The Politics of Ethanol

In the wake of the panic over oil more and more people are talking about ethanol. Indeed, the New York Times is reporting that politicians everywhere are chirping about Ethanol's Promise.

The political scramble to find quick answers to rising oil prices has produced one useful result, which is to get people talking about substitute fuels that could make us less vulnerable to market forces, less dependent on volatile Persian Gulf oil producers and less culpable on global warming.

That, in turn, has focused attention on the fuel that seems to have the best chance of replacing gasoline — ethanol. President Bush mentioned ethanol in his State of the Union address. Entrepreneurs like Bill Gates have begun investing in it. And every blue-ribbon commission studying energy has embraced ethanol as a fuel of the future. One leading environmental group, the Natural Resources Defense Council, predicts that ethanol, combined with other strategies, could replace all of the gasoline Americans would otherwise use by mid-century.

Until recently, the only ethanol anyone had heard about was corn-based ethanol, a regional curiosity that accounts for about 3 percent of the nation's fuel and suffers from its association with the agribusiness lobby and with presidential candidates hustling support in the Iowa primaries. What the experts are talking about now, however, is cellulosic ethanol, derived from a range of crops, native grasses like switchgrass and even the waste components of farming and forestry — in short, anything rich in cellulose. A Canadian company called Logen, a leader in the field, makes its ethanol from wheat straw.

The Associated Press is reporting New York Governor Pataki Reopens Budget Talks For Biofuels Program.

New York Gov. George Pataki said he would reopen limited budget talks with lawmakers to resurrect his idea of establishing alternative fuel pumps statewide for biofuels that could cost 50 cents per gallon less than gasoline.

On Monday, Pataki said he doesn't want to add to what he said is already too much spending. But he would restore his $1.8 million proposal to help gas stations to add alternative fuel pumps. He also wants to encourage the purchase of hybrid automobiles with a $200 tax break, cut state taxes on alternative fuels to bring the price to 50 cents per gallon less than gas and provide incentives for alternative fuel manufacturing using corn, natural gas, wood fibers and other products.

He said the state Thruway will start installing alternative fuel pumps at rest stops this summer.

Pataki pitched some of the ideas in his State of the State speech in January, but the Legislature cut it from his budget.

"If people took a look and pulled up and saw that one (pump) was 50 cents a gallon less than the other, they would be demanding the opportunity to have access to that and to have vehicles that can use that," Pataki said. "So with a very small investment we could have a tremendously powerful impact on changing the energy dynamic in New York state."

Obviously this is yet another version of the "free gas" rebate theory. If gasoline is 50 cents cheaper at one pump because taxes are 50 cents lower, how are those lost revenues going to be made up? If this was such a great idea, why not eliminate the tax completely? This is just more political pandering that does not really solve a thing.

Let's take a look at some of the products used or proposed to make ethanol.

Tapioca

In Sky-high oil prices fuel ethanol mania in China Reuters reports lessening Chinese interest in corn ethanol but instead looking at non-grain raw materials such as sweet sorghum or cassava, also known as tapioca.

Record crude oil prices are fuelling ethanol fever in China, the world's second-largest oil consumer, despite Beijing's reservations in allowing more food grains to be used to run cars.

Beijing is reluctant to expand ethanol production from food grains as China will face a shortage of grains like corn or wheat possibly as early as next year, due to rising domestic demand brought on by higher affluence.

"With current technology, people start breaking even making ethanol at around $40 a barrel of oil," said the head of LME's Starch & Sweetener Research, who was in China last week.

Earlier this month, the National Development and Reform Commission, the country's top planner, said on its Web site (www.ndrc.gov.cn.) that biofuels should replace about 2 million tonnes of crude oil by 2010 and 10 million tonnes by 2020.

But it also said China would shift to non-grain raw materials -- such as sweet sorghum or cassava, also known as tapioca -- to make fuel ethanol. These alternatives can be used to churn out around 30 million tonnes of ethanol, the commission said.

Industry observers said that though there was as yet no efficient technology to convert sweet sorghum into fuel ethanol, it was possible with cassava as seen already in Thailand, the world's top cassava producer.

Sen Yang, a professor from China Agricultural University, told a conference last week that cassava alone could supply as much as 4 million tonnes of fuel ethanol in China.

An official from the Starch Association in Guangxi, China's top cassava producer, said the province was studying the feasibility of building a fuel ethanol plant which could have an annual capacity of 1 million tonnes.

Furthermore, grains traders said there already exists a black market for fuel ethanol produced from cassava in the southern provinces of Guangxi and Guangdong, where there is a strong tradition in producing food ethanol, or ethyl alcohol, for Chinese liquors.

The black market also explains the surge in China's imports of tapioca chips from Thailand, the traders said.

