I fear that gross incompetence in our federal and state governments – as well as in some of our major industries – is going to make life much more challenging for our children and grandchildren. The list this year alone is long. The financial sector took too many risks that didn’t pay off while showering their executives with huge bonuses, so they needed bailing out. We offered up a $700 billion (and counting) package. The auto industry got caught with big inventories of the wrong kinds of cars when oil prices skyrocketed. Another bailout. Then the SEC failed to act on tips that Bernie Madoff was in the process of frittering away $50 billion – and the taxpayer is going to get stuck with part of that bill as well.
It should come as no surprise then that in this environment the ethanol industry – an industry that the government created – is looking to be bailed out as well:
The commodity bust has clobbered corn ethanol, whose energy inefficiencies require high oil prices to be competitive. The price of ethanol at the pump has fallen nearly in half in recent months to $1.60 from $2.90 per gallon due to lower commodity prices, and that lower price now barely covers production costs even after accounting for federal subsidies. Three major producers are in or near bankruptcy, including giant VeraSun Energy.
So here they go again back to the taxpayer for help. The Renewable Fuels Association, the industry lobby, is seeking $1 billion in short-term credit from the government to help plants stay in business and up to $50 billion in loan guarantees to finance expansion.
Of course, the ethanol industry wouldn’t even exist without the more than $25 billion in taxpayer handouts over the past 20 years.
I have been warning of this for quite some time. Yet there is no end to this mess, as we have created – through government support – an industry that will implode and take down entire Midwest economies without continued government support. As I pointed out back in March, when the ethanol industry finds itself in financial trouble – and it was inevitable – look for the lobbyists to start asking for an increased mandate. The lobbying is underway:
Ethanol Questions Fuel a Pushback Over Regulation Changes
The question of whether cars can safely run on higher blends is a murky one. At the moment, federal law allows gasoline used in regular cars to contain no more than 10 percent ethanol. The ethanol industry says the proportion could go higher—to 15 percent or even 20 percent—without significantly affecting how cars drive or hold up or how their emissions control systems perform. Some industry representatives are asking the Environmental Protection Agency, which has final say in these matters, to quickly approve 12 or 13 percent blends.
Here is an industry that can’t survive even with a combination of mandates and subsidies – and our government couldn’t see any of this coming. So the industry asks for more subsidies, and our kids get the bill.
So what’s the solution? I don’t favor a quick end to the mandates at this point, or the economic fallout will be pretty severe. But the escalating mandates need to stop, or the bailouts are going to keep getting larger. This would also send a message to those thinking about building more ethanol capacity to think twice about it.
I suspect that our children & grandchildren are going to have bigger problems to deal with than ethanol – such as the inevitable failure of the biggest Ponzi scheme of them all, Social Security.
What we need, clearly, is a little sense of humility in the political class. But politics as practised today almost inevitably means that the "elected" representatives are not representative of the people at all.
Government's role in messing up energy supply is undeniable. But big government is unfortunately quite capable of messing up many things at once.
I can't see any solution that does not involve blood, sweat, & tears.
Japanese oil demand fell 17% in november. Toyota posted its first loss since the 1940’s. Ford and GM were struggling before the credit crisis hit,but it’s not entirely fair to blame this perfect storm on incompetant management. Banks weren’t loaning to each other,much less to some poor sap that wanted a mustang. The government screwed up by letting Lehman Brothers go down in flames. That set in motion all the shiite we’re dealing with now.
I’ve heard that the fed’s decision to pay interest to depositors was a $800B gift that largely went un-noticed.
(I’s a present-value calculation based on the not outlandish idea that the interest payment is permanent.)
My opinion is that increasingly we will need to rely on grassroot efforts to solve our energy, and ecological problems.
As I yongster I don’t hold much hope for our government or corporations to solve many of the problems we face. I am however optimistic that we can rely increasingly on global collaboration to solve our problems locally.
For example I am collaborating with engineers from all over the world on trying to develop a simple free piston hydraulic steam engine that runs on pyrolysis oil. The idea is that external combustion removes all the difficulties that are preventing easy access to celllose energy. Couple this technology with local digital production and people can have an alternative option from the ones presented by petrol entrenched corporations.
part of our problem may be that we reward failure and over compensate mediocrity–
we blame elected officials, but WE send most of the congressional fools back to work every two years. why?? [and they get 3% raises next year. what will you receive?].
we give “social passing grades” in school cause we “must”. why??
we don’t grade performance in school or junior sports, lest we offend the lesser competence. “present” or “participated” is evaluation? we reward for “showing up”? why?
i could continue, but won’t. this is not always the case, but it is substantially prevalent in our society today.
our enemy may be a reflection in the mirror.
