG. It’s hard to believe they have converted their fleets to CNG if there is no economic advantage for doing so,. The same goes for Frito Lay and their big electric delivery vans. Smith electric makes the vans, and I think Smith used to make what the English call “milk floats”. They were all-electric milk trucks used for home delivery, I think the supermarkets finally got the milk man in England just as they did in the U.S.

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  12. By Perry on September 16, 2010 at 4:35 am

    Did you see the company installing those chrging stations Mac? Restaurants, rest stops, malls, public streets, you name it. We can have a few on every block if we choose. Gas stations can’t compete in an electric world. Nobody is going to spend an hour or two at a gas statiuon. But, they might re-charge their car while watching a movie. If oil hits $250 a barrel and stays up there, it’s game over for big oil. People will use alternatives, mostly electric, and never look back. That’s why big oil is investing so heavily in biofuel research. Whether it’s algae or butanol, they need something that scales, and they need it before peak oil puts them under.

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  13. By Jim Takchess on September 16, 2010 at 6:47 am

    I don’t have time to delve to much into this but want to add that at times I’ve seen depreciation labeled as a subsidy. That’s pretty much standard accounting in all industries.

    I recently read a book Talent is Overrated that made this interesting point.

    Exxon Mobil who invests 20 billion a year bought back stocks and gave dividends of 33 billion in 2006. A action which states that they felt if was better to give back money than reinvest it in new ventures. CEO Tillerson says the constraint to not reinvesting isn’t money,it’s people. They could do more projects but don’t have the qualified people to manage them.

    Perhaps an alternative to subsidies would be increased direct investment in Leadership, Math,Science, Engineering Education especially in the grade and high school years.

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  14. By moiety on September 16, 2010 at 7:29 am

    Jim Takchess said:

    CEO Tillerson says the constraint to not reinvesting isn’t money, it’s people. They could do more projects but don’t have the qualified people to manage them.
     


     

    Tesco, a company similar to Walmart in may ways has a similar view.

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  15. By mac on September 16, 2010 at 8:01 am

    Perry

    Yes, they sure do seem to be putting up charging stations all over the place. Maybe they know something we don’t. (just kidding).

    Liquid fuels and refining are right up the oil companies’ alley. The whole bio-fuels and ethanol thing is just child’s play for them. The oil companies have done amazing, even miraculous, things with the hydrocarbon molecule. If you are wearing a rayon shirt please send a thank you note to the oil companies.

    The oil companies could very easily move into bio-fuels and ethanol, It;s right in their wheel-house. Who knows, some day we may be out driving around in our electric cars and roll up to a huge Jatopra Plantation with a big sign that says ” No Trespassing — Property of Exxon-Mobile”.

    When Peak oil hits people that paid ten grand for a battery.

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  16. By doggydogworld on September 16, 2010 at 9:26 am

    Hard to believe Khosla said that. He’s not stupid enough to believe it, which means he’s just lying and depending on the listener being stupid enough to believe it. I’m losing the last of my once-considerable respect for him.

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  17. By Brian on September 16, 2010 at 9:43 am

    Robert,

    Can you explain the logic behind Mr. Spelling’s statement that neither the ethanol industry nor the oil companies benefit from the VEETC at all? I have a hard time squaring that with the fact that the ethanol industry is spending tons of money trying to extend the VEETC.

    I would expect that the monetary value of the tax credit is shared somewhat closely between consumers, ethanol producers, and the oil industry.

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  18. By Kit P on September 16, 2010 at 9:47 am

    “Wow.”

     

    Is this another link to something Perry
    can not buy and does not know the price of the batteries?

     

    “the electric van will enable
    operators to access areas denied to conventional vans.”

     

    Wow indeed! You have to wonder about
    about adults who get excited about press releases from auto
    companies.

     

    “These guys are installing charging
    stations for home or business.”

     

    For cars you can not buy, for cars that
    people will not buy, with our tax dollars.

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  19. By Oxymaven on September 16, 2010 at 9:59 am

    Perry, 2 yrs ago EPA said Range Fuels and Cello Energy was going to be the leading cellulosic biofuel producers in the coming year, but how many gallons have they produced so far? I wish Fiberight well, and I like certain aspects of their approach so far, but I find it very difficult to express much near-term optimism for them or any other company like them since every cost/production claim by every 2nd gen biofuels wanna-be has proven to be wrong. When someone finally gets a plant built and can demonstrate profitability over a couple of years, I’ll have a lot more optimism that others can follow.

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  20. By Kit P on September 16, 2010 at 10:01 am

    “Perhaps an alternative to subsidies
    would be increased direct investment in Leadership, Math,Science,
    Engineering Education especially in the grade and high school years.”

     

    Jim that is something my company
    believes in and encourages.

     

    We start hiring interns from local high
    schools. For some college interns, we pay tuition and provide a part
    time job. We hire others and train them as technicians. They work
    lots of over time 6 months a year and then work on college credits
    the rest of the year. It may take 7 years to get an engineering
    degree but it is a good way to recruit talent that will not leave the
    area.

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  21. By Wendell Mercantile on September 16, 2010 at 10:31 am

    The last statement from the oil spokesman was: “We plan to make a lot of money.”

    mac~

    Of course they want to make money. But to whom would they sell the stuff if we didn’t want to buy it so badly? Consumers generate the demand, not the oil companies. We demand motor fuel because of the mobility and freedom it gives us.

    And people really don’t care whether that fuel is gasoline, ethanol, methanol, DME, LPG, CNG, or hydrogen as long as it is convenient, available, and relatively affordable.

    So far, motor fuels made from oil have proved to be the most available, convenient, and least expensive. That won’t always be the case, but that’s how it is now.

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  22. By Rufus on September 16, 2010 at 10:56 am

    I wasn’t “implying” anything, Robert. The last I heard, they made $39 Billion last year, and had paid No Corporate Income Taxes in the U.S.

    They said that they would be making a “large” payment in April, but I hadn’t heard anything about it. I was just wondering how “Large” it was.

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  23. By OD on September 16, 2010 at 11:21 am

    Thanks Robert (and mac for getting it answered!) for taking the time to answer my question on the previous post.

    I agree with everything you said, my biggest take away was your last paragraph, specifically..

    A few years ago someone told me that they were thinking of not having kids because of peak oil. My advice to that person was to have kids, live their lives, and just work through things as they come along.

    That is something I, and am sure a lot of others, struggle with. What kind of world have I brought my children in? I did not come to the realization that peak oil was someting my generation would have to deal with until our 2nd child was on the way. I suppose looking back through history, there has never been a good time to have children. We only know what times were safe in hindsight.

    I’m already doing small things to scale back our energy use and I have come to the conclusion that I will have a much harder time adjusting than my children. Interestingly enough, I believe my father will have an ever harder time ajusting than I, even though he lived much of his life without technology engrossing every crevice of his life. You will have to pry his RV from his cold dead hands.

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  24. By Kit P on September 16, 2010 at 12:58 pm

    “You will have to pry his RV from his
    cold dead hands.”

     

    I am thinking that OD’s dad will have
    no problem adjusting to anything because he has lots of experience at
    adjusting which is why he can afford an RV.  The only trips you should avoid is the eenrgy guilt trip. 

     

    “there has never been a good time to
    have children”

     

    This is a hard concept for me to
    understand. I suppose children raised without the fear of polio must
    invent something to be afraid. Parenting requires you to put fear
    into perspective. You train your children to not run into the street
    because getting hit by a car is a real hazard while running out of
    oil is an imagined one.

     

    “I’m already doing small things to
    scale back our energy use.”

