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How to Calculate Ethanol’s Value

There was a comment following the previous post that claimed that ethanol producers are making money – minus subsidies – at $1.75 a gallon. I attempted to set the record straight in the comments, but I thought this was probably worth a post.

The way the blender’s credit works is that gasoline blenders get a credit – recently reduced to $0.45/gal – against the federal gasoline taxes they have to pay for each gallon of ethanol blended into the gasoline pool. However, it is not true that this subsidy actually benefits the oil companies. Ethanol proponents like to make that claim, but any time there is talk of getting rid of the credit, they are the ones who scream loudly. You won’t hear oil companies lobbying to keep it. Thus, it should be clear who really benefits.

If you think about it, though, isn’t it kind of silly to have a subsidy (and I haven’t even mentioned the additional state subsdies) on something that already has a mandate for its use? Are we going to use less ethanol if the subsidy is taken away? No, because we have a mandated amount that has to be blended into the gasoline pool. What would happen if the subsidy is removed – and this is why the subsidy stays – is that consumers would pay more for their gasoline, and ethanol’s impact on gasoline prices would be more transparent.

Anyway, at the current price of around $1.75 a gallon, gasoline blenders are getting a discount of $0.45, paid for by tax dollars. Thus, the real price they are paying for ethanol is $1.30 a gallon today – too low for the ethanol producer to make a living. That is why the ethanol industry – after 30 years of direct subsidies – still can’t survive without them. If you took away the mandates and the subsidies, the entire corn ethanol industry would go bankrupt. Actually, a fair chunk is going bankrupt even with subsidies and mandates.

You can also use a different route to determine that the real, unsubsidized price of ethanol today would be $1.30 a gallon. Last Friday on the NYMEX, gasoline closed at $1.95/gallon. (Note that this price does not include state and federal taxes). Because ethanol contains 67% of the BTU content of gasoline, the price should reflect this. Thus, if I am a gasoline blender, I would be willing to pay 67% of $1.95 for my ethanol, all other things being equal. That puts me at parity to what I am paying for gasoline. How much is that? $1.31. Ethanol would have to trade at or lower than this value, unsubsidized (and at the present price of gasoline) to compete in an open market.

So what if gasoline was trading at $3.00 a gallon? Then the gasoline blender would be willing to pay $2.00 a gallon for their ethanol. But when gasoline prices are rising, generally so are other fossil fuel prices. Because (corn) ethanol is so heavily dependent upon natural gas (for corn fertilizer and for distilling the ethanol) costs will generally have risen sharply for the ethanol producer. This is the vicious circle the ethanol producer is in, and it explains why the industry has been subsidized for 30 years.

Corn ethanol producers have to move away from fossil fuel inputs – or they need to otherwise find inputs that don’t normally track gasoline prices. This is why the sugarcane ethanol producer can compete on a level playing field with gasoline. The fertilizer inputs for sugarcane are much lower than for corn, and the distillation energy is provided by biomass. The only way the ethanol industry in the U.S. will be able to break free from the subsidies is to adopt similar practices.

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June 7, 2009 - Posted by | energy policy, ethanol, ethanol subsidies, politics, sugarcane ethanol

77 Comments

  1. Umm, actually, Valero threatened to shut down their Memphis refinery if they were forced to sell their gasoline w/o ethanol. The refiners have sued in NC, SC, and Tn when the states passed laws requiring the refiners to sell "straight" gasoline to the blenders.The tax credit benefits the farmers, the refiners, the blenders, the station owners, and the consumers. It's not even all that bad for the "taxpayers." It's costing about $5 Billion/Yr, and we're Saving $11 Billion/Yr. on "Grain" subsidies.

    Comment by rufus | June 7, 2009

  2. I very much agree about "going to biomass" for process energy. I've got a hunch that "corn cobs" will be providing this energy in many refineries in the future.The thing about cobs is: They're easy to collect, and they only provide about 2% of the nutrients that are provided by stover as a whole. Also, as more refineries move toward different fractionation schemes the lignin from the kernels, themselves, will be utilized for energy.

    Comment by rufus | June 7, 2009

  3. "Umm, actually, Valero threatened to shut down their Memphis refinery if they were forced to sell their gasoline w/o ethanol."Do you have a source for that?"The tax credit benefits the farmers, the refiners, the blenders, the station owners, and the consumers."You know who it benefits by who lobbies to keep it. And you know who that is. "It's not even all that bad for the "taxpayers." It's costing about $5 Billion/Yr, and we're Saving $11 Billion/Yr. on "Grain" subsidies."Again, do you have a source. Here is a database of crop subsidies:Farm Subsidy DatabaseTotal subsidies tend to run in the $12 billion to $16 billion range, but do bounce up to over $20 billion in some years. Corn subsidies generally run in the $2 billion to $5 billion range, but have bounced up to $9 billion:Corn Subsidies Through 2006The database only has data through 2006. Do you have a source that supports your $11 billion claim?RR

    Comment by Robert Rapier | June 7, 2009

  4. Go Here Treas.Gov. Click on Sept 08Go to "Outlays" – Commodity Credit Corp.Then do Sept 06. You'll see a difference of about 10 Billion. Hmm, I didn't check Sept 03'. Think I will.

