Wednesday, May 30, 2012

Saving the planet with ethanol

What could be better than ethanol? The mostly corn-based, renewable biofuel extends the US gasoline supply, reduces greenhouse gas emissions, and boosts the income of the American Farmer. Ethanol’s higher octane rating makes it more powerful than regular gasoline, and every gas pump in the land prominently displays a sticker or sign encouraging consumers to Save the Planet by using the ethanol blend. The ethanol blend is almost always priced from 4-10 cents lower per gallon than regular unleaded gasoline, so consumers can not only help Save the Planet, they can also save money at the pump. What a deal!

Unfortunately, little of the above is true, although it is the way the ethanol story is reported by the major media, by corn and ethanol advocates and lobbyists, and by environmental activist organizations.

And because that’s the way the story gets reported, it’s become a major part of the green narrative, and therefore enjoys wide public, and of course, political support.

So let’s look at the claims made about ethanol and whether turning corn into fuel is on balance helpful or harmful to American farmers, ranchers, and consumers.

While there’s no doubt that ethanol extended the U.S. fuel supply in 2011 by about 10 percent (nearly 250 million gallons), one has to wonder whether corn ethanol is really a renewable fuel. Can corn ethanol production be sustained at the levels federal law calls for?

The Energy Independence and Security Act of 2007 (EISA) is the law of the land regarding ethanol production. Under the aegis of that law, the Environmental Protection Agency (EPA) develops and implements regulations regarding EISA, setting the national Renewable Fuel Standard (RFS).

The RFS calls for a tiered increase of biofuel production and blending into the domestic fuel stream through 2022. In 2008 the RFS was revised and upgraded, calling for a production increase from 8 billion gallons of renewable fuel each year to 36 billion gallons annually by 2022.

According to the RFS, 31 billion of the 36 billion gallon annual requirement is to be ethanol. Fifteen billion gallons is required to come from traditionally fermented and distilled corn starch each year. Cellulosic biofuel – ethanol produced with feedstocks other than corn – is required to produce 16 billion gallons each year. The remaining five billion gallons is called “undifferentiated advanced biofuel,” described as “…other than derived from corn starch…(including) “cellulosic biofuels, “biomass-based diesel”, and “co-processed renewable diesel.” While corn ethanol is very nearly meeting those legally binding goals, undifferentiated advanced biofuels are falling far short.

According to numbers published by the U.S. Energy Information Administration (USEIA), about 328.5 million barrels (bbl) of corn ethanol was expected to be produced (about 900,000 bbl/day). At 42 barrels per gallon, 2011 corn ethanol production should total just under 13.8 billion gallons, roughly quantity set for the year by the RFS and about 92 percent of the annual total called for by 2022.

According to Kansas State economist Ted Schroeder, who spoke last month at the Range Beef Cow Symposium at Mitchell, Nebraska, this production accounted for 35 percent of U.S. corn production, a number which is expected to grow to 40 percent by next year. And corn ethanol produced this year came from last year’s corn crop (the 2011 corn harvest is still under way).

Is there enough farmland to grow the quantity of corn required by the RFS? The answer is yes, but the question of corn ethanol sustainability is complicated by the fact that corn is an important food crop. It feeds humans directly as bread, meal and syrup (sweetener), and indirectly as livestock feed.

According to the 2007 U.S. Census of Agriculture, U.S. farmland totals 406.5 million acres. In 2007 corn was cultivated on 86.2 million acres and produced 12.7 billion bushels. According to the USDA, 2009 corn production hit 13.2 billion bushels, the highest annual production on record, on 86.5 million acres. In 2010 corn production was 12.45 billion bushels on 81.4 million acres. The 2011 forecast is 12.3 billion bushels on 83.9 million acres.

If 35 percent of the 2010 yield of 12.45 billion bushels produced 92 percent of the 15 billion gallon corn ethanol RFS, then only a three percent increase would meet the RFS goal. But corn production isn’t static, and the 2011 yield is expected to be lower, so that it will take 40 percent of this year’s crop to match 2011 ethanol production in 2012.

In theory, it is possible to eke out enough corn to hit the 15 billion gallon annual RFS mandate, but is that target reliably sustainable? What happens when the weather doesn’t cooperate? What happens when there is drought, or flooding, or disease or pest problems?

Proponents of the RFS and the mandate to produce 15 billion gallons of corn ethanol annually opine that the solution is to plant more acres of corn. But is upping U.S. corn acreage possible? And at what cost? If you count sorghum, soybean, sugarbeet, and even dry bean acres, you could theoretically add about 70.6 million additional acres of high-yield corn cultivation, for a total of nearly 160 million acres. But that’s really all the suitable high-yield corn land available in the U.S. And if you convert all sorghum, soybean, dry bean and sugarbeet acres to corn, the law of supply and demand will become the driving force. As stocks of the non-planted crops dwindle, their value will increase. Farmers, if they remain at liberty to plant the crops which will bring them the highest economic return, will turn away from corn and begin planting the more valuable crops. Corn production will fall off.

