In this post, I comment on Renewable Fuels Association President Bob Dinneen’s opening statement, “America’s Energy Future Is at a Crossroads,” at this week’s “Cellulosic Ethanol Summit” in Washington, D.C. Dinneen’s remarks are indented; my comments follow.
“Ethanol, and America’s energy future, is at a crossroads. Either we will continue on a path toward greater energy diversity and security by expanding the current Renewable Fuel Standard to motivate investment in new cellulosic ethanol technologies, or we will succumb to the nattering nabobs of negativity who are seizing upon every unfounded fear to thwart the worldwide movement toward biofuels, leaving us evermore dependent upon petroleum and its environmental and economic consequences.
Comment: Energy “diversity” is not an end in itself. We could, for example, diversify America’s energy portfolio by mandating greater use of horse-drawn carriages, sail boats, and water wheels. Claims that oil dependence threatens American security are wildly exaggerated, as Jerry Taylor and Peter Van Doren explain here. The worldwide “movement” toward biofuels is a creature of political subsidy and mandate–not market-driven. Dinneen’s policies would leave farmers “ever more dependent” on government largesse.
“Some here might think the choice is obvious. It is not. Well-funded opponents are engaged in a coordinated effort to protect the status quo.
Comment: Government meddling in energy markets is the status (statist) quo, and the well-funded ethanol lobby seeks to protect it.
“Some might think this is just about food vs. fuel, and the wildly exaggerated claims that grain-derived ethanol is driving up consumer food prices. It is not.
Comment: Dinneen speaks as if food v. fuel issue were a made-up issue. Many experts not known for their fealty to oil companies view the potential adverse impacts of biofuel policies on global food security as a matter of serious concern. Such experts include the International Trade & Agriculture Policy Council , the OECD’s Round Table on Sustainable Development, the UN’s World Food Program, agricultural economist C. Ford Runge , environmental guru Lester Brown, and columnist George Monbiot. The rising cost of food, due partly to U.S. and EU biofuel policies, is making it harder to feed the world’s hungry people. The risks to global food security will increase as more and more grain is diverted from food to auto fuel.
Even in the USA, the potential of biofuel policies to fleece consumers is nothing to trivialize. Corn today sells for $3.57 a bushel compared to roughly $2.00 a bushel in 2004-2005, in the pre-mandate era. Other factors, such as rising petroleum prices and surging demand in China, contribute to today’s high corn prices. Nonetheless, ethanol policy is probably the biggest factor.
Corn, after all, is a feedstock for hog, poultry, beef, and dairy farmers. Corn sweeteners and syrups are widely used in food preparation and processing. Rising corn prices also put upward pressure on wheat and soybean prices, because all three grains compete for land and customers. Food prices are rising faster than the overall inflation rate. This is no accident, comrade Dinneen!
“There are groups amassing to slow the drive toward cellulose as well, full of misinformation and distortions about land use, deforestation, water use and infrastructure costs of cellulosic ethanol.
Comment: Again Dinneen trivializes legitimate concerns. A new study by the National Research Council cautions that “greater cultivation of crops to produce ethanol could harm water quality and leave some regions of the country with water shortages,” reports the New York Times. Is NRC also just a mouthpiece of Big Oil, like Lester Brown and George Monbiot?
Cellulosic ethanol may one day be cheaper than gasoline. Currently, however, the capital costs for a cellulosic ethanol plant are three to five times greater than those of a corn ethanol plant. And even with today’s ethanol glut and declining ethanol prices, and oil selling for more than $80 a barrel, regular gasoline is still cheaper than corn ethanol when the latter’s lower energy content is taken into account. Even today, corn ethanol could not compete without the 51-cent tax credit refiners receive for every gallon of ethanol they blend into the motor fuel supply.
“The insidious campaign being waged today has very little to do with the feedstock for ethanol, and a great deal to do with the loss of petroleum market share that will occur if we are successful. To our opponents, there is no good ethanol or bad ethanol; there is only ethanol, and it’s all bad. Within the ethanol industry, we must not draw meaningless distinctions between feedstocks either; we must propagate the message that all ethanol is good; it’s all better than petroleum.