    Comment by rufus | June 7, 2009

  5. Oops, I was misreading it. It's $12 Billion 06' to 08'.

    Comment by rufus | June 7, 2009

  6. Google has about a zillion articles on Valero's threat.Here's One.

    Comment by rufus | June 7, 2009

  7. They reached some sort of compromise, but I haven't seen the "particulars" anywhere.BTW, when looking at commodity subsidies you have to look at all the grains. The price of corn very much affects the planting decisions, and, thus, the price of beans, wheat, sorghum, and even to some extent cotton (although, you're kinda getting into a "2nd derivative" situation, there. – beans to corn, cotton to beans.)

    Comment by rufus | June 7, 2009

  8. "Go to "Outlays" – Commodity Credit Corp."Does it show full years anywhere? The swings can be huge; I would like to see yearly data and start tracking it.On the Valero story, two things. First, Valero recently bought a bunch of ethanol plants. So they now have a vested interest. They are an ethanol producer. Second, the story says that they already converted all their tanks, etc. for blends. To comply with the new law they are going to have to spend a bunch of money; hence they might need to shut down given today's crappy refining margins.RR

    Comment by Robert Rapier | June 7, 2009

  9. Sept. "year to date" is full-year (the gov's fiscal year starts Oct 1. I'm not saying Valero doesn't have some valid reasons other than a desire to capture the blending credit. On the other hand, Five cents/gal IS $0.05/gal.

    Comment by rufus | June 7, 2009

  10. It seems like Valero threatens to shut down that Memphis refinery every other month. The last time was when the workers threatened to go on strike. With oil seemingly in decline, and more ethanol being blended some refineries are probably going to "go away." I expect the Memphis refinery will be one of them.Speaking of crappy refinery margins, I imagine those 700,000 barrels of ethanol/day aren't helping.

    Comment by rufus | June 7, 2009

  11. When gasoline-fueled automobiles were introduced, there were no subsidies. And yet the industry grew.When the cell phone was introduced, there were no subsidies. In fact, there were highly profitable (for the government) auctions of frequencies. And yet the industry grew.The very existence of this dicussion on ethanol shows that corm-based ethanol is a dead end.

    Comment by Kinuachdrach | June 7, 2009

  12. Yeah, they just "Outlawed" the competition (you do remember Prohibition, right?)Then we had the "Oil Depletion Allowance." In the "Last" energy bill there was $13 Billion for Deepwater Drilling. Then, there's $200 Billion/Yr in the Middle East. etc.

    Comment by rufus | June 7, 2009

  13. 38 Million Barrels came out of "floating" storage last month. At the same time oil, and gasoline prices were steadily rising, and, all this at a time while we were still in recession.What's it going to look like a couple of months from now when ALL of the "floating" storage is depleted, the Trucks are running, again, and the world is looking around for that 86 million barrels/day production they once had?PLUS a couple more million bpd for China, and the other emerging nations?

    Comment by rufus | June 7, 2009

  14. That's when today's ethanol boondoggle becomes foreward-looking "energy policy."

    Comment by rufus | June 7, 2009

  15. Here's an interesting article on how corn ethanol production is slowly "morphing" into corn/cellulosic production.Triple Play

    Comment by rufus | June 7, 2009

  16. "Speaking of crappy refinery margins, I imagine those 700,000 barrels of ethanol/day aren't helping."The ethanol companies have to buy their natural gas from the oil companies. So I doubt it has much impact on the bottom line. Refining has just always been cyclical. We had crappy refining margins before we had ethanol."Then we had the "Oil Depletion Allowance." In the "Last" energy bill there was $13 Billion for Deepwater Drilling."The thing is, the industry doesn't require any of that to survive. All industries get specific tax deductions. In the oil industry, those deductions come against taxes paid into government coffers of around $2 trillion over the past 25 years. While other industries are being bailed out, the oil industry is paying the money in that allows the bailouts to take place."Then, there's $200 Billion/Yr in the Middle East. etc."I hear this a lot, but I am curious. How exactly do you figure this is a subsidy for oil companies?"38 Million Barrels came out of "floating" storage last month."I noticed that when I flew back home from Amsterdam yesterday. There were fewer tankers parked offshore than there were two weeks ago.RR

    Comment by Robert Rapier | June 7, 2009

  17. Forget ethanol. Think natural gas. PHEVs, BEVs. Scooters.

    Comment by benny "reargas" cole | June 8, 2009

  18. I would say all that money spent in the Middle East is a Big Subsidy for "Oil." To some extent you have to differentiate between "Oil," and "Oil Company," I guess.

    Comment by rufus | June 8, 2009

  19. Rufus you are certainly winning the battle providing useful and interesting links. EWG?

    Comment by Kit P | June 8, 2009

  20. But, seriously, I wouldn't get too wedded to the difference in BTUS. As you have written, yourself, RR, Ethanol's higher Octane Rating can pretty much make up for that in a proper engine. And, those engines ARE coming. Ethanol, at that point, will be competitive in the $2.50/gal range. I'm figuring with Corn in the $4.00 – $4.50/bu area, which is likely to be pretty close to the long term price.

