Planet Gore

Ethanol: Drink it, Don’t Drive it

One has to applaud Cliff May for his NRO column flacking for ethanol. He has managed to encapsulate nearly every myth about this so-called miracle fuel in a single column, along with violating most tenets of energy economics. Bravo! Let’s deconstruct:
May: “But what if lawmakers could guarantee that the price you pay to fill your car’s tank will go down, not up, in the years ahead?”

Reality: Ethanol is not only more expensive gallon-for-gallon than gasoline, it has less energy content. It is also the most subsidized form of transportation fuel in the United States. If you normalize for energy content, and tot up the subsidies for growing corn, making ethanol, and walling off imported ethanol, the stuff gets a taxpayer subsidy of around $1.50 per gallon. Adding ethanol to your gas makes your price go up, not down.
May: “What if they could launch a new industry that creates more jobs for more Americans?”

Reality: Frederic Bastiat, a French economist shattered this fallacy over a hundred years ago. Lawmakers do not create jobs, lawmakers take money from one productive activity, skim off their cut, and use some of the remainder to make other jobs elsewhere. On net, government actions eliminate jobs, they don’t increase them.
May: “What if this would produce environmental benefits, too?”

Reality: Even if we covered every square foot of arable land with a biofuel crop and converted it to ethanol, the reduction in carbon emissions to the atmosphere would have a trivial effect on climate change, but would significantly increase local air pollution. Using ethanol increases ozone precursor emissions significantly – even EPA acknowledges this.
May: “Would that not [increasing ethanol-fuel subsidies] send a message to the markets?”

Reality: Yes it would, a very foolish message. The basic message of ethanol is the opposite of economic rationality. Economic rationality consists of our selling what we can make more affordably than others (and making a profit), while buying what others sell for less than we could make it ourselves. Using ethanol takes our competively advantageous product (food) and converts it into an overpriced fuel, an act of profound economic silliness.
May: “And would that not represent the kind of change so many politicians have been promising?”

Reality: Yes. How do you know a politician is lying to you about ethanol? When her lips are moving.
May: “Why not a tax break, too, for anyone who buys a new Flexible Fuel Vehicle?”

Reality: Because it would be a waste of money. The vast majority of people with flex-fuel vehicles never run the things on ethanol fuel, not only because it’s not available, but because it’s more expensive per mile. And, E85 fuel pump (for 85 percent ethanol fuel) costs about $200,000 per service station. The United States has about 117,000 service stations. That’s only $23 billion. Maybe a tax break for that too?
May: “And any kind of biomass, including wild grasses, crop residues, fallen leaves and weeds that clog rivers can be used to make methanol, as can urban trash and coal – two commodities the U.S. possesses in abundance.”

Reality: Let’s talk about the implications of biomass “abundance.” According to the DoE, a ton of biomass produces about 80 gallons of ethanol. We now use about 400 million gallons of gasoline a day, and ethanol has about two-thirds the energy value of gasoline. So to replace say, half our gasoline use on a daily basis, you need to move 3.5 million tons of biomass to your ethanol plants every day. Your average log truck carries about 27 tons of biomass, so you’d need about 130 thousand trucks to move it. Diesel trucks. That’s per day, just to move the biomass to your plant. And, since you can’t put ethanol in a pipeline, you then have to move 260 million gallons of ethanol to blending stations. Tank trucks hold about 3,000 gallons, so you’ll need about 87,000 of those too. Now that is abundance.
May: “Americans are innovators and they would come up with a wealth of new ideas”

Reality: The idea here is that if only there was an incentive to use biomass for fuel, we’d have an avalanche of technological breakthroughs that would make it cheaper than dirt. Well, we already do, as do all of the high-tech countries who import most or all of their fuel. Japan imports every drop, yet their cars are only marginally more efficient than ours. Israel as well. There is already a nearly infinite incentive out there for the person who invents a genuinely less expensive fuel: it’s called profit. The person who comes up with a fuel that genuinely outperforms gasoline economically will be richer than Crassus. If that profit motive won’t kick loose a technology, having the government throw a few hundred million at grant-driven researchers isn’t going to do anything.
May: “With a variety of fuels competing, the cost of fuel — including gasoline — would go down. The OPEC cartel would no longer decide how much you pay to drive your car. A free market would make the decision — as it should.”

Reality: adding more expensive ethanol to gasoline makes the price go up, not down. OPEC never decided how much you pay to drive your car, your government did with taxes on fuel and, in the 1970s, price controls on gasoline. And a free market? May wants to mandate flex-fuels, subsidize car buyers, and force the most subsidized fuel in the world onto the market at higher levels, and he’s talking about a free market?
Perhaps he’s already gotten the message about ethanol: Drink it, Don’t Drive it.

Ken GreenKenneth Green is a Resident Scholar studying climate and energy policy at the American Enterprise Institute. Since taking up policy analysis in 1990, Ken has authored numerous monographs; newspaper and ...

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