Ethanol

What’s In Store for Egypt After Mubarak’s Departure?

by Hans Bader on February 12, 2011 · 1 comment

in Agriculture, Energy, Ethanol, International, Trade

Recently, Egypt’s pro-American dictator, Hosni Mubarak, was forced to resign after 30 years in power, and forced to give way to a military-controlled government.  Victor Davis Hanson has some interesting reflections on the revolution in Egypt at this link.

Earlier, we discussed the role of ethanol subsidies and biofuel mandates in increasing support for the Muslim Brotherhood, an anti-American group opposed to Mubarak, at this link.  By indirectly increasing wheat prices, ethanol subsidies drove up unrest in Cairo’s slums, which are more supportive of the Muslim Brotherhood than they are of Egypt’s historically much smaller pro-western democracy movements.  (Egyptians historically have spent nearly half their income just on food — more than that in the slums of Cairo and Alexandria, Egypt’s largest cities).

The Washington Post‘s editorial board and various columns in the Post, like one by Professor Tim Searchinger, agreed about the folly of ethanol subsidies and their role in contributing to misery and unrest among Egypt’s poorest.

Lowest Corn Reserves in 15 Years — Food Prices to Rise

by Fran Smith on February 11, 2011

in Agenda for Congress, Agriculture, Ethanol

The New York Times noted in an article yesterday that food prices are expected to rise this year as a result of significantly lower supplies of corn reserves — the lowest since 1996 — and a higher use of corn for ethanol. The food vs. fuel tug continues, with the ethanol mandate, the ethanol tax credit, plus massive subsidies causing more and more corn to be diverted to ethanol production rather than food. (See CEI colleague Brian McGraw’s post today.)

The U.S. Department of Agriculture announced February 9 that U.S. corn stocks are projected to be 70 million bushels lower this month, while the use of corn for food, seed, and industrial use will be higher than expected. USDA also said that corn for ethanol use is expected to be 50 million bushels higher — with a record ethanol production for December and January.

With corn prices almost doubling from six months ago, USDA is projecting that those food items most affected by corn used for feedstock will rise in 2011. Thus, pork prices are likely to rise 3.5 to 4.5 percent, beef prices, 2.5 to 3.5 percent, poultry prices, 2 to 3 percent, egg prices, 2.5 to 3.5 percent, and dairy, 4.5 to 5.5 percent.

Check out this and some of the extensive articles CEI has published on the unintended consequences of the ethanol program.

Biofuels and Rising Food Prices

by Brian McGraw on February 11, 2011 · 2 comments

in Energy, Ethanol

The ethanol industry is, again, being hammered by the media. This time its The Washington Post, publishing an op-ed by Tim Searchinger, a professor at Princeton University: How biofuels contribute to the Food Crisis.

Searchinger gives a fair, honest estimate of the effect biofuel production has on food prices and convincingly refutes a number of common talking points put out by biofuel enthusiasts:

Nearly all assessments of the 2008 food crisis assigned biofuels a meaningful role, but much of academia and the media ultimately agreed that the scale of the crisis resulted from a “perfect storm” of causes. Yet this “perfect storm” has re-formed not three years later. We should recognize the ways in which biofuels are driving it.

He also notes the severity of the situation:

Each year, the world demands more grain, and this year the world’s farms will not produce it. World food prices have surged above the food crisis levels of 2008. Millions more people will be malnourished, and hundreds of millions who are already hungry will eat less or give up other necessities. Food riots have started again.

These are real problems. Government policies promoting the excessive production of biofuels could literally be killing people. This never seems to weigh heavily on the conscience of the politicians who support these fuels (of which there are hundreds).

Growth Energy got predictably upset with the op-ed, and have already published a same day rebuttal:

Once again displaying his willingness to ignore science, peer-reviewed research and the best available data, Tim Searchinger has authored another intellectually-bankrupt attack on farmers and renewable, clean-burning biofuels, this time in an op-ed in the Washington Post.

The notion that ethanol is causing the food crisis blithely ignores market realities, global trade agreements, the domestic farm policies of sovereign nations, and the impact of Wall Street’s rampant speculation.