ROBERT– superb reminder!
by the way, do i get better or poorer mileage with increased ethanol %. does my cost to drive go up?
fran
Robert,
If we couldn’t let the banks fail, how can we let the ethanol industry fail? (No matter how inefficient it is and how much it counters the Laws of Thermodynamics.)
Unfortunately, the ethanol industry lobbyists and the Corn Belt politicos have caused the corn ethanol industry to get so big we can’t allow it to fail.
As usual, I agree with everything RR says. And given the sterngth of the farm looby, we will have corn ethanol in America forever. The only good news is that corn farmers are an enterprising lot, and improve yields annually. In another 20 years, perhaps corn ethanol will at least be positive EROEI.
It seems flamingly obvious to me that much higher gasoline taxes would solve myriad ills, but neither the wimp Dems nor Baby Bottle Repubs want to tell the truth on the score.
I will say this–only eight years ago, Americans were an optimistic people, and we were running federal surpluses, and not entangled in perma-wars. No matter who is president, I hope we can get back to the sort of optimism we used to have. Maybe we can develop a sensible federal polciies towars energy.
“In another 20 years, perhaps corn ethanol will at least be positive EROEI.”
Benny,
The laws of thermodynamics being what they are, I wouldn’t bank on it.
The only reason we have high yields now is because of the synthetic nitrogen fertilizers farmers dump on their crops. Making that nitrogen, is in itself, an energy-intensive process.
I wish more corn farmers, their ethanol lobbyists, and Corn Belt politicians understood the energy demands of the Haber-Bosch process and how utterly dependent corn ethanol is on synthetic nitrogen made using Haber-Bosch.
A National Renewable Ammonia Architecture
“It can be argued that ammonia is perhaps the most critical man made substance to the existence of human society. Without continuing agricultural growth, the world’s expanding population faces famine and the concomitant breakdown of civil society. The expansion of population and modern society is based on fertilizer driven agriculture…and modern nitrogen fertilizer is ammonia.”
Wenell M:
Actually, farmers have been obtaining higher output per input for generations. Better hybrids and higher CO2 levels help.
I am not a corn ethanol fan. Yet it is true the US today has the same amount of land devoted to corn that we had at the end of WWII, though with a much smaller population back then.
Corn yields have risen relentlessy. Worker productvity on farms and elsewhere, has risen relentlessly.
So, we might assume in 20 years yield will be higher on farms, even if the amount of fertilizer used goes down a bit.
Amidst all the gloom, it is well to remember that productivity seems to always go up. People are inventive, and smart. Good ideas get passed around, at lightening speed today.
“Farmers have been obtaining higher output per input for generations. Corn yields have risen relentlessly.”
Because of synthetic nitrogen fertilizer made with the Haber-Bosch process. Better hybrids mean little unless they get the energy they need from fertilizer.
Had there been no Haber-Bosch, the carrying capacity of the planet would be stuck at about 1.5 billion.
“So, we might assume in 20 years yield will be higher on farms, even if the amount of fertilizer used goes down a bit.”
You might assume that, but it would be a bad assumption.
I fear that gross incompetence in our federal and state governments – as well as in some of our major industries – is going to make life much more challenging for our children and grandchildren. The list this year alone is long.
Well, yes and no.
Sometimes I think you worry too much, RR. (Then again, what do I know?)
The way to a future of renewable, sustainable energy goes via significantly higher energy prices. Otherwise, why change?
You seem convinced that wise leadership can get us to the otherside without the pain. I think we need pain to recognize wise leadership. Easy times give you guys like W.
When leadership try to plan for the future, without the necessary pressure of a crisis – that’s when the hare-brained schemes like corn ethanol gets hatched, because Farmer Brown can replace Sheik Ali. (Aren’t we clever, Senator Corn Bread?)
And let’s be real: on average, even at the height of oil prices this summer, Americans still spent a tiny percentage of their income on fuel.
…such as the inevitable failure of the biggest Ponzi scheme of them all, Social Security.
Don’t lose sleep over it, Kin. At some point the accountants will make the necessary changes (increase the retirement age, decrease benefits or both). It will hardly make page 8.
What we need, clearly, is a little sense of humility in the political class.
The two-party system, in action. Extremists on both sides ruling the roost. Lets hope(TM) Mr. Obama can do better…
Ford and GM were struggling before the credit crisis hit,but it’s not entirely fair to blame this perfect storm on incompetant management.
Maury, I suggest you read up on GM’s (via GMAC) loans to “anyone with a pulse.” They milked easy credit for everything it was worth. Now the chickens are coming home to roost.
Wendell-
Certainly, better hybrids are developed, that obtain better yields with same inputs. Rising CO levels help also.
Besides, does it matter if making fertilizer is energy-intensive, if the energy is generated by nukes, wind, solar or geothermal?
Or, putting aside AGW concerns, even by coal or natural gas?
