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By Russ Finley on Mar 18, 2012 with 12 responses

Clearing the Air On Ethanol Mandates

A regular commenter on the R-Squared blog made some reasonable, articulate, and civil comments under my previous post. Rather than address them in the comment field I’ve opted to give my response (which got rather lengthy) in a new post.

If the EPA doesn’t want to up the blend wall, there’s plenty of demand for ethanol around the world. It’s an excellent oxygenate, if nothing else. And there’s no shortage of smog filled cities.

Nobody is arguing to remove the freedom to blend corn ethanol into fuel as an additive if desired by refiners. A 2004 CARB study showed that ethanol actually increased smog forming emissions relative to non-oxygenated gas by 45%. Two years later the EPA dropped the requirement to oxygenate gas. Modern cars can meet very strict emissions standards in a variety of ways.

The official stated goal of ethanol mandates is to reduce dependency on foreign oil, not smog. Although, spending billions to create a corn ethanol refinery infrastructure to replace a modest portion of our oil with a fuel that itself derives 70% of its energy content from fossil fuels seems like a rather (pick a word) way to accomplish that goal. A corn crop can be seen as just one of many steps needed in a process to convert diesel, natural gas, and coal into ethanol.

There are other ways to reduce oil use and some of those ways are vastly more cost effective. My wife’s midsized hatchback uses roughly four times less fossil fuel than the average 2012 flex fuel car. She also pays four times less for fuel because rather than spend money to substitute one liquid fuel for another, she simply uses much less liquid fuel. Speaking of which, she just ran off with a car load of teenagers and all of their sports gear. Contrary to popular opinion, you really don’t need an SUV to do that.

The average 2012 flex fuel car gets 13 mpg. If each of our two cars were to drive 10,000 miles this year (for a total of 20,000 miles), they would use in total, 88% less oil than the average flex fuel car driving 10,000 miles using standard gasoline. If the average flex fuel car actually used E85, my two cars together would still use 22% less oil.

There have also been studies suggesting that significant use of ethanol may have a greater negative health impact on air quality than regular gasoline. The average EPA air pollution ratings of the 2012 flex fuel cars when using E85 is 4 out of 10 (with 10 being the best). This is well below the average for all cars.

Russ, which export contributes best to the trade imbalance, feed corn or ethanol?

Things that are easy to measure tend to get measured. Things that are difficult (or impossible) to measure tend to be ignored. More points to consider:

  • Any reduction in oil imports attributed to corn ethanol should take into account a realistic estimate of the loss of grain exports thanks to corn ethanol (ethanol’s contribution to the high price of corn reduces its consumption by other users).
  • Those who argue that ethanol has lowered the price of gasoline are inadvertently also arguing that ethanol has increased gasoline consumption and therefore oil imports (because lower prices generally equate to higher consumption).
  • All things being equal, ethanol exports tend to equate to more oil imports.

Trade imbalance, like any economic issue, is ultimately all about cost. Corn ethanol may be reducing oil imports, and if so, at what cost?

  • Consumers all over the world are paying more for food (the percentage of wages spent on food varying from place to place but the poorest really get nailed by that one).
  • With the average 2012 flex fuel car getting 13 mpg, it’s hard to argue that they’ve reduced oil use, not to mention, almost nobody burns E85 in them.
  • Unaccounted for is the total cost of damage to fuel systems, particularly in older cars used by lower income people, as well as recreational vehicles.
  • My previous article talked about ramifications to wildlife habitat, soil erosion, and the negative impact to the hunting and fishing recreation industry.
  • There are significant costs to other industries like livestock farmers and grocery producers who have to pay more for feed or the products created by that feed.
  • Pouring on the fertilizers, herbicides, fungicides, and insecticides isn’t going to reduce the Gulf of Mexico dead zone or its impact on yet another industry–fishing.
  • And contrary to what the corn ethanol lobby thinks, indirect land use change isn’t a myth. All around this planet the high price of grains has incentivized famers to find land to plant on.

Granted, there are indisputable positive aspects of corn ethanol. Grain farmers and those who outfit them are raking in the dough. I have nothing against farmers and don’t blame them for taking advantage of government policy. I do it all the time.

Put another way, thanks to a powerful lobby, early primaries, and a hopelessly ill-informed and gullible constituency, our politicians have managed to create right under our noses one of the biggest transfer of wealth schemes in our history. Americans have no choice but to consume a product produced by a two percent minority (farmers). Consumers are held hostage to whatever price that product ends up being.