     

    Why? There is a group of people who
    spend there time talking about how terrible the world is.  Do not lose
    sight of just how great modern life is thanks to energy. If energy
    allows you to spend 15 more minutes a day reading to your kids, it is
    a great investment. If energy allows your kids to participate in
    after school activities, it is a great investment. Sure you can
    drive by the school and see all those parents waiting to pick
    exhausted kids at dusk after whatever practice but it sure looks like
    a great investment in energy to me.

     

    One of the changes in parenting is to
    stop nagging about lights left on with no one in the room. Hi how
    was school is a lot better what is wrong with you can’t you turn off
    a light, you are running the environment.

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  25. By rrapier on September 16, 2010 at 1:42 pm

    doggydogworld said:

    Hard to believe Khosla said that. He’s not stupid enough to believe it, which means he’s just lying and depending on the listener being stupid enough to believe it. I’m losing the last of my once-considerable respect for him.


     

    One of the things that got my dander up over Khosla in the first place is that I felt he was making ill-informed statements about the oil industry that were designed to stir up more public hostility. The first time I spoke to him on the phone I brought it up and said that I disagreed with this tactics. He said “We will just have to disagree on that one.”

    RR

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  26. By Optimist on September 16, 2010 at 1:55 pm

    The EPA says Fiberight will be the top cellulosic producer next year. They make ethanol from municipal waste, and power the process by burning waste. They have a 5.7MMgy facility in Iowa and plan to open refineries at waste sites in areas with 100,000+ population. The “Rufus Plan” in action.

    The “Rufus Plan” is ethanol-enhanced haze. Even if everything goes right for Fiberight (nice sales slogan?), they will soon enough get overtaken by thermo-chemical processors (aka Big Oil). I know from a researchers perspective the enzyme-fermantation route looks very exciting. In the real world it will get crushed by the gasification/Fischer-Tropsch approach. Reasons include:

    1. Superior yeild: gasification can go after every carbon atom in the feedstock. Fermentation goes only after that part of the cellulose (and hemicellulose) part that can be hydrolyzed without being destroyed.

    2. Superior rate: Meaning smaller reactors, meaning lower capital investment.

    3. Superior separation: No need to distil hydrocarbons from water, saving a good chunk of energy.

    4. Superior product: Again, hydrocarbons don’t absorb water, and can be used in existing vehicles, stored in existing tanks and transported in existing pipelines.

     

    But I’m sure the CEO of Exxon-Mobil will send a nice thank-you note to Fiberight (assuming Fiberight is still around), once Exxon takes over the biofuel business.

     

    BTW, mac: you seem to have a hard time distinguishing between the national (East?) Big Oil companies (the guys who own most of the remaining oil and will profit the most from Big Oil, call it OPEC for short) and the western (West?) Big Oil companies (Shell, Total, Exxon-Mobil, BP, COP, etc.). East Big Oil will have no interest in biofuels, their crude supply is that big. West Big Oil will have every incentive to invest in feasible biofuels. And in a $X00/bbl world, they will also have all the money to do so.

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  27. By rrapier on September 16, 2010 at 1:56 pm

    Can you explain the logic behind Mr. Spelling’s statement that neither the ethanol industry nor the oil companies benefit from the VEETC at all? I have a hard time squaring that with the fact that the ethanol industry is spending tons of money trying to extend the VEETC.

    I think the ethanol industry is so used to the credit, for the most part they believe they are still getting benefit from it. They are afraid of the unknown; that is to say what might happen if it disappears.

    One way I look at this is to think about what would happen if the credit disappeared. Suddenly, gasoline blenders would lose out on some $5 billion in payments next year. They might like to pay $5 billion less for their ethanol, but in truth they have to buy the ethanol — and there isn’t a lot of excess — so that isn’t going to work. So what will happen is that consumers will collectively pay $5 billion more for their gasoline. This means they may buy a little less, and it focuses attention on the cost component from ethanol. So I think you are right; there is some benefit to all 3. But it mostly goes to subsidizing the consumer.

    RR

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  28. By Optimist on September 16, 2010 at 2:01 pm

    will profit the most from Big Oil

    Big Oil? Peak Oil. All sounds the same, doesn’t it?Embarassed

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  29. By mac on September 16, 2010 at 2:41 pm

    Optimist said.

    “West Big Oil will have every incentive to invest in feasible biofuels. And in a $X00/bbl world, they will also have all the money to do so.”

    I said to Perry………

    “Liquid fuels and refining are right up the oil companies’ alley. The whole bio-fuels and ethanol thing is just child’s play for them. The oil companies have done amazing, even miraculous, things with the hydrocarbon molecule. If you are wearing a rayon shirt please send a thank you note to the oil companies.

    The oil companies could very easily move into bio-fuels and ethanol, It;s right in their wheel-house.”

    I agree…..

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  30. By OD on September 16, 2010 at 2:42 pm

    Kit P said:

    I must have hit a nerve kit! It is amusing that you think you know my dad better than I. My dad is still on a credit high that is diminishing as fast as his 401K. What he can afford and what he “owns” are 2 entirely different things and a reality he won’t face until he has to. Who said I give him any guilt trips about it? I just quietly watch. What else is there to do?

    This is a hard concept for me to
    understand. I suppose children raised without the fear of polio must
    invent something to be afraid. Parenting requires you to put fear
    into perspective. You train your children to not run into the street
    because getting hit by a car is a real hazard while running out of
    oil is an imagined one.

    Seriously Kit, you have no fears that energy, specifically oil, might be in short supply in the coming decades? Or are you too old to give a crap and figure it will be my children’s generation that gets to deal with it? I’m sure Mexico is just imagining their oil production fell off a cliff. It’s really just in hiding.

    One of the changes in parenting is to
    stop nagging about lights left on with no one in the room. Hi how
    was school is a lot better what is wrong with you can’t you turn off
    a light, you are running the environment.

    That’s the good part, I don’t even have to nag my children to turn off the lights. I have raised them to do so since they could flick on the switch. It is second nature to them.  My children are also growing up in a colder winter house & warmer summer house than most of their peers, so when electricity is too expensive to keep the air conditioning running all day, it will be a non-issue for them. I’m sure this makes me a terrible parent in yours eyes.

    [link]      
  31. By Rufus on September 16, 2010 at 3:02 pm

    Exxon will never mess with ethanol for the same reason they don’t own small, stripper wells in Tx, and In. They’re too big for those small projects. The most efficient cellulosic ethanol operations will be in the 10 million gal/yr to 20 million gallon/yr range. That’s just too small for Exxon.

    Also, they have the wrong mix of personnel for the business. Cellulosic ethanol WILL be a biological process, Not a thermal process.

    [link]      
  32. By Rufus on September 16, 2010 at 3:12 pm

    BTW, the X-Prize has been awarded.

    $5,000,000.00 Main Prize to the E85 Car.

    [link]      
  33. By OD on September 16, 2010 at 3:28 pm

    $5,000,000.00 Main Prize to the E85 Car.

    How is a car supposed to spend $5 million? Sorry, couldn’t resist.

    [link]      
  34. By paul-n on September 16, 2010 at 3:59 pm

    Rufus, you beat me to it.

    I have just started a thread on the X-prize in the Open Forums section.

    As for the car spending $5m, well, it won’t be on fuel, that;’s for sure.  It will probably do what anyone would with a$5m prize – pay of all its debts and then retire!

     

    [link]      
  35. By Rufus on September 16, 2010 at 4:09 pm

    OD, My car must be “spending money.”

    I know my wife can’t spend “That” much. :)

    [link]      
  36. By Rufus on September 16, 2010 at 4:12 pm

    I would join you over there, Paul, but I forgot how to do it.

    Oh well, just say, “Ah, Ha” for me.

