Everyone is Lying About Ethanol

Let’s start with a lie, albeit most likely the lowest level of lie, everyone is lying about ethanol.  It has gotten so that the lies are pervasive, even such that John Stossel at Fox News is making quotes and suggesting that ethanol is a huge political boondoggle.

One such silliness is that Americans subsidize ethanol at the cost of $1.76 a gallon.  Gee, at 900,000 barrels a day or 37,800,000 gallons a day times 365 days times 1.76 gets to nearly $25 billion a year.  I think we’d notice that much more than the silliness we see floating out there now.  Anti ethanol is looking a lot like those incredible global warming scare tactic studies.

Actually the main cash matter is the ‘blender’s tax credit’ to the folks who mix up gasoline products for weather blends, EPA regulations, fuel additives and ethanol.  Those businesses range from family owned to big oil run operations.  The tax credit offsets their tax bill.  That permits the profit to be used for other stuff, like lower prices, dealing with the improvements for mandated fuel mixes, ethanol and additives.  That tax credit makes its way to you as a lower price and better product.  It’s a lot of money, almost $19 million per day, most of which shows up as a lower price to you.

        

On the other hand, 900,000 barrels of gasoline at this writing is $2.42 a gallon wholesale sourced from crude oil saving (900,000 x .75 BTU correction x 42 gallons x $2.42) over $68 million in imported gasoline costs every day. That’s better than 3.5 to 1 on the tax loss to benefit the economy for the blender to consumer part of the market alone.  This crude and gasoline displacement drives down the price of crude oil.  Maybe not a lot, but as U.S. ethanol closes in on 1 million barrels a day, that million barrels adds to the whole energy supply market keeping the next crude oil price run up further away.  What’s that worth?  – Likely many more months before the crude market skyrockets off again and very likely not as high as it would go or for as long without ethanol.

Beyond that ethanol-gasoline mixes offer the combustion engine a benefit.  The ethanol combustion byproducts are high temperature steam and CO2.  The steam has a cleaning effect on the inside of the combustion chamber and the exhaust and catalytic converter.   Your car lasts longer and needs less pollution control maintenance.  But the chemistry of ethanol and its ability to absorb water bedevils those with cheap engines.

Looked at with some sense, ethanol is looking better than the news and naysayers would have you believe.

That’s just for today. The future has some potential of great interest. Right now the U.S. corn growers with more than 30 years invested have gotten us here.  The production level is finally high enough that a bit of the production (about a million barrels per month) is going for export, offsetting the imported oil bill and adding to the pressure on oil prices.  The use of ethanol for combustion engines across the planet could displace as much as 7 million barrels a day of oil production destined for gasoline at an E-10 rate.

Further out in time ethanol fuel cells should get practical.  A fuel cell would use the ethanol so the energy available for work could be 4 to 5 times higher than burned in a combustion engine.  It would take many years, but a widespread adoption of ethanol fuel cells and increased production would be worth the energized work of about 30 million barrels of daily oil production.  Are those incentives looking better now?

But the corn based ethanol industry is planting the seeds of its own demise.  While much of what’s been lightly covered here is lost in the popular press and blogosphere, it’s definitely not lost on the ethanol and other biofuel production researchers and investors. You want to damage research into alternative fuels, destroy the base that corn ethanol has built. It would be better to expand the blender’s tax credit to include other biofuels than kill it.

In fact it’s easy to project a development of an energy industry based on major increases in efficiency such as fuel cells and major increases in supply sourced from for example, micro and macro algae. Its actually hard to imagine after a decades passing how agriculture will compete with aquaculture production.  One sees lots of basic research and development into ethanol production and the feedstock sources, but essentially nothing on corn based ethanol production.  That’s a strong hint about the future.

People say the darnedest things.  One learns to expect that.  It’s gotten so that the press and media is looking for viewers and will strive for the numbers, to hell with getting the story right or complete enough for sound analysis.  Most bloggers work at attracting people by the emotions, so they too are far from competent advisers on how consumers should build expectations.

That makes researchers, businesses and investors the ones to watch.  They’re not satisfactory sources, much information is proprietary and near sightedness tends to keep secrecy highly valued.  But there is over 80 million barrels worth of oil energy market out there take, and to ignore ethanol, set it back or choose not to incentivize or keep breakthroughs secret keeps the potential ‘pie’ smaller than it could be.

So, while the whirl of mis and dis information about the alcohols swirls about the world of media and the Internet, keep in mind the theoretical raw numbers.  Today’s daily energy of 80 million barrels of oil could be replaced with fuel cell technology powered by less than 20 million barrels of ethanol.  The U.S. 25% share of today is already nearly 20% covered.

For all the lies, this page included, a truth remains, as the energy and fuel demands of the future need addressed, humanity will figure something out – and the ethanol industry will certainly be involved in a major way.  The alcohol methanol has an advantage for fuel cells, butanol has an advantage for combustion engines, yet standardizing on one fuel, ethanol – is an advantage as well.