Anne Korin from the Institute for the Analysis of Global Security responds to Henry Payne’s post below:
Howard Payne’s comment regarding what he takes for a tax discount for ethanol in Brazil illustrates an odd perception: he expects all fuel to be taxed at the same rate per gallon, regardless of energy content. Brazil decided to tax fuel based on energy content — if you can drive 70 percent as far on a gallon of X than on a gallon of gasoline it is quite logical that the tax for a gallon of X should be 70 percent of the tax for a gallon of gasoline. In our own system, where gas taxes are used to pay for highways and are thus substitutes for road-usage-per-mile charges, it would be even more logical. It is bizarre to consider what amounts to a transportation-fuel BTU-tax as a subsidy.
Further, there is a curious focus in this forum on biofuels and specifically an obsession with corn ethanol. Ethanol is not the only alcohol, alcohol doesn’t just mean biofuel, and ethanol doesn’t just mean corn. Those of us concerned about energy security want to see the ridiculous 54-cent per gallon tariff on ethanol imports — put in place to hamper sugar cane ethanol imports — removed. Assuming new cars sold in the U.S. are gasoline-ethanol-methanol flex-fuel vehicles, coal to methanol has a huge role to play. In a previous post, I mentioned the focus on coal to methanol in China. I also mentioned that the all-in cost of making methanol from coal is 50 cents a gallon. Since methanol has half the energy of gasoline, that is equivalent to a $1 per gasoline equivalent gallon — which is quite competitive.
It is instructive to see what is happening in the U.S. As oil prices increase, liquid fuels from coal become more appealing investments. For example, DKRW Advanced Fuels is building a CTL plant in Wyoming. The developer has said plainly that the technology is competitive with gasoline without subsidies, and expects profits in the 15-percent range when oil is roughly $60 per barrel. The plant will make methanol from coal. It will then convert the methanol to gasoline using ExxonMobil technology. If we shift to gasoline-ethanol-methanol FFVs, opening up the transportation fuel market to competition, firms like this could directly sell their methanol as a fuel, without having to go through an extra costly and inefficient conversion process. Why wouldn’t that be a desirable outcome?