Ethanol Roundup

A couple of interesting ethanol articles that were recently brought to my attention. First off, we have Iowa State saying something I have been saying for a while:

Corn ethanol unprofitable by 2008, says Iowa State

Personally, I thought their article was awesome. 🙂

Biofuels industry observer Robert Rapier (author of Cellulosic ethanol vs. biomass gasification) told Inside Greentech that problems in corn ethanol had been clear since last summer.

“Capacity was being built well in excess of the mandated amounts. This ends up squeezing producers on both ends. I have been predicting for at least a year now that there will either be a massive shakeout of ethanol producers—or more likely there is going to be a massive bailout by the government. I also see a high probability that the mandated numbers will be increased to help the producers.”

Of course, that last bit is now almost a certainty considering the State of the Union address and the legislation that is being debated right now.

Second, an article by Steven Mufson and Dan Morgan at the Washington Post:

Switching To Biofuels Could Cost Lots of Green

Mufson interviewed me a few months ago for an ethanol story he was doing. I think my contribution ended up as “Some sources say…..” 🙂

Anyway, this story is just adding up the costs for the mandates that we have, and for those that are in the pipeline.

If the current tax credits, grants and loan guarantees are extended, the package would cost taxpayers $140 billion more over the next 15 years. New proposals under consideration in Congress could raise that tab to $205 billion.

The final article addressed the politics of all of this in some detail:

Biofuels or Bio-fools?

That one covers a lot of ground that I have often covered here – including a look at Vinod Khosla’s role. But there was a bit that I thought was novel and interesting. Some edited excerpts:

…regulations that captured the public’s imagination and managed to endure…evolved not because of rational cost-benefit analysis, Yandle wrote, but because of odd alliances between what he called “Bootleggers and Baptists.”

The theory goes like this: during America’s long debate over alcohol in the first part of the 20th century, religious folks—in shorthand, the Baptists—provided a moral narrative for limit­ing sales. They sincerely believed government should support sobriety. They lobbied their rep­resentatives to enact Prohibition. That belief, however, sealed them into a marriage with the bootleggers, who were, in effect, rent-seekers profiting from rules that prevented law-abiding competition.

Yandle suggested that most regulations could be viewed in this light. Groups with moral motives provide cover for those who benefit eco­nomically (groups that, unlike bootleggers, typically operate within the law), even if the two sides don’t have much else in common. So far, this dynamic has propelled etha­nol from obscurity to the center of American energy policy. Environmentalists play the Baptist role, urg­ing governments to force us to be moral in our fuel choices. The Natural Resources Defense Council, for instance, has called ethanol “energy well spent.” Corn farmers and ethanol industrialists become the boot­leggers, quietly enjoying the monetary green their questionable green status confers on them.

Vinod Khosla has become the most visible face in this Baptist-bootlegger hybrid movement. Khosla and his colleagues have plenty of money to throw around in politics, but despite the exu­berance, there’s a learning curve to climb. Khosla’s first big battle, over a California ballot initiative last year that would have taxed oil companies in order to fund research and development in alternative fuels, ended in defeat. Khosla contributed about $1 mil­lion to support the measure, called Proposition 87. In the end, it was the most expensive referendum in American history. But the rent-seeking was too obvious; even the Los Angeles Times cautioned voters against this “new form of corporate welfare.”

It seems like the mainstream media, as slow as they sometimes are, are coming around.

16 thoughts on “Ethanol Roundup”