    [link]      
  37. By rrapier on September 16, 2010 at 4:15 pm

    Rufus said:

    I wasn’t “implying” anything, Robert. The last I heard, they made $39 Billion last year, and had paid No Corporate Income Taxes in the U.S.

    They said that they would be making a “large” payment in April, but I hadn’t heard anything about it. I was just wondering how “Large” it was.


     

    I went straight to the source. Here was their reply:

     

    “Claims that ExxonMobil did not pay U.S. income taxes for 2009 are incorrect. Any suggestion that ExxonMobil has somehow avoided paying U.S. federal income taxes for 2009 is incorrect.

    ExxonMobil made over $500 million in estimated payments towards its 2009 federal income tax liability.  And we just paid an additional $800 million in estimated taxes for 2010. The final 2009 tax bill will not be known until ExxonMobil files its income tax return later this year.

    ExxonMobil is one of the largest taxpayers in the United States and had total income and other tax expenses of more than $60 billion over the past five years.  In fact, during the period from 2005-2009, our total U.S. taxes exceeded our U.S. earnings by $19 billion.

    Inaccurate claims appear to be based on a misreading of ExxonMobil’s financial statements in its Form 10-K filing with the Security and Exchange Commission. The U.S. income taxes reported in the financial

    statements include more than ExxonMobil’s tax bill for 2009. The financial statements follow required accounting standards and reflect financial transactions related to U.S. federal income taxes booked by the corporation during the year, and include finalization of the taxes for prior years.”

    Given that you helped spread the misinformation about them paying zero taxes by repeating this on multiple websites, will you now go clean up that mess by setting the record straight? My guess is that you won’t, given your continued implications here that they aren’t paying their taxes.

    That’s one thing I learned about you a long time ago. If something is seemingly bad news about the oil industry, you quickly spread it, without taking time to verify the facts. If it’s bad news about the ethanol industry, you do mental gymnastics to discredit the news. While you and I might both like to see a strong domestic renewable energy industry, I am not prepared to engage in those sorts of tactics.

    RR

    [link]      
  38. By Rufus on September 16, 2010 at 4:27 pm

    If you will tell me how much they paid in U.S. Income Taxes I will gladly “spread it around.” BTW, that’s “Income” taxes not sales taxes, property taxes, etc.

    Do you have a link for the actual amount that they paid? I’m just curious. Did they pay $0.5 Billion on Profits of $39 Billion? That seems to be what they’re saying.

    Paul, I tried to tell people, years ago, that ethanol, in an efficient engine, would get better mpg than gasoline. It’s the “Octane,” you see, allowing more compression.

    [link]      
  39. By Kit P on September 16, 2010 at 4:31 pm

    “I must have hit a nerve kit! It is
    amusing that you think you know my dad better than I.”

     

    Do not think I said that, let me check!
    Nope, did not say or infer knowing OD’s dad better than OD.

     

    “Who said I give him any guilt trips
    about it?”

     

    Do not think I said that either, let me check!
    Nope, that advice was for junior.

     

    “Seriously Kit, you have no fears
    that energy, specifically oil, might be in short supply in the
    coming decades?”

     

    Not in the least!

     

    “my children’s generation that gets
    to deal with it”

     

    It could be that your children will
    have to work for a living if I am still around to support them.  I pretty sure somebody’s children are going to have to work at the sewage treatment plant.  They will have to figure out how to produce the energy they use too.  

     

    “so when electricity is too expensive
    to keep the air conditioning running all day”

     

    Now you have done it OD, changed the
    subject from oil to electricity. There is no reason for electricity
    to be expensive in the future particularly when the cost of
    generating electricity with is considered. It cost about $1/day to
    keep the AC just where my wife likes it.

     

    “I have raised them to do so since
    they could flick on the switch. It is second nature to them.”

     

    Did you train them to fetch a stick and
    roll over?

     

    “I’m sure this makes me a terrible
    parent in yours eyes.”

     

    Well you do sound like a control freak
    unable to distinguish between what is important and what is not.
    Someone who now has shown disrespect for his father twice based on
    unfounded fear of the future.

     

    Read to your kids every night, play
    games that develop math skills, train your children not to run into
    the street. If they are lucky they can get a job making electricity
    and protecting the environment.

    [link]      
  40. By Rufus on September 16, 2010 at 4:31 pm

    Robert, let me “clarify:” That statement was, obviously, made before April. It’s now 5 months After they filed their Final Return for the year. I was just wondering how it all came out.

    [link]      
  41. By rrapier on September 16, 2010 at 4:39 pm

    Do you have a link for the actual amount that they paid? I’m just curious. Did they pay $0.5 Billion on Profits of $39 Billion? That seems to be what they’re saying.

    That’s not what they are saying at all. That statement came from them today. What they are saying is that they filed an extension and won’t know their full tax liability until the final returns are filed. It is the same anytime I am on an international assignment. Because the taxes are more complex and more information is required from many different sources, the company always files for an extension. I would imagine that this is normal practice for many companies with operations in many different countries.

    So, no, they aren’t saying they paid $500 million on $39 billion. They are saying that they made a payment toward their obligation, which won’t be known until later.

    Given their liability over the past 5 years, you can bet that the final bill will be in the multi-billion dollar range.

    RR

    [link]      
  42. By Perry on September 16, 2010 at 4:41 pm

    Kit P said:

     

    For cars you can not buy, for cars that

    people will not buy, with our tax dollars.

    People are buying the Leaf already Kit. You can make an offer online, and get a delivery date if the offer is accepted. Rebates on electric cars are a good use of tax dollars imo. A Corolla owner will spend $15,000 on gas in 10 years if he drives 15,000 miles a year. Much of that goes to places like Saudi Arabia, and some of it ends up in Al Qaida coffers, or building madrassas where students chant death to America 8 hours a day. We send hundreds of billions a year overseas for the priveledge of filling up our gas guzzlers. We spend hundreds of billions more on military efforts to deal with the fallout. We can spend a few billion on an effort to keep some of that money at home.

     

    I know it’s not politically correct to talk about American jobs for American taxpayers. Or, energy independence from the people who want to chop our heads off. But, that’s what our goal should be nevertheless.

    [link]      
  43. By rrapier on September 16, 2010 at 4:47 pm

    OD said:

    I must have hit a nerve kit!


    Not hard to do. It doesn’t take much to push Kit to bad behavior, which he consistently displays with most forum members.

    Seriously Kit, you have no fears that energy, specifically oil, might be
    in short supply in the coming decades? Or are you too old to give a
    crap and figure it will be my children’s generation that gets to deal
    with it? I’m sure Mexico is just imagining their oil production fell off
    a cliff. It’s really just in hiding.

    Note that if you followed Kit’s advice, you are spending twice the money for energy you were just a few years ago. Teaching your kids to be efficient with their energy usage – which includes turning off the lights when you leave a room – is good advice. It will save you money and preserve a small amount of energy for another day. But remember that Kit works for an electric utility, so he wants you to leave the lights on. Job security.

    RR

    [link]      
  44. By Perry on September 16, 2010 at 4:52 pm

    Kit works for an electric utility? And he doesn’t like electric cars? Utilities love them. Or, they love the possibilities, at any rate. The idea of millions of EV’s doing load balancing 24/7 should appeal to everyone.

    [link]      
  45. By Rufus on September 16, 2010 at 5:11 pm

    Nice Video about the Edison 2 car.

    http://www.youtube.com/watch?v….._embedded#!

    That sucker gets almost the same mileage at 70 mph as at 40 mph. Cool.

    [link]      
  46. By Wendell Mercantile on September 16, 2010 at 5:33 pm

    I tried to tell people, years ago, that ethanol, in an efficient engine, would get better mpg than gasoline.

    Rufus~

    You were hardly the only person who knew that. Scania makes a compression ignition engine using ethanol (E95) that has been running buses in Sweden for 20+ years.