    Comment by rufus | June 8, 2009

  21. What's "EWG?"

    Comment by rufus | June 8, 2009

  22. "Rufus you are certainly winning the battle providing useful and interesting links."Why don't you define the battle for us, Kit, so we can understand what it is that he is winning?RR

    Comment by Robert Rapier | June 8, 2009

  23. Rufus wrote 'I very much agree about "going to biomass" for process energy. I've got a hunch that "corn cobs" will be providing this energy in many refineries in the future.'As a piece of economic history, in his North America written during the early part of the US civil War, Trollope noted that the interruption to access to markets from closing river traffic had led farmers in "western" (now midwest) states to burn their crops for fuel.

    Comment by P.M.Lawrence | June 8, 2009

  24. Confusion of the term "costs".1. Production costs: If the price paid to the ethanol producer is $1.75 then that is what the ethanol producer gets. Apparently some can live with that. 2. Subsidy. The blender can collect $0.45 tax credit. (applicable to offset losses like those incurred because of the mandate for blending ethanol with gasoline.)3. Blenders sell gallons = volume. They are and never have been concerned with BTUs per gallon. They are not buying "BTUs" nor selling "BTUs", as you suggest by saying: "if I am a gasoline blender, I would be willing to pay 67% of $1.95 for my ethanol". The consumer has a (although limited) choice to buy whatever gas he wants to put in his tank. If a blender can effectively obtain ethanol at a net cost of $1.30 whereas the Nymex has a $1.95price, the blender has a $0.55 advantage of being in the ethanol blending business. I suspect that is why Valero, Shell and BP like ethanol. No risk (tax credits) all gain.

    Comment by Anonymous | June 8, 2009

  25. RR, you said, "Valero recently bought a bunch of ethanol plants. So they now have a vested interest."They really don't have much of an interest. How much of their portfolio involves ethanol vs. gasoline? What's good for oil companies is the best for Valero. Here's a quote from their PR head, Bill Day:"Valero is still a member of the NPRA, which has been fairly outspoken about some of the subsidies and breaks that the ethanol industry gets.""The amount of capacity that Valero purchased makes us the third leading ethanol producer in the country but, for us, it's actually a very, very small part of our operations and a small part of our bottom line. And so we're still overwhelmingly a petroleum refiner and not an ethanol producer."

    Comment by Anonymous | June 8, 2009

  26. "Blenders sell gallons = volume. They are and never have been concerned with BTUs per gallon."Of course they are. Otherwise they would all sell E85, and at the same price as for regular gasoline. If a consumer has a choice between gasoline with ethanol and gasoline without, most won't choose ethanol blends unless there is a price differential due to the lost fuel efficiency (due to the BTUs).RR

    Comment by Robert Rapier | June 8, 2009

  27. "They really don't have much of an interest. How much of their portfolio involves ethanol vs. gasoline? What's good for oil companies is the best for Valero."Valero isn't an oil company. They are a refiner. Thus, their interests may diverge from an integrated oil company.Further, in that particular case, they had changed over equipment to offer blended gasoline. In order to comply with the new law, they were going to have to duplicate tankage, etc. Hence, their support of ethanol in that particular case can be tied purely to self-interest.RR

    Comment by Robert Rapier | June 8, 2009

  28. "If you think about it, though, isn't it kind of silly to have a subsidy (and I haven't even mentioned the additional state subsdies) on something that already has a mandate for its use?"..Yes, very silly, especially when you consider that one person's subsidy is nothing more than a tax on someone else.Mandating something that requires a subsidy paid for with other people's taxes seems the height of folly ~ something that could only happen where political interests run roughshod over science and the Laws of Thermodynamics. But letting political interests run roughshod over the interest of others pretty much describes the corn ethanol industry, doesn't it?

    Comment by Wendell Mercantile | June 8, 2009

  29. I would guess the blenders don't mind purchasing a product (ethanol) for $1.50 a gallon blending it with gasoline and selling it for $2.50 a gallon, no matter what the subsidy happens to be. The loss in fuel efficiency is not noticable until you get above the 30-50% range, at least in every vehicle I have owned. If the consumer knew that would they choose ethanol, maybe. Think of it like this; would you put diesel in your gas engine? No. Then why are we complaining about how ethanol runs in a gasoline engine. The stigma is still there: Ethanol ruins your engine, it does not.

    Comment by Anonymous | June 8, 2009

  30. All cars in Colombia will be required to be E85 Flexfuel Capable by 2012.Most all energy schemes receive "some" subsidies at some point (nuclear?) Various studies have found that the existence of ethanol in the marketplace has tended to lower gasoline prices by from $0.35 to $0.50/gal. Ia State Study.Everybody's bringing out their Direct Injection Engines, this year. Next year, we'll see those engines in their "Flexfuel" iterations. Rather than needing a 20 – 25% spread, we might be looking at something more like 5 – 10% spreads being adequate. It could be cool.

