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Gas Taxes and Long Range Energy Planning

I consider the level of dependence of the U.S. on imported petroleum to be a very large financial risk endangering the country’s future. There are certainly other import-related risks as well, but here I want to talk about the financial risk.

I consider it similar to having a mortgage upon which you pay interest each month – but in which the interest rate can fluctuate wildly. If you typically pay 7% interest on your mortgage, but your rates quickly climb to 12%, a lot of people would find themselves in a deep financial hole. Come to think of it, a lot of people did when they found themselves in a similar situation. They gambled on the future and lost.

With respect to oil prices, we are also gambling on the future. We import a bit over 9 million barrels per day of crude oil (we also import gasoline, diesel, etc.) Each $10/bbl increase in the price of oil means that consumers pay $33 billion more each year for oil. We are now paying $100 billion more each year for oil than we were just a few short years ago, and that money comes out of all of our pockets. This acts as a tax upon the U.S. economy, albeit one that doesn’t primarily benefit U.S. citizens.

The drain on the U.S. economy is one thing, but the risk is quite another. Why do we tolerate that sort of price risk? In my opinion, it is because tolerating the status quo is viewed by politicians as the cheapest, most politically safe option. And even if they are concerned about the risks, when economists say that oil might be going back down to $30, politicians are paralyzed from taking action. The uncertainty is a killer.

A story I read this morning highlights that uncertainty, and points to some of the consequences:

Low Gas Prices Threaten Green Car Revolution

The single biggest factor determining the success or failure of high-tech fuel-efficient cars is not battery technology, legislation, tax incentives, new model introductions, or infrastructure. It’s gas prices. The price at the pumps is the elephant in the room when it comes to green cars.

I would imagine that there is general agreement on that. When gas prices raced ahead, the Toyota Prius began to outsell the Ford Explorer. When gas prices fell back to $2/gal, SUV sales surged and Prius sales plunged.

The fundamental problem is that many people don’t make long-range plans with energy prices in mind. When gasoline goes to $2/gal, some expect it to stay there and so that SUV purchase doesn’t look bad – until gasoline is back to $4/gal. And the inability to plan is compounded by analysts who give mixed messages on which way oil prices are going:

Japanese broker Ryoma Furumi said oil prices will stay rangebound at $70-$75 a barrel; analysts at Mirae Asset Securities said prices are likely to consolidate between $65 and $75; and Jim Ritterbusch, president of Ritterbusch & Associates, said crude could be pushed toward the $75 mark.

Verleger, the energy consulting firm, predicts a drop in oil this year—all the way down into the $30s. The firm bases this prediction on crude stockpiles in the US being 14 percent higher than a year ago, and gasoline supplies up by 2.2 percent. Also, OPEC is currently pumping 600,000 barrels a day more than the world needs.

Meanwhile, Christophe de Margerie, chief executive of French oil giant Total, this week said he sees a risk of oil rebounding to $100 a barrel unless there’s greater investment in exploration. He warned of a possible oil shortage between now and 2015 if immediate action is not taken to invest in exploration. “The reserves of oil are there but if you don’t invest they don’t come on the market,” de Margeries said.

Would we plan differently if we knew that oil prices were going to be $100/bbl? Of course we would. We have already seen consumers respond as oil prices went over $100/bbl. But while consumers were responding, a lot of damage was done to the U.S. economy. The airline industry and the auto industry took a beating, as did many personal budgets that suddenly had to cope with much higher weekly fuel outlays.

Enough gambling on oil prices! Let’s raise the price of petroleum via taxes so that people can make energy plans that incentivize them to become more fuel efficient. As I have argued before, you can direct that back at people in the form of a tax credit. The idea would be to trade energy taxes for income taxes.

The benefit would be that we would start moving toward a higher level of fuel efficiency without having to legislate CAFE mandates that end up being gamed. With increased fuel prices, people will demand more efficient vehicles. Automakers will know which cars they need to build. Renewable energy – particularly those varieties that aren’t heavily reliant on fossil fuels – would also see a boost. Not only would they be competing against higher priced fossil fuels, but project developers could have more assurance that oil prices aren’t going to fall to $30 and destroy their project economics.

