The Straight Dope On Ethanol

Via my friend Ann, this most recent Cecil Adams Straight Dope column on ethanol. He’s apparently done his reading, as he references some of the academic and policy literature in his comments. And he doesn’t mind naming names:

The immediate beneficiaries of ethanol subsidies have been corn farmers and, more significantly, the Archer Daniels Midland Corporation of Decatur, Illinois, better known as ADM. The world’s largest grain processor, ADM produces 40 percent of the ethanol used to make gasohol. As might be supposed, the company and its officers have been eloquent in their defense of ethanol and generous in contributing to both political parties. The politicians have been generous right back. The libertarian Cato Institute estimates that every dollar of ADM’s ethanol profit costs taxpayers 30 bucks.

And I literally guffawed when I read his finale:

Given that ethanol production involves the conversion of massive amounts of energy from one form to another, the contention that the process is an efficient way to make fuel seems to fly in the face of basic physics–so much so that I’m inclined to regard the subsidy program, and the fact that it has survived for a quarter century, with something approaching awe. Money-wasting government schemes are hardly rare. But how many do you know of that flout the second law of thermodynamics?


8 thoughts on “The Straight Dope On Ethanol

  1. Adams in Straight Dope, quotes the same study that Reason Magazine quotes, from Cornell’s David Pimentel. This is the study that claims it takes 1000 gallons of fuel per 1 acre per acre of corn farmed.

    This is wildly incorrect, and often repeated in this blog. Just some quick math…the total income from an acre of land is around $600 in a great year. If diesel costs $1 per gallon, a farmer would lose $400 per acre on fuel costs alone (let alone Seed, Labor, Fertilizer, Machinery etc). Even with the current subsidy, there would not be a farm financially afloat in the country.

    I am not suggesting that ethanol is economically efficient, but there is really no reason to cite the Cornell study as anything more than propaganda.

    John Powers

  2. Not being a chemist or engineer, I am only willing to stick my neck out so far to support Pimentel. But from an economic perspective, he comes closer to capturing the energy requirements along the entire production chain than do either the Argonne or the USDA studies, which are more limited in scope.

    My frustration in this whole thing is, why is ethanol so totally enshrined in federal policy when we are still having these kind of debates about its costs and its effects, both economic and environmental? I think I know the answer to my question, and I don’t like it one bit.

  3. I put much more faith in common sense than Pimmerel, Cornell, Argonne, or the USDA. It does not take 1000 Gallons of Diesel to farm an acre of corn.

    It is rather simple to take total number of gallons of fuel produced from an acre of land and divide it by the total number of gallons of fuel required to farm an acre of land. The net result is about 40 gallons output fuel per gallon of input fuel.

    That being said, it is still not productive to make ethanol when the price of gasoline is low.

    However….is anyone factoring in the logistics and long supply line requiring a permanent fleet and an army of occupation in the Persian Gulf vs. the cost of subsidy to Corn Farmers (and ADM)? Surely the taxpayers are paying through the nose to get oil from the Mideast to the Midwest.

    John Powers

  4. Well, John, I think you know the answer to that question. You probably also grasp the idea that a much more effective way to see if ethanol could ever pay its way in the market is to promote it using a different policy tool: taxation rather than subsidy. Don’t spend money to make ethanol less expensive; use taxation to make competing fuels more expensive.

    Look, the economics of this were no mystery to humble Congressional staffers 15 years ago, when ethanol subsidies were only gleams in Chuck Grassley’s eye. They got ignored because senior Republicans wanted to stay competitive in farm states and felt supporting ethanol was a good way to do this; they were told otherwise by market-oriented Republicans, including one — Dick Lugar — who really understands ag economics, but chose to ignore them.

    As for the Democrats, ethanol has zero appeal to large segments of that party. Talk to staffers at the major environmental groups about it off the record and watch the rolled eyeballs. But the Democrats are completely hard-wired into the Presidential nomination process, and that process starts in Iowa (which into the bargain is a swing state in general elections). You can’t win Iowa without backing ethanol, half a dozen sitting members of Congress are running for President, and no Democrat wants to undermine his party’s nominee by charging that ethanol is just corporate welfare. Ergo, support for ethanol across the political board.

    The Bush OMB could throw a monkey wrench into the works by raising ideological objections about market economics and so forth, but David Stockman left the building a long time ago, and post-Reagan administrations are much more focused now on the politics. I can’t blast Bush too much for this because Clinton did no better. So I’ll blast Cecil Adams. I give him credit for having done about 15 minutes more research on ethanol than your average newspaper columnist, but otherwise he’s not fooling anyone; what he’s after is to show off, not to be taken seriously by anyone who matters. If there were Congressmen trying to torpedo ethanol subsidies, and they knew what they were doing, they wouldn’t think an argument that ends with a smug reference to the second law of thermodynamics especially helpful. Talk about watching rolled eyeballs.

