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The Ethanol Caper (Vol. 48)

mse | Apr 21, 2022

Doubling down on a Solution that never worked

 

Yes, gas prices are high and painful. So what is the best policy to deal with that? Here’s a new twist, let’s double down on a perfectly bad idea. What's that you say, why it’s ETHANOL?  The recent proclamations are to allow 15% mix instead of the 10% which is common today.  This will save us 10 cents a gallon. Really? Read on. 

This is PBS (political bull s–t) at its finest.

For starters, ethanol was not a good idea for anyone other than the corn growers, big agriculture, and ethanol producers. Why? Here are some of the reasons, a full analysis is beyond the scope of this email.

Two primary reasons for ethanol are to reduce dependence on foreign oil, and to reduce carbon and greenhouse gas emissions. Here are some interesting facts about ethanol: 

  1. It makes the environment worse, not better.  In a comprehensive study by the EPA, the economic and environmental effects of the Renewal Fuel Standards (RFS) were studied.  It concluded ethanol blended fuels ‘increases the emissions of hydrocarbons, nitrogen oxides, particulate matter, and other pollutants’. 
  2. Another study found that looking at the entire cycle from growing corn to burning the end product greenhouse emissions are up to 70% higher burning ethanol.   
  3. We no longer need ethanol to be energy independent. With modern technology we can be, if government policy would free up the market.  
  4. After 40 years of subsidies and mandates, we can produce only 600,000 barrels of ethanol per day.  We have increased oil production many times this amount in recent years with this new technology.  
  5. Corn prices in 2006 were about $2.00 per bushel.  Today it is almost $8.00 per bushel.  40% of the corn is used for ethanol, when it could be used for food and animal feed and many other products that use corn as a base, many of these actually come from ethanol, but not burning it, turning it into useful products we need.  
  6. Gasoline burns much more efficiently than ethanol.  It takes 1.5 gallons of ethanol to equal 1 gallon of gasoline.  
  7. Ethanol is very corrosive to engines and pipelines.  Many auto manufacturers will not warrant the engines if over 10% ethanol is mixed with gasoline.  And it cannot be transported by pipelines, it must be trucked, which is more expensive than pipelines and adds to CO2 emissions.
  8. There are only 1.5% of the gas stations in the country that can dispense 15% ethanol.  But the government can fix that by spending 100 million dollars on infrastructure, doubling down on a bad idea with more of our tax money! Isn't that special?
  9. The savings of maybe 10 cents a gallon disappears quickly when you look at the inefficiency of ethanol, and with more demand, the price of corn will rise, making the economics worse.

Currently there is a war going in Ukraine with Russia, which will greatly impact food and fertilizer production. Do we really want to allocate more corn to fuel now? The prices of corn are already out of reach for many, adding demands would just make it worse. 


 

BOTTOM LINE

 

Ethanol for fuel doesn’t do anything it was supposed to do, and often does the opposite - ‘unintended consequences’.  The consumer is harmed in many ways and we are spending taxpayer money to do this with subsidies and mandates as well as paying more for corn or corn based products.  IT IS JUST PLAIN WRONG.

The right policy is to go away from ethanol for fuel altogether, and encourage oil and gas production to lower the price of gasoline and become energy independent again as we were a few years ago. ( Currently oil production is down 1.5 million barrels a day as a result of government policy.)  If we really want clean, reliable energy, the only viable option today is nuclear, but that will be the subject of another email.  And let’s keep working on new technology to find other ways to get results that actually work.
 

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