    Comment by rufus | June 8, 2009

  31. Nuclear, USAHighly subsidized Nuclear PowerRufus,In Nuclear, USA on May 23, 2008 at 6:08 amTotal Subsidies to Nuclear Approaching $100 Billion in US"A 1999 US Congressional research service report lists the subsidies for all major sources of energy from 1948 through 1998. This October 2007 Government Accountability Office report examined federal electricity-related subsidies from 2002 to 2007.From 1948 to today, US nuclear energy R&D exceeded $70 billion, whereas R& D for renewables was about $10 billion.From 2002 to 2007, fossil fuels received almost $14 billion in electricity-related tax subsides, whereas renewables received under $3 billionThe Price-Anderson Nuclear Industries Indemnity Act, which caps the liability for claims arising from nuclear incidents, reduces the insurance that nukes need to buy and puts taxpayers on the hook to cover all claims in excess of the cap. The benefit of this indirect subsidy has been estimated at between $237 million and $3.5 billion a year."http://jagadees.wordpress.com/2008/05/23/highly-subsidized-nuclear-power/John

    Comment by Anonymous | June 8, 2009

  32. RufusThat $74 Billion for 1948-1998 figure only includes R&D expenditures There’s far more subsidies to the Nuclear power industry just R&D. For instance the financing of building Nuclear power reactors is all thanks to gigantic federal financing.Johnhttp://nirs.org/neconomics/utstatelegislativepresentation091907.pdfhttp://www.thenation.com/doc/20080512/parentihttp://www.citizen.org/cmep/energy_enviro_nuclear/electricity/energybill/2005/articles.cfm?ID=13779

    Comment by Anonymous | June 8, 2009

  33. Israel announced today a huge natural gas find, offshore. I don't know why, but huge, huge finds of NG have becme commonplace of late.The nation is switching its oil-fired electrical generators to gas. Likely, they will gravitate to CNG cars, trucks also. Expect Israel, like Sweden, Indonesia and Tahiland, to be free of world oil markets in 10-20 years. Maybe even France. Who cares about ethanol? The action seems to be in NG.

    Comment by benny "reargas" cole | June 8, 2009

  34. Rufus,Washington D.C. — A report released today by the International Center for Technology Assessment (CTA) calculates that the actual cost of a gallon of gas to the American consumer could be as high as $15.14.I seen other studies which put the true price for gas at about $ 8.00 a gallon.John

    Comment by Anonymous | June 8, 2009

  35. All that being said, I'm NOT against Nuclear. There's something to be said for having a few of those big, old honkin Nukes sitting there kicking out baseload.I'm not against Nat Gas. I might not be quite as excited about it as Benny; but I'm willing to "wait and see." I'm interested in how those "shale" plays do when they get away from the "core."But, we can use 50 Billion Gallons/Yr of Ethanol in our current cars, Right Now. That, to me, is the key.

    Comment by rufus | June 8, 2009

  36. Rufus,How about some great big "Honkin" solar hot water heaters?"Experts project that by 2010 the number of solar water heaters installed in China will equal the thermal equivalent of the electrical capacity of 40 large nuclear power plants. Globally, solar water heaters have the capacity to produce as much energy as more than 140 nukes."A solar water heater in China costs less than $200. Without one, a family wanting hot water would have to buy an electric water heater for about the same price and pay up to $120 per year for electricity. The payback is almost instantaneous."I didn't say I was against nuclear. just that is heavily subsidized.By the way the real price for ethanol is $ 4.19 which is what a six-pack of Busch costs (just kidding)Johnhttp://www.environmentalgraffiti.com/sciencetech/china-solar-hot-water-capacity-soon-to-be-equivalent-to-40-nuclear-plants/822

    Comment by Anonymous | June 8, 2009

  37. Kit & Rufus,Bend over boys, you've just been spanked. Nice job, RR!RR, you may need to explain the difference between refiners (like Valero) who got killed with high oil prices last summer, and the more typical integrated oil companies (Everyone else) who made money hand over fist.38 Million Barrels came out of "floating" storage last month.That's about two days worth of US consumption, i.e. a drop in the bucket.I would say all that money spent in the Middle East is a Big Subsidy for "Oil".Silly me. I thought it was a tax to protect us against terror. Or supposed to be at some point…Rufus, won't it be better for Big Oil if Iraqi oil stayed out of the market, and kept oil prices everywhere high? So perhaps the money spent in the Middle East is a(nother) subsidy for consumers…As you have written, yourself, RR, Ethanol's higher Octane Rating can pretty much make up for that in a proper engine. And, those engines ARE coming.IF they are coming, somebody is going to lose a ton of money in that venture.I realize that Kit and Rufus would jump at the change to buy an "E85 only" engine. The rest of America, not so much. Why risk it? Even if you lived in Corn Central, Midwest, why buy a car that can't be fueled on major road trips?Rufus you are certainly winning the battle providing useful and interesting links. EWG?Let me guess, Kit: at your job they let you write reports and make recommendations. AND keep you as far as possible from any meaningful decision-making…

    Comment by Optimist | June 8, 2009

  38. Rufus said: "Various studies have found that the existence of ethanol in the marketplace has tended to lower gasoline prices by from $0.35 to $0.50/gal."..Rufus,The study you cited was from Iowa State. The Iowa assembly would cut the university off at the knees if they published a study that didn't support corn ethanol.