  5. “Money-wasting government schemes are hardly rare. But how many do you know of that flout the second law of thermodynamics?”

    … all of them.

  6. In response to Zathras,

    I cannot think of many reason why I am opposed to any decrease in taxes. I fail to see how reducing taxes on ethanol is part of some insidious plot to undermine the elections.

    There some very good reasons why the United States has elections where states like Iowa pack a heavy political punch. There are some very good reasons why the United States has a senatorial system where (formerly) Bob Dole, and (now) Tom Harkin are able to drive tax reductions to their constituents.

    Perhaps the voters in Iowa are more likely to have performed the long division necessary to calculate subsidy to Mideast Oil than a Professor at Cornell, and vote their algebra.

    John Powers

  7. I think Cecil Adams got it right in his column. Try the following thought experiments to confirm his line of thought:

    WHY ISNíT THERE A SELF-SUSTAINING ETHANOL PLANT?

    I have challenged the ethanol lobbying organizations saying that if indeed the ethanol production cycle returns more energy than it consumes, why donít they build a demonstration plant that runs on the energy it produces? My line of reasoning is that, if Ė as the Argonne study says Ė ethanol production returns 134% of the energy it consumes, why canít ethanol plants simply divert a portion of the finished ethanol that spews forth and cycle that back to run the plant. If the energy production cycle were actually 134% efficient, surely ethanol producers would be eager and wise to do that. (Why pay for natural gas and electricity if you could use your own ethanol?) However, every ethanol proponent to whom Iíve made that proposal has rejected my challenge.

    IF ETHANOL PRODUCTION IS 134% EFFICIENT WHY ISNíT THE U.S. AWASH IN ENERGY?

    If the Argonne study is correct, why isnít the U.S. awash in energy? If the 134% efficiency ratio is correct, why does anyone in the ethanol business need a subsidy to survive and profit?

    If the 134% efficiency ratio is correct, in only four production cycles an ethanol energy company could more than triple their investment:

    100 units of energy x 1.34 = 134 units
    134 x 1.34 = 180
    180 x 1.34 = 241
    241 x 1.34 = 323

    If that were possible, it would be a license to print money, and no board of directors in the country would keep a CEO on board who didnít immediately push his/her company into the ethanol business.

    If that 134% figure were correct, in two or three years, we could stop importing oil from the Middle East, and we could drive the cost of energy down so far that it would cost more to pump oil than it is worth.

    WHY DID A WISCONSIN ETHANOL PLANT ABANDON THEIR PLANS?

    Two years ago an ethanol energy firm (Nesnah/Venture Bio Fuels of La Crosse, WI) was about to build an ethanol plant in south-central Wisconsin. However, they abandoned their plans when they discovered they couldnít get natural gas piped to their site. From the 21-Sep-01 Wisconsin State Journal, ďNesnah’s Larry Leis said, ĎWe decided to search elsewhere primarily because we had a problem getting a firm, guaranteed supply of natural gas to that area.í Natural gas would have fueled the plant.Ē

    That leads to a huge question: If ethanol returns more energy than it consumes, why would any ethanol plant need an external source of energy to power it? Why couldnít the plant operators simply use a portion of their finished product to run the plant? (The only possible reason I can think of why they donít is because it actually takes more energy to produce ethanol than ethanol returns.) So far no one in any of the ethanol lobbying groups has been able to explain why Nesnah had to abandon their plans when they discovered they couldnít get a supply of natural gas.

    Can anyone explain why ó if in fact ethanol production returns 134% more energy than it consumes ó that ethanol plants need natural gas to supply their energy needs?

    That 134% efficiency ratio seems too good to be true, and if in fact it were true, all of the things I cited above would be possible:

    – All ethanol production cycles could run on a portion of their finished product.
    – We would no longer need any oil imports for energy, and that would be so obvious, that everyone would be jumping into the ethanol business.
    – Making ethanol would be a license to print money, and so lucrative that no one in the ethanol business would ever need subsidies.

    Gary Dikkers

  8. Re: Gary Dikkers

    You are walking into the fallacy that if it is efficient to use ethanol, then it must be more profitable than alternate uses. It isn’t.

    Fuel is cheap. Cattle Feed is not. Cattle farmers consume the bulk of the corn in the USA, not ethanol producers. Given that cattle farmers will pay more for feed than drivers will pay for fuel, corn goes towards feeding cows rather than cars.

    If the cost/price of fossil fuel were to rise higher than the cost of cattle feed, more corn would be used for ethanol.

    JBP

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