Should When a string of really bad crop years greatly increase the price of ethanol, consumers will just have to eat it …not literally, hopefully. They won’t have the freedom to switch to a cheaper fuel that contains no ethanol.

I suppose we COULD triple ethanol use by using 80% of the corn crop today. OR, we could continue using the same 40% for the next 20 years and give harvests a chance to double in size.

A good analogy for the concept that ever-increasing crop yields will make everything right would be the housing bubble that just burst. Everyone was counting on housing prices going up forever, which of course, isn’t possible. As with housing prices, corn yields will also stop rising.

Photo courtesy of Marcin Wichary via Flickr.

  1. By chuck on March 18, 2012 at 6:58 pm

    If you go to fueleconomy.gov and check out the cost to use a flex vehicle on gas vs e85 the truth is there,10-30 % more on e85.Ethanol needs to sell for 65% the price of gas to break even.Breaking even should not be good enough when you are burning up a food source,the gain should be signicant.The goverment is playing the middle class as a bunch of fools.When corn lobbyist talk about saving money it does not wiegh in the fact that ethanol has 65% of the energy gas does.

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  2. By Herm on March 18, 2012 at 10:14 pm

    So Russ, most of your dislike of E85 would go away if Toyota made the Prius flex fuel?

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  3. By Russ Finley on March 19, 2012 at 12:35 am

    So Russ, most of your dislike of E85 would go away if Toyota made the Prius flex fuel?

    Not really. My biggest concern with any biofuel that usurps cropland is the expansion of agriculture. Food security issues aside, the main driver of wildlife habitat destruction (the main driver of biodiversity loss) is the expansion of agriculture.

    Source: http://biodiversivist.blogspot.com/2009/10/transgressing-identified-and-quantified.html

    I mentioned the fact that these E85 cars only average 13 mpg and have a pollution score of 4 out of 10 (almost five years after implementation of the mandates) as evidence of just how seriously our government is taking this oil independence farce.

    A flex fuel Prius would change the fact that corn ethanol is environmentally worse in the aggregate than oil. We need to be a little more creative than simply substituting moonshine for oil.

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  4. By Russ Finley on March 19, 2012 at 12:37 am

    Correction:

    A flex fuel Prius would “NOT” change the fact that corn ethanol is environmentally worse in the aggregate than oil.

    I really miss that edit function.

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  5. By SystemsThinker on March 19, 2012 at 8:23 am

    I’m a regular reader of RR, and enjoyed this post. I guess my only quibble is this:

    Although, spending billions to create a corn ethanol refinery infrastructure to replace a modest portion of our oil with a fuel that itself derives 70% of its energy content from fossil fuels seems like a rather (pick a word) way to accomplish that goal. A corn crop can be seen as just one of many steps needed in a process to convert diesel, natural gas, and coal into ethanol.

    The fact that corn ethanol is mostly embodied natural gas, coal and a little bit of diesel certainly has big time energy balance implications, as you note. However, because the natural gas, coal, and even most of the refined diesel are produced in the U.S., the poor energy balance is really an irrelevant means of critiquing the basic idea that ethanol’s goal is to displace some amount of foreign oil. All the energy balance tell us is that corn ethanol is NOT a renewable fuel. But, at some scale, this domestically produced non-renewable fuel IS substituting for some portion of imported petroleum. Of course, promoting more soil erosion, destroying water quality, and the other externalities of corn farming on marginal lands for ever-more ethanol production brings new meaning to the adage “cutting off my nose to spite my face.”     

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  6. By perry1961 on March 19, 2012 at 2:01 pm

    Thanks for the well thought out reply Russ. I do try to see both sides of most coins, and finding the shiniest side ain’t always easy. It’s even harder when it comes to agriculture. A few disjointed facts from an article I’ll attempt to link shows some of the conundrums.

    1. Cotton acreage planted last year was up 35%. Cotton production was down.

    2. Feed expenses are expected to rise 3.5% this year, despite the fact that corn prices, which constitute over 90% of feed sales, have fallen 2.7%.

    3. Crop production expenses have risen by double-digits in 6 of the last 8 years. Like last year, 2012 will set new records in both nominal and inflation adjusted costs. That’s for anything farm related, not just corn btw.

    Production expenses make up 78% of farm gross sales. There isn’t a lot of wiggle room in there for consumers, whatever we do with ethanol. Crop acreage planted this year will be down. Wheat acreage will be the only crop to increase plantings to any degree. Red meat exports will set another record in 2012. Like ethanol, that’s also a value added export using feed corn.

