Wednesday, May 07, 2008

The Ethanol Disaster.

Does one need more evidence that government meddling in markets yields miserable consequences? Take the "ethanol initiative", a federal mandate to increase the production of the biofuel to 15 billion gallons a year by 2015. Ethanol is extremely costly in both energy and greenbacks to bring to the market, and has skewed the production and distribution of food grains causing higher prices and shortages. A political Frankenstein brought to life in the laboratories of the agribusiness and farm lobbies, it's unstoppable during the current election cycle (despite Republican intiatives to restrain it) and could very well be immortal. And the intiative's part in our energy strategy? The 15 billion-gallon target is insufficient to supply a 15% (E15) mixture to our current annual consumption of gasoline. The response of Big Ethanol of this critcism is to push for a 36 billion-gallon target by 2022. Corn-based production of this target would result in chaos in grain markets, risks to arable land management, severe inflation in food costs, no finanical relief for energy costs, and a minimal bottom-line reduction in overall oil consumption.

So are transportation biofuels a bust? Our opinion is that stupid ones like grain-based ethanol are, but others such as cellulosic ethanol, and non-farmed biodiesel and methanol sources are certainly viable. Methanol production costs are a fraction of ethanol (about a third), does not compete with food production (it can be made from coal, or natural gas from either geological deposits or from landfills and digesters). Methanol-gasoline mixtures can be used in vehicle engines that now burn ethanol-gasoline formulas. Biodiesel has more challenges, in providing economic and widescale production, as well as the changing puzzling prejudice that the American vehicle market has had against diesel passenger cars.

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