    Comment by Wendell Mercantile | June 8, 2009

  39. Rufus, won't it be better for Big Oil if Iraqi oil stayed out of the market, and kept oil prices everywhere high? So perhaps the money spent in the Middle East is a(nother) subsidy for consumers...It does get complicated, doesn't it?Nah, 38 Million Barrels ain't a drop in the bucket.Solar Hot Water Heaters? Hell, Yeah.Optimist, the new Direct Injection, Variable Valve Timing, Turbocharged engines will, when combined with variable turbo-charging, pretty much "optimize" Gasoline, AND ethanol fuels. The "straight" gasoline versions are coming out This year, and the Flexfuel variants will be available next year. These should be "game-changers."

    Comment by rufus | June 8, 2009

  40. Oh, and there have been MANY anti-ethanol articles out of Ia State. You're unnecessarily denigrating a fine Academic Institution with that statement.

    Comment by rufus | June 8, 2009

  41. "You're unnecessarily denigrating a fine Academic Institution with that statement."..On the contrary, I'm not denigrating Iowa State at all. My target was the Iowa assembly.I'm sure there are many fine scientists and researchers at Iowa State who fully understand the downside of corn ethanol.

    Comment by Wendell Mercantile | June 8, 2009

  42. You haven't tried to "fire" a tenured Professor, recently, have you?:)

    Comment by rufus | June 8, 2009

  43. The further away from Iowa we grow corn, the worse ethanol gets. The yield per acre goes down and the fertilyzer per ear goes up.

    Comment by robert | June 8, 2009

  44. Wendell:Last year a Merrill Lynch strategist said that were it not for ethanol production oil prices would be 15% higher. Think about the savings!!!http://www.businessweek.com/magazine/content/08_19/b4083060454256_page_2.htm

    Comment by Anonymous | June 9, 2009

  45. Apparently John did not read the GAO report referenced in his link. In the US about 20% of the US electricity comes from 104 LWR that pay lots of takes. It is also the cheapest source electricity. So lets look at how much of the subsidies go to the commercial nuclear industry“The greatest variation in funding within these programs occurred in the environmental cleanup program, which funds the cleanup of sites contaminated by nuclear research.”Not LWR, this is cleanup of weapons sites. John is against cleaning up DOE sites.“Other nuclear energy programs include research on fusion energy”Not LWR!“Advanced Fuel Cycle Initiative, which seeks to reduce nuclear fuel waste requiring geologic disposal.”Sounds like more worthy research. Not LWRs.“Nuclear. We did not identify tax expenditures directed at nuclear power production during the 6-year period we examined.” Check out pg 17 of the GAO report. Nuclear Power 2010 – $150 million. To participate, utility and nuke plant designers share the cost on a 50% basis. The goal of this program was to get 4 reactors into licensing. How is that working? 30+ reactors are in the process.So what is the ROI for the government. Very good for the least productive segment of society. There report fails to mention that the NRC charges by the hour. The government charges to process loan applications. The government charges fees for this and that and does not give back the money not spent. The report does not compare income to payments. A number of years ago I read a GAO report about gouging during the California energy crisis. According to the GAO, gouging is the prices going up when demand exceeds supply. Again, the interesting part is what the government did not report. Who was doing the gouging? How much electricity was sold and how much did they charge. Make a list and prosecute the worst offenders. It was the government. It was public power like BPA. The biggest gouger was Los Angles Department of Water and Power. The General Manager of LADWP was S. David Freeman who work tirelessly to close down nuke and coal plants. After creating the shortage, S. David stood on the steps of the California state house and demanded investors from Texas should be jailed.

    Comment by Kit P | June 9, 2009

  46. RR,"Because ethanol contains 67% of the BTU content of gasoline, the price should reflect this. Thus, if I am a gasoline blender, I would be willing to pay 67% of $1.95 for my ethanol, all other things being equal. That puts me at parity to what I am paying for gasoline. How much is that? $1.31."I'll assume for the moment that customers buying by the gallon are sophisticated enough to take BTU content into account. I'm not sure that was true a few years ago, but it could be true now.But other things aren't equal. There's the mandate in addition to the subsidy. Shouldn't a blender be willing to pay extra for ethanol up to the point where the added cost would exceed any fines levied for not meeting the mandate? Are there fines? I can't seem to find any details on how the mandate is supposed to be enforced.

    Comment by Clee | June 9, 2009

  47. "Globally, solar water heaters have the capacity to produce as much energy as more than 140 nukes."That's great! Now compare that probably optimistic projection to the actual number of nuclear power plants in operation today — 439 as of Aug 2008.And with almost 4 times the "solar heater" equivalents already on line, nuclear power is providing only about 6% of global primary energy. (The vast bulk is fossil fuels. But you knew that).The point is the utterly staggering amount of energy that the human race consumes already — and yet about 2 out of 3 human beings are still under-served today.Solar, ethanol, wind — all good fun. But they miss the point of the huge amount of energy that human beings need. Even if those processes could survive without subsidies (which they can't), the amount of power they can supply to the human race is simply inadequate. Very, very inadequate.

    Comment by Kinuachdrach | June 9, 2009

  48. Here's a refinery that will provide 90% of its energy from Landfill Gas, and Wood Waste.

    Comment by rufus | June 9, 2009

  49. That plant can take some wood WASTE, and some methane from a landfill and produce enough ethanol to operate every car in Des Moines (the biggest city in) Iowa.A plant half that big could operate all the personal vehicles in Cedar Rapids (Iowa's 2nd largest city.)