The Jatropha Bush

The Associated Press is reporting Asia Is Turning to Plants for Fuel.

FARIDABAD, India (AP) -- Indians know better than to eat the plum-sized fruit of the wild jatropha bush. It's poisonous enough to kill.

But with oil prices surging, the lowly jatropha is experiencing a renaissance of sorts -- as a potential source for fuel for trucks and power stations. The government has identified 98 million acres of land where jatropha can be grown, hoping it will replace 20 percent of diesel consumption in five years.

Sugar

The Wall Street Journal is reporting Energy Independence in Brazil

After nearly three decades of work, Brazil has succeeded where much of the industrialized world has failed: It has developed a cost-effective alternative to gasoline. Along with new offshore oil discoveries, that's a big reason Brazil expects to become energy independent this year.

To see how, take a look at Gildo Ferreira, a 39-year-old real-estate executive, who pulled his VW Fox into a filling station one recent afternoon. Instead of reaching for the gasoline, he spent $29 to fill up his car on ethanol made from sugar cane, an option that's available at 29,000 gas stations from Rio to the Amazon. A comparable tank of gasoline would have cost him $36. "It's cheaper and it's made here in Brazil," Mr. Ferreira says of ethanol. If the price of oil stays at current levels, he can expect to save about $350 a year.

"Flexible fuel" cars running ethanol, gasoline or a mixture of both, have become a hit. Car buyers no longer have to worry about fluctuating prices for either fuel because flex-fuel cars allow them to hedge their bets at the pump. Seven out of every 10 new cars sold in Brazil are flex-fuel.

Brazil is also fortunate that sugar is the cheapest way to make ethanol and Brazil has the right conditions for growing the crop -- plenty of land, rain and cheap labor. Despite these unique circumstances, Brazil's efforts are being closely followed by countries with big fuel bills. India and China have sent a parade of top officials to see Brazil's program.

The most recent U.S. energy bill, signed into law in August, calls for more than doubling ethanol use by 2012. But U.S. ethanol, which is made from corn, costs at least 30% more than Brazil's product, in part because the starch in corn must be first turned into sugar before being distilled into alcohol. It may take the U.S. a few more decades to bring the cost of ethanol down to 80 cents a gallon -- equivalent to Brazil's most efficient producers -- according to the U.S. Department of Energy. U.S. trade barriers make Brazilian ethanol and its sugar expensive to buy.

The Seattle Times is reporting a Sugar High.

CALI, Colombia — In a lush valley flanked by the Andes Mountains, sugar is sweet again for cane grower Andrés Martinez. Global prices of sugar have doubled in the past year, hitting 15-year highs and creating a windfall.

The reason: ethanol, an alcohol made from sugar that is in demand worldwide as an additive to gasoline to produce biofuel.

"This has been a nice surprise, although the full impact is only beginning to reach us," said Martinez, an agronomist who works a 50-acre farm in the Cauca Valley, which is carpeted with sugar cane.

Switchgrass

The Nebraska Independent is reporting Switchgrass will be a major ethanol player.

Vogel, an Agricultural Research Service geneticist, based in Lincoln, has led a study paving the way to make switchgrass a major player in renewable energy production.

A study, led by Ken Vogel -- a geneticist at the ARS Grain, Forage and Bioenergy Research Unit at Lincoln -- found that two switchgrass plants per square foot the first year ensures a successful bioenergy crop harvest in subsequent years.

The research was conducted by ARS scientist on Northern Plains farms in Nebraska, South Dakota and North Dakota.

Switchgrass is a native prairie grass long used for conservation plantings and cattle feed in the United States. Interest in switchgrass ethanol has intensified recently as the federal government gains confidence in its potential as a bioenergy crop because of its wide adaptability and high yields on marginal lands.

The Northern Plains was chosen first because the economics seemed most favorable there. Farmers can expect switchgrass yields to be high enough there to produce 100 to 400 gallons, or about 80 gallons per ton of ethanol per acre with current varieties.

Current ethanol technology can yield as much as 90 gallons of ethanol from a ton of corn. Vogel said a company in Canada is producing 1 million gallons of ethanol from wheat straw at a cost of around $1.35 per gallon.

What makes switchgrass attractive as an ethanol source is that it's much more efficient as a fuelstuff than corn. Vogel said while producing ethanol from corn is positive, that same efficiency is multiplied by four when using switchgrass for ethanol production. "That's because you don't have the annual tillage or planting cost and so forth," he said.

As a perennial plant, switchgrass has the advantage of not needing annual planting and tillage. Skipping these can save soil and energy. It can also reduce sediment and other pollutant losses to waterways.

Another benefit of switchgrass is that it requires less water than corn.

