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More Bad News for the Anti-Ethanol Crowd

by: Tim Plaehn July 23, 2008 | about stocks: VSE    
Tim Plaehn

Tim Plaehn

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USDA_DOE_biofuels_letter_61208.pdf (application/pdf Object).

The link above is the Department of Energy’s response to several questions concerning biofuels' impact on food and energy prices. The questions are from Senator Jeff Bingaman, Chairman of the Senate Committee on Energy and Natural Resources. The 16 page report is in question-and-answer form and here are some selected quotes:

First, the effect of biofuels on U.S. food prices:

During the first 4 months of 2008, the all food CPI increased by 4.8 percent, with increased ethanol and biodiesel consumption accounting for only about 4-5 percent of the total increase while other factors accounted for 95-96 percent of the Increase.

That’s right: Biofuels account for 4-5% of the recent food price increases. Data for 2007 show a lesser effect.

Next, how much has U.S. biofuel production affected global food prices:

From April 2007 to April 2008, in the absence of any growth in biofuel production in the United States, we estimate that the International Monetary Fund [IMF] global food commodity price index would have risen by 40.6 to 42 percent as opposed to 45 percent.

In other words, biofuels account for 3-4% of the 45% increase of food commodities globally.

How has increased ethanol and biodiesel consumption affected gasoline and diesel prices?

Biodiesel use has had a negligible effect on diesel fuel prices since biodiesel fuel production is so small compared to total diesel fuel use.

 

 

We estimate that, if we had not been blending ethanol into gasoline, gasoline prices would be between 20 cents per gallon to 35 cents per gallon higher.

Remember, when diesel fuel cost less than gasoline? Remember when the U.S. did not produce 9 billion gallons of ethanol to blend into gasoline?

I know there are many readers who do not believe any reports that do not agree with their point of view, but they will believe the fear mongering of an anonymous website. Those types should not read the report. For those who like to read and make their own decisions, scan through the entire report.

Another piece of good news came from VeraSun Energy (VSE) yesterday. The company is now starting up its new North Dakota refinery, which it put on hold less than a month ago, due to improving market conditions. Maybe because corn has fallen from $8/bushel to $6 and nobody noticed. (Press release here.)

These news pieces reinforce my ongoing belief that corn ethanol is an integral, necessary and growing part of the U.S. fuel structure. Neither the politics, economics or technology (i.e: cellulosic ethanol) will change the equation anytime in the foreseeable future.

Note: I have a long position in VSE.

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This article has 67 comments:

  •  
    Jul 23 05:24 AM
    Sorry, but the DOE letter lost all credibility when they stated it was urgent to "reduce greenhouse gas emissions." Yeah, that's right up there on the Super Urgency list, just behind "don't forget to TIVO Soprano's re-runs." Warming science is so bad and has been so completely disproven that only the media and crummy politicians give it any credibility anymore.

    And then, the DOE cautions about "hasty judgments, driven by highly questionable, agenda-driven calculations." As we all know, our govenment is a non-political, non-agenda driven agency that never makes hasty judgments, and only cares about Our Best Interests -- so surely any reports issued by the government are reliable and enlightening to the dumb masses. Hey, if you can't trust our government, who can ya' trust!?

    Here's a radical idea that would "reduce our dependence on foreign oil" -- let's drill our OWN oil and bring that to market! Oh right, I forgot it's a New Paradigm Economy now: we don't need natural resources to supply our country its wealth anymore -- our wealth nowadays is provided by credit markets, government jobs, and exporting knowledge.
    Reply
  •  
    Jul 23 05:46 AM
    interesting Bush administration response to the issue of how biofuel production effects the price of fuel in America, and its effect on the prices of American and worldwide food.

    the main thrust of this report was to say if you do anything to disturb the status quo (making 9 billion gallons of ethanol from corn and soybeans this year, and increasing production every year thereafter) - you are going to pay more for gasoline from 25 cents to 35 cents per gallon. further, this report said the food price increase for the consumer (based on cpi calculations) would add less than 0.7% to the cpi for all foods.

    let me think. the price of corn and soybeans have doubled in two years. a large minority of the world population barely has enough income for food and the price of a staple in many of their diets has doubled.

    i agree with the report that we do not want to be hasty in making any changes before we educate ourselves on biofuels. i was a big proponent of biofuels. but this year has opened my eyes to the effects on the food prices due to using food we eat to make gasoline.

    why not remove the $0.51 per gallon ethanol blenders tax credit for starters, and let market forces decide whether we should eat corn and soy, or burn it in our cars.
    Reply
  •  
    Jul 23 07:21 AM
    When talking about ethanol lets put in perspective these mother theresa arguments about the world starving -like the rice shortage. It is of course always the greedy American farmer!

