Venture Beat Article

A while back I was contacted by a reporter from Venture Beat regarding my criticisms of Vinod Khosla. A back and forth e-mail exchange ensued between the reporter, Mr. Khosla, and myself. That exchange has been documented in a story at Venture Beat:

The Oil Drum Debate, Round 1

There were 3 issues in question during this particular exchange:

1). The energy balance of gasoline versus ethanol.
2). Whether Brazil had displaced 40% of their petroleum with ethanol.
3). Whether ethanol is cheaper to produce than gasoline.

When reading through the exchange, I think you will note how Mr. Khosla has difficulty answering the questions put to him. Even in the case of Brazil, in which he has made claims that are clearly wrong, he couldn’t come right out and concede the point.

Regarding the cost of production, I sent the following to the reporter who wrote the story:

I will say that you let him off way too easily on the price issue. My point was that ethanol prices have been higher than gasoline prices for 25 years, not that it just suddenly became more expensive due to the switch from MTBE. And Khosla admits that he is talking about production cost, but then he confuses that with “In 2004 it was selling at $1.40 ‘sales price.’ ” That sales price reflects a discount of $0.51/gallon of federal subsidies, and in most cases $0.20/gallon or so of state subsidies. I am comparing apples to apples by looking at rack to rack prices of ethanol versus gasoline. And I agree with Khosla that “price should reflect cost for any commodity product.” So, look again at that graph I posted, and tell me which has had the higher price for 25 straight years. Then ask Mr. Khosla to explain that graph, if in fact ethanol is cheaper to make. Ask him if he is concerned that ethanol producers are gouging consumers, given that their profit margins are obviously much higher than those “gouging oil companies.”

Anyway, check it out, as well as the comments following the article.

6 thoughts on “Venture Beat Article”

  1. October 2006 — The ethanol myth: Consumer Reports’ E85 tests show that you’ll get cleaner emissions but poorer fuel economy … if you can find it:

    CR Quick Take

    Despite the avid support of the Bush administration and major American car companies, E85 is unlikely to fill more than a small percentage of U.S. energy needs.

    * E85, which is 85 percent ethanol, emits less smog-causing pollutants than gasoline, but provides fewer miles per gallon, costs more, and is hard to find outside the Midwest.

    * Government support for flexible-fuel vehicles, which can run on E85, is indirectly causing more gasoline consumption rather than less.

    * Most ethanol is being blended in a 10 percent mix to reduce smog-producing emissions and stretch gasoline supplies.

  2. Robert, is it fair to accuse ethanol companies of price gouging, if they sell at a market price?

    I can understand that it’s fun to retaliate for unfair criticisms of oil company “gouging”, but isn’t that confusing things for people?

  3. Robert, is it fair to accuse ethanol companies of price gouging, if they sell at a market price?

    Nick, I don’t consider any of it price-gouging. I am just pointing out that by Khosla’s definition of price-gouging, the ethanol producers that he raves about are doing it worse than the oil companies.

  4. The Consumer Reports article “The Ethanol Myth” is the cover story for the October issue, and is quite good. It makes an excellent reference for the great many people who are unable or unwilling to try to sort through the arguments for themselves.

  5. Robert Schwartz said, “Despite the avid support of the Bush administration and major American car companies, E85 is unlikely to fill more than a small percentage of U.S. energy needs.”

    Absolutely correct Robert.

    If the ethanol industry converted the entire U.S. corn crop to ethanol, they could produce a volume equal to only about 12% of our annual fuel consumption. (And that’s completley ignoring what using all U.S. corn for fuel would do to the price of the foodstuffs that derie from corn.)

    That means they would have trouble making enough ethanol to make all the gasoline consumed in the U.S. into an E12 or even an E10 blend.

    It is a waste of time and money to build E85 infrastructure at all U.S. fuel stations as some politicians have proposed doing with grants and subsidies. If every filling station in the U.S. had the tanks and pumps to handle E85, most of that infrastructure would sit unused due to a lack of ethanol.

    One has to also be suspect of Ford and GM’s move to push E85 flex-fuel vehicles. The only reason they are doing that is to avoid the CAFE penalties* they would have to pay, and in order to be able to say to the public, “Look, we care. We are doing something.” even though they never tell the public that it takes four gallons of E85 to do the work of three gallons of gasoline, and that consumers who burn E85 in their flexfuel cars will actually get much lower mileage than with gasoline. Unfortuantely, GM’s current “Go green, drive yellow” campaign is nothing more than a marketing ploy.

    Instead of pushing for E85, a better play for both the ethanol industry and the auto industry would be to push for universal E10, or even try to raise that blend to E12 or E15 which all cars on the road could use w/o modification.


    Gary Dikkers

    * There is a loophole in the way the Corporate Average Fuel Economy (CAFE) is computed that allows a vehicle that gets 16 mpg w/ gasoline, to be considered as a 32 mpg vehicle when flexfuel, even though its actual mileage w/ E85 would be 12 mpg. One of the first steps our politicans should take is to close that CAFE loophole so GM and Ford can no longer dupe consumers.

  6. “Nick, I don’t consider any of it price-gouging. “

    I think you should make that clearer. You’re attempting to point out an inconsistency, but you’ll confuse people if you don’t make it clearer.

    The way you phrase it, you seem to be criticizing ethanol producers for selling at market prices.

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