“They milked easy credit for everything it was worth. Now the chickens are coming home to roost.”
Who wasn’t Optimist? There was subprime everything. And now it takes AAA credit to buy a hamburger. Try selling a car or a house under these credit conditions. US automakers have hurdles the Japanese don’t. Wages are higher,and they owe billions in pensions,while the Japanese don’t. Put them on a level playing field and they’ll do just fine.
US automakers have hurdles the Japanese don’t.
Maury, I have disagreed with you in the past on issues where I believed you were wrong. So let me balance the account by applauding you when you are right.
It is surprising how little attention our supposed intelligentsia in the commentariat pay to the legacy issues bedeviling US automakers. If pension & health care costs can drive GM into effective bankruptcy, then what chance does the US Federal Gov't have.
Optimist may think that the inevitable collapse of government Ponzi schemes will be a non-issue — but those gov't schemes will collapse, and it will be the end of government as we have come to know it in the last 50 years.
Which is a Very Happy Thought on which to end 2008!
“but those gov’t schemes will collapse”
I’m with Optimist on that issue Kinuach. How can you call something that’s been around 50 years,and has surplus funds for the next 25 years,a Ponzi scheme? My retirement age is 67. My son’s might be 80. Even if SSI went into deficit,it won’t be scrapped. Modified maybe,but not scrapped.
“How can you call something that’s been around 50 years,and has surplus funds for the next 25 years,a Ponzi scheme?”
One can call it (US Social Security) a Ponzi scheme because that is exactly what it is.
The early participants have received back many times what they put in — courtesy of the contributions of later involuntary participants.
As for the “surplus funds” — they have already been spent, sad to say. Social Security contributions have been treated as tax revenue and spent on the usual mix of political boondoggles. Yes, there are IOUs in the Social Security kitty — but the only way to get any money for those IOUs is to tax the next generation even higher.
Social Security is not sustainable. It will fail. It will be such a huge case of government malfeasance that it will permanently alter the form of government. Case closed.
“The early participants have received back many times what they put in”
Those that lived long enough. Then there are the millions who die long before retirement.
“Social Security is not sustainable.”
Sure it is. They could cut benefits to $1 a month and raise the retirement age to 150. I’m being fecetious,but the bottom line is that 12.4% of 8 or 9 trillion can be sliced and diced any way congress chooses. They’ll make changes,but Americans will never,EVER let them do away with SSI.
“Americans will never,EVER let them do away with SSI.”
What people “let” their government do is inevitably bounded by reality. We already know that social security contributions high enough to fulfill existing commitments would drive future workers into poverty. You are right, it won’t happen; the rules will be changed.
But what about the people who have paid into SSI all their lives and then find they have to wait till 70+ to collect a trivial stipend? Will they be grateful? Or will they think that the political class has lied to them and cheated them? Government will never recover from that predictable loss of trust.
The relevance to this thread is that government handouts are an unsustainable way of doing business. It is a pity that so many energy advocates harm their cause by pleading for government to rob someone else’s Peter to pay their Paul.
Nearly a decade ago environmental groups warned of not only the massive cost burden over energy loss associated with ethanol… we trumped the cost factors with environmental impact reports. Ignorance is making corn lobbyists and growers ‘cut off their nose to spite their face’ . WE NEED CORN… but not as a liquid fuel. The faster growers, lobbyists and bureaucrats ‘get this’ the sooner we can repair the environmental and poverty problems this mess created. Want more profits? – Use better longterm planning, not short term subsidized ‘runs on
the money’ –
History, Learn from it or become it – Haase
Hear it from the EPA
http://cfpub.epa.gov/ncea/cfm/oxygenates/oxygenat.cfm?ActType=default
The DNR, EPA and CARB have issued reports that stating ethanol blend fuels will lead to poor air quality. Reports predicted manufacturers and electric utilities would be saddled with more environmental regulations to offset ethanol pollution and could result in ozone health advisories that cover more counties.
Full DNR report here:
http://www.hamilton-consulting.com/updates/docs/dnr_final_e10revised_090805.pdf
Other sources:
http://www.wmc.org/display.cfm?ID=1742
http://www.jsonline.com/news/state/sep05/355883.asp
EPA’s
underlying science used to mandate the gasoline dangerous fuel additives:
http://www.foxnews.com/story/0,2933,146345,00.html
http://www.altfuels.us/who.php#mtbe
EPA Called Upon To Suspend Costly Gasoline Regulation Causing Harmful Urban
Pollution
Hear it from the EPA
http://www.24-7pressrelease.com/pdf/2005/02/12/press_release_3377.pdf
NAFA claims EPA "forced their data" with a "predetermined conclusion"
http://www.altfuels.us/nafa_vs_epa.php
Need more? Here is a link to
EthanolHoax