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By Russ Finley on Oct 25, 2012 with 7 responses

The Unintended Consequences of Government Mandated Biofuel Consumption

Food Deficit

A recent article by George Monbiot explains one of the potential ramifications of diverting grains into fuel. Thanks to extreme weather around the globe:

 ”…this is also a year of food deficit, in which we will consume (31 million tons) more grain than farmers produced. If 2013′s harvest does not establish a new world record, the poor are in serious trouble.”

His main point is that thanks to a growing demand for food driven by an increasing population and improving standards of living, along with the conversion of grains into fuel, the world has to break harvest records every year to keep up. Thanks to grain reserves, humanity can weather years that don’t break records, but failing to break records for two or three years in a row means hunger for hundreds of millions because the price of food will spike as speculators capitalize on the fact that low supply relative to demand equates to higher prices. If weather extremes become more and more common, the odds of running out of reserves becomes more and more likely. (See more: Midwestern Drought, Ethanol, & Renewable Fuel Standard)

It is the prediction of things like mass starvation that help prevent things like mass starvation. This self-nullifying tendency is why a lot of predictions fail to materialize. Ignoring the prediction of massive traffic jams due to road construction could mean that you are the only one on the road because everyone else heeded the prediction, or it could mean that you are stuck in gridlock because you were not alone in ignoring it.

European Union Response

Finally acknowledging the fact that converting food into fuel exacerbates this potential, the European Union has begun the process of scaling back how much biofuel can be made from food. From Nature:

French President Francois Hollande last week called an emergency meeting of G20 agriculture ministers. They are due to meet in Rome on Tuesday (16 October) to consider a coordinated response to the sharp spike in food prices that has followed the worst US drought in decades. France is to put global biofuels production at the heart of the discussion.

Last week, a government spokesman told reporters after a French cabinet meeting that Paris “will push for a pause in the development of biofuels competing with food”.

Understandably, European farmers are not happy with this development because the conversion of food into fuel translates into higher grain prices, i.e., biofuel mandates create a chronic shortage.

United States Response

Here in the U.S., corn farmers who got enough rain are breaking out the champagne. Producers of corn ethanol and soy biodiesel are reducing production because with the price of feedstock so high, the more they produce, the more money they stand to lose. Not to worry. Consumption of their product is mandatory. They just have to hold on until blenders run out of credits (by blending more than legally necessary in some years, blenders earn credits that allow them to blend less at other times) and will be forced to pay what ethanol producers need to make a profit again. In the end consumers will pay for everything.

Today’s low natural gas prices (most energy in a gallon of corn ethanol is derived from natural gas as is the methanol used to make biodiesel) are not enough to offset the very high grain prices. (See more: Methanol versus Ethanol: Technical Merits and Political Favoritism)

Impact On Other Businesses

Because these record high grain prices are also hurting other industries that use corn and soy, the governors of eight states containing a lot of those industries are being lobbied to pressure the EPA to waive the mandate to blend ethanol, which in turn, concerns those who gamble for a living betting on the price of food commodities. A waiver of the mandate would release a lot of grain onto the market which would cause them to lose their shirts.

This of course, has all been said before. There are two differences this time around. One is the growing body of evidence of more frequent severe weather and its impact on agriculture. The other is the move by the European Union to reduce the use of food stock for biofuels.

  1. By notKit P on October 25, 2012 at 12:45 pm

    What unintended consequences? Where is the beef?

    This is another one of cases of a good headline getting me to read a story without any ‘beef’.

    As the poor become more prosperous, they want more meat in their diet. More grain is used as animal feed causing the price to go up. Processing out the excess energy in corn before feeding it to cows is a good way of producing transportation energy and animal feed that produces lower fat meat.

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  2. By Fuels America on October 25, 2012 at 3:57 pm

    The claim that producers of corn ethanol and soy biodiesel can wait until blender credits run out and then reap profits from blenders is simply false. The Renewable Fuel Standard was crafted as a flexible free market-based strategy to push our nation toward energy security through a cleaner and more diverse fuel supply. The RFS was designed to directly prepare for times of difficulty – refiners can use credits, accrued during times of overproduction, to count towards their annual compliance requirements.

    What proponents of waiving or otherwise destabilizing the RFS don’t realize is that there are currently more than 2.6 billion excess credits available on the market. This surplus cushion provides fuel makers more than enough flexibility to meet their obligations. As intended, using these credits as needed will reduce or eliminate any impact on this year’s grain crops, while allowing consumers to continue enjoying the lowered gas prices the RFS ensures, and also maintaining a strong signal to investors that renewable fuel is part of America’s clean, secure energy future.

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    • By Russ Finley on October 27, 2012 at 12:33 am

      Fuels America (a for-hire blog commenter) said:

      The claim that producers of corn ethanol and soy biodiesel can wait until blender credits run out and then reap profits from blenders is simply false.

      No it isn’t. The goal of all ethanol refiners, like any business,  is to reap profits. What planet are you from?

      The Renewable Fuel Standard was crafted as a flexible free market-based strategy to push our nation toward energy security through a cleaner and more diverse fuel supply.

      Riiight …free market. Government forced consumption of a product produced in  farm states is a free market solution. This is called wealth redistribution, which I’m not necessarily against when it is designed to keep the middle class strong or to help those who can’t help themselves. Not real big on it when used by politicians to buy early primary votes by transferring wealth from the middle class to the middle class.

      Ethanol producers  would kick and scream if an attempt were made to remove that mandated use. This has little to do with a free market. Oh, and ethanol is anything but clean.

      The RFS was designed to directly prepare for times of difficulty – refiners can use credits, accrued during times of overproduction, to count towards their annual compliance requirements.

      Yah, that’s what I said.

      What proponents of waiving or otherwise destabilizing the RFS don’t realize is that there are currently more than 2.6 billion excess credits available on the market.

      For laughs, put that in terms of percent of total gasoline consumption.

      This surplus cushion provides fuel makers more than enough flexibility to meet their obligations.

      Prove it.

      As intended, using these credits as needed will reduce or eliminate any impact on this year’s grain crops,

      Prove it.

      …while allowing consumers to continue enjoying the lowered gas prices the RFS ensures,

      Prove it. Corn consumers are paying three to four times what they were paying on average for a decade prior to the RFS.

      …and also maintaining a strong signal to investors that renewable fuel is part of America’s clean, secure energy future.

      Again, the production and combustion of ethanol is anything but clean. Ethanol refiners are operating in the red …thanks to the credits. When those credits run out they will raise the price as needed to make a profit because the fuel blenders don’t get a choice in the matter.

       

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  3. By Neo on November 13, 2012 at 9:04 pm

    Russ Finley, why don’t you stick to engineering? 

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    • By George on December 18, 2012 at 5:18 pm

      Exactly, well stated. Moreover, why doesn’t he include a disclaimer mentioning that opinion outweighed fact in his pieces. 

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      • By Russ Finley on December 18, 2012 at 10:23 pm

        Moreover, why doesn’t he include a disclaimer mentioning that opinion outweighed fact in his pieces.

        Is that a fact?

         

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        • By George on March 6, 2013 at 6:32 am

          Yes, and I quote: “My blog articles are opinion pieces…”. As Winston Churchill once said “I only believe in statistics that I doctored myself”. Your posts are an example of how numbers can be used to support any opinion. At least you have the decency to allow comments, which some of other propagandists do not.

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