They set up a nice strawman argument (and got in a nice populist dig against Wall Strett) — Searchinger didn’t claim that biofuels caused the crisis, but that they contribute to it.

Growth Energy has had to defend the ethanol industry from attacks coming from almost all mainstream media sources.  Not an easy attack, I assure you.

Egyptian Riots Fueled by Ethanol Subsidies and Biofuel Mandates

by Hans Bader on February 4, 2011 · 5 comments

in Agriculture, Energy, Ethanol, International, Trade

As world food prices hit a record high, protests in Egypt demand the removal of the country’s pro-American dictator, Hosni Mubarak. No one can predict with certainty whether his removal after 30 years in power would lead to a constitutional democracy, or a theocratic despotism. The likelihood of an even worse regime replacing Mubarak is real, and has been increased by the widespread diversion of cropland to produce biofuels rather than food. That in turn has led to rising food prices that have fueled unrest among the poor in the teeming slums of Egypt’s capital city of Cairo.

Increased food prices have also led to increasing support for the anti-American Muslim Brotherhood, which has ties to the terrorist group Hamas: it provides relief and welfare services in the slums, increasing its popularity in times of economic distress, and it enjoys greater support among the country’s poor than among Egypt’s smaller and more Western-oriented middle class.

The Telegraph, a leading English newspaper, calls the recent unrest in Egypt and the Middle East “food revolutions.” It points out that “biofuel mandates” have “diverted a third of the US corn crop into ethanol for cars,” reducing food supplies and driving up food prices. “So instead of growing wheat, our farmers are growing corn in order to cash in on ethanol subsidies.”

Egypt is the world’s largest wheat importer, and  imports “more than half of its food supply.” As CNBC notes, “It is food inflation that is” most fueling opposition to the Mubarak regime among the country’s poor. Egyptians have historically spent over 40 percent of their income just on food.

As Slate notes, the “anti-Western” Muslim Brotherhood “remains the only political movement” in Egypt that is “capable of providing nongovernmental charitable services. This gives it a reliable political base in the slums of Cairo and Alexandria.” Rising food prices have cemented that base, and driven previously apathetic slum-dwellers into the streets, shifting the locus of opposition away from the more Westernized middle class.

Obama has been an avid supporter of ethanol subsidies, with close links to the ethanol lobby, unlike Obama’s 2008 opponent, John McCain, who opposed ethanol subsidies. The Obama administration has pushed ethanol mandates, even though they have a history of helping spawn famines and food riots overseas. For example, the costly climate-change legislation backed by the administration contained ethanol subsidies. The administration supports them even though ethanol makes gasoline costlier and dirtier, increases ozone pollution, and increases the death toll from smog and air pollution. Ethanol production also results in deforestation, soil erosion, and water pollution.

Leading environmentalists have lamented the devastating impact of ethanol and biofuel subsidies on the global environment.

Even commentators with close links to the Obama administration have admitted that ethanol subsidies are a terrible idea. Matt Yglesias at the liberal Center for American Progress, which has close ties to the administration, admits that “ethanol subsidies aren’t a good way to clean the environment, but they’re a great way of raising the price of agricultural commodities.” Economists more critical of the Obama administration, such as Larry Kudlow, have been scathingly critical of ethanol subsidies, linking them to the recent unrest in Egypt and “skyrocketing food prices.”

Ethanol mandates also contributed to starvation, food riots, and a growing anti-American uprising in Afghanistan back in 2008.

Ethanol and the Egyptian Riots

by Hans Bader on February 2, 2011 · 2 comments

in Agriculture, Energy, Environment, Ethanol, International

Ethanol subsidies helped cause the Egyptian riots, contributing to the “skyrocketing food prices” that triggered “the massive unrest now occurring in Egypt,” argues economist and syndicated columnist Larry Kudlow, in “Bernanke and Ethanol Sink Egypt.” “In 2001, only 7 percent of U.S. corn went to ethanol. By 2010, the ethanol share was 39 percent. So instead of growing wheat, our farmers are growing corn in order to cash in on ethanol subsidies.” That harmed Egypt, a major wheat importer. Another factor was the Federal Reserve’s inflationary monetary policy, whose effects have already been felt overseas: “In dollar terms, the price of wheat has soared 114 percent over the past year. Corn has surged 88 percent.” (The Fed is even printing money so that the government can buy its own bonds to facilitate record deficit spending.)