    Let's see Brazil grows sugar not even corn for it's fleet think it can spare a few acres for it's own poor?

    Oh yes Norway where it just awarded the Nobel Peace Prize to the carbon computer model hypothesis originator. Can we ask them for a few corn shipments since they have no problem with

    fighting the Russians for drilling rights in the North pole,

    and has the second highest sovereign wealth fund 285 billion for 5 million people -for investments!

    I think Americans needs to put on hold the new reports of food crises and ask what the oil exporters can do for their crisis and not the oil importers.
    Reply
  •  
    Jul 23 08:21 AM
    Ethanol = Red state welfare.
    Reply
  •  
    Jul 23 08:29 AM
    last winter-spring we planted and will now harvest one of the largest plantings of corn in human history. there is no corn shortage, only speculation of one. who benefits most from bad-mouthing the ethanol expansion effort? by keeping our production down? follow the money trail. US Sugar Inc in florida is shutting down operations as natural dietary sugar demand drops. why not then use the cane for ethanol a la brazil? you tell me.

    something in denmark smells rotten
    Reply
  •  
    Jul 23 08:35 AM
    I want to believe, but when it comes to the Bush administration, it's "hard work."
    Reply
  •  
    Jul 23 08:38 AM
    We won't know how cost effective ethanol actually is, until we remove the subsidies. If it is so great, why does it need subsidies in the first place? Remove the help, and see what happens. If it is good, it will work without the subsidies.
    Reply
  •  
    Jul 23 08:40 AM
    credibility of the bush/cheney/rumsfeld/w... administration is zero.
    > jack
    Reply
  •  
    Jul 23 09:00 AM
    Thanks for that info . I have believed for a long time that the ethanol industry have been pummeled by misinformation , and believe if you really look hard the distillers feed that is a byproduct as well as the corn germ and fiber can be used elsewhere , I am under the understanding that they only need the corn starch to make ethanol . To go even further , crops like sugar beats , sweet sorghum, and lets not forget all that sugar in watermelons , could make ethanol also . this is where sugar cane is more productive agent for ethanol , we have to turn the starch into sugar before we can make ethanol . I do believe that this is just the beginning for Verasun , and I think they are on the right track with implementing there own retail pumping stations .
    Reply
  •  
    Jul 23 09:02 AM
    Better to blame congress, the PORK resides there. It always has and always will. The Congress is rife with corrupt old farts who care about nothing but re election and special interests, no President will change that.
    Reply
  •  
    Jul 23 09:33 AM
    No credibilety indeed.

    quote:
    "something in denmark smells rotten"
    /quote

    Well atleast they have plenty of ventilation
    Reply
  •  
    Jul 23 10:55 AM
    inre "corrupt old farts"

    Maybe thats causing worldwide global warming.
    Reply
  •  
    Jul 23 11:15 AM
    This is just "dumb mongering," if biofuels represents a small fraction of fuel use in Amercia, (the author doesn't say what that fraction is) but accounted for 3% to 4% of the increase in food prices, what does the author think will happen to food prices if the consumption of biofuels increases? Won't the corresponding affect on food prices accelerate (possibly exponentionally?)
    Reply
  •  
    Jul 23 11:25 AM
    Mr. Amory Lovins. Know him? You should. He knows energy.
    Corn politics is most powerful among lobbies. Corn is King. The PNAC crowd loves BIG anything. No surprises here with corn ethanol. Numbers be damned.
    Corn for fuel can be replaced with a wide variety of vegetable sources and even organic waste. That is not profitable enough. A pity. Is that what market forces really mean?
    Reply
  •  
    Jul 23 11:31 AM
    Obviously they are full of something, and it's not corn.
    Reply
  •  
    Jul 23 11:49 AM
    In response to your post...

    1. Virtually NO ONE thinks ethanol is a bad idea, just CORN ethanol. Ethanol made from sugar and grasses have a bright future.

    2. The main problem with deriving ethanol from corn is it takes MORE energy to MAKE than it PUTS OUT.

    3. You CANNOT blame corn farmers for wanting to hold on to this windfall. Born at a time when farming was in an economic depression, the idea appeared to make sense.

    4. Like all the rest of us receiving government HANDOUTS, corn farmers want to hold on to theirs. You can't blame them for that, either.

    5. As time goes forth, SUGAR TARIFFS are ended and SWITCHGRASS proves itself, corn ethanol will die a natural death. And deservedly so.


