Ethanol

The United States is the world's top producer of corn-based ethanol, and the Bush administration sees it as a key way to reduce dependence on foreign oil and curb fossil fuel emissions. Lester Brown, founder of the Earth Policy Institute (EPI) said "the evidence irrefutably demonstrates that this policy is not delivering on either goal." "In fact, it is causing environmental harm and contributing to a growing global food crisis," Brown wrote in a scathing editorial in the Washington Post. EPI says the United States burned 25% of its corn supply as fuel last year, leading to just a 1% reduction in the country's oil consumption.

Some scientists warn that biofuels actually increase greenhouse gas emissions, as farmers convert forest and grassland to new cropland to replace or add to grain diverted to biofuels.

Scores of American farmers eyeing swelling corn prices have abandoned wheat to grow corn, leading to the lowest US wheat ending stocks in 60 years, according to the US Department of Agriculture, and causing a ripple effect of rising commodity prices.

Brazil Defends Ethanol

From Cato May 7, 2008

"Brazil, the world's biggest ethanol exporter, is bristling over criticism of its biofuel," reports The Christian Science Monitor. "As wheat, rice, and corn prices rise sharply, critics say producing fuel for cars is taking precedence over food for people. President Luiz Inacio Lula da Silva says the bad publicity is unwarranted and uninformed. Many biofuel experts agree. Critics, they say, fail to distinguish between the different kinds of ethanol. Brazilian ethanol from sugar cane is up to eight times more energy efficient to produce than ethanol derived from corn, beets, wheat, or other temperate crops."

In the Free Trade Bulletin "Food Fight," Sallie James, trade policy analyst, writes:

"Facts on the demand side suggest that the recent price increases are more structural compared to the cyclical, supply-driven booms of the past. Government policies in developed countries that seek to support farmers by creating artificial demand for ethanol are an important culprit. In addition, economic growth in countries such as China, Brazil, and India has created a large and growing middle class that is acquiring western-style eating habits. The Chinese, for example, have almost doubled their consumption of meat from about 44 lbs. per capita in 1980 to 110 lbs. per capita today. That in turn has pushed up demand for feed grains, because one lb. of beef requires about 13 lbs. of grain to produce. Although high prices will encourage entrepreneurs to increase production, and infrastructure investment will help increase yields and correct the current market imbalance, government actions are impeding the efficient allocation of resources that would normally see lower prices."

Laura Osio, editor, losio@cato.org

Live by Gov Subsidy, Die by Gov Subsidy

Never build a business plan to count on a consistent government direction. Politicians are fickle.

Ethanol fuel was a forced government intervention. Thus, it is very subject to changing political winds.

CNN May 5
The GOP senators, citing U.S. Department of Agriculture figures, said up to 30 percent of the U.S. corn crop could be diverted to fuel production this year. One of those who opposed the bill -- and a co-signer of Monday's letter -- said the ethanol mandates are now widely considered a "policy blunder" that Congress should roll back.

John McCain Monday joined other GOP senators urging environmental regulators to ease rules demanding a sharp increase in ethanol use to help head off further increases in food prices. The energy bill that passed Congress with bipartisan support in 2007 requires U.S. fuel marketers to increase the use of biofuels fivefold by 2022. McCain and 23 other Republicans, including many who supported the bill, called on the Environmental Protection Agency to waive or roll back the law's requirements in order to ease pressure on food and livestock feed prices.

Ethanol Facts List

For those that argue the reason for ethanol is "energy independence" let's look at the extreme of replacing automotive gasoline with E-85

Summary
Replace USA 141 billion gallons of gasoline with E-85 fuel =>170 billion gallons of E-85
146 billion gallons ethanol
26 billion gallons gasoline
Require equivalent of 117 billion gallons of gasoline for production and distribution
440 billion gallons of water for processing
235 quadrillion gallons of water for processing
250 billion pounds of fertilizer
$182 billion in ethanol plant capital

Items
Gasoline usage July 2007 USA gasoline - 388.6 million gallons/day
=141 billion gallons of gasoline/yr

In a study on automobiles on E-85 and gasoline it was found that fuel efficiency was reduced 27 percent with ethanol (Sheehan, et al. 2004).
1.2 gallons of E-85 = 1 gallon regular unleaded gasoline
=170 billion gallons of E85

How much ethanol would be required for 170 billion gallons of E85
146 billion gallons ethanol/yr, growing at about 5 billion gallons/year
and 26 billion gallons of gasoline

Acres of Corn
Corn to ethanol yield about 280 gallon/acre
Corn average 113 bu/acre
2.5 gallon per bu
=280 gallon per acre=520 million acres of corn
This last year corn acreage = 80 million acres

Water usage
452,000 gallons per acre
=235 quadrillion gallons of water
Production requires about 3 gallons water/gallon ethanol
=440 billion gallons water processing

Fertilizer usage - 477 lb/acre => 250 billion lbs
Nitrogen 124 lbs/acre
Potash 53 lbs/acre
Phosphate 58 lbs/acre
Lime 242 lbs/acre

Production efficiency
The best case production of ethanol yields about 25% more energy than is used in growing the corn, harvesting it, and distilling it into ethanol. Others estimate that it takes more energy to create corn ethanol than it provides

Where would we get the energy for fertilizer, to produce the corn and refine/distribute the ethanol? The answer given is coal and natural gas.
To simplify the net energy balance, lets compare in gallons of gasoline. Assuming the best case above 25% energy yield, this would mean 117 billion gallons of gasoline to produce the corn. Add the 26 billion gallons in the E-85, the total is 145 billion gallons

Plant capital costs
Average about $1.25 per gallon/yr capacity
146 billion gallons/yr => $182 billion in capital facilities

Ethanol Distribution
Ethanol and e-85 are more corrosive than gasoline and soaks up water and impurities, they cannot be shipped through the existing gasoline pipeline network, trains, trucks or barges. This is also why vehicles need to be specially built to run on E-85.

Cellulosic Ethanol

Indur Goklany states: "If cellulosic ethanol proves to be as profitable as its backers hope, farmers will divert even more land and water to producing the cellulose instead of food. All this means we'll be more or less back to where we were. Food will once again be competing with fuel. And land and water will be diverted from the rest of nature to meet the human demand for fuel.

Reduce other crops for Corn

From Cato

"Primarily derived from corn in the United States, ethanol affects the price of corn directly by adding to demand, and other commodities indirectly by drawing cropland away from their production. Indeed, in the last year the supply of corn has increased 24 percent in the northern United States during 2007, primarily because of higher corn acreage (the highest since 1933). Ethanol capacity has risen by around 40 percent in the last year because of government incentives. As farmers shifted production to meet surging demand for ethanol, the acreage devoted to rice, cotton and soybeans has decreased by 3 percent, 18 percent, and 16 percent respectively."

Repeating
Rice down 3%
Cotton down 18%
Soybeans down 16%