Hemp

Enquiring minds are asking about Hemp and the Environment.

An acre of hemp produces four times as much paper as an acre of trees. Every pot-smoking hippy in the country knows that. The problem is, why doesn’t anyone else? In this short article, I will attempt to educate you, the reader, of the many ways in which hemp can Save The Planet. No kidding.

Herbicides are also virtually unnecessary as the plants grow 6 to 16 feet tall in only 110 days. The complex root structure prevents erosion and decays quickly after harvest.

That’s all well and good, but what do you do with the hemp? Well, as I mentioned above, its great for making paper. That’s most of the reason that industrial hemp is illegal in the U.S. See, in the mid-1930’s, there were two industries that had just made breakthrough machines that would make paper productions much more cost-effective. One was the hemp industry, the other was DuPont. Coincidentally, the 1937 Marijuana Tax Act was passed, effectively making hemp illegal by charging transfers $1/ounce or, for unregistered dealers, $100/ounce, even for industrial grade hemp.

So, with hemp out of the way, DuPont was free to become the giant corporation that it is today, and to produce the great majority of the toxic sludge that contaminates our Northwestern and Southeastern rivers. Had hemp become our primary paper source, this pollution would have been vastly reduced, and here is why: Hemp means no deforestation, which results in less topsoil erosion, more oxygen, less carbon dioxide, less destruction of natural habitats, etc. Hemp paper is much easier to bleach, and does not require chlorine, which means no more thousands of tons of toxic sludge pouring into the water. Scientists in Sweden have developed a hemp-bleaching process that uses only natural enzymes and some pounding of the pulp.

Cotton, the other big evil, is grown on 3% of the world’s arable land and uses 26% (wow!) of the world’s pesticides and 7% of the world’s fertilizer annually. It requires heavy irrigation, depleting the water supply even as it poisons it. Many developing countries grow cotton as a cash crop, trying desperately to pay off foreign debt. While the country’s land and water is being destroyed, food crops are neglected, so the people go hungry.

Hemp can be used to make clothing that is, if treated properly, soft like cotton and far more durable, thus rendering cotton unnecessary. Adidas and Ralph Lauren already have hemp products, and Calvin Klein insists that hemp will hit the fashion industry full-force in the years to come.

While an acre of trees is about 60% cellulose, and acre of hemp is nearly 75%. How much hemp is necessary to meet current US energy needs? Somewhere between 10 million and 90 million acres, depending on how efficient the production is. Every year, the US government pays farmers (in cash or “kind”) to *not* farm what they call the “soil bank”, which happens to be about 90 million acres of farmland. The math is pretty simple.

Hemp seed oil is very similar to petroleum diesel fuel, and produces full engine power with reduced carbon monoxide and 75% less soot and particulates. Hemp stalk (different than the part that can make paper and textiles) can be converted into 500 gallons of methanol/acre.

It seems so simple, you must be saying. If this is true, why are we still using petroleum and paper and cotton? Well, there are corporations who sponsor politicians that have a reason to keep hemp down, like, the oil industry, etc.

Corn is one of the least productive methods of making biofuel. Corn takes a lot of fertilizer and has important food uses. So guess which one is most subsidized in the US? You get one guess. But the politics does not stop there. Please consider the following article.

On May 5th, the Associate Press reported that Congress worked up the "courage" to Oppose Ethanol Tax Change.

Farm-state lawmakers say they're prepared to fight vigorously any attempt to remove the 54-cent tariff on imported ethanol even though demand for the additive is growing as refiners use more of it in gasoline.

"Congress can bring down prices by cutting the tax on imported ethanol," Rep. John Shadegg, R-Ariz., maintains. He has introduced a bill that would suspend the 54-cent import tax for the rest of the year.

Congress seems in no mood to tamper with the tax, which is strongly supported by farm-state lawmakers, including some of the most powerful on Capitol Hill.

"It's a step in the wrong direction," Sen. Charles Grassley, R-Iowa, said Friday. He is chairman of the Finance Committee, which would consider any change in the tariff. "It would send a signal that we're backing away from our own efforts to seek energy independence."

The panel's top Democrat, Sen. Max Baucus, D-Mont., also said that a change in the tax would be a mistake. House Speaker Dennis Hastert, R-Ill., whose state has the biggest ethanol producer, Archer Daniels Midland, also opposes a tax change.

How far down the energy independence road would be if we spent the last 20 years "bio-improving" switchgrass or hemp? Instead we made hemp illegal, put our focus on the least efficient method of producing ethanol (corn), did next to nothing with switchgrass, invaded Iraq, and taxed the hell out of foreign produced ethanol. That is the sorry state of affairs of our so called “energy policy”. It is also the sad politics of it all.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/