The benefits would be substantial. Most importantly, our consumption would fall. I consider it very important to stretch our remaining fossil fuel endowment as far as we can, and we can do a better job of that if we manage it. We need to buy time, because renewables are not ready to fill the supply gap that will result if we burn through our remaining oil too quickly.

I don’t think there is any question our oil imports would fall as people started to change their transportation arrangements. Following the high prices of mid-2008, total petroleum imports over the following 12 months fell by 700,000 barrels/day over the previous 12 months (although it is hard to say how much of that was recession-induced).

I have long complained that government energy policies that vacillate every time a different political party comes into power have long been an impediment for companies trying to do long-range project planning, both for fossil fuel and renewable energy projects. Volatile prices have much the same impact. I have had my disagreements with Vinod Khosla in the past, but his call to put a floor underneath oil prices has merit (see Point 14 here).

Having a price floor would would allow companies – especially energy companies and auto makers – to do a better job of long range planning. I don’t fault automakers for getting caught with an oversupply of SUVs as oil prices skyrocketed. They were just making cars that people in a low-oil-price scenario had long demanded. With the certainty of higher prices, the auto companies needn’t gamble that SUV sales are going to come back strong. They would know that they need to shift to the more efficient vehicles that consumers will demand.

I have no problem with taking calculated risks, but I do not gamble. Living on the Gulf Coast of Texas without hurricane insurance is gambling, because the hurricane probability is too high. I don’t see that as much different than the risk we place on the economy by not taking more proactive steps to insulate the economy against price spikes. But we didn’t learn that lesson in 1973, nor in the 1974-75 recession that followed. I don’t expect we are much wiser today.

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September 24, 2009 - Posted by | carbon tax, gas tax, Vinod Khosla

32 Comments

  1. RR – We were having a discussion on this very point on your back lot several days ago. Simply because the issues you raise have already been asked & answered, let me reprint that discussion here."the Euro innovations are not in post-fossil fuels but in the minimisation of fossil fuel use, hopefully giving more time to transition."Yes, Pete — that is the impression I had gained: high gasoline taxes in Euroland have reduced the peons' use of gasoline, but without stimulating post-fossil alternatives. So the EU will hopefully have more time to transition, but has nothing to which to transition.That is a serious issue, worthy of deep consideration. The people in the US who promote high taxes on fossil fuels generally believe that those taxes will stimulate alternatives to fossils — but the Euro experience shows that has not happened. Why?If we take a side tour for a moment through low tax US, there are lots of hybrid vehicles on the road already — basically vehicles with small gasoline engines and lots of extra "stuff". There are valid questions about whether complex hybrid vehicles actually save energy over their entire life cycle including manufacturing, but no questions about where hybrid technology came from — Japan & the US, not the EU.Then there is omni-present ethanol as a fuel extender, which Rufus may have mentioned in passing in some post a long while ago. Again, there are questions about whether ethanol really saves on fossil fuels; but again, no suggestion that this alternative fuel technology came from Europe.Similarly with developing technologies such as Plug In Hybrids and Electric Vehicles — not from Europe.Even Compressed Natural Gas vehicles, which are hardly new technology and which use another fossil fuel anyway, have not had any push from Europe.Why the glaring lack of post-fossil transportation technology from high tax Europe? Why is more of it coming from low tax US?There used to be a guy (maybe his name was Coppard?) who stomped around a number of energy-related blogs pushing the theory that governments in places like Europe have become so addicted to high taxes on other people's oil that they desperately need the fossil fuel industries to continue. Eurogovs talk a good game about getting off fossil fuels, but then they make so little technological progress it almost looks like they are deliberately squashing post-fossil alternatives.The message here is the old one about the Law of Unintended Consequences — high gasoline taxes give high-taxing governments a strong incentive to maintain gasoline usage. And lo & behold, the supposedly prudent EU imports about as much oil as the supposedly profligate US.Bottom line, high gasoline taxes are demonstrably NOT the way to stimulate the growth of post-fossil transportation technologies.September 22, 2009 3:18 PM