    Bottom line. Farmers will plant what they think will be most profitable. This year, it looks like the big money will be in peanuts. Go figure. Here’s hoping the link works. I’ve been having to copy them into the browser lately.

     

    http://www.ers.usda.gov/briefing/farmincome/nationalestimates.htm

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  7. By Russ Finley on March 19, 2012 at 7:24 pm

    Good point, SystemsThinker. You got me on that one.

    Perry, excellent link. Farming is a tough business.

    I discovered that links will work if you don’t use the link tool. Just put the text in and the program converts it to hypertext automatically.

    Sam will eventually get the bugs worked out.

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  8. By Ralph on March 20, 2012 at 1:22 am

    Sounds pretty corny, Could we send some of these subsidies to consumer owned solar rooftops? Getting 30 years of $0 utility bills and free charging for an electric car for life sounds like a much cleaner path to travel for our children and grandchildren.

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  9. By Chris on March 21, 2012 at 10:48 am

    Hi, 

    I was interested in the statistic that flex fuel vehicles are averaging 13 mpg, but I couldn’t immediately work out how you got it from that EPA website? I’d be really grateful if you could give a more specific pointer, 

    Chris

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    • By Russ Finley on March 21, 2012 at 9:05 pm

      I was interested in the statistic that flex fuel vehicles are averaging 13 mpg, but I couldn’t immediately work out how you got it from that EPA website?

      Go to the Advanced Search tab and click on the Ethanol/Gasoline fuel, all makes, all types. I put the data into a spreadsheet and calculated the average of city and highway for the E85 mileage.

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  10. By Molly on March 23, 2012 at 11:50 am

    Although I see validity in the fact that ethanol does contain 65% of the energy gas does, why are we neglecting to recognize economic remuneration of moving to E15?  With so many Americans out of work, do realize job creation as an effect of E15—over 100,000 will be created.  And, feeding from SystemThinker, we pay around $300 billion annually to foreign countries for oil. Moving to E15 would inject $24.4 billion into the U.S. economy.  Why not keep money within our borders?  Indeed, this likely isn’t the best solution relevant to gasoline and fossil fuel consumption in general, but it does alleviate two huge areas— our dependence on foreign oil and unemployment. 

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  11. By Russ Finley on March 24, 2012 at 12:24 am

    Hello Molly. Don’t know who sent your here but I think you meant to comment on my other post about E15:

    http://www.consumerenergyreport.com/2012/02/23/e15-update-when-will-it-receive-final-approval/

    why are we neglecting to recognize economic remuneration of moving to E15?  With so many Americans out of work, do realize job creation as an effect of E15—over 100,000 will be created.

    The following link suggests that your 100,000 jobs number (calculated by the ethanol lobby) is off by a factor of five:

    http://www.ewg.org/agmag/2009/11/kernalnomics-the-ethanol-lobbys-inflated-jobs-claims/

    And once E15 is approved, the free market will be free to use it, although it is not likely to do that.

    It has been pointed out many times on R-Squared that any government support of any project (nuclear, wind, solar, coal, natural gas, drilling and refining oil, the oil pipeline,  and on and on) will create jobs.  What matters is how much each job costs taxpayers. If you want a real world example of  an economic system based on government mandates and quotas look to the old Soviet model.

    we pay around $300 billion annually to foreign countries for oil. Moving to E15 would inject $24.4 billion into the U.S. economy.   Why not keep money within our borders?

    If it were that simple why are you not arguing against imports of foreign cars, computers, and just about everything else that you buy?

    Indeed, this likely isn’t the best solution relevant to gasoline and fossil fuel consumption in general, but it does alleviate two huge areas— our dependence on foreign oil and unemployment.

    It might create jobs but at what cost to consumers? For example, the price of corn quickly tripled in the years following the implementation of the ethanol mandates.Last year we produced about 13.2 billion bushels of corn. In the ten years before the mandates started it averaged about $2.00 a bushel. In 2011 it averaged $6 a bushel. Corn consumers, whoever they are,  paid an additional $52.8 billion dollars. Where is that in your calculations?

    http://www.icis.com/Articles/2011/06/09/9468135/usda-maintains-record-corn-crop-projection-for-2011.html

    And it has had very little impact on oil imports, especially when one considers all of the costs associated with it. See the following article:

    http://www.consumerenergyreport.com/2012/03/13/study-suggests-corn-ethanol-cant-get-there-from-here/

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