    I still want to know why our corn farmers haven’t asked U.S. ag equipment makers to use that diesel engine in tractors and corn pickers. Our corn farmers should want to use the fuel for which they provide the feedstock, instead of burning diesel fuel made from imported oil.

    Rufus, if you want to get on someone’s case for not using efficient engines that can take advantage of ethanol’s high octane, call out corn farmers and U.S. farm implement makers.

    [link]      
  47. By Rufus on September 16, 2010 at 6:15 pm

    It’s probably not that simple, Wendell. JD doesn’t make a farm tractor for Iow, and Nebraska, and a different tractor for China, India, S. America, and Alabama. While accessing E85 would be relatively easy for a farmer in the corn belt, it might be a little harder for one in Brazil, or Mumbai.

    [link]      
  48. By Wendell Mercantile on September 16, 2010 at 6:19 pm

    It’s probably not that simple,

    It’s exactly that simple. Its just a question of wanting to do it.

    If Iowa corn farmers want us to use ethanol, they should have been the first out the door using ag equipment that burned ethanol. Scania developed the technology 20+ years ago, there is no reason John Deere, Case-IH, New Holland, and the others can’t be putting ethanol-burning engines in their farm equipment.

    [link]      
  49. By mac on September 16, 2010 at 6:22 pm

    Optimist,

    I think we are confusing the upstream and downstream sides of the oil business. The Production and Exploration companies like Exxon go out and search for oil, drill wells and (hopefully) produce oil. As long as those wells produce the oil company that did the exploration and drilling gets a piece of the pie.

    An example might be ARAMCO, a company formed to explore and exploit Saudi oil potential. The Saudis had little or no expertise in the oil business so they hired Western companies to drill for them. ARAMCO hit it big. Under the original agreement the Saudis were paid a 20% royalty. If crude oil was selling for $5 a barrel, the Saudis got 20% or $1 for each barrel produced. and Aramco (the P&E company) got $4 for each barrel produced. Western oil companies that go into places like Nigeria pay royalties to the Nigerian government. If an oil company drills on U.S. government land, they pay royalties to the U.S. government.

    As long as a well is producing, the oil company that drilled the well gets a piece of the pie.

    This is where “windfall profits” come in. The major P&E companies have many, many wells that are still producing. When the price of crude oil goes through roof., the companies that drilled lots of producing wells reap the bonanza.

    Let’s say an oil company drills a good well. When the well starts producing the price of crude is $10 a barrel, Let’s say the oil well is in Venezuela and the royalties are 50%. The oil company makes 5 bucks and the government of Venezuela makes five bucks off each barrel. If the price of crude suddenly skyrockets to $100 a barrel, the P&E company gets fifty percent or $50 a barrel.. This is where the WINDFALL PROFITS kick in big time.. This is the upstream side of the business.

    The downstream side basically revolves around refineries. They refine the crude into various products, mostly gas and help distribute it for sale. Sometimes refineries like Valero have their own gas stations. The refineries are the ones that are most likely to buy the ethanol plants and indeed Valero did just that recently. Some of the Majors, however, also own refineries, namely Exxon-Mobil. Their expertise is in refining the crude that the P&E companies have discovered.

    The big P&E oil giants have drilled lots of wells for the OPEC nations and they are still collecting a percentage for active wells that they brought in. Perhaps that is why we can’t break our OPEC oil addiction, The major P&E oil companies are marching in lockstep with OPEC. OPEC gets their 50% and some major oil company gets their 50%.

    The major P&E companies are therefore NOT interested in reducing imported oil from OPEC, because every barrel of crude imported to the U.S. from OPEC makes the oil giants lots of money especially if the price of crude goes into orbit..(wind-fall profits again) The multi-national oil companies, the big P&E outfits are in bed with OPEC. It’s just that simple. And that my friends is why things don’t change, and why we are still addicted to oil from the mid-east.

    It has nothing to do with East Big Oil or West Big Oil. East Big Oil and West Big Oil are in bed together.

    [link]      
  50. By rrapier on September 16, 2010 at 6:30 pm

    Let’s say an oil company drills a good well. When the well starts producing the price of crude is $10 a barrel, Let’s say the oil well is in Venezuela and the royalties are 50%. The oil company makes 5 bucks and the government of Venezuela makes five bucks off each barrel. If the price of crude suddenly skyrockets to $100 a barrel, the P&E company gets fifty percent or $50 a barrel.. This is where the WINDFALL PROFITS kick in big time.. This is the upstream side of the business.

    Of course this is also high risk, and Chavez has booted oil companies out of the country and taken their assets when the price of oil got high. What allowable profit would you need to accept those kinds of risks?

    What would be your definition of a windfall profit? You gave some examples above, but could you be more specific on the threshhold for calling something a windfall? If the return on investment is historically 5% and goes to 20%, is that a windfall? How about industries where the profit margins are historically 20%? Do you say that isn’t a windfall since that was what they made all along?

    By the way, the domestic oil producers don’t produce most of the oil they refine. They have have to go out and buy it.

    RR

    [link]      
  51. By mac on September 16, 2010 at 8:08 pm

    Robert,

    By the way, the domestic oil producers don’t produce most of the oil they refine. They have have to go out and buy it.

    Exactly. Refineries have to buy crude at the going price, I think that refinery crack margins evaporate because they have delivery contacts that drag them under.

    [link]      
  52. By Rufus on September 16, 2010 at 8:43 pm

    BTW, I’m guessing that most (or at least, many) of the “Blenders” are not owned by Big Oil Companies.

    [link]      
  53. By mac on September 16, 2010 at 8:58 pm

    Robert ,

    If you will read the last paragraph of my post, my point is that we are tied to mid-east oil because of all the wells Western oil companies dug for OPEC.

    It’s a money thing, Robert, that you apparently can’t understand..

    [link]      
  54. By Kit P on September 16, 2010 at 9:06 pm

    “Kit works for an electric utility?”

     

    I work in the electricity generating
    industry and have not worked directly for a utility in many years but
    they are our customers.

     

    “And he doesn’t like electric cars?”

     

    I think BEV are a great idea. It is
    just the stupid thing people say about them.

     

    [link]      
  55. By carbonbridge on September 16, 2010 at 9:21 pm

    Robert Rapier said:

    Earlier this week I participated in a conference call with ExxonMobil

    (NYSE: XOM) that was hosted by the American Petroleum Institute

    (API). It is the first API blogger call I have joined in a very long

    time,


     

    RR:  Nice post and great radio/blogger interview which I’ve read from your posted link.  I’ve been over the road for most of the past month, not even reading this blog — yet playing a little bit of catchup today and now rather late in this discussion to add some of my thoughts. 

    Specifically (and I’ve stated this before on this blog) the 45¢ ethanol tax credit collected by the petroleum fuel Blender supports a higher wholesale rack price of EtOH.  This is why the fermentation ethanol industry continues to support this tax credit.

    If this ethanol subsidy expires year-end as planned – I would expect that the wholesale rack price of ethanol would fall accordingly.  Simply my own opinion here.  Then this 45¢ loss in wholesale EtOH price would ostensibly impact fermentative corn distillaries.  I’m presuming that this 45¢ is the bulk of their profit margin…

    This week’s current rack price of ethanol can be viewed at the following link.  This wholesale price ranges from a high of $2.55 to a low of $2.21 with an average price of $2.28 per gallon.

    –Mark

    http://www.dtnprogressivefarme….._PAGE_FREE

    [link]      
  56. By OD on September 16, 2010 at 9:43 pm

    Kit P said:

    Do not think I said that, let me check! Nope, did not say or infer knowing OD’s dad better than OD. 