    Reply
  •  
    Jul 23 12:52 PM
    To some extent when we produce corn we are mining the topsoil that is a legacy 1000's of years in the making. This has been one of the great resource blessings that we inherited as settlers on the Great Plains. Lets not forget that this can be depleted like all our natural resources and in fact we are daily washing the topsoil away down the muddy Mississippi. The value of topsoil has rarely been considered in any equation as to the costs of corn or other commodity crops. Historically the wealth of nations rise and fall with soil depletion. Add this to the debate over ethanol and the idea of driving away our topsoil puts me in the camp against it.
    Reply
  •  
    Jul 23 12:59 PM
    The problems with Ethanol are:

    ... It requires more energy to make it than it yields.

    ... It yields SUBSTANTIALLY less miles per gallon than regular gasoline.

    ... Production, and transportation of ethanol results in more pollution than gasoline produced by oil

    ...It results in the depletion of the rain forests thereby adding to pollution.

    ... Yes, it has resulted in food shortages in less developede countries. Why were they rioting? Because their children were starving.

    Al Gore is "ozone man" he has his head in the clouds if he feels that we will achieve our alternate energy needs without the use of nuclear energy and carbon-free coal. France derives 80% of its electricity from nuclear plants and has never had an accident. We have 250 nuclear powered ships in our Navy and have had nuclear ships for over 50 years.Never had an accident.

    Murray Gross
    Reply
  •  
    Jul 23 01:12 PM
    I stopped driving the car. If the rest of the US would get their heads on straight and walk more we will all be better off.
    Reply
  •  
    Jul 23 01:21 PM
    Corn ethanol will never displace any real quantities of gasoline and diesel in the U.S. The U.S. consumes 25,000 trillion BTUs in its gasoline and diesel vehicles per year. If every single kernel of corn was used to make ethanol/E85, it would produce 3,600 trillion BTUs of fuel. That's 15% (at best) replacement of the traditional fuels. Ethanol is a boutique fuel, and nothing more. It will never be "big time." The math is easy, but there are a lot of zeroes.
    Reply
  •  
    Jul 23 01:39 PM
    Amory Lovins for Dept of Energy Czar!
    Reply
  •  
    Jul 23 02:04 PM
    jjason has a point......

    It looks like we'll ride the train to work in the future........ Suburbia may get lonely. If you want to keep property values in your community up lobby for light rail service.
    Reply
  •  
    Jul 23 02:30 PM
    How about a few cars that are electric , a few hydrogen, a few ethanol could make a huge difference.
    And if we were to drill our own oil.
    Maybe we can keep our money here in the USA..
    Reply
  •  
    Jul 23 02:56 PM
    Pretzel Logic, you must be one of those people that thinks evolution is "just a theory", and who doesn't understand the concepts of "scientific method" and "peer review". In reality, climate change research (if you've EVER read any climate studies and their reviews/reproductions) is among the most solidly reproduced and reviewed research done in the past fifty years. You should talk a look at the "scientists" that make claims to the contrary - they are either ridiculed by the scientific community as unethical, irresponsible, or simply terrible researchers whose reports are torn apart when reviewed by their peers, or they receive "research funding" from the oil, gas, and coal industry's largest lobby groups.

    When a panel of international scientists, business leaders, and politicians come together to review the literature and make conjectures (as they do in the Intergovernmental Panel on Climate Change), you can bet that whatever they reproduce will be as honest, independent, and untainted by political desires as possible (though the results were actually toned down by pressure from China). When Bush's administration, on the other hand, publishes a report, you can bet there are some land mines laying around. I mean really, despite the fact that the USDA said it was urgent to "reduce greenhouse gas emissions," what the hell have they been doing OTHER THAT SUPPORTING BIOFUELS?

    One leads to another. Of course they're going to say that biofuels aren't responsible for the food crisis - they're touting them as the solution to a much bigger problem!
    Reply
  •  
    Jul 23 02:58 PM
    Jack, et al,

    C'mon guys, you should hear yourselves. Park our cars, move to central cities, reduced property values, etc., etc. Don't you remember Jimmy Carter's nonsensical ERA OF LIMITS? No offense, but you all sound just like him.

    Our nation's ECONOMY HAS DOUBLED since then. Sure, we're short of oil as the rest of the world has decided to emulate us. But we've DOUBLED our natural gas reserves in the past 5 years alone, and we have enough other domestic energy resources we can develop to power our economy forever!