    Comment by rufus | June 9, 2009

  50. Rufus said,Most all energy schemes receive "some" subsidies at some point (nuclear?) ——————————–I was simply agreeing with you and suggesting that nuclear is indeed a good example of an energy provider which has received subsidies,The DOE has also given R&D money to the fossil fuel people who are well-established money-making propositions.What? They can't stand on their own two feet after 150 years of absolute dominance ? They STILL need R&D hand-outs from the Government ?John

    Comment by Anonymous | June 9, 2009

  51. Big difference between R&D money for developing new technology vs per gallon subsidy for commercial production.

    Comment by Anonymous | June 9, 2009

  52. “What's "EWG?"EWG = Environmental Working Group From JohnNIRS = Nuclear Information and Resource Service So Rufus you provide links that are informative. You are an advocate of doing things better based on your research. You share the information. Thankyou!Others claim not to be not to be an anti what ever but look at the source of their information they link. It bears repeating, ethanol producers are producing ethanol. I do not have to do anything to use it. I would not buy an E85 POV because it it is not available where I live. I no longer live in corn country. Also we do not drive very much On the other hand, I gripe about wind and solar because that segment of my industry does not report performance. John talks about $200 solar hot water system in China. I do not know and I do not care. In the US meeting US codes, a system that will save “$120 per year for electricity” costs $4000. I have no problems with anti-nukes wanting to replace nukes. After 30 years, most anti-nukes have not figured out that nukes produce lots of electricity and anti-nukes are still talking about potential.The is a difference between could and can. I am still waiting for wind and solar to progress past the could replace something. On the other hand, the ethanol industry us demonstrate can produce.

    Comment by Kit P | June 9, 2009

  53. Rufus it is hard to keep up with your positive information.“POET Biorefining – Chancellor started operations in March, 2003. Last year, the facility produced 51 million gallons of ethanol and 160,000 tons of Dakota Gold Enhanced Distillers Nutrition products. An expansion of the Chancellor facility to 100 million gallons per year was completed last month. Construction continues at the plant on a solid waste fuel boiler, which will burn waste wood to produce more than half of the expanded plant’s power needs. In combination with energy from the recycled methane, the plant will initially replace at least 70 percent of its natural gas usage, increasing to at least 90 percent in 2025.”Poet is reporting production while looking for ways to constantly improve environmental impact.

    Comment by Kit P | June 9, 2009

  54. Anonymous Anonymous said… Big difference between R&D money for developing new technology vs per gallon subsidy for commercial production.===============================It's unfortunate that the government has gptten into the business of "mandating consumer choices".I agree.Nevertheless, A DIS-PROPORTIONATE amount of money seems to have been spent by DOE on well-established energy sources and relatively little on alternatives.Ethanol ? A lot of what you see going on in Washington is just "corn belt politics" Taking care of the people back home who elected me to office, stuff. It has little to do with the technical merits of ethanol or whether ethanol can have any significant impact on liquid fuel consumption demanded by the internal combustion engine.That's why I suggest that we move away from liquid fuels and toward the electrification of our transportation system as Robert suggested in his "Letter to the President"John

    Comment by Anonymous | June 9, 2009

  55. John, I understood that you weren't, necessarily, indicating that you were against Nuclear. I didn't mean to intimate that I thought you were. I just wanted to emphasize that I'm not either.I'm just against blowing all the wealth of the nation importing oil from a bunch of people that want us, more or less, dead.It, also, seems a little strange to me to think that just because we might have a hundred years of coal, or natural gas we have to see if we can't go through it in fifty.It just seems logical to me to try and conserve a little bit of it.

    Comment by rufus | June 9, 2009

  56. Rufus,I was just tryin to help you out a little bit. Every-body was dumping on you pretty heavy.John

    Comment by Anonymous | June 9, 2009

  57. Good lord, I hope my blog never attracts this much flotsam.Anonymous said…"…Last year a Merrill Lynch strategist said that were it not for ethanol production oil prices would be 15% higher. Think about the savings!!!…"I talked to a guy who talked to that strategist. It was based on a simple 3 variable equation for elasticity of demand/supply. If only the real world were so simple.

    Comment by Russ Finley | June 9, 2009

  58. Rufus said,"I'm just against blowing all the wealth of the nation importing oil from a bunch of people that want us, more or less, dead."I agree, "It, also, seems a little strange to me to think that just because we might have a hundred years of coal, or natural gas we have to see if we can't go through it in fifty."——————————–Coal to liquids, bat gas and all that are fine but when people say we have 150 yars of this or that they are usually quoting figures for consumption "at present rates of use" not wholesale adoption of the resource to be used as a transportation fuel. Like you say, if we start burning it all up in cars we will run out a lot quicker, Last time I checked, Canada had less than 10 years nat gas reserves, How long would that last if they started burning it their cars ? A couple years maybe or less ?You like bio-fuels. I like electricity and the electric car.We can make our own bio-fuels. We can also make our own electricity. There are some things electricity can't do and we will always need liquid fuels of some sort. By all means let's get rid of the Arab Sheiks and OPEC who are sucking us dry. The Venezuelan Oil Minister got up st the recent OPEC meeting and said: "OPEC controls 80% of the world's known oil reserves"Coming from Chavez Incorporated I took that as a threat, not a promise.John