    Comment by Kinuachdrach | September 25, 2009

  2. Gotta side with Kinu here, apologies to RR!The let's tax gas substantially sounds good, until you have to define substantially: $1.00/gal? $2.00/gal? $3.00/gal? More?Recent comments from various alternative industries lead me to suspect the answer will always be: the tax is not enough… I see a slippery slope.Add to that my libertarian view that Uncle Sam will not invest those extra taxes wisely. Any recent evidence to the contrary will be much a appreciated. I see a $2 trillion bridge to nowhere.Sorry, RR, given the choice between gambling on the Wisdom of the Prostitutians and the Ugly Realities of Capitalism, I'd go with the latter.As 2008 showed, one way or another it is a self-regulating system. 2008's economy couldn't support $150/bbl. Let's home we can do better in 2010/11…

    Comment by Optimist | September 25, 2009

  3. The people in the US who promote high taxes on fossil fuels generally believe that those taxes will stimulate alternatives to fossils — but the Euro experience shows that has not happened. Why?Just a couple of quick comments as I am dashing off somewhere. I have made the same point you make above when people think that renewables will overtake fossil fuels as gas prices increase. I have pointed out that in the Netherlands, when gasoline hit $9/gal, renewable fuels did not run to the rescue. The primary reason is that too many of them rely on fossil fuels for their existence.But, $9/gal gasoline also did not have the same impact on the economies there that it did here. Because people do use less fuel – because prices are higher – they are less subject to price-induced shocks. Imagine for a moment that the U.S. – the world's consumer of oil – cut consumption to European levels. Is that not worth something? Would it not stretch fossil fuel supplies? Would it not provide a level of insulation against future price spikes? Or do we want to continue to encourage consumption at present levels – and continue to gamble against future spikes?RR

    Comment by Robert Rapier | September 25, 2009

  4. I think we respond more to price shocks than to gradual price increases, even if the two have the same starting and ending price points.

    Comment by Clee | September 25, 2009

  5. It doesn't really matter. It's "game-over."Peruse this Monthly Oil Report from ASPO, and it becomes obvious that once you combine the information, here, about how much oil will be required to just get back to where we were, the 6.7% decline rate of existing wells, the Wiki Megaprojects data, and the growth in consumption in Chindia, and OPEC we would need to be pumping at least 8 Million Barrels/Day More than we are, today, to be at break-even in Dec 2010.Ain't gonna happen puppies, and puppettes. That shortage last year was just a little squall that came through the day before the "Hurricane."Starting sometime in 2010 the American Public will know that they don't have to, ever again, worry about $2.00/gal gasoline.

    Comment by rufus | September 25, 2009

  6. Actually, if you take Five Million Barrels of Decline, and the, possible, 3 Millions available now we're probably looking at more like 10 Million Barrels by the end of next year.It's gonna get ugly.

    Comment by rufus | September 25, 2009

  7. RR only mentioned the word insurance once and that was only the hurricane type. I'm glad he didn't get into the health type but I will. A big amount of those rediculously high gas taxes in cheese eating old EU go to universal health care which RR has already explained served him well when he was in need while living in Scotland. Kinuachdrach and Optimist think that Europeans are not being innovative in there car producing. Why should they when most of the people get along very well with their high speed trains and trolley buses. All powered by electricity and at least in France produced by non polluting Nukes. As far as Japan goes, without the American and other cheap oil countries' market they would never be able to produce and sell the volume of cars domestically because they already have an excellent alternative tranportation sytem. Besides they have no place to park. JC Sr.