Comment: This is commodity fetishism. Neither ethanol nor oil nor any other commodity is good or bad in itself. Commodities are good and bad relative to consumer preference, and markets evaluate commodities at the margin, not as a whole.
“We have seen this kind of coordinated offensive of mistruths before. Indeed, many of the same groups fighting biofuels today are among those who just a few years ago sought to discredit scientists focusing the world’s attention on the growing crisis of global climate change. Today, the Nobel Prize is awarded for awakening the world to the reality of global warming, and companies take out full page ads extolling their efforts to improve their ‘carbon footprint.’
Comment: If Al Gore frightens people into believing sea levels will rise 20 feet in our lifetimes because cars run on petroleum, that will build support for a bigger ethanol mandate. So heaven forfend that anyone–for example, a British High Court judge, obviously another flunky of Big Oil–question Al Gore’s doomsday scenario.
“All ethanol, indeed all biofuels, are in this fight together.
Comment: Rah, rah, sis boom bah!
“We all need to respond to the hysterical claims about ethanol. We need to enlighten those that believe you can have food security in this country without energy security. We need to remind people that rising petroleum costs have a far greater impact on consumer prices, including consumer food prices, than a modest and much-needed increase in the prices farmers get for their products.
Comment: Energy prices affect food costs. But government manipulation of the demand for grain affects food prices more directly. Besides, the deliberate merging of the food and auto fuel markets can make both food and energy prices more volatile. A bump in petroleum prices will inflate grocery bills, even as a drought-induced shortage of corn will increase consumers’ pain at the pump.
“And we need to educate people about the technological evolution occurring in the ethanol industry today, where more efficient energy resources, water recovery systems, process technologies and new feedstocks are leading toward a far more sustainable energy future for all of us.
Comment: Educate away! And, while you’re at it, please tell us when cellulosic ethanol will be able to compete with gasoline without government handouts or mandates.
“Are there legitimate questions that need to be discussed about the efficacy of biofuels? Of course. If there weren’t, there would be no need for conferences like this. But we can’t allow the momentum toward a more sustainable energy future to be slowed or derailed while we count the angels on the head of a pin to dissect every conceivable shortcoming that the marketplace has yet to resolve. We ought to recognize that renewable fuels are going to be inherently better than fossil fuels and encourage investments in these technologies as soon as possible so that markets can start making them more efficient.
Comment: “We ought to recognize that renewable fuels are going to be inherently better…” How do we “recognize” something that hasn’t happened yet? Also, markets do not determine what is “inherently” better but what is better relative to consumer preferences under ever-changing market conditions. Again, Dinneen preaches commodity fetishism.
“We did not move from the horse and buggy to the turbo charged E-85 Saab Biocar without first going through the Edsel. But it’s a good thing we didn’t stop Henry Ford from mass-producing the ethanol-fueled Model T until automobile technology was perfected.
Comment: Huh? The Edsel was a bridge to the E-85 Saab Biocar? Why not a bridge to my gas-guzzling Ford Expedition? The Edsel was an object lesson in the fact that experts can fool themselves about what consumers want. Dinneen is so sure “we” want ethanol that he believes Congress should force us to buy it. But wait a minute, if ethanol is the great bargain Dinneen claims it is, then no mandate is necessary.
As to the first Model Ts running on ethanol, Dinneen misses the obvious. Ethanol-fueled cars are the auto industry’s failed past. Why suppose they are the industry’s bright future?
“It’s a fact that the carbon footprint of ethanol is good today (grain-derived ethanol provides a 21% reduction in GHG emissions with current technology and existing feedstocks) and will only get better with second generation technologies and new cellulosic feedstocks.
Comment: This 21% figure probably assumes that the electricity to run the ethanol plant comes from natural gas, nuclear, or wind, and that the ethanol plant is located near the point of sale. Under different assumptions–the plant is powered by coal and the ethanol must be trucked from Iowa to California–ethanol’s carbon footprint is about the same as gasoline’s and maybe bigger.
