The Crumbling Ethanol Facade

I have seen it all now. When the biggest ethanol boosters are starting to suggest that maybe we have a problem, you know we have a problem. And that is exactly what is happening. I can remember U.S. Sen. Chuck Grassley’s giddiness as President Bush talked about his strong support for ethanol during the 2007 State of the Union Address (discussed here). This is a man who has ethanol in his veins (no, I don’t mean he is an alcoholic). So, you can imagine my surprise when I read yesterday’s OPIS report in which he admitted to cracks in the coalition:

U.S. Sen. Chuck Grassley (R-Iowa), one of ethanol’s most ardent supporters, said he is beginning to see “cracks” in the support for the fuel from the livestock community, and believes that renewing the controversial 54cts/gal ethanol import tax may have a tough road ahead.

“I think right now, I see some cracks in the coalition of farmers” supporting ethanol, Grassley said Tuesday in a conference call with reporters. “I see the cattle producers and the pork producers at the national level raising the question” of whether ethanol incentives are still needed, he added. In the past year, livestock producers have seen their corn prices climb as corn-based ethanol production continues its expansion.

“This is what I’m preaching,” Grassley said. “If agriculture doesn’t stand strongly behind ethanol, then it’s going to weaken our political position,” he added.

Grassley, the ranking member of the Senate Finance Committee, believes that ethanol’s tax incentive–currently 51cts/gal–should be maintained until the industry is proven to be mature. “Right now, it’s maturing very quickly, but it’s not a mature industry and we need incentives for it,” he added. Ethanol’s tax incentive is scheduled to expire in 2010, and the import tariff ends a year earlier. “I think we’re going to have a harder time maintaining the import duty than we will the tax incentive,” Grassley noted.

First of all, why on earth would you want to keep imposing an import duty? It penalizes Brazil, making a much more sustainable ethanol product from sugar cane, at the expense of protecting U.S. farmers who are now plowing up everything in sight in order to plant more corn for supporting this artificially induced ethanol boom.

Second, just how long does it take an industry to mature? We have been subsidizing ethanol for 27 years now. The infant is getting a little long in the tooth. Time to kick that freeloader out and make him get a real job. Besides, ethanol is mandated. Why on earth does it also need to be subsidized? Oh, I forgot. We need to keep the true costs hidden and therefore subsidize our driving habit.

But it wasn’t just Grassley’s coalition showing wavering support. Cargill – that’s right – Cargill, one of the biggest U.S. ethanol producers, is also sounding a warning:

Cargill chief in warning over biofuels boom

To read the entire article, you have to be a subscriber of Financial Times, but they give us the first two paragraphs for free:

Cargill’s new chief executive has warned that the boom in renewable fuels could be derailed by a succession of poor harvests, intensifying upward pressure on food costs as land is devoted to energy-related production.

Gregory Page, a 33-year veteran of the world’s largest agribusiness group, reiterated his concern that biofuel mandates and other incentives will distort the allocation of land, with the potential to create food shortages around the world in the wake of “weather-related crop problems”.

Amazingly honest. Of course we will still see some ethanol boosters telling us to move along, that there really is nothing to see here. I wonder if they will maintain that stance when people start starving so we can put ethanol in our tanks?

18 thoughts on “The Crumbling Ethanol Facade”

  1. Note that Grassley is not yet backing off, he is just noticing that the united front behind him is no longer so united.

    It is going to get ugly, and fast. With rising corn prices, I think ethanol refiners are already beginning to struggle. Add to that all those new refineries popping up all over the Midwest and now (maybe) Brazilian ethanol and this bubble could go pop very soon…

  2. gristmill calls ethanol opponents “corn hataz” … which I think is funny.

    i’m happy to be a corn hata

    – odograph

  3. Think of us as R-Squared Corn Hataz United. Maybe we should register a football club, or something…

    Seriously, Robert, you should start selling baseball caps and T-shirts.

  4. BTW Robert,
    I see NExBTL is in the news again. At 3,500 bbl/d it is much bigger than the Carthage TDP plant. As I said before, the technology sounds very similar to the Tyson-Conocco-Phillips (TCP) fat-to-fuel system. The overall conversion, fat-to-fuel is similar to TDP.

    Question: Why is this financially viable, without the $1/gal US subsidy? Is there a hidden EU subsidy? Will they get a CO2 credit? Is the technology that far ahead of TCP? Must be a lot cheaper to operate than TDP. Your thoughts?


  5. Sharp rise in dairy prices predicted
    Wednesday, May 30, 2007 4:33 PM
    By David Mercer
    ASSOCIATED PRESS
    :

    CHAMPAIGN, Ill. — …

    Dairy-market forecasters are warning that consumers can expect a sharp increase in dairy prices this summer. By June, the milk futures market predicts, the price paid to farmers will have increased 50 percent this year — driven by higher costs of transporting milk to market and increased demand for corn to produce ethanol.