    Comment by Anonymous | September 25, 2009

  8. Case in point:China will need to import at least 5 Million more BPD by 2020.

    Comment by rufus | September 25, 2009

  9. Bravo to RR on this post. I say we increase the federal gasoline tax by 25 cents every season, for the next four years running. This would give consumers and manufacturers time to adjust, and send a strong signal we will no longer be the world's runaway oil hogs.Oil prices would probably collapse, meaning the taxes we pay would go into our own pockets, not OPEC's.Let alone how vulnerable we are now to an OPEC cut-off action. Unless you think we can pump oil with our aircraft carriers, there is nothing we can do if hostile thug states pull the plug on us. Kinu: Your points are excellent. But advances in lithium batteries and very high mpg cars are astounding. Don't look for innovation in Europe and especially Russia. Look for it in Korea, China, Japan and the United States. We have a venture capital culture that does not exist in Europe.

    Comment by Benny "Boom, No Doom" Cole | September 25, 2009

  10. So, we're going to have something like 700 Million Cars on the road, Globally, in 2012; and Chevy's going to sell, maybe, 10,000 Volts that year?We are quite likely going to be 10 Million bpd Upside/Down in 2012. Even considering a Recession of humongous proportions, what do you think gasoline/diesel will be selling for? How would you like to be the Congressman that proposed the tax that took gasoline from $9.00/gal to $10.00/gal?Now, I don't know what will happen in New Yawk City, but I'd bet a million I know what will happen in Mississippi. It won't involve "Waiting till 2025 for the lithium miners, and the battery builders to Ramp Up production."

    Comment by rufus | September 25, 2009

  11. In Mississippi? My guess would be that they'll unshutter their idle oil wells and start pumping again.

    Comment by Clee | September 25, 2009

  12. I'll give you a hint. With the recession we'll be looking at, Copper ought to be Cheep.

    Comment by rufus | September 25, 2009

  13. Eh, if we start having a shortage of oil, we'll do the usual things first… conserve, carpool, switch to alternate energy sources (e.g. natural gas for heating). Next use more efficient equipment or reduce the need for energy by adding insulation or whatever. Then if we're still desperate enough for liquid fuel, we'll go the CTL route that's been tried and true elsewhere.

    Comment by Clee | September 25, 2009

  14. Europe IS in love with high taxes. Their biodiesel industry is running on fumes because it's taxed so heavily. I think it was Pete who said ethanol is taxed as heavily as gasoline. If Europe switched to PHEV's overnight,the EU would triple taxes on electricity just as quickly. Hard to innovate in such an environment. We could easily fall into the same trap in the US. Look at the flack the ethanol subsidy catches around here. While it basically has the effect of not taxing ethanol at the pump,some give the impression the government is giving away the store. Or that ethanol has an unfair advantage of some kind. If we're going to use taxes as a disincentive,we need to make sure it's aimed only at fossil fuels. Heck,we probably should have a loophole for natural gas too. It's not as dirty,and we have plenty of it.

    Comment by Maury | September 25, 2009

  15. Warning: I may use the words big and oil in the same sentence. That doesn't necessarily mean I'm attempting to blame big oil for Kennedy's assasination…..or any other conspiracy. But,I would like to follow up on the last thread.I used Shell Oil as an example,because it's the company I'm most familiar with. I know how diversified their operations are,because I've worked on drilling rigs Shell hired. I've worked on production platforms owned by Shell. I drive past one of their largest refineries at least once a week. I've bought ALL my fuel from Shell since buying an '05 Oddysey and reading a glowing recomendation in the owners manual. I own stock in Shell Oil. I read their quarterly reports. It's a fact that not every segment of operations is profitable every quarter. It's a fact that their wide diversification up and down oil's supply chain has saved their ass many times over the years. That kind of diversification isn't possible with ethanol. It therefore stands to reason that Shell would be hesitant to put a lot of eggs in that basket. That's all I was trying to say folks.

    Comment by Maury | September 25, 2009

  16. Feel the need to defend high tax, sleepy Old Europe here against the spleen of the Americo-centric comments here.Technological breakthroughs are a major part of any light-green scenario, and OK, let's say, for the sake of the argument, that the US and Japan are leading us through the fog.But there is the fact that a lot of the wunder technology of tomorrow has been around for 20-30 years already, is just being updated with nanotubes, fairy dust, and properly motivated thinking.There is a whole nother aspect to the problem which centers around social acceptance and consensus of what constitutes honorable behavior towards ourselves and our environment. Here, Europe is mega-kilometers ahead of the US, both in the "ourselves" department (ie, healthcare) and the "environment" department (let us count the ways…)Since the only way to get American consumers and businesses to evolve is to go for the money, I agree with RR on taxing gasoline, not for the techie reasons, but the social ones.