More importantly, as climate policy, ethanol mandates are woefully inefficient. According to the OECD Round Table on Sustainable Development, biofuels might displace 13% of petroleum by 2050. That would reduce energy-related CO2 emissions 3% below baseline projections. The cost of obtaining these reductions is very high—”well over $500 per ton of CO2 equivalent for corn-based ethanol in the United States, for example, with other researched countries not performing much better.” Five hundred dollars per ton is about 54 times as expensive as what Yale University Professor William Nordhaus, the doyen of climate economics, considers an “optimal” carbon-reduction policy. It’s also about 10 times higher than carbon permits would cost under Lieberman-McCain Climate Stewardship Act, in 2030.
“Conversely, the carbon footprint of oil is bad today, and getting progressively worse the further we have to go in our quest for oil reserves, the deeper we have to drill and, certainly, with each gallon of petroleum derived from tar sands we must utilize to meet the ever increasing demand for motor fuels.
Comment: Yes, but that’s life until someone invents a motor fuel that outperforms petroleum at a better price. That hasn’t happened so far and there’s no evidence it will happen soon.
Consider the European experience. Due to Europe’s high motor fuel taxes, gasoline in several EU countries costs more than $7 a gallon. Gasoline taxes are implicit carbon taxes. Europe taxes gasoline at rates of $200 to $300 per ton of carbon dioxide, and has for many years. Yet where in Europe is the miracle fuel to replace petroleum? Where are all the zero emission vehicles? Europe is not one mile closer than we are to achieving a “beyond petroleum” transport system. On the contrary, EU transport sector CO2 emissions in 2004 were almost 26 percent higher than in 1990.
“Oil companies pretend to be comfortable when ethanol is just a blend component in gasoline. But given today’s economics, with oil surging past $85/barrel and ethanol priced significantly below gasoline, it remains a mystery why consumers in many parts of the country are unable to find ethanol blended fuels.
Comment: Bob, if you really think oil companies are colluding to keep E-85 off the market, why not come right out and say so? Maybe it’s because Federal Trade Commission investigations repeatedly fail to back up allegations of even subtle forms of market manipulation.
The paucity of E-85 dispensaries is actually no “mystery” at all. In testimony before Congress, Sonja Hubbard, representing the National Association of Convenience Stores and the Society of Independent Gasoline Marketers, observed that converting a service station to sell E-85 and installing an E-85 dispenser “can cost upwards of $17,000.” That’s a hefty chunk of change for a small business. Thus, the slow pace of E-85 conversions “is not due to animosity towards an alternative fuel and it is not due to limitations imposed by our suppliers. Rather, it is because consumer demand for the product is insufficient to justify the cost of the investment.” Hubbard continued: “Trust me, my fellow NACS and SIGMA members and I will make E-85 pumps available when the market calls for it.”
“Angst in the oil patch has been raised to new heights as Congress contemplates a 36 billion gallon Renewable Fuel Standard that provides a certain market for 21 gallons of cellulosic ethanol and moves ethanol from a blend component into a significant alternative to gasoline.
Comment: There should be angst everywhere when Congress tries to pick winners and losers in the marketplace, and decides to hold consumer preferences hostage to a Soviet-style quota system, which is what, in essence, a “renewable fuel standard” is.
“But the angst begs the question, ‘If not biofuels, what?’ ‘If not now, when?’ These are the questions Congress must answer. And we must demand an energy policy that promotes a more sustainable energy future. We must have an accelerated and expanded RFS that motivates investment in cellulosic ethanol while providing a strong foundation for existing production to continue to grow. We need this now.”
Comment: A “sustainable” energy system does not require ever-greater subsidies and mandates to sustain. Commentators already describe the ethanol boom as bubble created by political meddling. Moreover, a “sustainable” energy system does not threaten to crowd food and wildlife off the landscape. Economist Richard Rahn succinctly explains why ethanolism is ecologically unsustainable:
“If all the U.S. cropland (371 million acres) were planted in corn to produce ethanol, it would provide 111 billion equivalent gallons of gasoline, but Americans currently consume more than 140 billion gallons of gasoline. So, if Americans imported all of their food (or starved to death), they still would only attain 80 percent of their gasoline needs if it had to come from domestically produced ethanol.”
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