  1. I think at least a tip of the hat is warranted to E3 ethanol plants, and others. They burn corn stalks (as pointed out by RR, a form of cellulosics), they burn dung, they feed cows, and they even make some other products. They claim they are shooting for 5 -1 energy returns.
    This new generation ethanol plant may end up being the survivor type, and then widely copied, in years ahead. Infant industries often go through convulsions, as new technologies and methods replace old. Yes, ethnol has been around 27 years as RR points out, but only in this recent energy “crisis” have people really gotten serious about it. And the new generation plants are just coming on line.
    I wish for a better fuel crop than corn, but we have 14 corn states Senators, so what are we going to do? Fears about corn supplies seem overblown. Corn costs today what it did in 1980, and corn farmers fear a glut. Crop yields rise by 2 percent annually, and have for decades. In the last 20 years, about 30 percent of corn land was taken out of production. Farm inputs per output have been dropping for decades.
    What may seen somewhat impractical now may be very practical in 10 more years. Sooner of later pig and potato farmers are going to figure out ethanol too.
    The Washingont Post story put the annual subsidy cost of ethanol, and other bio programs, at $20 billion a year. The war in Iraq costs $100 billion a year, and appears to be a full-on debacle. I think $20 billion a year is worth it to help avoid another Iraq.
    I do agree that much better methods for spurring innnovation exist than federal programs.
    I propose twin $10 billion prizes, the first for an algae-to-biofuel plant that works commercially, and the second for the first company to commercialize a PHEV. Maybe these should be $20 prizes or maybe $10 billion to the winner and $5 billion to runner-up etc. We could argue about what constitutes “commercialize” etc.
    The big point is put out some huge prizes for our robust venture capital and private equity firms to hunt for. There is gobs of money right now in VC and private equity. Capital markets are flush, and risk-taking has never been more in style.
    An additional point to the prixe scenario is that no taxpayer money would be spent except in the case of success, and no mindnumbing federal rules, regulations and appropriations and audit procedures would have to be honored. No Senator from Texas pushing research money for a bunch of Aggies.
    As it is, it may be game over for the fossil oil boys anyway. This price regime is going to be hard to maintain. But a US fleet of PHEV cars and heavy reliance on biofuels would be major steps to a better, more prosperous future, and a cleaner one. And a more secure future, in that oil blackmail could be laughed at.

  2. Yeah, the E3 plants, and other innovative designs are good. It would be sad if the “best of breed” were victims of any “corn bubble” coming out of this.

    My idea would be government monies for long-term or basic research, and a level playing field for production (perhaps with a “level” carbon tax). We are a long ways from that.

    So I think we still have to be corn hataz … the layered mandates and subsidies are just too huge a market distortion.

  3. Per your request for a location for a cellulosic alcohol production location based on biomass source and incentives, I posted this over at TOD, but wanted to post it here as well, as the links may be of interest, and on TOD, it could easily get buried.

    A poster suggested Los Angeles, which you seemed very open to. Even though I hate to admit it, (living in Kentucky) I can think of no better possible site, and below are links that provide some of the reasons, along with the ones mentioned by other posters at TOD:
    Los Angeles produces 8,000 tons of garbage every day. With limited landfill space, LA was an early pioneer of curbside recycling. Currently, 62 per cent of waste is diverted from landfills and the goal is to increase that percentage to 70 per cent by 2015 through increased recycling programs and proposals to divert green waste to ethanol production facilities. mayorindexright243045238_05152007.pdf
    “Shift from Waste Disposal to Resource Recovery. Recycle 70% of trash by 2015

    Catalyze the Growth of the Green Economic Sector

    Promote local research, development and production of green technology

    Strengthen global economic relationships to secure investment in Los
    Angeles’ green sector and help environmentally-focused companies
    penetrate local and foreign markets

    Identify locations for green businesses and offer effective incentives for the
    growth of these businesses

    Train residents of low and middle income communities, local university
    students and participants in adult education programs for jobs in the green
    There is a bit of an “Alternative Dialy Cover” controversy going on in LA, as Waste Management and some other waste disposers have been allowed to put a certain amount of “green waste” they collect on landfills as “ground cover” and get credit for it as though it were not being disposed of at landfills. Apparently, this system has been abused as they have used it as a method of waste dumping for green waste that they cold not otherwise easily dispose of. What this means in practical terms is that LA actually has more “green waste” for other use than the stats have been making it look like.

    Thanks for your attention, good luck on this project and keep us posted between your time playing with the kids! 🙂
    Roger Conner Jr.

  4. A couple of interesting ethanol articles that were recently brought to my attention. First off, we have Iowa State saying something I have been saying for a while:


    I read this last Friday and coudn’t believe it came from Iowa State. Bravo for them — and academic freedom. (Must have come from someone with tenure.)

    There is probably an Iowa governor and two U.S. senators from Iowa that are having a cow about now.