Ethanol production and government subsidies are not new phenomena in the United States, but the quantity of corn used for fuel was fairly low through the 1970s, ‘80s and ‘90s. Production began picking up in 2002 and 2003, and has grown rapidly since, driven by the ethanol demand of the RFS. As fuel prices increased, auto manufacturers stepped up production of E-85 vehicles and states began mandating ethanol to replace other fuel additives. The increase in corn ethanol demand, which effectively links corn prices to oil prices, has caused corn prices to increase. This means more profitability for corn farmers, but it not only increases fuel prices for consumers, it also increases food prices for consumers. As corn prices rise, so do the prices of wheat, soybeans, and other crops. The price of plant-based food goes up, but since livestock are also fed by with corn, grains and soybeans, the price of meat goes up as well.

Each 56-pound bushel of corn processed for fuel produces 2.8 gallons of ethanol and roughly 18 pounds of animal feed in the form of distillers’ grains, so about one-third of the corn used in ethanol production returns to livestock production. Even so, the use of corn for fuel has played a role in increasing the price of corn from $2 per bushel in 2005 to $6 in 2011. There are other factors, such as exports and food use, but Schroeder said that corn prices would be $1 to $1.50 per bushel lower if no corn went to ethanol production. Those lower prices would be reflected in lower food costs.

And while increased crop prices are a boon to farmers, ethanol production has a large negative effect on the economics of livestock production. According to Schroeder, for instance, a $1 per bushel increase in corn prices drives alfalfa hay prices up by about 15 percent, which increases the production costs for cow-calf operations and reduces their profitability. The same $1 increase raises feedyard cost of production by about $60 per head, resulting in lower prices at the sale barn for cow-calf producers while still increasing the retail price of beef.

There is a similar economic impact in every other livestock sector, including pork, lamb, and poultry. Consumers are paying more for meat and poultry, while producers, feeders and retailers find their profit margins reduced – or in some cases, gone completely.

The picture isn’t entirely bleak for those livestock producers who have survived. New technologies and improved management practices have allowed many producers become more efficient. In the cattle sector, a smaller U.S. cow herd and small increases in domestic and international demand for beef have led to a higher value for calves and feeder cattle. But high feed costs continue to erode profitability, and consumers continue to pay more for food.

Still, these things are a small price for food producers and food consumers to pay to Save the Planet, right?

Well, perhaps not.

Despite the dire and ongoing predictions of the environmental activists and global warming alarmists, the planet has actually been cooling since 1998. Although it runs counter to the popular narrative, there’s more and better evidence that global cooling poses a larger threat than global warming. Geologic and historical data show that global temperatures have been both significantly warmer and significantly cooler over the past 10,000 years. Periods of warmth have been times of plenty, and periods of cold have been times of famine.

As we’ve discussed in previous editions of this series, there’s also increasing evidence that greenhouse gases do not drive either global temperature or climate change, and that the role man made greenhouse gases play is insignificant.

One of the major arguments for the RFS and blending ethanol into the fuel stream has been to reduce man made greenhouse gas emissions. If you discount the evidence militating against man made, or anthropogenic, global warming (AGW), and believe the key to Saving the Planet lies in reducing man made carbon dioxide (CO2), methane (CH4) and nitric oxide (NO2), then ethanol, with it’s lower carbon footprint, still has to be a good idea, right?

Again, perhaps not.

Combustion of most ethanol-blended gasolines produces essentially the same carbon footprint as gasoline. CO2 production is sharply reduced in high ethanol:gasoline ratios, such as E-85, but at the cost of increased ozone (O3) and carbon monoxide (CO) emissions. The total carbon footprint of E-85 is unchanged with respect to plain gasoline or lower ratio ethanol blends. Unlike the hydrocarbon gasoline, made up of hydrogen and carbon, ethanol is an alcohol, composed of hydrogen, carbon and oxygen. Because alcohols have higher octane, or anti-knock ratings than gasoline, ethanol was considered as a replacement when lead anti-knock additives were banned from gasoline in the early 1970’s. While lead was eventually replaced by safer compounds, ethanol was shown to reduce smog emissions, mainly through increased combustion efficiency and reduced detonation in the higher compression engines of the day, and ethanol additives began to be used in urban areas in the late 1970’s.

Ethanol is able to reduce CO emissions because it features oxygen in each molecule, and when combusted, that oxygen combines with carbon monoxide in the exhaust (carbon plus one oxygen, CO) to form carbon dioxide (carbon plus two oxygen, CO2). CO2 is a less toxic gas, but nevertheless, it’s the one said to be a major player in global warming.

Reducing carbon monoxide levels is a reasonably good thing, particularly in densely populated areas with lots of automobile traffic. But ethanol combustion produces considerably more ozone than does gasoline combustion. And ozone, a major constituent of photochemical smog, is not a good thing in densely populated areas with lots of automobile traffic.