Commentators across the political spectrum worry about the effect of ethanol subsidies.  The environmentalist Jeremy Bloom has an article titled “Egypt’s Ethanol Revolution: Bad U.S.  Policy Driving Up Worldwide Food Price.” Rob Port asks, “Are Ethanol Subsidies the Root Cause of Egyptian Protests?”

As I previously noted, the rise in food prices in Egypt seems to have strengthened the anti-American Muslim Brotherhood, rather than the small pro-western reform movements in Egypt, by radicalizing the slums of Cairo, whose residents sometimes rely on relief provided by the Muslim Brotherhood (the only Egyptian political movement that provides non-governmental charitable services), and who have little connection to the Westernized middle class.

More Presidential Hopefuls Embracing Ethanolism

by Brian McGraw on February 2, 2011 · 1 comment

in Energy, Ethanol

As the Wall Street Journal noted earlier this week, potential 2012 GOP presidential nominees are making the rounds in Iowa singing the praises of renewable fuels. Newt Gingrich was a particularly egregious example. The latest to jump ship is former Senator Rick Santorum of Pennsylvania. He embraced the 9/11 national security meme, while giving us his historical take of what he deems the “radicalization” of Islam and the necessity of a smart, “independent” energy policy:

Santorum believes that domestic production of renewable liquid fuels in critical to this country’s national security. “Post 9/11, I went from someone who was skeptical at best of developing domestic sources of energy, to being a grand proponent of such things,” he said. “My pledge to you is to work with this industry to create a bigger and bigger place in the market for domestically produced ethanol and biodiesel.”

Santorum, a conservative Republican who served two terms in the U.S. House and two terms in the Senate, is considering a run for president in 2012 — as is former Speaker of the House Newt Gingrich who also spoke at the IRFA event this week.

As this blog notes, while in the Senate Rick Santorum voted against ethanol subsidies. So while Al Gore recently gave up ethanolism, we have a whole host of presidential hopefuls embracing the fuel. Consider this speech his first penance, with many more to come.

Meanwhile, the Senate Environment & Public Works Committee is putting ethanol under the microscope.

New EPA Report Confirms Biofuel Policy Harms Environment

by Brian McGraw on January 31, 2011 · 2 comments

in Energy, Ethanol

A draft EPA report released a few days ago largely confirms what we already know, that conventional biofuels produced on a large scale in the United States (corn ethanol), offer slight GHG reductions but come with a host of other, more troublesome,  problems. As the report is still a draft, the EPA has asked that it not be cited or quoted from. The report is available here. If you navigate to page 116 you can find their preliminary conclusions and recommendations. The report offers a visual summary of potential consequences or benefits from various technologies (ethanol, bio-diesel, algae-based fuels, etc.). Under corn ethanol, there are 6 listed categories of environmental effects: water quality, water quantity, soil quality, air quality, biodiversity, and invasiveness. Ethanol’s score offers a “relatively large”, “negative”, and “most certain” for 5 of the 6 categories, scoring a negligible effect on invasiveness. The ethanol groups responded immediately, attacking the EPA report:

“EPA’s failure to provide this report in any context with the environmental degradation done by fossil fuel exploitation and use is irresponsibly misleading. Energy and environmental decisions do not exist in a vacuum,” the Renewable Fuels Association, an ethanol industry trade group, wrote in a statement. “The use of biofuels, when all things are equally considered, is a far better energy choice than Canadian tar sands, oil shale, and other increasing sources of petroleum,” the group added.

and

Another ethanol trade group, Growth Energy, also attacked the EPA study. “Clearly this draft report needs a considerable amount of work. There is no consensus on several issues the report authors use as assumptions,” the group said.

Remember, the U.S. is mandating that U.S. consumers purchase corn ethanol which is harming the environment (one of its many negatives), while paying the corn ethanol industry to produce these fuels and keeping a cleaner competitor (sugarcane ethanol) from entering the country via a protective tariff. Environmental policy gone wild.

