This is old (circa 2003) but probably more pertinent than ever. Of course, if you go to any of the "Farm Subsidies are Good" web sites, you won't find any of the cost of production analysis, merely the price of (the heavily subsidized) ethanol versus oil prices. And then there's the additional cost of storing and blending the ethanol, which needs to be done locally rather than at the refinery, thereby introducing additional costs.
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Ethanol's Nine Lives
By Blake Dvorak
Congress has an inglorious history of promoting technologies with little economic merit but strong political support. In ethanol, it has repeatedly found a technology whose political merit is near irresistible.
The free market, on the other hand, has less patience with non-performing technologies. Markets are relentless in adopting innovations that add economic value, rejecting those that don't, and abandoning once-successful technologies that have outlived their usefulness.
For instance, there are some technologies that probably will never be replaced. (The wheel, the plastic drinking straw, and conservative talk radio come to mind.) There are even some old-school technologies that perhaps deserve a second chance. (Clear cola, Homer Simpson's "Everything's OK" alarm, and--my personal favorite--the table Pac-Man video game.)
Then there are technologies that had their day in the sun, maybe even enjoyed a brief resurrection, but for one reason or another sputtered out. Ethanol as a fuel source should hold a place in this last category. I say "should" because, despite the best efforts of the free market, ethanol is still with us.
Ethanol's history, aside from its inebriating uses, has been one of a cat with nine lives. A corn-derived alcohol, ethanol first appeared in the mid-nineteenth century as one of the earliest engine fuels. As petroleum was virtually unknown at the time, homegrown ethanol made sense. It experienced something of a premature death when, during the Civil War, Congress slapped a $2 tax on it since it was also widely used in lamps.
However, by the time automobiles entered the market ethanol was the most easily accessible fuel. Henry Ford relied on it to power his first car, the quadricylce, as well as the later Model T. During Prohibition, ethanol prices soared (think moonshine), so the recently introduced gasoline came to dominate the market.
This wasn't only the result of government tinkering. Gasoline was quite simply easier to extract and reformulate. Although ethanol still scraped by as a fuel additive, for all intents and purposes, ethanol was--like Dickens' Jacob Marley--dead as doornail.
Dead, perhaps, but not forgotten. When the energy crisis hit in the 1970s, Congress scurried to find homegrown alternative fuel sources. As a result, it passed the Energy Tax Act of 1978 that subsidized the cost of adding ethanol to gasoline. Along with a few EPA regulations, ethanol was reborn. That life, its fourth or fifth (I've lost count), lasted until the mid-1980s, when corn prices soared and oil refineries turned to cheaper fuel additives. In 1986, the USDA concluded that ethanol would not survive as a viable fuel additive without "massive government subsidies." The government obliged, and the '80s were a decade saturated by massive ethanol subsidies.
Today, however, those subsidies appear as a mere drop in the moonshine jug. The industry currently enjoys about $1.4 billion in federal and state subsidies. The latest version of the energy bill, recently rejected by the Senate, planned to double ethanol production by 2012 by (you guessed it!) offering more massive subsidies.
Clearly, ethanol is a technology that can no longer survive in the free market on its own. So is it time to pull the plug?
David Pimentel, an agricultural scientist at Cornell University and one of the foremost critics of ethanol, has conducted numerous cost analyses on ethanol production. He's made a name for himself mostly by driving the ethanol industry raving mad. From its very beginnings, when hoe enters soil, ethanol production has not changed much since the nineteenth century. Pimentel found that one acre of U.S. corn field yields about 7,110 pounds of corn, which in turn produces 328 gallons of ethanol. Setting aside the environmental implications (which are substantial), the financial costs already begin to mount. To plant, grow, and harvest the corn takes about 140 gallons of fossil fuel and costs about $347 per acre. According to Pimentel's analysis, even before the corn is converted to ethanol, the feedstock alone costs $0.69 per gallon of ethanol.
More damning, however, is that converting corn to ethanol requires about 99,119 BTUs to make one gallon, which has 77,000 BTUs of available energy. So about 29 percent more energy is required to produce a gallon of ethanol than is stored in that gallon in the first place. "That helps explain why fossil fuels (not ethanol) are used to produce ethanol," Pimentel says. "The growers and processors can't afford to burn ethanol to make ethanol. U.S. drivers couldn't afford it, either, if it weren't for government subsidies that artificially lower the price." All told, a gallon of ethanol costs $2.24 to produce, compared to $0.63 for a gallon of gasoline. My bold.
This price and the subsequent subsidies necessary to make it affordable for consumers are justified, we're told, because ethanol is a "clean burning" fuel. But numerous studies have shown that, aside from a decrease in carbon monoxide emissions, ethanol is no more environmentally friendly than other fuel additives. Some studies even contend that ethanol increases air and water pollution.
Ethanol supporters also relentlessly argue that it's in our national interest to cultivate alternative, preferably domestic, fuel sources. Fair enough. But it emphatically is not in our national interest to promote a fuel technology that shows no signs of becoming economically or environmentally viable, especially one that has had decades to prove its worth.
This might help explain why researchers at both the Cato Institute and the Sierra Club, two places that rarely agree on anything, have condemned ethanol. Fortunately, a few conservative and conscientious Senators helped defeat the energy bill this time around. But ethanol subsidies, as with all large and politically potent spending bills, seem to be blessed with an unnatural number of lives.
Blake Dvorak is managing editor of Consumers' Research magazine in Washington, D.C.
Posted: December 9, 2003 |