    Comment by Anonymous | June 9, 2009

  59. "Construction continues at the plant on a solid waste fuel boiler, which will burn waste wood to produce more than half of the expanded plant’s power needs."Lots of POET clicks into this story since it posted; I would imagine that this was what they were talking about. This is exactly the sort of thing the ethanol industry needs to do become competitive with fossil fuels. They have to get the fossil fuels out of the equation. Kudos to them.RR

    Comment by Robert Rapier | June 9, 2009

  60. Russ:"I talked to a guy who talked to that strategist. It was based on a simple 3 variable equation for elasticity of demand/supply. If only the real world were so simple."Sometimes things are really simple…. You seem confused (to say the least) if you think that elasticity of supply and demand is "wrong" and "not peer reviewed", per your website's comments.If you don't understand simple economics, how would you be able to understand more complex stuff?

    Comment by Anonymous | June 9, 2009

  61. Clee said: "I'll assume for the moment that customers buying by the gallon are sophisticated enough to take BTU content into account."..Clee,That would be a terrible assumption. Try this: Walk through the mall nearest you and ask people at random what a Btu is. I bet not more than 4 out of 100 could even come close to explaining what a Btu is or what physical principle it measures.Now ask them to explain the difference between the Btu content of ethanol and gasoline. You'd be lucky to find 1 out of 100 that even know there is a difference.That lack of knowledge is exactly what ethanol lobbyists and Corn Belt politicians attempt to take advantage of.Unfortunately, the vote of someone who knows nothing counts just as much as the vote of someone who is informed.

    Comment by Merlin Caine | June 9, 2009

  62. The thing is, right now, nat gas is so cheap that the first order of business for most refineries is, probably, Fractionation.Fractionation is the process by which the different parts of the kernel are separated out to establish different profit streams for the refinery. The result is the corn oil is now separated out. It is worth about $0.35 – $0.40/lb. As a result of taking the oil out, you also get a higher quality Meal byproduct. It, also, separates out the lignin which can be used in power generation. It's the natural progression. It's also Expensive. The assholes that blew a few hundred billion (like verasun) gambling in the commodity markets have hurt everyone's ability to raise money. The Finances of Fractionation.

    Comment by rufus | June 9, 2009

  63. Most people know about what they need to know. You ask the average guy what happened, gas mileage-wise, when the local station went to e10, and he'll say, "not much." "Mileage might have went down a mile, or so."Ask a guy that runs E85, and he'll tell you, "Oh, I give up four, or five mpg; but it's forty cents cheaper, and it's worth it To Me (or, something similar.")The nationwide spread between E85, and unleaded is around 20%, now. That's getting pretty close to where it needs to be to be "neutral."

    Comment by rufus | June 9, 2009

  64. "The nationwide spread between E85, and unleaded is around 20%, now. That's getting pretty close to where it needs to be to be "neutral."Rufus,Not even close to being neutral. Check out this AAA Fuel Gauge Report, they show the "BTU Adjusted" price of E85. For the last year, E85 has always cost more in terms of actual "Btu's delivered." AAA Fuel Gauge ReportHere's a handy rule of thumb for you: It takes four gallons of E85 to do the work of three gallons of gasoline. If 4 x the E85 price is equal to or less than 3 x the gasoline price, buy the E85. If it's more, buy the gasoline. That's an easy way to compute whether what you would have to pay for E85 is a value or not.

    Comment by Wendell Mercantile | June 9, 2009

  65. Wendell, as an owner of a Flexfuel Vehicle (Chevy Impala 3.5 fourbanger,) I can assure you that BTUs are only part of the story.Ethanol has an AKI (Octane Rating) of about 114. This is in comparison to gasoline's Octane Rating of about 84.5. This means that ethanol burns its BTUs more efficiently than does gasoline. EVERY engine is different. The mpg loss can be as low as 15%, or as high as 30%. Weather, and driving habits have a LOT to do with how your mileage is affected. You will have slightly more Torque with e85 (even in a gasoline-optimized engine.) This means on gentle hills your engine will downshift less often.One caveat: It can take two, or three fill-ups before your ECU completely adapts to the higher oxygen content of the fuel. Also, Everyone will have a tendency to "step on it" a little when they first start running ethanol. As a result, Don't check mileage until the 3rd tankful, or so.

    Comment by rufus | June 9, 2009

  66. I, personally, feel that this is kind of an awkward way of utilizing ethanol's Octane; but this is how Ford is planning on getting Better gas mileage by making use of ethanol.Ford's Bobcat

    Comment by rufus | June 9, 2009

  67. "Also, Everyone will have a tendency to "step on it" a little when they first start running ethanol."And what pray tell causes that tendency?"This means that ethanol burns its BTUs more efficiently than does gasoline."Here's my experience burning E10: I get 32 mpg (highway) on regular gasoline. I get 29 mpg (highway) on E10.That means on a theoretical trip of 320 miles I would burn 10 gallons of gasoline, or 11 gallons of E10.But, of that 11 gallons of E10, 90% (or 9.9 gallons) is gasoline.On my trip of 320 miles I have a choice of burning 10 gallons of gasoline, or 9.9 gallons of gas if I burn E10.But if I burn E10, I must buy 11 gallons of fuel. Burning E10 saves very little gasoline, but does mean I must buy more fuel.