    PLEASE, stop listening to doomsayers like Jimmy and Al Gore (... who claimed to have invented the Internet... Right!) Let's get on with the job of BUILDING OUR ECONOMY and making our nation great once more.

    Did we come through the past 200 YEARS to end up like a nation of sheep, doing whatever some half-baked politicans told us to? Of course not! So vote for people and ideas that will lead us and our children to a brighter future.

    Besides, this is one hell of a sorry example we're setting for them, wouldn't you agree...?

    Reply
  •  
    Jul 23 03:55 PM
    ...yeah, yeah, but the gov't is hedging the biofuels with biomass fuels...they are funding companies like Verenium (VRNM).

    Why? Even the Bush Administration (or at least someone with a brain operating therein) understands diversification is the key - you do not want to be beholden to anyone crop or industry.

    Reply
  •  
    Jul 23 05:26 PM
    hey sell your cars quit driving. move to the cities. please. i have this beautiful home on a lake. a beautiful woman to share it with and we love privacy. i just do not want my neighbor to move with you. he is a farmer and a great guy and this little cul de sac already has a reputation of being the worst place for a burglar to try as three times now they have been faced with gun totin rednecks for even walking through here late at night. we call each other instead of 911. city life is great. just to be sure there is room for 2 more families we will be generous and stay here. ever been on the streets of san antonio after 2:00. great excitement. hey late night houston is stimulating too. miami is a real treasure. there is one boring thing those little gang punks cannot shoot for (explitive deleted). if every body goes it want be so hard to get the little tyrant to go skinny dipping at night. or maybe we should get busy on cost effective substitutes and get to drilling. i do like the idea of everyone moving to the cities as long as you leave us out. BRAVO PAUL8756. THANK YOU MY FRIEND. ..............AVIGHAND... perhaps you are a descendant of apes. i and the little tyrant however are made in the image of God. anybody ever heard of dar or gu?
    Reply
  •  
    Jul 23 06:22 PM
    Fireball, from another country dweller, thank you. And jjason, some of us don't live in areas where there is public transportation, and we live too far from work to walk (30 miles each way?). We use more sunlight to warm our homes, and grow most of our own vegetables. Some of us even use hunting season for freezer stocking instead of sport. A few more years, and I won't even have to drive to work anymore. Think of the fuel I'll save then!
    Reply
  •  
    Jul 23 09:47 PM
    Riots in the third world. What a shame. A mass of people who already hate the US are going to have to produce their own food (or starve) instead of relying on the Great Satan. My heart bleeds. As for subsidies, I'd rather pay for something that produces some modest benefit to some productive Americans (like ethanol) than the much more burdensome subsidy for the mass production of welfare babies. Fix the later, then I'll worry about the former.
    Reply
  •  
    Jul 23 11:16 PM
    Global Warming...yeah I know, I know its our fault. But how is it NASA also found global warming on Mars (for real, go look it up). Are martians bad stewards of their planet too? Maybe Al Gore can sell them carbon credits ......what a scam.
    Reply
  •  
    Jul 24 01:32 AM
    AviGandhi, are you serious?

    To address your first piece of misinformation about how the only scientists who disagree w/ warming theory are crackpots (I know you've heard this repeated over and over by the EnviroFascists, but it simply isn't true). So, here's a letter to the IPCC from a panel of scientists, including a Nobel Laureate (hint: these people are NOT crackpots), asking them to retract their stance on global warming:

    www.climatescienceinte.../ipcc_letter_14april0​...

    Here's another extremely well-respected scientist who says warming theory is bunk: S. Fred Singer, an atmospheric physicist, is Research Fellow at the Independent Institute, Professor Emeritus of Environmental Sciences at the University of Virginia, and former founding Director of the U.S. Weather Satellite Service. Do you suppose he might know something about climate, as the former founding director of the U.S Weather Satellite Service? Or is he another shill for the oil companies/Republicans/... aliens who are out to disprove global warming? Here's some of what he has to say:

    www.independent.org/ne...

    Look up Dr. William Gray, also known as the Godfather of Hurricane Prediction. He is, bar none, the most accurate predictor of hurricanes on the planet -- so he might have a pretty good grasp of complex climate models and systems. In fact, he probably has a better understanding than most of his peers, given his record. Dr. Gray on warming theory: "It bothers me that my fellow scientists are not speaking out against something they know is wrong. But they know they'd never get any grants if they spoke out."

    I could go on and on. It's not just "crackpots" who believe global warming is bunk. Far from it. You're buying the Envirofascist's party line (on "crackpots")... without independently researching what they're telling you.

