22 May 2008

Ethanol is Dumb, part 54

James and Stephen Eaves wrote this piece [PDF] last fall but apparently nobody read it, since we have seen almost all their analysis and predictions supported by recent events, i.e.,
When we assume the ethanol production process is fully renewable, it would take all the corn in the country to displace about 3.5 percent of our gasoline consumption — only slightly more than we could displace by making sure drivers’ tires are inflated properly. There are also ethical considerations. In particular, the United States is responsible for over 40 percent of the world’s corn supply and 70 percent of total global exports. Even small diversions of corn supplies to ethanol could have dramatic implications for the world’s poor, especially considering that researchers believe that food production will need to triple by the year 2050 to accommodate expected demand. Furthermore, ethanol would not necessarily be a more reliable source of fuel. By displacing gasoline with ethanol, we are displacing geo-political risk with yield risk, and historical corn yields have been about twice as volatile as oil imports.
James Eaves graduated from my department (Go Aggies!) a few years ago. He and his brother deserve congratulations for pointing out that the emperor has not been wearing clothes for quite some time. Too bad the politicians have continued to ignore the factual stupidity of ethanol in favor of shoving more pork down the swollen gullets of their agribusiness campaign contributors -- while the poor and hungry of the world grow more angry....

Bottom Line: Anyone who says "I didn't see it coming" needs to have his head examined. The only good thing about the ethanol program is that the evidence of its stupidity is so vast that we may be able to end it quickly. We cannot wait for wisdom in the Congress. Tell them to stop the disaster.


  1. David: Would not it be more like an economist to say that "ethanol is dumb" unless you are at low latitudes with lots of rainfall(where plants can grow year round) and you have lots and lots of poor people looking for work, and you don't have much fossil fuel. Brazil is an example of a place where ethanol isn't so dumb, seems to me. But I ain't an economist. What do you think?

  2. FC -- you are right. I was (implicitly) referring to the US ethanol program. Sugar (Brazil) and cellulosic (TBA) are far smarter choices, but the US program is not about smart :)

  3. Ethanol is Dumb, reason 55

    As I unfortunately learned today, ethanol tends to undergo phase separation when left in a small tank for a couple weeks or more. It draws in water and settles at the bottom, ruining lawn mower carburetors :(

  4. I believe Brazil overcomes the phase separation issue by requiring a 20% blend of anhydrous ethanol with gasoline while pure ethanol or E100 is hydrous. As long as regular gasoline is blended with 20% ethanol, phase separation should not occur as consumers switch between gasoline and E100 depending on their relative prices.

    I did come across the Eaves article but only now did I realize Eaves is also a fellow aggie!

    FC--I will send David some articles to post regarding Brazils ethanol policy.


  5. FC? That's you, Fixed Carbon :)

  6. http://blogs.wsj.com/environmentalcapital/2008/05/23/cereal-killer-dont-blame-biofuels-for-food-prices-new-study-says/

    Consultancy taking a different view on biofuels and food prices.

    Any thoughts?

  7. Interesting blog post (tidier link) and this is what I said:

    "I completely agree with Ralph F* and add the following notes: NEF is staffed by finance and journalist types, neither macro nor micro economists in natural resources or aggriculture (at least from what I could see of their bios). Second, NEF is claiming to have disentangled 10% responsibility from forces that are shifting and moving along S and D in a GE model. I know (from experience) that those models can produce any result a “bespoke client” might request."

    *Clean technology analysts at New Energy Finance certainly would appear to have a strong bias in favor of alternative energy sources - a bit like study of the effects of smoking by a tobacco company. Given all the evidence to the contrary we should be very skeptical about this study.
    Comment by Ralph F - May 23, 2008 at 2:28 pm

  8. I approach the ethanol issue differently. I like to see it as one of the ways we can break the power of Big Oil.

    I especially like ethanol because it has potential to provide another income stream to farm communities - such as the province of Prince Edward Island in Canada.

    They grow a lot of potatoes and the cull of rotten potatoes are now dumped in land fills. They could produce a lot of vodka and this could be mixed with gasoline.

    Similarly, the waste from a dairy is now piped out to sea. This could instead be mixed with straw and run through a digester - loads of ethanol.

    In another area of Canada - they used to grow lots of tobacco on the sandy soils of southern Ontario, and they need to find a replacement crop - a white form of sweet potatoe has the promise of producing four times as much ethanol as corn.

    The thing is, if oil stays at $120 a barrel, then all of these ethanol sources will be very profitable - since they could probably compete with oil at $60 a barrel.

    The thing is - you need to break the monopoly of Big Oil so that all these smaller sources of ethanol have a chance to make it into the gasoline pool. The ethanol producers don't need a subsidy, but they may need government telling Big Oil it needs a higher oxygen content in gasoline, which would force them to use ethanol.

  9. Andrew -- while I agree that Big Oil is indeed powerful, I prefer to end all subsidies to oil/ethanol/fuels and to add a carbon tax.

    Markets and competition will help consumers, carbon taxes will help the environment. God help us if politicians start promoting "potato-fuel" as a great idea. Governments tend to be pretty stupid (or corrupt) in choosing "winners"...

    As most economists will tell you, if something is not in the marketplace @$120 when it's "competitive" at $60, it's not competitive at $60...

    OTOH, Gov't subsidies to "preferred" technologies may be tilting the field towards "preferred bribers" (e.g., ADM, Cargill et al.)


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