    U.S. retail milk prices have increased about 3 percent, or roughly a dime a gallon, this year, according to the U.S. Department of Agriculture.

    But University of Illinois dairy specialist Michael Hutjens forecasts further increases of up to 40 cents a gallon for milk over the next few months, and up to 60 cents for a pound of cheese. …

    Hutjens and others said higher gasoline prices have increased the costs of moving milk from farm to market, and corn — the primary feed for dairy cattle — is being gobbled up by producers of the fuel-additive ethanol. The USDA projects that 3.2 billion bushels of this year’s corn crop will be used to make ethanol, a 52 percent increase over 2006.

    “There is no free lunch,” Hutjens said. “That corn then has to come away from that dedicated resource.”

    … Hutjens said the biggest dairy price spikes are likely to come later this summer in the areas farthest from the Midwest corn and grain fields that feed most of the country’s dairy cattle.

    “Certainly I think you’re gonna see it worse in places like the Southeast — in Georgia and Florida — and California,” he said.

    … Like consumers, companies that use milk, cheese and other dairy products are expecting to spend more the rest of this year.

    Hershey Co., the country’s biggest candy maker, recently scaled back its earnings expectations for this year, due in part to higher dairy costs. Kraft Foods Inc. raised prices earlier this year on some dairy-based products.

  6. gristmill calls ethanol opponents “corn hataz” … which I think is funny.

    A fair number of those Grist contributors, though, are not on the ethanol bandwagon. I have seen some pretty negative ethanol articles there at times.

    Cheers, Robert

  7. Question: Why is this financially viable, without the $1/gal US subsidy? Is there a hidden EU subsidy? Will they get a CO2 credit? Is the technology that far ahead of TCP? Must be a lot cheaper to operate than TDP. Your thoughts?

    I am pretty sure they are getting some financial credits for this. I think I have read that somewhere. I will have to dig into that, because I am contributing a book chapter to an upcoming book on renewable energy, and I am writing about renewable diesel.

    I don’t think there is any significant difference between the COP process and this one. There are probably subtleties, but that’s it.

    I will be doing a lot of research on this in the next few weeks. I will probably write some essays that will end up in the book.

    Cheers, Robert

  8. First, look for Grassley and other corn state politicians to help bail out the ethanol plants with more subsidies as the price of corn rises (and makes corn ethanol production less profitable).

    Second, what good does it do us to import ethanol from Brazil even if their ethanol is more efficiently produced from sugar cane? Would this not only increase the price of ethanol for Brazilians but also provide an economic incentive to increase production into the wild lands of Brazil? We all lose from this scenario.

    Lastly, and perhaps more applicable to your earlier post about the effect of ethanol production on gasoline demand, I believe that ethanol counterproductively increases our dependence on petroleum. Petroleum (and coal) is not only at the base of production of this “sustainable” fuel, but ethanol also maintains our dependence on the use of liquid fuels for transportation. While we have tanks to fill, we will always be dependent on petroleum. Ethanol in a perverse way is getting in the way of helping us achieve true energy independence and a sustainable mode of transportation.

  9. While we have tanks to fill, we will always be dependent on petroleum. Ethanol in a perverse way is getting in the way of helping us achieve true energy independence and a sustainable mode of transportation.
    I am no fan of ethanol, as a brief study of this blog would prove. But this statement is blatantly false. Liquid fuels does not necessarily imply petroleum – it is just that the current crop of half-headed ideas (let’s make fuel from FOOD!) makes it look that way.

    It is an open question whether renewable transportation will eventually be delivered by a renewable fuel, or a completely different form of transportation. I, for one, won’t be betting against the ICE.

  10. I will be doing a lot of research on this in the next few weeks. I will probably write some essays that will end up in the book.
    You’re the man. Keep us posted. And let’s hope this topic moves faster than biobutanol…

  11. And let’s hope this topic moves faster than biobutanol…

    If the biobutanol story had turned out to be good news, I would have posted it already. I had high hopes. They were dashed as I did my research. I will eventually finish that essay, but I keep finding more interesting things to work on.

    Cheers, Robert

  12. Optimist: “But this statement is blatantly false. Liquid fuels does not necessarily imply petroleum – it is just that the current crop of half-headed ideas (let’s make fuel from FOOD!) makes it look that way.”

    Please tell me about one biofuel process that is not going to be at least partially dependent on petroleum inputs at some stage in production. Also please tell me about one biofuel including cellulosic ethanol that is not going to be dependent on variable natural environmental factors that might adversely affect production and supply from one production cycle to the next. Putting this infrastructure developed on cheap petroleum on an annually produced biofuel energy budget is going to be very dependent on a fallback to petroleum to mitigate wide swings in production. Not sure what your worldview is to make such a judgement that my statement was “blatantly false”. Only time will tell whether my statement turns out to be true — no one can at this time state that it is false.