    Come on now, you said he would have a better time adjusting because he could afford an RV or some such nonsense. When you have absolutely no idea what his situation is. Furthermore, making an oberservation that someone is being careless with their money is not direspectful. I have not direspected my dad in the slightest. I also have no idea who junior is.  

    Now you have done it OD, changed the subject from oil to electricity. There is no reason for electricity to be expensive in the future  particularly when the cost of generating electricity with is considered. It cost about $1/day to keep the AC just where my wife likes it.

    I’m sure you also feel there is no reason for oil to be at $75 today, but it is. I think I will take my chances that electric rates, along with oil, will rise and prepare the best I can. That is what the EIA is predicting afterall. If by chance it doesn’t rise, well great, I can use that extra money on food since that most definitely will rise with oil prices.

    Did you train them to fetch a stick and roll over?

    That is extremely uncalled for. I also teach them to turn off the water while they brush their teeth. I thought part of being a parent was teaching your kids to be good stewards of this planet. I guess not in your world? 

    Read to your kids every night, play games that develop math skills, train your children not to run into the street. If they are lucky they can get a job making electricity and protecting the environment.

    I do read to them daily and have been since they were saying their first words. If they are lucky they will get a job doing what they have a passion for!


     

    [link]      
  57. By carbonbridge on September 16, 2010 at 10:22 pm

    Perry said:

    If oil hits $250 a barrel and stays up there, it’s game over for big
    oil. People will use alternatives, mostly electric, and never look
    back.  That’s why big oil is investing so heavily in biofuel research. 
    Whether it’s algae or butanol, they need something that scales, and they
    need it before peak oil puts them under.


    A bit of my 2¢ worth in reply……. –Mark C. Radosevich

     

    10/4 and Right on Perry!  ICE’s will dominate for the next 40 years even IF affordable battery electric automobiles were to become the #1 best seller next year in this ongoing recession which I fear is going to get even worse.  Trickle-down continues and a whole new wave of folks are getting ready for foreclosures.

    
doggydogworld
    Hard to believe Khosla said that.  He’s not stupid enough to believe it, which means he’s just lying and depending on the listener being stupid enough to believe it.  I’m losing the last of my once-considerable respect for him.

    My own respect for Vinod vanished about 4.5 years ago via an insider story.  Now, I quietly watch with interest his biofuels investments, his new company’s patent filings, his risky science experiments, the calculated volumes of disinformation publically generated in year’s of press releases AND his quiet, non-public defense in lawsuits filed against him and certain partners — by little people.

    Rufus
    Also, they have the wrong mix of personnel for the business.  Cellulosic ethanol WILL be a biological process, Not a thermal process.

    Rufus:  You are showing your stripes here !!!  Once again, I call you out as a ‘paid lobbyist for the fermentative corn ethanol industry!’ 

    I’ll bet you $100 that you are 180 degrees wrong in your statement above.  And this evidence will become public during the next 12 months. 

    If you would care to accept my bet, please unmask and begin speaking publically using your own true identity.  If you refuse to use your own name, then please consider taking your insider lobbyist comments elsewhere and initiate your own corn ethanol blog.  Then, I promise to not challenge you further.

    Wendell Mercantile
    Rufus, if you want to get on someone’s case for not using efficient engines that can take advantage of ethanol’s high octane, call out corn farmers and U.S. farm implement makers.

    Wendell:  I agree wholeheartedly with you!!!  The farm belt should be combusting far more of their own corn ethanol.  Where are the E-85 pumps at every filling station in these corn producing states?  I can use the words ‘such a dichotomy.’  Or I can use the word ‘hypocritical.’  Or ‘what is good for the goose?’  Or ‘the pot calling the kettle black…!’

    [link]      
  58. By Wendell Mercantile on September 16, 2010 at 10:54 pm

    my point is that we are tied to mid-east oil because of all the wells Western oil companies dug for OPEC.

    Mac~

    And why did we dig those wells there? Don’t you think part of it might be geology? It just isn’t fair that God put all our oil under their sand.

    [link]      
  59. By Rufus on September 16, 2010 at 11:02 pm

    Front month contract on the CBOT is $2.07. That means you can buy ethanol in W. Iowa, the Dakotas, Nebraska for, probably, about $1.95. The average refinery is making, maybe, $0.10 to $0.15/gal.

    http://news.ncgapremium.com/in…..subtype=25

    $0.28 difference in rack price between Ill, and the next door state, Michigan.

    Iowa, and some other states – $2.17/gal

    Someone in Mich (and, a lot of other states) is making a Lot of money, but it’s not the biorefineries.

    [link]      
  60. By Rufus on September 16, 2010 at 11:10 pm

    I don’t get it. How does my belief that “Cellulosic” Ethanol production will turn out to be an “Enzyme-Driven” Process make me a “Corn” Ethanol Lobbyist?

    That’s kinda “too weird for words,” isn’t it?

    [link]      
  61. By Wendell Mercantile on September 16, 2010 at 11:23 pm

    It’s probably not that simple

    Rufus~

    Actually, I realize it’s not that simple. Bob Dinneen can’t wave a magic wand and suddenly have all the farmers in the Corn Belt driving ethanol tractors and corn pickers tomorrow.

    But haven’t you ever wondered why RFA’s Dinneen, Growth Energy’s Wes Clark, and Darrin Ihnen of the NCGA have never even mentioned how helpful it would be if John Deere, Case, New Holland and the others started putting ethanol engines in their ag equipment so Corn Belt farmers could buy them?

    John Deere wouldn’t have to do it, but the ethanol alphabet groups should at least be on record as saying they’ve asked the farm implement makers to do it.

    The next time you see Bob or Wes, ask them why they’ve never lobbied the implement makers to start using ethanol diesel engines like the Scania design.

    [link]      
  62. By rrapier on September 16, 2010 at 11:26 pm

    BTW, I’m guessing that most (or at least, many) of the “Blenders” are not owned by Big Oil Companies.

    You would be guessing wrong. The blenders are essentially the refiners. Those mostly comprise the major oil companies.

    RR

    [link]      
  63. By rrapier on September 16, 2010 at 11:29 pm

    mac said:

    Robert ,

    If you will read the last paragraph of my post, my point is that we are tied to mid-east oil because of all the wells Western oil companies dug for OPEC.

    It’s a money thing, Robert, that you apparently can’t understand..


     

    I am not even sure what your point is. But I bet I understand the money angle of oil pretty well. I was after all in the economics group in the refinery. Money was our business. So what is it about money that you don’t think I can understand?

    RR

    [link]      
  64. By Rufus on September 16, 2010 at 11:48 pm

    E85 is selling in Iowa, today, for $1.99/gal.

    http://e85prices.com/iowa.html

    That’s $0.53/gal less than the rack price in Michigan. It is, at this moment in time, a Very Inefficient market.

    [link]      
  65. By Rufus on September 17, 2010 at 12:46 am

    We’re back to shipping ethanol To Brazil.

    The best market, though, might have been The Netherlands. Ethanol at Rotterdam was selling at a $0.90/gal premium to New York ($2.93 to $2.03.) Shipping $0.18, and $0.48 for the Tariff left about a $0.24/gal Profit on that trade.

    http://www.dtnprogressivefarme…..ParentId=0

    [link]      
  66. By carbonbridge on September 17, 2010 at 1:06 am

    Rufus said:

    I don’t get it. How does my belief that “Cellulosic” Ethanol production will turn out to be an “Enzyme-Driven” Process make me a “Corn” Ethanol Lobbyist?

    That’s kinda “too weird for words,” isn’t it?