    Comment by Denny A. | September 25, 2009

  17. The US provided one heluva subsidy to Europe over the last 60 years in the form of NATO Denny. Those 150,000 soldiers that cooled their heels in Germany during the cold war weren't cheap. I'm not saying Europe couldn't have had free health care otherwise. Just that it may have cost $15 a gallon,rather than 8. I don't mind paying more gas taxes. But,I'm not willing to pay them just to puff up government spending.

    Comment by Maury | September 25, 2009

  18. What RR is proposing goes back to the Nixon Administration. As first proposed it was a revenue neutral idea. Politically it will never fly becuase it is a tax and in our society it is a word that can not be spoken. As RR proposes it is a simple idea that will lower gasoline consumption. Having worked for the last 30 years at the largest, most profitable, and safest intergrated oil company it does my salary and stock wonders to see the gyrations in HC prices. But as part of team USA it is pretty silly situation. If the US could be seen as a company this situation would be address since HC prices seem to be major contributors to downturns in our economy. If it were my nickel we would be increasing the revenue from HC sales by 3 cents per month for the next 5-6 years. The majority of this revenue would be refunded as RR has proposed with the remaining going to enery related R&D, long term infraturure improvements, and maybe a nice vaction home for myself. Always enjoy reading your comments.

    Comment by Anonymous | September 25, 2009

  19. Folks,RR is not supporting a ballooning of government spending supported by taxes. Follow this line of thinking and then extend it using your creative ideas. Consumption of oil will decrease when you raise its price; but you don't won't these "extra" dollars spent unwisely. My view is that it should be returned to the conservers. So, how do you collect this "extra" revenue and pipe it back to the "people" on a sliding scale versus consumption?How about household Fuel Card that tracks your consumption. You get taxed $1 a gallon on the first 1000gallons, and $2 gallon above a 1000 gallons. (modify the numbers to fit your fancy)If you use less than a 1000 gallons per year you get a "credit" subsidized by those that consumed more.Perhaps this works on residential level, but I don't see how to apply it to commercial/agricultural.It doesn't have to be complicated; the point is to redirect the money to the conservers. That way "we" have a pretty big incentive to conserve.SamG

    Comment by SamG | September 25, 2009

  20. The only thing we'll be able to ramp nearly fast enough will be ethanol, and vegetable oil. Unfortunately, we don't have a really good vegetable oil crop in the U.S. The good news is: you Can run big trucks, and tractors on ethanol.You guys are thinking like we'll have plenty of time to transition. I believe the realization that we're "deep in dung" will hit us like an avalanche. And, around 2011 seems reasonable.

    Comment by rufus | September 25, 2009

  21. SamG-I always say, "Keep It Simple Stupid," or KISS.Your plan is complicated. Gasoline taxes are simple.We can eliminate the federal income tax on people makjng less than $100k and sub in gasoline taxes. Imagine sending in a postcard to the federal government that says, "I grossed less than $100k last year. I paid at the pump. Here is my postcard. Good-bye."

    Comment by Benny "Boom, No Doom" Cole | September 25, 2009

  22. I feel as if I have to weigh in against Kinuachdrach here.You've completely missed the point of all of our R&D in a high fuel price environment.Diesels.European manufacturers did indeed look at hybrids in the 90's but came to the conclusion that poor (lead acid) battery performance and high system prices/complexity for a marginal increase in fuel economy simply wasn't worth it.Indeed, it still isn't. Few people drive Priuses here, simply due to the high price, and poor benefits.Instead the Europeans pretty much engineered the modern common rail injection turbo diesel from a blank slate.The cheap, powerful diesels became popular and are still the de facto choice for someone wanting performance & fuel economy.Plus, as Europe (excepting the UK & Norway) produces no oil, it makes a lot of sense to incentivise effiency. You say that we haven't stimulated post fossil alternatives, but thats misleading as that was never the goal.The goal was to minimise the transfer of wealth to oil exporting nations.And in that respect, you cannot argue that we haven't succeeded.Andy

    Comment by Andytk | September 25, 2009

  23. Benny,A simple approach as you suggest would limit loopholes, legislative cave-ins to special interests, and a host of other complications. But alas it feels too simple to be accepted by professional politicians.

