Friday, October 26, 2007

The Solution is Too Simple

Just listening to CNBC again. Some ethanol producer was stating that ethanol production will save the importing of 480 million barrels of oil. The logic sounds great, but what if you were told that it takes more than a gallon of gasoline to produce a half gallon of ethanol. Here is a link to some hard facts. Why don’t we just stop growing corn for ethanol production? That ought to save about 960 million barrels (using his figures).

Why feed cattle? A farmer can make more money planting corn for ethanol production. It gets worse; the price of ethanol has all sorts of government subsidies. There is money to be made. Congressmen are hanging all over this one. They will save America from high priced oil. Notice that no one has ever accused a Congressman of being intelligent (you know they would deny it). But being crafty is a different story.

If everyone decided to take two steps backwards for every step taken forward, we would all be walking backwards to get to our destination. It just goes to prove that economics and common sense don’t mix. The economics floats to the top.

The real neat thing is that you pay more for less and feel good about it.


u4yeah4 said...

Good gosh! Setting up any food resource to compete with the gas-pump in a "not enough oil and too little farmland" world is about as dumb as it gets. It makes me think the ethanol push is a negative selection dirty trick run amok - a concept pushed by our oil-interest government that's designed to fail, but the problem is people are buying it. When are we going to get our act together and run a national project for solar, or anything else that doesn't involve converting our food supplies into fuel for machines!!!

Jim in San Marcos said...

Hi u4yeah4

Sadly,I don't think it will happen in my life time.

But look at the bright side, you don't need a car to enjoy it,just drink it. Watch out, it's 200 proof.

Anonymous said...

Jim, I may be wrong but the facts page you link to says:

"An acre of U.S. corn yields about 7,110 pounds of corn for processing into 328 gallons of ethanol. But planting, growing and harvesting that much corn requires about 140 gallons of fossil fuels..."

That means we get 2.3 gallons of ethanol for every gallon of fossil fuel used. So ethanol, while not the most economic use of the corn, still produces more fuel that it consumes.

Per acre, sugar cane produces MUCH more ethanol per acre than corn, but that's another can of worms.

Don't worry, when oil plummets, the ethanol industry will experience a major bust too.

October ain't over yet!

Jim in San Marcos said...

Hi Anon 9:05

I think that there is more than meets the eye. there is $1.05 to produce the corn and then $1.74 to refine it and another 23 cents for additional environmental damage control for a total of $3.02.You are right as far as you read. The real kicker is that ethanol has only 2/3's the equivalent energy of regular gasoline per gallon. So if you divide $3.02 by .66 you get $4.57 per gallon. If you consider all of the government subsidies, it's more like $6.00 to $8.00 per gallon for ethanol. Here is another
Link to a scientific evaluation of the problem.


Hi Jim:

I've come back to you a little late...

You say (October 5), "Right now, the financial world (to me) seems poised to fall off of a cliff." I felt that way starting 1997-1999 and then we saw how monetary inflation diguised the wreck of 2000 on. I still feel the same way and I know some will make a fortune meanwhile, but I'm no gunslinger. Jim Puplava at Financial Sense reckons crunch time is 2009-2012.

But against the pessimists, considering energy, we waste unbelievable amounts. My wife's uncle is an old heating engineer and can tell you the inefficiencies of various methods of space heating in houses. If push comes to shove, we may learn how to achieve desired results much more economically. And anyone could easily propose lots of ideas about cars - try paying British prices for gasoline for a bit and you'll become surprisingly creative.

I don't fear economic Armageddon (starvation, backsides hanging out of patched pants etc) so much as the socially corrosive effects of widespread and prolonged unemployment. Never mind the stockmarket, think about how you're going to get along with your neighbours. The Mayflower passengers and their descendants managed without brokers for a long time, but they didn't manage without each other.

By the way, a car breakdown man tells me that biofuels clog up your filters in short order. A false economy?

Jim in San Marcos said...

Hi Sackerson

Aren't the English using a VAT (value added tax) on gas? That would tend to make it a lot more expensive for a reason.

You are right about ethanol being bad for you car. It's so corrosive that they can't used the underground pipeline system in the US to deliver it, it has to be shipped by truck.

As for when the financial markets hit the fan, it's anybody's guess. Some of these financial instruments have gone to zero. So I guess if you don't sell them, you don't have to take the loss. If more money is coming into a fund than is going out, there is no problem (if you keep your mouth shut).


Jim, great to hear from you. Yes, we have more than one tax on petrol, with the result that the price is now about $2 per LITRE. And since the tax is on a percentage basis, when oil goes up our government cries all the way to the bank.

But gradual, inexorable rises in US gasoline prices might just help the American consumer become more fuel-efficient. And raise much-needed revenue to start paying off the unbelievable public debt. Libertarians should remember you're not really free until you stop owing other people: the sooner we all get out of hock to the Communists, the better.

It'd be unpopular, I know - there's many that still despise Jimmy Carter and couldn't wait to ditch their compacts for SUVs. Yet when there was a lower nationwide speed limit (was it 50 mph?), everybody still got to work on time.

By the way, in case anyone is tempted to tell this Brit to mind his own etc, we have dearly-loved friends and relations across America, so I do have a view on the USA (and I wish we had something like your Constitution here). And we in Britain have similar problems to you, but maybe not so many potential assets.

As to your final point, if you don't tell the Fed how bad the situation is, I won't either. I'd hate to disturb their slumbers.

Anonymous said...

Re Sackerson - biofuels clogging filters - supposedly biodiesel cleans the petro sludge out; clogged filters are mostly temporary.

Not to be an alarmist, but the U.S. is the least equipped in all the world to deal with expensive oil. Poor nations will remain poor, China will continue to buy oil under its huge array of oil contracts, and Europeans will continue to live in large cities served by rail and clogged with tiny little fuel efficient cars. Americans, on the other hand, have developed oil-chugging habits that will be painful to break.

We commute 30 miles each way, drive to suburban fringe malls, eat Chilean produce, and expect FedEx to deliver our e-merchandise in a jiffy. It is convenient, but it is also a way of life that is far, far more oil dependent than most nations'.

We gobble up farmland for urban sprawl, and then truck our food from ever greater distances. We develop policy around special interests instead of common interests. Individuality is king, until an individual wants something politically incorrect.

Then we globalize production jobs to foreign nations, increasing our dependence on cheap shipping which is dependent on cheap oil. If we experience supply disruptions of more than a couple weeks, we will be in a world of hurt.

While our corn farmers are producing ethanol, a fuel of questionable value, our soybeans are being shipped to China for biodiesel production. Their quality control may be shoddy, but their long-range vision is far sharper than ours.

Jim in San Marcos said...

Hi Sack

Gas at $2 a liter is way up there.

I think that the real answer is mass transportation. It started out OK over here 100 years ago and kind of disappeared with the advent of the automobile.


Anon - interesting point about biofuels, I'll listen out for that over here. Your other points - agreed, those are the challenges. It'll be tough, but I believe America will come through, maybe leaner and fitter.

Jim - definitely. And when a wider cross-section of the population uses masstrans, I think behaviour will improve, too. When I came to Birmingham in 1975, it was hot and cold running buses. I didn't buy a car until I was 36 and needed it for going into business. The car has made itself indispensable now, and the people on buses are almost exclusively schoolkids, pensioners and other poor. A ride on the bus can feel edgy these days. This wealth and waste hasn't been entirely good.

And I was fitter and lighter before the car!