Can The Ethanol Market Stand On Its Own Two Feet?

from the etha-what? dept

Soaring energy prices have created an ideal climate for alternative energy investment, as evidenced by the boom in that space. You'd think, then, that with the market doing a good job of sorting things out, there'd be little need for the government to intervene. But while entrepreneurs and VCs are seeking to build sustainable, profit-making businesses, the ethanol industry has sought to profit from the largesse of the US taxpayer. The industry has been helped by direct subsidies as well as indirect ones, such as laws that impose added costs on its rivals. While many people champion higher CAFE standards in order to protect the environment, the ethanol lobby has been a particularly big booster of them, because of a 1988 law carved out an exception for vehicles that could run on ethanol. Meanwhile, this favorable treatment towards the industry causes problems in other pockets of the economy. Increasingly, companies have to be concerned with "agflation", the soaring price of agricultural commodities due to the heightened demand for corn (which, as you learned in econ 101, increases prices for corn substitutes, like rice and wheat). If ethanol is going to be a meaningful energy source in the future, it needs to stand on its own in the market. Otherwise, the existing setup appears to be just more counterproductive agriculture subsidies, cynically concocted in the name of national security and the environment.

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  1. identicon
    HealthyBreeze, 3 Jul 2007 @ 3:07pm

    there's better and worse bioethanol

    It's true that today corn ethanol only yeilds about 1.3x as much energy as it takes to grow and make it. There are start ups that make ethanol from wheat straw, wood chips and other cellulosic matter that yeild 8-12x as much energy. They should be ready to scale up in the next couple years.

    It's also true that ethanol has only about 70% as much energy per gallon as unleaded gas. However, Butanol, a slightly longer chain alcahol, can also be made from biomass and has closer to 90% of the energy per gallon, and cars can run on it without having to be "flex fuel." The cost of butanol can soon be much lower than gasoline, without raising food costs.

    I think a big challenge will be taking good new technology from "start up" to replacing gasoline. That requires a lot of production and distribution capacity. Some big oil companies, like BP, see that their oil reserves will eventually run out and are looking to make the transition to biofuels. Hopefully those types will help scale up biofuels quickly. We should also close the CAFE loophole for Flex Fuel vehicles, so we don't get Ford Excursions that are capable of running on biofuel, but really using standard petroleum and getting 13 miles per gallon.

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