     

    Rufus:  This isn’t your blog, it is RR’s blog.  But any person initially reading educational discussions and debates herein wouldn’t assimilate this.  You tend to dominate discussions by using ALL TOO MANY insider points from within the EtOH industry group’s political domains to simply be nothing more than a retired insurance peddler who is personally interested in batch fermentative corn ethanol…

    Once again I ask you to leave these discussions and debates by initiating your VERY OWN corn ethanol blog IF you will not unmask and use your own true identity.  FACT:  I and others who have also spoken out do not believe you.

    Personally, I believe that you are a paid shill for other entities — and you’ve repeatedly called your own bluff herein with your deep insider knowledge.  OR maybe somebody keeps sending you insider points to utilize and sway opinions?  We both know that there are many more readers than posters to these discussions!

    Excuse me but I’m saying what is truly on my mind after reading your own essays here for the past couple of years.

    Please create your own following elsewhere and quit posting insider opinions under an alias.  You really have no credibility as Rufus Anonymous.  Thank you.

    –Mark

    [link]      
  67. By Rufus on September 17, 2010 at 2:28 am

    Actually, Mark, I’m mostly interested in “Ethanol from Switchgrass,” nowadays.

    Rather than rail at me, why don’t you hone up on your reading skills? You give a link to rack prices, and then misrepresent the content. For instance, Oregon was the low at $2.02, and Louisiana was the high at $2.56. Many states were below your supposed low of $2.21.

    Then you state that you think prices will “fall” when the VEETC expires. As you said, that’s just your opinion; but that opinion IS pretty unique. I don’t think it’s ever, before, been expressed on this blog, or, quite honestly, any other that I have ever read.

    A lot of people comment under pseudonymns. I don’t think I’m unique in that respect. Since I’m NOT getting paid for the trouble, I’d just as soon Not have Middle Eastern Oil Sheiks showing up at my door with a deal that I can’t refuse, or get phone calls from irate promoters of some technology or other that I don’t espouse.

    Then, there’s all them “ex-wives.” :)

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  68. By rrapier on September 17, 2010 at 2:41 am

    I am going to weigh on on Rufus’ side here. I decided a while back that whether he does or doesn’t have any vested interests, we should argue the points presented. I think his points are comically biased at times, and I think he holds ethanol to a different, lesser standard than he holds other fuels.

    But people have very legitimate reasons for posting anonymously. I don’t hold that against him. He is free to post his ethanol musings here, and we are free to agree or disagree as appropriate.

    RR

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  69. By Rufus on September 17, 2010 at 2:56 am

    Thank you sir.

    What’s for lunch? :)

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  70. By carbonbridge on September 17, 2010 at 2:59 am

    Rufus said:

    Rather than rail at me, why don’t you hone up on your reading skills? You give a link to rack prices, and then misrepresent the content. 


     

    http://www.dtnprogressivefarme….._PAGE_FREE

     

    The link works just fine Mr. Pseudonym and I’m not misrepresenting its content vs: this week’s EtOH rack prices as you indicate.  And I don’t care if my opinion of ethanol’s 45¢ tax subsidy to purchasing blenders directly reflected in fermentative profits makes any sense to you or not.  

    In my own career I’ve documented the workings of over 85 corn ethanol plants.  I know their inefficiencies, their odors, waste, water, the bushel price factor, the localized workforce and job creation from seed to fertilizer to water, weed, harvest, trucking, conversion, fermentation, distillation, mole-sieve anhydrous, rack sale to BTU wheel, food vs: fuel issues, the mechanics of wet vs: dry front-ends and the differences between 4-day batch fermentation of corn kernels vs: 7-day batch for TRUE ligno-cellulosic plants producing less than one-half EtOH volumes from switchgrass or corn cobs in comparison to corn kernel starch carbon hydrolyzed into 5 and 6 carbon sugars for yeasty biobugs to munch on.

    Please take a hike.  This discussion blog should not be for sniping it should be for legitimate and educational discussion.  I can’t even fathom how a retired insurance peddler would be worried about Saudi Shieks ringing his doorbell.  You show your own stripes when you hypothesize that ligno-batch fermentation will outperform thermal steam continous methods of conversion of raw carbonaceous feedstocks.

    –Mark

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  71. By mac on September 17, 2010 at 3:08 am

    Robert,

    Does the fact that Western oil companies , have producing (money making) wells in the mid=east have anything to do with the fact we are still addicted to Mid-East oil.

    A simple yes or no will suffice.

    Stop peddling this non-sense about windfall profits. That was not the main point of my post.

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  72. By rrapier on September 17, 2010 at 3:29 am

    mac said:

    Robert,

    Does the fact that Western oil companies , have producing (money making) wells in the mid=east have anything to do with the fact we are still addicted to Mid-East oil.

    A simple yes or no will suffice.


    I don’t think I understand what you are getting at. Are you suggesting that if Western oil companies had not gone there and drilled, we would not now be addicted to Mideast oil? Or that someone else wouldn’t have come along and drilled? We are addicted to oil all over the world; it isn’t just a Mideast issue. Are we addicted to Russian oil because Western companies drilled there, or because that’s where the oil exports come from?

    The oil majors are in some OPEC countries (Nigeria, for instance) but are mostly locked out of others (Saudi). But that has zero to do with why we are addicted to oil. After all, the entire developed world is addicted to oil. That is because we are addicted to the lifestyle it provides, not because of some oil conspiracy.

    Stop peddling this non-sense about windfall profits. That was not the main point of my post.

    What nonsense? I just asked you a series of questions.

    RR

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  73. By paul-n on September 17, 2010 at 3:29 am

     

    I would join you over there, Paul, but I forgot how to do it.

    Oh well, just say, “Ah, Ha” for me.

    Rufus, you dont have to be signed in – just click the “forums” tag at the top of the screen.

    After all, over there is where we have the really good discussions about ethanol – I am surprised you don’t bother to check in there.

     

    And as regarding changing engines, where you said “it’s not that simple”, take a look a this to see how simple changing an engine can be;

    http://www.youtube.com/watch?v…..e48ucoEvFI

     

    Imagine if, you wanted to have a flex fuel, they could do that in less time than it takes to fill the tank!

     

    Mac, 

    The fact that the western oil companies own wells in the mid east does not mean that we need to use the oil here.  Exxon etc will be just as happy to sell it europe, China etc – it is all about money, and everyone else pays the same price too..  If we don;t buy it, they will – that’s why it costs what it does.

    In fact, its better for us if they do, as the profits (and taxes) do come back here, even if the oil doesn’t.  The country can still make money off it by using less, and I’m sure the E&P companies won;t mind a bit.

    The retailers make a margin of 10-15c/gallon – hardly anything – they make their money from selling everything else at the store.

    The only real losers will be the refiners, an, a bit like when the car industry shrank, we’ll see the oldest, least efficient (and possibly least clean) refineries close down first, and that’s not a bad thing either.

    I sound a bit like Benny here, but there really is lots of upside – I don’t think the oil companies are too worried –  they’ll be happy to make 2x the money on 1/2 the oil!

     

     

     

     

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  74. By Rufus on September 17, 2010 at 3:44 am

    I can’t “fathom” how anyone that knows as much as you say you know about corn ethanol could be under the impression that the corn ethanol refineries are making $0.45/gal at todays prices.

    Don’t “snipe,” there won’t be no “sniping.” You started off your comment above reminding us that this is “RR’s” blog, and then, immediately, tell me to “leave,” and go start my own blog. That’s a bit bizarre, don’t you think?

    I clicked on your link, and found that the low price wasn’t $2.21, but $2.02, and that many states were in the $2.17 to $2.18 range. I, also, saw that $2.55 wasn’t the high, but that Michigan at $2.56 was.

