Ethanol subsidies create demand in search of supply

There was a good article in the August 10 issue of Barron's on the ethanol situation -- "Against the Grain," by Bill Alpert. Alpert outlines the federal subsidies that makers of ethanol and biodiesel have enjoyed for many years, and the breaks given to automakers for preparing vehicles for ethanol, then goes on to balance the enthusiasm for ethanol around the country with the fact that there isn't likely to be enough of it to go around for quite some time, especially if we rely largely on our corn crops as the main source. Each bushel of corn yields about 2.8 gallons of ethanol, according to the article. University of Minnesota ecology professor David Tilman says that if we used all of the nation's corn crop output for ethanol we would only be able to replace about 12% of the gasoline demand in the country. Similarly, if we devoted all the soy crop yield to biodiesel we would only cover about 6% of the diesel demand. And this doesn't include the energy that would need to be used in order to produce these fuels.

The hope for the future, according to Tilman, will be to use other cellulosic sources for ethanol, like
grasses and fast-growing trees. The hitch there is that it will take a lot of money to tool up for the
extraction and production of ethanol from sources other than corn.

Source: Barron's magazine

Note: Barron's requires you to fill out an online form and register before you get to see anything. Annoying.

For more on cellulosic ethanol, see the following sites:

Ethanol.org: What is cellulosic ethanol?

Energy information Administration; DOE: Outlook for Biomass Ethanol Production and Demand

~ Doug Logan, New Energy Watch

Comments

[D.A. Gourley]

While ethanol fuel overall is forecast to increase in the major, developed countries (especially the USA, the EU, Japan and Australia) at double-digit GAGRs over the next decade, a bigger concern is how, and from what, we make ethanol.

Corn and soy-based ethanols can contribute significantly to the replacement of fossil fuel use in cars and trucks and reduce pollutant emissions, but they are currently more expensive to produce per gallon than gasoline. A gallon of sugar-based ethanol, on the other hand, is cheaper to produce than a gallon of gasoline. This is why Brazil, where ethanol is entirely sugar-based, has been one of the early (and successful) adopters of ethanol-based fuel.

Federal legislation should be introduced that rekindles the dormant sugar industry in the USA through tax credits and subsidies for sugar farmers and, at least in the short term, for manufacturers of vehicles and industrial equipment that use sugar-based ethanol.

For consumers the size of the USA, the EU and Japan, the ability to produce affordable, cost-effective ethanol fuel in the immediate future is crucial to both the adoption of ethanol and to the concomitant savings that would result from the mass consumption of same.