    Comment by Wendell Mercantile | June 9, 2009

  68. Rufus,The Bobcat concept sounds interesting, and I hope it pans out.Unfortunately, the ethanol cartel and Big Corn would have to be in opposition since it seems it would use so little ethanol.

    Comment by Wendell Mercantile | June 9, 2009

  69. And what pray tell causes that tendency?Probably, the same reason people take a new car out to "see what it can do," I'd imagine.Wendell, I've read that exact same story, with the exact same figures by a different moniker, on this website several years, ago.I had a hard time believing it then, and I'm having a hard time believing it now. If it IS true, take that car in to the shop. I've never heard of a verified instance of a car losing more than 3% mileage with E10.Could be your O2 Sensor/ECU malfunctioning.

    Comment by rufus | June 9, 2009

  70. Wendell, I'm skeptical of any solution that requires Joe Sixpack, and his wife to use Two separate fuels. Professional Truckers? Yeah. But Mrs. Rufus? I don' know. We'll see.

    Comment by rufus | June 9, 2009

  71. Nah, 38 Million Barrels ain't a drop in the bucket.No? Why are the markets ignoring the event then? Conspiracy, again?These should be "game-changers".We'll see/Wake me up when the game is changed…Here's a refinery that will provide 90% of its energy from Landfill Gas, and Wood Waste. & That plant can take some wood WASTE, and some methane from a landfill and produce enough ethanol to operate every car in Des Moines (the biggest city in) Iowa.That's GREAT, Rufus. You omit to mention, though, that this green energy is available to any business, including Big Oil, if they were so inclined…Most people know about what they need to know. You ask the average guy what happened, gas mileage-wise, when the local station went to e10…I actually agree, Rufus! Joe Sixpack's may not be to provide an accurate definition of "BTU", but that does NOT interfere with his ability to get to the bottom line of it.

    Comment by Optimist | June 9, 2009

  72. So what is the ROI for the government. Very good for the least productive segment of society.So what are you trying to say, Kit? This: As we anarchists like to say, there is no government like no government?As the recent Wall Street meltdown showed, Capitalism needs government, because it can't survive by itself…

    Comment by Optimist | June 9, 2009

  73. USA crude oil consumption to 12-year low, reports EIA today. I suspect it will never recover. Why are we arguing about biofuels?

    Comment by benny "reargas" cole | June 9, 2009

  74. Blogger Kinuachdrach said… "Globally, solar water heaters have the capacity to produce as much energy as more than 140 nukes."————————————-Solar hot water heaters are "task oriented" or "dedicated" uses for solar. They provide no energy to the grid.They simply eliminate the need to build additional nuclear, coal or gas fired plants.Like Ben Franklin said""A penny saved is a penny earned."John

    Comment by Anonymous | June 9, 2009

  75. Merlin, Oh, I have no illusions that the typical driver knows what a BTU is, or what it measures, or what the difference in BTU content is between gasoline and ethanol. I figure the first dozen or more times they fill up with E85, they will expect no difference between E85 and gasoline. But after a few months or a few years, enough of them may notice that while they used to get…. say 400 miles per tank with gasoline, that they're only getting 300 miles per tank on the E85. Or if they don't notice that, they may notice that while they used to need to fill up once a week with gasoline, now they have to fill up more frequently. Some may just say, "ethanol sucks, I'll never buy it again!" Some may decide to buy E85 only if there's enough of a discount vs gasoline, as RR suggests, though I don't think they'll do precise calculations, just estimates. (Also, as rufus says BTUs are only part of the story in the actual % mpg loss.) And I'm sure some will remain clueless and continue to drive 20 miles out of their way to save $0.01/gal on E85 vs gasoline. But of course I only said that "I'd assume for the moment" because it was pretty tangential to my question about the effect of the ethanol mandate on prices a blender would be willing to pay.Hmm… okay… so maybe BTU content is not the right measure to use to determinewhat a blender ought to be willing to pay for ethanol compared with gasoline. Maybe the (roughly 20%) real life spread between the retail price of E85 vs E10 gasoline is a better measure… or perhaps even the spread between the wholesale price of E85 vs E10 gasoline. … but I'm not sure it's as simple as that.

    Comment by Clee | June 9, 2009

  76. Anonymous Optimist said… So what is the ROI for the government. Very good for the least productive segment of society. So what are you trying to say, Kit? This: As we anarchists like to say, there is no government like no government? As the recent Wall Street meltdown showed, Capitalism needs government, because it can't survive by itself… June 09, 2009 4:09 PM————————=———-Optimist knowa Why OUR Constitution was constructed with checks and balances and a division of powers.The founders of our Republic knew human nature,Optimist is "dead on" right.John

    Comment by Anonymous | June 9, 2009

  77. You've really got to take the EIA with a large grain of salt, sometimes. Oil is UP two dollars to over $70.40 bbl as we speak.

    Comment by rufus | June 9, 2009


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