    Look, it seems like you might have an interest in thermal steam technology. Well, Good Luck. I’ve got nothing against you. Hope it works Great. All I want is cheap fuel. Knock’em out. All I’m saying is the “enzyme” guys are all talking “price,” and none of the thermal guys are. In fact, the only price I’ve seen out of “thermal” has been KL Energy at $3.50/gal. Hell, I hope you cut it in half. I hope you cut it by 2/3rds. May the wind be at your back. But, I’m stayin. sorry :)

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  75. By rrapier on September 17, 2010 at 3:50 am

    All I’m saying is the “enzyme” guys are all talking “price,” and none of the thermal guys are.

    I can cite you plenty of thermal guys that have made claims that are just as ludicrous as those of some of the enzyme guys. Coskata’s $2/gal is an obvious example. Range Fuels made similar claims.

    RR

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  76. By paul-n on September 17, 2010 at 3:57 am

    And for all these guys that have been talking “price”, how much can we actually “buy” from them?

    Are they willing to take on a futures contract for their entire production at that price?

    And if they aren’t then the “price” is meaningless, because that is not what they are willing to sell for.

    Assuming they are actually producing something to sell, sometime soon…

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  77. By Kit P on September 17, 2010 at 10:16 am

    “I’m sure you also feel there is no
    reason for oil to be at $75 today, but it is.”

     

    I have feelings for my children but not
    about the cost of inanimate objects.

     

    The important point is to make rational
    decisions based on cost and benefit. When I buy gas for my car I
    derive a great deal of benefit. I do not buy coffee or bottle water
    at the gas station because it is more expensive per unit volume than
    gas. I make my coffee at home with tap water.

     

    “what they have a passion for”

     

    I have a passion for making electricity
    with steam plants. Which brings us to,

     

    “electric rates,”

     

    Because we do such a good job in the
    US, electricity is a very cheap commodity with insignificant
    environmental impact.

     

    “I thought part of being a
    parent was teaching your kids to be good stewards of this planet. I
    guess not in your world?”

     

    Actually that is my world, protecting
    the environment using a systematic approach. If you are teaching
    your kids using an erosional approach they are very unlikely to be
    good stewards of the environment.

     

    Environmental heroes are not those who
    wring their hands worrying about the future but the people who make
    electricity to treat sewage and the people who work at the sewage
    treatment plant.

     

    So OD, next time you pay your utility,
    put a thank you note for the real environmental stewards that make
    the world a safe place for your children.

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  78. By Optimist on September 17, 2010 at 5:41 pm

    Also, they have the wrong mix of personnel for the business. Cellulosic ethanol WILL be a biological process, Not a thermal process.

    Categorically true, but utterly irrelevant. Who cares how ETHANOL will be produced? It’s for the dedicated DIYer, like biodiesel. As a fuel, hydrocarbons are far superior to ethanol. So the thermochemical route from biomass to the familiar old gasoline and diesel (as well as everything else) is where it is at.

     

    But each moonshiner to himself.Wink

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  79. By Optimist on September 17, 2010 at 6:00 pm

    I tried to tell people, years ago, that ethanol, in an efficient engine, would get better mpg than gasoline.

    Again, categorically true, but utterly irrelevant. If ethanol’s octane number is such a game changer, why isn’t changing the game?

     

    And for the average customer: Would you buy the Ford GameChanger, if it could only drive on E85?

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  80. By paul-n on September 17, 2010 at 6:07 pm

    As a fuel, hydrocarbons are far superior to ethanol

    Actually, this is not true.  You can get just as much work per btu from alcohol as hydrocarbons, in engines that are optimised for them, and sometimes more.

    And for the average customer: Would you buy the Ford GameChanger, if it could only drive on E85?

    If it got the same mileage as the Edison car that just won the X prize, I would. (73mpg on E85, equivalent to 102mpg on gasoline)

    But then, if it got that mileage, it couldn’t be a Ford, or a Chevy, or a…

     

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  81. By Optimist on September 17, 2010 at 6:11 pm

    It has nothing to do with East Big Oil or West Big Oil. East Big Oil and West Big Oil are in bed together.

    I don’t know if I’d describe their business dealings as such an intimate relationship.

     

    I also don’t see how one blames our dependence on imported oil on Big Oil. They’re NOT the one’s who got us to buy all those SUVs. That was the D3. Big Oil might have enabled that process, but others were far more active in the game. Also, Big Oil at least don’t ask Uncle Sam for a bailout when times are tough.

     

    Regardless of what % Big Oil West might get from well they dug in the ME and elsewhere: If global oil production hits a peak, they will have a limited ability to cash in on those high prices. And, since they won’t be asking Uncle Sam for a bailout, they’d be looking at something else. This would be the time and the place for a feasible biofuel system to be born.

     

    In fact, I’d argue it’s the ONLY way we are going to see a big scale up of biofuels. We’ll see.

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  82. By Optimist on September 17, 2010 at 6:19 pm

    Actually, this is not true.  You can get just as much work per btu from alcohol as hydrocarbons, in engines that are optimised for them, and sometimes more.

    Equal miles per btu is hardly something to write home about. It is also quite a lot worse ito mpg.

     

    Also, ethanol has many issues, including its tendency to absorb water (which may phase out under certain conditions with catestrophic consequences) leading to corrosion issues. This in turn means you need to have a separate fuel storage and transportation system for ethanol, at significant cost. Now if ethanol was such a great fuel,  a VC would write the check for this. Tellingly Uncle Sam is being asking to provide (another) subsidy.

     

    So rather than replace or renew the entire fuel storage and transportation system, as well as most of the vehicles on the road, renewable hydrocarbon fuels will eat ethanol’s lunch. IMHO.

    If it got the same mileage as the Edison car that just won the X prize, I would. (73mpg on E85, equivalent to 102mpg on gasoline)

    Yeah. And if it could fly, I’d need one to go catch a pig…Wink

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  83. By paul-n on September 17, 2010 at 6:49 pm

    Equal miles per btu is hardly something to write home about. It is also quite a lot worse ito mpg.

    Just to be specific here, I am talking equal miles per btu compared to diesel, which is 30% more than gasoline.  At that point, which is quite achievable, you are getting equal miles per btu. 

    Some hydrocarbons (diesel and kerosene/jet fuel) are great fuels, but gasoline is not.  Guess which one we use the most of?

    Alcohol and water is only a problem if they are mixed with hydrocarbons.  Run your engine on straight alcohol, or even just keep the alcohol separate from the gasoline/diesel/CNG and the water actually makes it more efficient, not less.   Lowers emissions, too.

    So rather than replace or renew the entire fuel storage and transportation system

    Judging by the recent pipeline breaks, we are going to have to do this regardless. The consequences of an ethanol/methanol spill are negligible compared to hydrocarbons.  

    Hydrocarbons are great fuels, we are just don;t have enough (on this continent) for what we use,  that’s all.  The cost of importing them, and of securing their supply or outbidding other buyers, may soon exceed their economic value.

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  84. By armchair261 on September 18, 2010 at 12:29 am

    mac said:

    Does the fact that Western oil companies , have producing (money making) wells in the mid=east have anything to do with the fact we are still addicted to Mid-East oil.

    A simple yes or no will suffice.

    Western oil companies have little or no producing wells in Saudi Arabia, Kuwait, or Iran, which account for about 2/3 of Middle East production. Western oil company interests (you may have heard) were nationalized in each of these countries many years ago, most recently 100% of Saudi Aramco production by Saudi Arabia in 1980. Additionally, Western companies have very little production in the UAE and Iraq. Combined, these 5 countries account for 89% of Middle Eastern production, but only about 24% of US imports.

    Couldn’t we also say that Western oil companies’ production in Canada and Mexico (if we generously call Pemex a Western oil company) means we are addicted to Canadian and Mexican oil? Western companies DO own sizable stakes in thsoe countries, and production from those two countries alone comprise about the same fraction of US imports.