The American Subsidy is Coming to an End

by Michael Fumento on January 28, 2011 · 1 comment

in Economy, Ethanol

Two items on the front page of yesterday’s Washington Post: “Record U.S. Deficit Projected this Year” and “Two lawmakers from Michigan propose billions in incentives for buyers of electric cars.” What’s wrong with this picture? That’s the problem. We don’t see anything wrong with this picture. We want it all. But we can’t have it all.

Some people think electric cars are nice, because the pollution they generate is off-site. But as Charles Lane, a liberal, writes: “If the cars were cheaper than gas-power cars of equal performance,” that would be one thing. “But electrics are substantially more expensive than cars of greater quality.” So we have to heavily subsidize them to get them out the door. On the other hand, gasoline-powered car owners are forced to use ethanol. That’s a subsidy to the everyone involved in the ethanol industry, and again it has to be subsidized because it’s inferior to gasoline. It cuts your mileage and does essentially nothing to reduce pollution. You just can’t go around subsidizing everything.

True enough, the main problem is entitlements. Which, not incidentally, are subsidies. Social Security, Medicare, and Medicaid already absorb 40 percent of the budget and grow inexorably without anybody casting a single vote to increase them. Left untouched, they will destroy the country. But earmarks are readily controllable and yet still uncontrolled.

Our nation has a spending addiction. And our politicians don’t have the guts to tell the public that no, we can’t have it all. And so we will continue to borrow and the Fed will continue to print money. In other words, subsidize the government so it can subsidize special interests.

But as Peter Orzag, Obama’s former budget director, writes in the Financial Times, “International investors would be wise to pay close attention to fiscal trends within the U.S.”  Don’t worry, they already are. And at some point, although it will be very costly to them, they will get nervous enough to stop subsiding our subsiding.

Orzag adds, “I hope it does not ultimately require a crisis to restore fiscal sustainability at the federal level, but I fear it will.” Indeed, it will. At some point, some point soon, it will all come crashing down.

Watch.

Newt Gingrich Panders to Corn Belt, Eyes 2012 GOP Bid

by Brian McGraw on January 25, 2011 · 1 comment

in Energy, Ethanol

Today, Newt Gingrich spoke at the Iowa Renewable Fuel Association Annual Summit. Here is a link to his speech. Remember, Gingrich is no dummy, he is an accomplished author and holds a doctorate from Tulane University. Despite this, he engages in the usual pandering to the farm state promoting policies that are fiscally irresponsible and destructive towards America. Unfortunately, this pandering has been shown to be widely successful in helping launch presidential campaigns.

An excerpt of the important parts of his speech:

5:40 in: “This is why the people who talk about food versus fuel are just plain, flat wrong. (HUGE APPLAUSE). It is factually untrue. If anybody has created a problem with food on the planet it is the European opposition to scientifically developed food…

And I feel this very deeply. We have had a problem of farm income back to the 1890s and 1880s. The fact is that everytime the farmers start to do well someone starts to attack them. And it makes no sense. If you take the current price of corn and you realize that the diesel fuel to carry the box of corn flakes to market is 3 times the cost of the corn that is in the box of corn flakes. So why are we attacking the farmers for being productive.

And the fact is if you look at ethanol production you are getting both ethanol and food-stock out of exactly the same bushel, because we are more and more sophisticated about how to do this, and as productivity goes up over the next 10 or 15 years we are going to want to have increased production of biofuels not decreased, because we are going to be able to meet both the worlds food needs and increasingly help the world meet its food needs by using modern science and modern technology.

And frankly, the other thing I find infuriating about the big city attacks is, this is one industry which brings high paying jobs and highly skilled people back to rural America, and there are now counties where the 1st or 2nd largest taxpayer and employer in the county is in fact producing biofuels, and I think that is a good thing for rural America. It is great to have jobs that our young people can go to so they can stay at home if they want to and have a good job being productive, earning a good living and doing something they find interesting, and I find it distressing sometimes when folks in big cities decide they will dictate on their terms having ridden the mass transit down to the office that they walk to that they will then decide what should happen to people in rural America, and it usually means people in rural America won’t do as well. “

It’s depressing that Gingrich, much like Bob Barr and Al Gore, is willing to shed intellectual honesty to win votes. Did Gingrich discuss the idea that “food versus fuel is plain, flat untrue” with his colleague Robert Hahn at AEI? Or his colleague Kenneth Green? Or his colleague Kevin Hassett? Or the thousands of non-partisan academic studies completed on this very subject? I am reminded of a joke told to me by a co-worker, that if the first caucus was in Hawaii we’d all be putting pineapple juice in our tanks.

