Ethanol Follies

First ethanol caused a shortage of tortillas in Mexico. Then we found out just how much the American taxpayer is paying for the development of ethanol. Now ethanol's helping cause the price of wheat to go higher. But that's not the most interesting tidbit. What's worse is that ethanol vehicles get terrible mileage per gallon.

It takes so much land to grow corn to create ethanol that a lot of the corn necessary for our sustenance is being diverted to ethanol production. Meanwhile, people in Mexico have found it harder to buy the basic foodstuffs of life.
Mexico is in the grip of the worst tortilla crisis in its modern history. Dramatically rising international corn prices, spurred by demand for the grain-based fuel ethanol, have led to expensive tortillas.
How did these ethanol tycoons get so big? On the backs of the American taxpayer, of course.
The greens, hawks, and farmers helped convince the Senate to add an ethanol provision to the energy bill—now awaiting action by a House-Senate conference committee—that would require refiners to more than double their use of ethanol to 8 billion gallons per year by 2012. The provision is the latest installment of the ethanol subsidy, a handout that has cost American taxpayers billions of dollars during the last three decades, with little to show for it.
Ethanol can now be made from wheat. At a time when production of wheat is down and demand is up, I don't think diverting more wheat to ethanol is a very good idea.
The monthly report, called World Agricultural Supply and Demand Estimates, projected a lower wheat crop for the 2007 year with exports expected to rise 25 million bushels higher. At 280 million bushels, the year's ending stocks are projected to be the lowest in 60 years.
Ethanol is NOT where it's at, unless you are a friend of someone in the federal government.

Hybrid vehicles are much more beneficial to society, yet ethanol is getting the subsidy. It must not be what you know, but rather who you know in the case of ethanol.

I was sitting at the bank the other day waiting for an appointment, when I began browsing the government's 2008 Fuel Economy Ratings. Boring? No. Rather revealing!

In every model category in which there was one or more hybrid vehicle models, the hybrids far outperformed their gasoline counterparts.

What about ethanol vehicles? E85 (ethanol) vehicles have up to 85% ethanol mixed with gasoline. These E85 vehicles far underperformed their gasoline counterparts. In nearly every case, the maximum (highway driving) gas mileage of an ethanol vehicle was equal to or less than the minimum (city driving) gas mileage of the same vehicle powered by gasoline (most were less than). The efficiency of ethanol is something along the lines of 25% less than gasoline. Couple that with the fact that ethanol costs about as much in energy to produce as it provides, and I'm not sure why we're producing it, let alone that the government is paying a handful of people big bucks to put it on the market.

With free-market ingenuity, ethanol may eventually turn into a major contributor to our energy supply, but so far it's been fairly a waste of time. Ethanol has achieved its status only because it's been propped up by the federal government. Left to its own devices, ethanol would be where it belongs--still largely in the research phase.

Let the market decide what corn and wheat should be used for; for now, it seems that they should be used much more for food, instead of being diverted by inefficient government subsidies.

Comments

  1. This is just a small sampling of the long dark history of subsidies. Oh, they all start with good intentions. But you know where that path leads.

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  2. You're right.

    Although I'm still not sure if I agree with you in one of your previous comments (in another post) about my support of a gasoline tax.

    I still think it is more an issue of national security that we develop our own independent sources of energy, and I think the tax would foster that.

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  3. I would have to disagree. We have no decent track record of trying to force the market to do something via the federal government. Politics gets in the way and payouts are awarded politically, creating a new type of welfare. The law of unintended consequences goes into effect, meaning that we end up with a distorted market that fails to accomplish what was outlined by the best laid plans of men.

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  4. How do we, then get the ball rolling with alternative energy sources? I don't think solar is cost-effective yet, and I won't buy a hybrid car, because they cost too much to offset the cost of gas.

    ReplyDelete
  5. That's the hard thing. The sad fact is that government is a poor tool for accomplishing this. Please bear in mind that there are those that disagree that trying to localize all energy production will produce increased national security. There have been a host of posts, for example at Cafe Hayek over the past several years more or less on this topic. They suggest, with no small amount of evidence, that open trade does more to improve security than does protectionism.

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  6. I think that national security is an issue when it comes to oil. More importantly, I think it is an issue with our country's integrity. We support the terrorist states, as long as they feed our "oil mouth." If they don't give us oil, we start trying to tell the world how they are the axis of evil.
    Another issue, not more important than integrity but pretty close to, is the economy that local oil production would create. First of all, Americans don't work for cheap, and American investors/landowners don't sell land with mineral rights cheap either. So the price of oil/gas would go through the roof (no need for the tax there Frank). After that the people along with any corporate body that uses alot of fuel, would demand an alternative energy source. Then creating a more eager market for new energy. That is how it would be in a perfect world. But when the 'establishment' doesnt care and just wants to "feed the beast" it is hard to change their minds. The first thing to do is drill our own oil. That would hopefully set everything else in motion toward cleaner energy, higher integrity, and a strong economy.

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  7. Great point!

    That's why we've spent so much wasteful time in the middle east, is because we need to feed our oil mouth. Meanwhile we have people from both major parties in congress that balk at doing anything to give us energy independence.

    ReplyDelete

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