    Comment by SamG | September 25, 2009

  24. European manufacturers did indeed look at hybrids in the 90's but came to the conclusion that poor (lead acid) battery performance…Lead acid? That old technology? Japan and the US moved on to NiMH in the late '90s with the Toyota RAV4-EV, GM EV1, Prius, etc.I think a better example of European ingenuity is the TGV high speed electric trains which I think get better KWH per passenger km than any rail in the US. Now I'll wait for someone to tell me that got that from the Japanese too.

    Comment by Clee | September 25, 2009

  25. Europeans pretty much engineered the modern common rail injection turbo diesel from a blank slate.That is nice technology, but I'm disappointed that these modern european diesels don't work with B100, and anything more than B5 will void your warranty. Tied to petroleum.

    Comment by Clee | September 26, 2009

  26. On ethanol and the CAFE standard,I was just looking at page 13 of this presentation by Chrysler showing that with 7.3 million flex fuel vehicles on the road, only about 2% are actually running on E85.http://www.energy.ca.gov/2009_energypolicy/documents/2009-04-14-15_workshop/presentations/Day-1/09-Frusti_James_Mid-Level_Ethanol_Blends.pdf

    Comment by Clee | September 26, 2009

  27. rufus wrote: The only thing we'll be able to ramp nearly fast enough will be ethanol, and vegetable oil. Unfortunately, we don't have a really good vegetable oil crop in the U.S. I'm looking at the diagram athttp://www.eia.doe.gov/emeu/aer/pecss_diagram.htmlLast year .833 quadrillion BTUs of renewable fuels supplied 3% of our transportation energy, while 1/4 of our corn crop went to making ethanol.If we increased that by a factor of 4, we'd use 3.33 quadrillion BTUs of biofuel to supply 12% of transportation fuels or displace 9% of our petroleum usage.If we instead we doubled our use of natural gas for industrial electricity and CHP, from 8.1 quadrillion BTUs to 16.2 quadrillion BTUs, that would cut petroleum usage by 22%.Which could we ramp up quicker and have greater effect?

    Comment by Clee | September 26, 2009

  28. Clee, even long-time ethanol critics like Fargione admit that you get 60% of your livestock feeding ability back when you process corn starch to ethanol (NREL says it's more like 70%.) Once you take that into consideration, 1/4 of our current corn crop would be 13B bu X .25 = 3.25B bu / .4 = 8.125B bu X 2.85 al/bu = 23,156.25 Billion Gallons for 25% of our corn crop.But, that's not the important thing. The important thing is that There are many, many more feedstocks than corn. As an example, we raise a Lot of sweet potatoes in Mississippi. We could raise a heck of a lot more (sweet potatoes are a great feedstock, btw.) Same goes for sweet sorghum. Municipal solid waste. Sugar Cane in La and Ca. Every County, every little town, and city could, very quickly, build a still. We've only been doing this for 300 years. There's no way batteries can be ramped that fast. Besides, batteries require "New" Cars. Run That through the computer.Ethanol can be used in "Existing" Cars.