He went on to suggest that the biggest impediment facing the ethanol industry is the lack of a mandate on flex-fuel vehicles, much like Growth Energy’s fueling “freedom” plan (see CEI’s take on the fueling freedom plan). If history is any indication, support for ethanol will not be going away anytime soon.

His entire speech is disingenuous. He makes a valid complaint about the slowness of EPA to approve E15 (though doesn’t suggest an alternative) yet also somehow supports the idea that the government should mandate the type of fuel Americans put in their cars.

In suggesting that someone file a FOIA request for information on the E15 decision, he acts as if it doesn’t take time for testing to be completed and sent to the EPA for their support. I would love for the EPA to not have any authority over what Americans put in their fuel, but if you’re going to have the Congress mandate biofuel usage then the auto-companies are going to need governmental approval so they don’t get sued ten different ways (and knowing American lawyers, they still might).

A final, very ironic, quote: “Nobody who testifies against it comes in with engineering tests. They come in with opinions normally based on interest groups.” If you’re looking for an honest conservative leader to run the country, look elsewhere.

Biofuels and the Military: Reality Strikes Back

by Brian McGraw on January 25, 2011

in Energy, Ethanol

Lots of news bits over the past few years have covered the military’s PR effort to produce a significant amount of biofuels for its own use. The idea is that being able to produce biofuels will make the military more energy independent and reduce the number of lives lost securing fuel in dangerous areas. See here, here, here, here, here, etc. Today, the New York Times reports on a RAND Corporation study urging the military to give up on its biofuel-science experiment.

CEI’s Marlo Lewis has repeatedly pointed out that the only reason the military has been experimenting with biofuels is that it faces no real budget constraint, allowing it to pay as much as $65/gallon for jet fuel. As Marlo wrote in the summer of 2010:

Renewable Energy World also reports that the Navy ordered 200,000 gallons of camelina-based jet fuel for 2009-2010 and has an option to purchase another 200,000 gallons during 2010-2012. Sounds impressive, but let’s put those numbers in perspective. In just three months in peacetime, the flight crew of a single vessel — the USS NASSAU, a multi-purpose amphibious assault ship – flew more than 2,800 hours and burned over 1 million gallons of jet fuel.

Neither Renewable Energy World nor the QDR mentions how much camelina-based jet fuel costs. Hold on to your (toilet) seat! According to today’s ClimateWire (subscription required), the price is $65.00 per gallon. That’s about 30 times more expensive than commercial jet fuel.

A quote from the NYT article:

The report also argued that most alternative-fuel technologies were unproven, too expensive or too far from commercial scale to meet the military’s needs over the next decade.

In particular, the report argued that the Defense Department was spending too much time and money exploring experimental biofuels derived from sources like algae or the flowering plant camelina, and that more focus should be placed on energy efficiency as a way of combating greenhouse gas emissions.

The report urged Congress to reconsider the military’s budget for alternative-fuel projects. But if such fuels are to be pursued, the report concluded, the most economic, environmentally sound and near-term candidate would be a liquid fuel produced using a combination of coal and biomass, as well as some method for capturing and storing carbon emissions released during production.

Neither the biofuel industry nor the military was happy with the report. A military energy-czar wrote (in EENews) that:

We have been engaged with the biofuels industry.We know what they are capable of doing, and we are confident they will be able to deliver the fuels at the quantities and at the price point we need,” he said. The Navy is calling for 8 million barrels of biofuel per year by 2020, he said.

Eight million gallons by 2020 isn’t exactly an ambitious goal, as the U.S. produced over 10 billion gallons of ethanol (which, admittedly, is a “mature” technology relative to the fuels the military is experimenting with). If that is their end goal they will likely achieve it, but it would also represent an insignificant amount of total fuel consumption at present rates.

Here is a link to the report.

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