    So in other words, your comment is really a non-sequitur. It’s meaningless. We need our daily fix of about 18 million barrels, regardless of where the oil comes from or who produces it.

    So, the answer to your question is no. Does that work for you?

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  85. By Duracomm on September 18, 2010 at 2:37 pm

    Mac said,

    Four of the five largest corporations in the world are multi-national oil companies (by revenue) and 8 of the top 20 world’s largest corporations are oil companies, If you think that the oil companies are just going to sit idly by and let alternatives take over “”in the good old American spirit of free enterprise” you are sadly mistaken.

    If biofuels worked the oil companies would be knee deep in making biofuels and harvesting all of that sweet, sweet cash. The oil companies have everything needed to rake in the bucks producing biofuels, technical expertise, money, facilities, supply chain, people, etc.

    Simple, easy, and no worries about having your contracts nullified or companies nationalized. As a point in fact the government subsidizes your production of ethanol.

    The fact that the oil companies are not currently in biofuels as a commercial venture shows that biofuels as they exist now are a complete failure as a replacement for oil.

    The only reason biofuels are produced today is to act as a subsidy to corn growers and ethanol producers.

    No amount of conspiracy mongering is ever going to change that fact

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  86. By armchair261 on September 18, 2010 at 8:59 pm

    Mac,

    Why don’t you think a company like, say, Exxon, would be interested in developing (or buying) a viable form of alternative energy and take OPEC’s market share away?

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  87. By ronald-steenblik on September 19, 2010 at 4:02 pm

    Robert Rapier, in his original article, wrote:

    [F]irst I want to make my position on subsidies clear. I am not against all subsidies. For example, I don’t want to see the U.S. lose our ability to produce our own food because we can’t compete with cheap imports. Thus, I favor policies that help keep farming and rural communities intact.

    Oh dear. And prey tell, Robert, what are those “policies that help keep farming and rural communities intact”? Since that sentence follows a one in which you state, “I am not against all subsidies”, presumably you are OK with agricultural subsidies. All subsidies? Only specific ones?

    Most subsidies provided by the USDA are not to keep the U.S. from losing its ability to produce our its own food because it can’t compete with cheap imports (unless you are talking about avocados, bananas, coffee, mangoes and other tropical products with which U.S. farmers will never be able to compete): they are there for several other reasons, the most important of which is to keep land values from declining. One of the reasons why farm subsidies have proven so difficult to reform is because they create excess profits (“rents”) that get capitalized into the value of land — a phenomenon recognized by the earliest, classical economists (notably David Ricardo, 1772–1823). Reducing price or production-related subsidies would not make U.S. farmers less productive than foreign suppliers; what it would do is hit the price of arable farmland. And, as we know, politicians don’t like to be associated with foreclosures of family farms. It is also well known that bigger farmers are bigger beneficiaries of commodity payments, because of economies of scale. These kinds of subsidies actually encourage expansion of the average sizes of farms, working contrary to your goal of keeping “farming and rural communities intact”.

    The United States is not at risk of becoming a net importer of food, even if all farm subsidies were to disappear. Yes, it would import more of some commodities, like sugar. But you only need to look a few miles down the road to see how the decline of sugar production in the Big Island of Hawai’i has been accompanied by an increased diversity of locally grown fruits and vegetables. A farm policy that was more neutral in respect of different commodities would also probably lead to a greater diversity of production on the mainland. For instance, a few years ago, the United States was self-sufficient in oats. Now, thanks to the preference in policies to corn and soybeans (in part thanks to biofuel policies), the United States is a net importer of oats.

    U.S. oat production

    Perhaps I’ve missed something. I’d be really curious to hear your argument as to why without subsidies the United States would not be able to produce its own food, and would be flooded by imports of products of temperate agriculture.

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  88. By rrapier on September 19, 2010 at 7:00 pm

    Ronald Steenblik said:

    Robert Rapier, in his original article, wrote:

    [F]irst I want to make my position on subsidies clear. I am not against all subsidies. For example, I don’t want to see the U.S. lose our ability to produce our own food because we can’t compete with cheap imports. Thus, I favor policies that help keep farming and rural communities intact.

    Oh dear. And prey tell, Robert, what are those “policies that help keep farming and rural communities intact”? Since that sentence follows a one in which you state, “I am not against all subsidies”, presumably you are OK with agricultural subsidies. All subsidies? Only specific ones?


     

    Ron,

    That’s a tough question, and very situation dependent. If we can maintain self-suffiency in food without any kind of subsidies, then I am happy with that result. But if it takes subsidies to prevent turning farmland into parking lots, then I would support subsidies that accomplish that. On the other hand, I am aware that subsidies can also result in overproduction (and in turning forested land into farmland), and I don’t want that either. Bottom line is that it isn’t subsidies that I favor, it is a result that keeps U.S. food production intact. If that could only be done with subsidies, then I would likely favor those sorts of subsidies.

    We have lost expertise in many different areas, and now depend on imports to meet our needs. The last area I want to see this happen in is farming.

    RR

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  89. By Kit P on September 19, 2010 at 8:00 pm

    An interesting litany of problems that
    I never really associated with subsidies not did I really think they
    were a problems.

     

    “turning farmland into parking lots “

     

    I suspect that RR is talking about
    concerns about urbanization. Urban area are a small fraction of the
    US. We are not running out of farms land.

     

    “turning forested land into farmland”

     

    Again this is not a problem in the US.
    The area in forest has been growing for more than 50 years.

     

    “have lost expertise in many
    different areas, and now depend on imports to meet our needs”

     

    I wondered which particular area area
    and how we are dependent?

     

    To determine if a subsidy is a good
    idea you have to look at the purpose and if the subsidy is
    accomplishing that goal.

     

    Go back a few years and the EU led the
    US is biofuels because the UE subsidized them. Once the US, started
    subsidizing them, the US now leads the world in biofuel production.

     

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  90. By Wendell Mercantile on September 20, 2010 at 5:37 pm

    For instance, a few years ago, the United States was self-sufficient in oats. Now, thanks to the preference in policies to corn and soybeans (in part thanks to biofuel policies), the United States is a net importer of oats.

    Too bad for the oat farmers that there’s no “Oat Belt” the 42 farm state senators can get behind, or that Big Ethanol doesn’t use oats for ethanol feedstock. Imagine “oat ethanol.” The NOGA must not have near the clout the NCGA has. (Hmm…I just did a Google search, and believe I found their mistake. There’s a National Corn Grower’s Association, a National Sunflower Association, a National Grain Sorghum Producers group, and a National Barley Growers Assoc, but no association of oat growers. They’ll never get their product accepted as a feedstock for ethanol and get the subsidies the corn growers get if they don’t have an association to lobby the farm state senators.)

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  91. By Optimist on September 20, 2010 at 5:54 pm

    Judging by the recent pipeline breaks, we are going to have to do this regardless. The consequences of an ethanol/methanol spill are negligible compared to hydrocarbons.

    Natural gas and oil are obviously NOT the same thing. We DO have a problem maintaining infrastructure. One would think that the opportunity for an economic stimulus would be obvious… But what am I thinking? Better to give all that money to the clever bankers on Wall Street and let them parse it out as bonuses to the deserving members of their class.

    Hydrocarbons are great fuels, we are just don;t have enough (on this continent) for what we use, that’s all.

    And renewable hydrocarbons would seem to be the best of both worlds. We might even be able to produce enough…

    The cost of importing them, and of securing their supply or outbidding other buyers, may soon exceed their economic value.

    Try explaining that to any occupant of the White House. Seems like the default energy policy is to kiss up to OPEC. And if that doesn’t work, you just need to grovel harder.

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