    Comment by rufus | September 26, 2009

  29. I never mentioned BEVs as fast to ramp; straw man.I was talking about stationary sources, not transportation. With the oil shock we had in the '70s, the power companies changed from oil to natural gas and nuclear. That was the low hanging fruit. Homeowners in the Northeast changed from oil hat to gas heat in the early '80s and many switched back to oil when oil was cheap in the '90s. It would be easy for them to switch back to natural gas. I don't know if the same thing happened in the industrial sector, but 23% of our petroleum use as energy is in the industrial sector. I think they could switch a lot of that to natural gas. I would not have suggested that a couple of years ago when there was talk of peak natural gas. Maybe that's why they stuck with oil. But now with all the shale gas (and possible carbon cap and trade coming along), switching to natural gas might look very good to them. MSW doesn't seem to get turned into ethanol as other energy products are easier to make from it. RR and Ron Steenblik mentioned why we don't to use sugar cane for ethanol in the US. But sweet potatoes is a new twist I hadn't considered.I don't follow your math. 25% of this year's crop is 3.25B bu. I get that much. But why are you dividing by .4? If you were able to get 99% of your livestock feeding ability back when you process corn starch to ethanol, would you have divided by 0.01 and gotten 325B bu worth of corn to turn into ethanol despite there only being 13B bu total to begin with?Anyhow, last year ethanol and other transportation biofuels replaced only 2.2% of our petroleum energy consumption in 2008. Increasing from 12.1 B bu last year to 13B bu this year and increasing from 2.8 gal/bu last year to 2.85 gal/bu this year could only increase that to 2.4%. I'm assuming that whatever percentage of livestock feeding ability blahblahblah that exists this year was the same as last year, so that will not suddenly increase ethanol production by a factor of 2.5.

    Comment by Clee | September 27, 2009

  30. Clee, I was just pointing out that we didn't use 25% of our corn crop. We actually used less than half that much.Today we are producing, on an annual basis, 11,532,000,000 gallons of ethanol. Cut it down to approx 9 billion due to lower mileage. 587,000 barrels/day gasoline equiv.Last week we supplied 9.2 million bpd of blended gasoline. 587/9,200,00 = 6.3% of our gasoline is ethanol after allowing for less mileage. I see what you mean about using the home heating oil to operate diesel engines. That makes sense, I think.

    Comment by rufus | September 27, 2009

  31. Okay, so the 25% (according to the USDA) of the corn crop used last year for ethanol produced more than just ethanol. Dividing by .4 is still bizarre.If you took all of last year's corn crop and sent it all to the ethanol plants you would have gotten 4 times as much ethanol than was actually produced last year, as well as 4 times the DDGS. You would not have been able to get more than 4 times the ethanol out of that crop unless you took the DDGS away from livestock feed and turned some of the DDGS into ethanol like TMO Renewables is trying to do. TMO said they could increase ethanol production levels by 15%. That would increase ethanol yield using 100% of last year's corn from 4 times last year's actual ethanol production level to 4.6 times last year's level.

    Comment by Clee | September 27, 2009

  32. …we would need to be pumping at least 8 Million Barrels/Day More than we are, today, to be at break-even in Dec 2010. & Actually, if you take Five Million Barrels of Decline, and the, possible, 3 Millions available now we're probably looking at more like 10 Million Barrels by the end of next year.It's gonna get ugly.It'll get ugly. That's the only part you got right, Rufus.The evidence you present points to higher oil prices. Higher oil prices will achieve much of what we all support, such as increasing efficiency, conservation and alternatives. Sounds like win-win to me.In addition, we avoid an acidic debate about the need for higher taxes. Unfortunately a large part of the country sees no new taxes as religion. Whether they can ever snap out of it remains to be seen.RR sees high oil prices as a tax on the US economy. I think it is more like a tax on high consumption. And an incentive to do things differently. The evidence shows that the incentive works.The advantage of leaving it to the market, is that price signals work: at higher prices there is a lot of drilling at the supply side and a lot of conservation at the demand side.The main disadvantage is that the petrodictators (as Tom Friedman calls them) make a ton of money. Not to worry: eventually their game will be up, as Mr. Chavez seem to be finding out to his cost.The bigger question is whether the market can take care of this without going into huge fluctuations which would pretty much paralyze everybody.I believe a robust US economy would power ahead, regardless of oil prices. That does not mean that nobody gets affected. For example higher oil prices would finally kill GM and Crysler and allow other car companies to fill the void.The question is whether the prostitutians can leave things alone and allow this to happen.

    Comment by Optimist | September 28, 2009


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