    Every morning I do a news search for ethanol, and I’ve notied over the last two or three months the tide is slowly starting to turn against corn ethanol as more and more people start to realize it is an environmental and thermodynamic deadend and that corn ethanol is neither renewable nor green.

    As you and I have long known, corn ethanol is only profitable because of mandates, subsidies, tax credits, protective tariffs, and the clout of Corn Belt politicos.



  5. A few years ago Michael Pollan, a writer, who I find a bit whifty, but entertaining, wrote an article in the NYT op-ed that criticized federal subsidies for maize production. He was most concerned with the baleful effect of corn syrup and corn feed beef on our health. But the conceit he used — that the maize was winning an evolutionary battle, holds up pretty well in discussing ethanol.

    BTW: Why isn’t anyone trying to make bio-fuel out of kudzu?

    “When a Crop Becomes King” by Michael Pollan in NYimes on July 19, 2002:

    Like the tulip, the apple and the potato, zea mays (the botanical name for both sweet and feed corn) has evolved with humans over the past 10,000 years or so in the great dance of species we call domestication. The plant gratifies human needs, in exchange for which humans expand the plant’s habitat, moving its genes all over the world and remaking the land (clearing trees, plowing the ground, protecting it from its enemies) so it might thrive.

    Corn, by making itself tasty and nutritious, got itself noticed by Christopher Columbus, who helped expand its range from the New World to Europe and beyond. Today corn is the world’s most widely planted cereal crop. But nowhere have humans done quite as much to advance the interests of this plant as in North America, where zea mays has insinuated itself into our landscape, our food system — and our federal budget. …

    At first blush this subsidy might look like a handout for farmers, but really it’s a form of welfare for the plant itself — and for all those economic interests that profit from its overproduction: the processors, factory farms, and the soft drink and snack makers that rely on cheap corn. For zea mays has triumphed by making itself indispensable not to farmers (whom it is swiftly and surely bankrupting) but to the Archer Daniels Midlands, Tysons and Coca-Colas of the world.

    Our entire food supply has undergone a process of “cornification” in recent years, without our even noticing it. … Most of the animals we eat (chickens, pigs and cows) today subsist on a diet of corn, regardless of whether it is good for them. … it’s the cheapest thing you can feed any animal, thanks to federal subsidies. But even with more than half of the 10 billion bushels of corn produced annually being fed to animals, there is plenty left over. So companies like A.D.M., Cargill and ConAgra have figured ingenious new ways to dispose of it, turning it into everything from ethanol to Vitamin C and biodegradable plastics. …

    So it seems corn has indeed become king. We have given it more of our land than any other plant, an area more than twice the size of New York State. To keep it well fed and safe from predators we douse it with chemicals that poison our water and deepen our dependence on foreign oil. And then in order to dispose of all the corn this cracked system has produced, we eat it as fast as we can in as many ways as we can — turning the fat of the land into, well, fat. One has to wonder whether corn hasn’t at last succeeded in domesticating us.

  6. No matter what the source of ethanol, all of this perpetuates an inherently unsustainable infrastructure built on cheap oil. Burning any liquid fuel in engines to propel us down the hard road is never going to be efficient or green. Only a truly radical transformation of our economy and culture will get us off this fatal energy path. We ratchet up the technology on the current path at our future peril.

  7. Most corn ethanol plants are ALREADY unprofitable at spot prices:

    Corn: ($4.05/bu) / (2.7 gal/bu) = $1.50/gal
    NatGas: $8/mmBTU * 0.07 mmBTU/gal = $0.56/gal

    That’s $2.06/gal even before labor, maintenance, cost of capital, etc. CBOT ethanol trades for $1.92/gal. It’s only long term contracts at more favorable prices that keep the plants running. As those contracts roll over prices will either adjust or plants will close.


  8. Can one say the ethanol business is characterized by:
    1. Low barriers to entry
    2. High capital costs
    3. Low intellectual property differentiation (so far)
    4. Commodity price exposure

    Doesn’t look like a great industry to be in.

