Ethanol Industry: A Rebuttal, con.
By S.R. Nunnally
In this article
Gasoline blended with ethanol must meet the same evaporative emissions standard as gasoline without ethanol.
Gasoline has a negative net energy balance at -39%, meaning it takes 1.39 BTUs to produce 1 BTU of gasoline.
Anyone remember back in January when the House of Representatives passed a bill to roll back billions of dollars worth of oil subsidies?
Ethanol Industry: A Rebuttal, con.
Yesterday, I told you about an article by the Cato Institute called, “Ethanol Makes Gasoline Costlier, Dirtier.” Altogether, the article talked about eight main pro-ethanol “myths.” I addressed four of them yesterday, and without further ado, here are the remaining four…
“Ethanol reduces air pollution. A review of the literature by Australian academic Robert Niven found that, when evaporative emissions are taken into account, E10 (fuel that's 10 percent ethanol and 90 percent gasoline, the standard mix) increases emissions of total hydrocarbons, nonmethane organic compounds, and air toxics compared to conventional gasoline. The result is greater concentrations of photochemical smog and toxic compounds.”
What this statement doesn't tell you is that gasoline blended with ethanol must meet the same evaporative emissions standard as gasoline without ethanol. Therefore, this evaluation, in effect, counts the evaporative emissions from ethanol-blended gasoline twice.
In fact, the high oxygen content in ethanol is responsible for reducing carbon monoxide emissions (by 30%), carbon dioxide emissions (by 18-29%), toxics from tailpipes like benzene (by 13%), and tailpipe particles (by 50%).
True, evaporative emissions are also harmful to the environment, but it is entirely misleading to assert that they are more harmful than the greenhouse gases and other substances ethanol displaces… particularly when the ethanol blended fuels' evaporative emissions are forced to meet the same standards as traditional fuel.
Ethanol Industry: Believe Me, We're Not
“Ethanol reduces greenhouse gas emissions. At best, E10 reduces greenhouse gas emissions by from zero to 5 percent; pure ethanol by 12 percent. The International Energy Agency, however, estimates that it costs about $250 to reduce a ton of greenhouse gases this way, or more than 10 times what Yale economist William Nordhaus thinks is economically sensible given the economics of climate change. Ethanol as an anti-warming policy is what academics refer to as `crazy talk.'”
This argument goes hand in hand with the previous… It also goes hand in hand with yesterday's argument about using renewable sources of energy to power ethanol plants.
Simply, the more plant-based fuel we use, the less fossil fuel is burned. The greenhouse gases formed from ethanol in fuel can be offset by growing more plants for fuel. You can't do that with fossil fuels, unless you're continually planting more vegetation. And believe me, we're not.
As far as cost, well… Cost has continued to drop because of increasing production yields. The only real impediment to this is the cost of energy to produce ethanol. And that's where we circle back to yesterday's argument of using renewable energy to create ethanol.
And if you think using fossil fuels to produce ethanol totally defeats the purpose, let me ask you this: How do you think gasoline is made? It takes fossil fuels to make gasoline, too, not including the “feedstock.” In fact, gasoline has a negative net energy balance at -39%, meaning it takes 1.39 BTUs to produce 1 BTU of gasoline.
Ethanol Industry: Here's Something Interesting…
“Ethanol subsidies are necessary to `level the playing field.' Petroleum subsidies are something less than $1 billion a year -- six to eight times less than ethanol subsidies -- and work out to about 0.3 cents per gallon.”
This is totally absurd… The oil industry getting less than $1 billion a year? Anyone remember back in January when the House of Representatives passed a bill to roll back billions of dollars' worth of subsidies? The bill would have scrapped nearly $6 billion in tax breaks.
For example, the oil industry pays an income tax rate of about 11% compared to non-oil industries' 18%. Gasoline is also taxed less than other goods, by half from some estimates.
And here's something interesting… The Cato Institute itself published an article on oil and gas subsidies back in January 2007, saying:
“Current law allows firms to deduct [intangible drilling] expenses in the first year while corporations may deduct 70 percent of the costs and depreciate the remaining 30 percent over five years. The Joint Committee on Taxation estimates that eliminating those preferences for intangible drilling expenses would save the taxpayer $7.6 billion over ten years…
“An ambitious and intellectually rigorous bill would have also targeted the accelerated depletion allowance provided to small oil producers (about another $7.6 billion over ten years), preferential expensing for equipment used to refine liquid fuels ($830 million over five years), accelerated depreciation for natural-gas distribution pipelines ($560 million over five years), accelerated depreciation for expenditures on dry holes (with unclear budgetary implications), and the exemption from passive loss limitation for owners of working interests in oil and gas properties ($200 million over five years).”
If I'm adding correctly, that's $16.79 billion over 10 years, or well above the $1 billion the anti-ethanol article purports.
Ethanol Industry: Throw in the Towel?
“Switchgrass (aka, `cellulosic ethanol') will set us free. Guy Caruso, the head of the EIA, noted in a speech last December that the capital costs associated with cellulosic ethanol production were five times greater than those associated with conventional corn ethanol production. Estimates like that are a bit soft, however, because there is no cellulosic ethanol industry in existence at present, so data is hard to come by. Betting the farm on an industry that doesn't yet exist to produce a product that is known to be staggeringly expensive isn't the best use of tax dollars.”
Well, we might as well stop funding all stem cell research then, eh? If we stopped funding programs because of their initial expense, we'd do better to throw in the towel right now.
The Apollo Program that landed three U.S. astronauts on the moon cost $25.4 billion, or about $3.175 billion a year between 1961 and 1969. The Manhattan Project that produced the atomic bomb, ending the Pacific Theater of World War II cost $21 billion, or $7 billion a year between 1942 and 1945.
Today, as we're spending trillions of dollars in a war that seems to have just as much to do with energy resources as anything else, wouldn't funding for greater energy independence rank at least as high as these two historical programs?
Let me know what you think. Send me an e-mail at e-news@taipanfinancialnews.com with the subject title, “Ethanol Myths.”
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S.R. Nunnally is a commodities expert and technical analyst for Taipan Financial News. She is the editor of Material Profits, a monthly newsletter providing in-depth, cutting-edge research in the commodities sector. She is also the founder of Material Profits Wildcatter, employing an elite group of aggressive investment strategies.
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Related Resources
Cato: Ethanol Makes Gasoline Costlier, Dirtier.
RFA: Ethanol and the environment.
Money Down the Pipeline: The Hidden Subsidies to the Oil Industry
Cato: Oil Subsidies in the Dock