  13. If the biobutanol story had turned out to be good news, I would have posted it already. I had high hopes. They were dashed as I did my research.
    I know, disappointment does that. But that’s why we hang around: you give it to us straight.

    Keep up the good work!

  14. Please tell me about one biofuel process that is not going to be at least partially dependent on petroleum inputs at some stage in production.
    Here’s the theory: Ideally, you’d replace crude with some kind of renewable fuel that can be used in the same engines and delivered by the same infrastucture that exists. BTL gasoline and diesel would be an example of that.

    Now assume you can scale it up, to the point where it replaces oil (big if, I know, but let’s play along for now). At this point you input fuels also comes out of the renewable pool, so no need for fossil fuels.

    Is this possible? In theory it is. World wide oil consumption (~85 million bbl/d ≈ 5.5 TW) is about 8% of terrestrial primary production (70 TW). Marine net primary production is apparently of the same order.

    Of course, converting the earth’s net primary production into fuel with an overall efficiency of 4% is a daunting challenge. Well, that’s what’s going to be keeping guys like Robert at Big Oil busy for the next 50+ years.

    There are also those who suggest that we could increase net primary production, by dosing iron to the ocean. We’ll have to wait and see.

    Also please tell me about one biofuel including cellulosic ethanol that is not going to be dependent on variable natural environmental factors that might adversely affect production and supply from one production cycle to the next.
    Hey, that’s why we have a free market: in times of scarcity you pay more for the priviledge (like current gas prices). As Robert has shown, higher prices encourage imports, which helps to distribute resources worldwide. Gotta love the global economy.

  15. Optimist: “Of course, converting the earth’s net primary production into fuel with an overall efficiency of 4% is a daunting challenge. Well, that’s what’s going to be keeping guys like Robert at Big Oil busy for the next 50+ years.

    There are also those who suggest that we could increase net primary production, by dosing iron to the ocean. We’ll have to wait and see.”

    The ecological/environmental consequences of man trying to capture more of the earth’s primary productivity is already catastrophic! I have read estimates that man is already utilizing about 40% of the earth’s net primary productivity to his own ends. Sustaining the integrity of wild ecosystems that do not require any management by man is key to the survival of the planet. Big man/small nature is simply turning the pyramid upside down. Your way leads to even greater energy and resource consumption as we attempt to substitute more technological services for lost or degraded ecological and environmental services. Your way leads to a cascading collapse.

    “Hey, that’s why we have a free market: in times of scarcity you pay more for the priviledge (like current gas prices). As Robert has shown, higher prices encourage imports, which helps to distribute resources worldwide. Gotta love the global economy.”

    As far as global markets helping us out cope with local shortages, globalization is leading the entire planet over the sustainability threshold. By artificially and temporarily masking limits placed on local economies that would have previously limited their growth, globalization allows the entire world economy to grow beyond what can be sustained over the long haul. The ultimate consequence is global collapse. We have not negated Malthus with our techno/optimism.

    And to get back to my original post, by attempting to replace oil with ethanol, we attempt to sustain an already unsustainable system built on cheap oil. We really need to question the entire concept of burning liquid fuels.

  16. Hi

    Here in Finland, a big ethanol project was suddenly canceled at 23.4, and the persons responsible for it resigned (CEO and at 30.5. Rising costs were indicated as the reason for cancellation. Hmmm…

    The site is in english at http://www.altiacorporation.com if you like to view the press releases. Sitre requires you to give your birth date because the site has info about alcoholic beverages and finnish law requires you to be an adult to get some of that info. Weeellll….

    Best
    Seppo

  17. We have not negated Malthus with our techno/optimism.
    Malthus predicted that human population would outrun food supply by the middle of the nineteenth century. He has been WRONG for at least 150 years.

    I know, like hydrogen power and other wonder technologies, his heyday is just another 30 – 50 years away. SURE.

    Malthus is more than just WRONG, he is EVIL. Under his influence British authorities choose to stand around and watch Indians starve, at one point even forbidding private food supply. They did the same thing during the Irish potato famine.

    More than that, Malthus indirectly inspired Marxism, and hence communism, the greatest EVIL yet known to man, based just on # of millions killed.

    Sorry I don’t buy it. Capitalism may not be pretty, but it sure as heck beat the alternatives.

    There is a big difference between acknowledging the formidable challenges in our energy future, and the pop doomerism of Malthus and others.

  18. Sustaining the integrity of wild ecosystems that do not require any management by man is key to the survival of the planet.
    BS! I love nature as much as anybody. I am all for preservation for future generations. But the idea that Mother Nature knows and we don’t is bad pseudo-religion.

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