  9. Los Angeles produces 8,000 tons of garbage every day. With limited landfill space, LA was an early pioneer of curbside recycling. Currently, 62 per cent of waste is diverted from landfills and the goal is to increase that percentage to 70 per cent by 2015 through increased recycling programs and proposals to divert green waste to ethanol production facilities.
    Better uses for LA’s waste include burning it to generate “green” electricity or converting it to liquid hydrocarbons using gasification/Fischer-Tropsch. Ethanol is basically never a good idea…

  10. I think at least a tip of the hat is warranted to E3 ethanol plants, and others. They burn corn stalks (as pointed out by RR, a form of cellulosics), they burn dung, they feed cows, and they even make some other products. They claim they are shooting for 5 -1 energy returns.
    Couple of points:
    1. Food->Fuel is always a bad idea, no matter what you use as utilities. High value calories are being converted into low value calories. Only the federal government would do that.
    2. Ethanol, when produced by fermentation, is still an very bad idea. Reasons include:
    2.1 The high energy requirement of distillation.
    2.2 The low conversion, due to the fact that only sugars are fermented.
    2.3 Ethanol’s properties, such as the fact that it is hygroscopic. In other words, after distillation ethanol starts to absorb water from the surrounding atmosphere. This causes many problems, including corrosion, degraded fuel quality, etc.
    3. The 5-1 energy return was an estimate, yet to be realized. Or more precisely, not to be realized: E3 Biofuels did the same thing. They made some pretty high EROI projections. I have had indications that those have not been realized. Running a real plant is a lot harder than running one on a paper.

    So you can hang onto your hat, Ben.

  11. Optimist:

    Well, E3 has not failed yet. The plant is somewhere near being built, or in shakedown mode. We will see. If it does generate 5 t0 1, are you still opposed? What if crop yields rise another 40 percent in the next 20 years (as they have been for decades), while farm inputs decline per output, as they have for decades. What if we get 8 to 1 returns? When does it become a good idea?
    Anyway, I think we need a $20 billion prize for the first to commercialize algae-to-biofuels. That would solve all the arguments. And no taxpayer money would be spent unless we obtained the result we wanted: Commercial biofuels (for deisel engines, largely).
    I am not totally against subsidies for alternative fuels. After all, energy security is worth quite a bit. We have spent $100 billion a year in Iraq. $20 billion a year for ethanol is peanuts.
    Another q: If internal combustion engines with compression ratios of 20 to 1 are used, does that increase the mileage you get from an all ethanol car?

  12. “What if crop yields rise another 40 percent in the next 20 years (as they have been for decades), while farm inputs decline per output, as they have for decades.”

    Under very controlled environmental conditions I could see the potential for crop yields to continue some rise toward their theoretical maximum. But under real world conditions such as the drought we are experiencing in IL this season, I don’t see the overall average yields rising much above their current yields. We may have a few more record years but we will also have many below average years.

    The inputs per unit output might be declining for some inputs, but the big inputs, like nitrogen, keep pace with rising yield levels. And the price of the inputs is rising rapidly, so the corn crop is getting more expensive to plant. With big jumps in the price of corn we witness big jumps in the cost of inputs as well as other economic factors like land rents.

    Producing ethanol from corn will never be sustainable from any angle — energy, resources, economics, or ecology.

  13. Ben,
    You are right. Let’s give E3 some room, and time. Then we can gloat.

    Or let me put it this way: you raise some big “ifs”. For any of them to get realized, you only have to rewrite the laws of thermodynamics, or more precisely, redefine the properties of ethanol. Ain’t gonna happen. So here’s my prediction: At the end of it all, we are going to hear the defining statement of this administration: Who could have known?

    I like your ideas about awarding pizes, though. But I would define success in the broadest possible terms, and avoid any specific process, whether it is corn ethanol or algae. You may have to award points (50 point for security, 25 points for GHGs, etc.). You may even re-evaluate the points at regular intervals, but not too regularly, or else you’d leave inventors uncertain about long term goals. Maybe every five years…

  14. Los Angeles private equity firms borrow new money into existence in order to take these companies private. They inflate the money supply and syphon off huge sums as personal compensation. All the while, the cost of everything goes up as the value of a dollar goes down.

Comments are closed.