    To your second, misguided belief that "When a panel of international scientists, business leaders, and politicians come together to review the literature and make conjectures (as they do in the Intergovernmental Panel on Climate Change), you can bet that whatever they reproduce will be as honest, independent, and untainted by political desires as possible."

    I admire your faith in humanity. However, there were actually severe conflicts of interest going on within the panel. Many of the "business leaders" actually own companies that profit from trading in "carbon credits." They were EXTREMELY motivated to get the world to believe in global warming. And the global warming messiah, Al Gore, is President of Generational Investment Management, which also sells carbon offsets. You think these people have your best interests at heart? Think again. They profit from your naive trust in their propaganda.

    Additionally, some of the "scientists" who signed the IPCC consensus were plastic surgeons, doctors, etc., who know NOTHING about climatology.

    I don't have time to talk about global warming for 10 pages in this post, but if you start doing some real independent research (hint: get away from your TV and your newspaper and MoveOn.org), you'll see that the science is bad and the people promoting it are unabashed profiteers.

    As to the scientific method, you can prove my argument very simply by actually *using* the scientific method all by yourself. You don't even need a well-respected plastic surgeon to do THIS math: Warming theory states that temperature rises as atmospheric greenhouse gases rise. Over the past 10 years, atmospheric greenhouse gases HAVE risen -- and yet, from 2007 to 2008 we experienced the largest one-year temperature DROP in the history of instrumentation. Under warming theory, it isn't possible for temperature to drop while greenhouse gases rise, yet that is exactly what has happened. Therefore, warming theory is *wrong*.

    Once again, don't take my word for it; look it up. But keep in mind that naysayers are ridiculed and censored by the mainstream media, so you might have to dig a little harder to get to the truth.
    Reply
  •  
    Jul 24 01:34 AM
    The first link didn't go through correctly, here it is again:

    www.climatescienceinte...

    Reply
  •  
    Jul 24 10:08 AM
    algore using the jfk challenge is like clinton teaching at a girls boarding school.
    Reply
  •  
    Jul 24 10:35 AM
    GUYS read the battle of athens, not greece, tennessee. ww2 veterans come home to a corrupt county political machine. written by a liberal to discredit the participants, but he found himself siding with the veterans. i know his account is fairly accurate because i knew personally some of the participants.
    Reply
  •  
    Jul 24 12:33 PM
    i saw on the news last night that dow and u.t. are building an ethanol plant which will use corn cobs and switch grass. seems a step in the right direction if they can make it turn a profit. WHISPER you are most welcome. i do not hunt anymore. a few summers working on a kill floor skinning cows took the sport of it away from me. however i will not bat an eye if i need to for meat. last evening i was sitting on the back porch looking at the lake when a big old buck walked by about a 100 feet away on his way to get a drink. he was fat. he got spooked on his way back and bounded off. a few years back we were having a pretty cold winter. the pundits were crying about global warming and interviewing people on the street. one old bum was asked what he thought about it. he rubbed his hands together trying to warm them up looked at the camera and said, global warming? i am all for it.
    Reply
  •  
    Jul 25 04:15 AM
    I hope all of you concervatives invest heavily into ethanol and lose you pants
    Reply
  •  
    Jul 25 12:03 PM
    I don't think ethanol is really viable but I think every option to lessen dependency is exactly that --- an option. And everyone whines about "its only makes up 5%", but if you add up 5 or 10 options that are 5% each, thats 25 to 50%!! We need to get creative and the current people running the country are anything but. Even if ethanol is not a bust, the Busheez will make sure to block it with higher taxes, inflating the food prices, and basically lying to everyone. But they don't have a track record of lying to people to sell or war for oil, do they? We need to take the shotgun approach at energy to solve this.
    Reply
  •  
    Jul 25 12:19 PM
    Iowa, Minnesota and Illinois are all pretty much Democrat territory and most farmers have been Democrats since the New Deal. Obama and Hillary both spent a lot of time in Iowa pumping up ethanol production from corn. American farmers have millions invested in land and equipment to grow corn. That is $millions$ for each farm! How much tax payer money do you think it would cost to try to switch to switch grass?

    The current ethanol producers will be the ones who get more ethanol from corn stalks and cobs as soon at it becomes economically feasible.

    For the question above: Ethanol is currently about 7% of the "gasoline" used in the U.S. It will not replace petroleum gas, but very likely be 15-20% of motor fuel by 2015. Blends of up to E30 have been shown to run fine in modern cars with no noticeable change in fuel economy, even improvement in some models.
    Reply
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