“See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.” - Frederic Bastiat (1801-1850)
Seems like the Pig Men, plutocrats and the political cronies never tire of, or run out of loots. The latest act in the series is “energy independence” via ethanol. In reality ethanol uses gasoline and energy like there is no tomorrow, and now that this scam has gotten a good toehold it is starting to show. This one is unique (and nasty) as it drives up prices not only for energy, but also for food, thus benefiting a whole slew of plutocratic fat cats at the expensive of Brazil America.
Ethanol Production, click to enlarge:
First are the so called benefits. 2006 ethanol production of about 5 billion gallons (6.5 billion anticipated for 2007) reduced US GHG emissions by a whopping 1/19 of 1%. It resulted in a 1.1% reduction of imported fossil fuels.
Next, comes some consumer protection advice, ethanol is pricey and energy poor. The studies on whether ethanol production itself is energy positive are across the board and controversial.
Even if one accepts the doubtful notion that the actual production process of making ethanol from corn is energy positive, a big factor missing in the equation (among others) is the transport of ethanol to the market. A primary problem here is that ethanol is transported by pipeline with difficulty.
According to Harold Schobert, director of The Energy Institute at Penn State University,
√¢‚Ç¨≈ìThe chemistry is very clear cut,√¢‚Ç¨¬ù he said in a recent e-mail. √¢‚Ç¨≈ìBut, just like the economics, the question (of true cost) becomes where you draw the √¢‚Ç¨Àúbox.√¢‚Ç¨‚Ñ¢ Do you include the energy for making the fertilizer, for plowing, etc., and for the farm vehicles? Do you start √¢‚Ç¨Àúcounting√¢‚Ç¨‚Ñ¢ energy at the front door of the ethanol plant, so you don√¢‚Ç¨‚Ñ¢t worry about energy in producing and transporting the corn itself?√¢‚Ç¨¬ù
Transporting ethanol, it turns out, is one of its major drawbacks: It just doesn√¢‚Ç¨‚Ñ¢t flow very well through pipelines, according to Dr. Darren Hudson, a professor of agricultural economics at Mississippi State University. √¢‚Ç¨≈ìCorn is in the center of the country and gasoline consumers are on the coasts,√¢‚Ç¨¬ù he said. √¢‚Ç¨≈ìSo transportation costs can be quite high √¢‚Ç¨‚Äù roughly double the cost of shipping gasoline√¢‚Ç¨¬ù or about $1.20 per gallon of ethanol.
One of the primary critics of corn ethanol production is David Pimentel, who correctly also looks at the negative externalities to the environment of using corn for this purpose,
“Corn production in the U.S. erodes soil about 12 times faster than the soil can be reformed, and irrigating corn mines groundwater 25 percent faster than the natural recharge rate of ground water. The environmental system in which corn is being produced is being rapidly degraded. Corn should not be considered a renewable resource for ethanol energy production, especially when human food is being converted into ethanol.”
and also the energy input that goes into corn production.
An acre of U.S. corn yields about 7,110 pounds of corn for processing into 328 gallons of ethanol. But planting, growing and harvesting that much corn requires about 140 gallons of fossil fuels and costs $347 per acre, according to Pimentel’s analysis. Thus, even before corn is converted to ethanol, the feedstock costs $1.05 per gallon of ethanol.
The USDA put out another study that suggests that energy inputs for corn production are slightly energy positive when energy co-product credits are removed.
However, there is another table from this study that gives us a clue about what happens when large areas of irrigation intensive land is brought into production from dry areas like western Nebraska. Notice the large usage of electricity and natural gas (used to power irrigation and for fertilzer) in that state. The USDA doesn’t even mention very dry marginal corn growing states like Colorado.
Despite the “science” and justification behind this rob Peter to pay Paul boondoggle, the rubber meets the road outcomes are not in doubt: the first being food inflation. This is the same ‘ole trick of creating new inflationary Bubbles to transfer wealth from a large group of people (typically Brazil Americans) to another elite group, all the while ignoring (chatter about rate cuts) or “excluding” the end result (large magnitude food and energy inflation) or rectifying it away (Ministry of Truth). It fits the Bastiat definition in the opener to a tee. Of course adding to the potential for a perfect storm would be a shortfall from all the marginal acreage that has been diverted or converted to corn production. Then farmers just use up more energy in a big high stakes die roll that comes up snake eyes.
As corn output jumps, farmland devoted to other crops will drop. Acreage devoted to cotton, for instance, is expected to show a 14 percent decline from 2006, according to the National Cotton Council. Soybeans, wheat, barley, oats and alfalfa also will be displaced.
The increase in corn prices has meant less feed for livestock. Cattle weights have dropped 10 to 20 pounds during the past year, he said. Experts disagree on whether the falling cattle weights will lead to higher beef prices.
I think the probability now is very large for 2007 and 2008 that price increases in the food and beverage sectors are going to out pace the general inflation rate,” said Hurt, who predicted food prices will rise 5 to 7 percent in each of those years compared to the norm of about 3 percent.
The second proof is in the pudding outcome of this scam is its impact on gasoline demand which is clearly rising. You see Dr. Watson, ethanol is less fuel efficient, and because of transport log jams, trucks are being used to haul it around. From Apache Corp summer outlook:
The logistics of moving large quantities of ethanol to blending facilities continues to be a problem. Earlier this winter, barges were unable to transport ethanol due to rivers icing over. Short-term regional shortages of gasoline could occur this summer if delays develop in moving ethanol to blending facilities. In a recent CNNMoney article, ethanol was cited as a cause for higher gasoline demand. As an additive in gasoline, ethanol renders gasoline 4 to 8 percent less efficient, causing drivers to burn more gasoline in their daily driving than normal.
These charts tell the real story, the problem is too much demand (never was even a seasonal dip) which draws down inventory. Production is going all out as after all there’s ethanol available to haul around and toss into the mix. Unfortunately somebody forgot to connect the dots about what it all means. That’s what happens when policy is mostly about lining the pockets of cronies. Not a pretty picture for the start of hurricane season either.