Recently a number of studies, including one conducted at Stanford University, showed that ethanol combustion produces at least two airborne carcinogens, formaldehyde and acetaldehyde. Since gasoline also produces carcinogens, benzene and butadiene, cancer rates attributed to motor vehicles powered by internal combustion engines will likely remain the same, regardless of fuel type. Unfortunately, the increased levels of smog associated with ethanol would probably increase smog related premature deaths by about four percent and spike asthma-related emergency room visits and hospitalizations.

So after spending the last forty-plus years reducing smog, ethanol may reintroduce the nasty “brown cloud” to generations who’ve never experienced it.

Ethanol blended gasoline is also more likely to contaminate groundwater than straight gasoline. Being hydroscopic, ethanol absorbs water, increasing corrosion in gasoline storage tanks and transport pipelines, increasing the incidence of leakage and spillage. Ethanol blending also makes the gasoline mixture more aqueous, allowing it to more readily permeate soils than straight gasoline. Also, ethanol has been shown to increase soil porosity, in effect increasing the rate of soil permeation.

Still, ethanol is more powerful, more fuel efficient, and less expensive, right?

Well, not quite.

Gas station price boards and fuel pumps refer to the 10 percent ethanol blend (E-10) as “premium” unleaded gasoline, and tout the higher octane rating of E-10 blends. Many consumers believe that higher octane ratings are equated with higher power ratings. This isn’t true, however. Octane ratings simply describe how much the fuel/air mixture can be compressed without detonation. Ethanol has a much higher octane rating than gasoline, and can therefore be compressed more without detonating. E-10 blends typically have an octane rating 10-15 points higher than regular, or unblended, gasoline. Detonation can quickly ruin an engine, so in general, a higher octane rating could potentially improve the life of the engine. But modern gasoline engines are designed with compression ratios low enough so that they can safely burn regular gasoline, so the octane advantage of ethanol blends is largely a moot point.

Rather than increasing the power of gasoline, blending it with ethanol actually reduces the power it can produce. Gasoline produces a lot of energy, about 115,000 Btu (British thermal units) per gallon, according to data produced by the Oak Ridge National Laboratory (ORNL) in Tennessee. ORNL is one of the main research institutions of the Department of Energy.

The same data show that ethanol is less energy dense than gasoline, containing only 75,700 Btu, or 66 percent the energy of gasoline. The ratio of energy input to work output is constant in an engine. You can think of it as 1:1; for each energy unit you put in, you get one work unit out. Put in less energy, you get less work out. If your car goes 10 miles on one quart of gasoline, it’ll only go 6.6 miles on one quart of ethanol.
Blending gasoline with ethanol dilutes the energy content of the fuel. A 10 percent blend has only .966 (96.6 percent) the energy of regular gasoline, a reduction of 3.4 percent. It seems a small number, but it reduces the range of your vehicle. If your car can travel 500 miles on a tank of regular gasoline, it will only go 483 miles on a tank of E-10. Still, that’s just a paltry 17 miles, right? Though E-10 may not be Saving the Planet, or more powerful than regular gas, and though it might reduce your range by 3.4 percent, it’s still cheaper. It says so right there on the gas pump. Right?

Ethanol blend prices typically run 4-10 cents lower than regular gasoline prices. On December 13, 2011, in Kimball, Neb., regular gas was $3.39 per gallon, while the E-10 ethanol blend was $3.36. To break even, or to pay the same price per unit of energy, the ethanol blend price would have to be $3.27 (.966 x $3.39). So the ethanol blend actually costs more per unit of energy. Ethanol blending doesn’t save the consumer money at the pump unless it beats the energy spread.

As an aside, on May 30, 2012, regular gasoline was $3.76 in Kimball, while the 10 percent ethanol blend was $3.66 per gallon. The breakeven price for this binary set solution is $3.63. Though gasoline prices have come down in recent weeks, the ethanol blend still costs more MONEY (one-half of the solution set) per unit of ENERGY (the other half of the solution set).

Recently the EPA okayed the use of a 15 percent blend, or E-15, in unmodified gasoline engines. The availability and use of E-15 hasn’t yet become widespread, for a number of reasons. Gasoline retailers would have to either switch from E-10 to E-15, or offer E-15 in addition to E-10. Each would cost time and money, and that cost would be passed on to consumers. There are also questions about whether most engines can function properly on a diet of E-15. Ethanol actually breaks down the rubber in fuel tanks and hoses, and while E-10 seems dilute enough to avoid this in most cases, there have been rubber breakdown problems in testing and road use with both blends. Ethanol is also highly hydroscopic, tending to absorb water, and as most of us know, water in the fuel is not a good thing.

Leaving aside those problems, there’s still the problem of energy dilution and price. A 15 percent blend has only .949 (94.9 percent) the energy of regular gas. To calculate the breakeven price, multiply the regular gas price by .949. Using our previous example, $3.39 times 0.949 equals $3.21. Therefore, a 15 percent ethanol blend must cost $3.21 per gallon, simply to provide the same energy for the same price. And since E-15 is 5.1 percent less energy dense than regular gasoline, it reduces our 500 mile range to 475 miles.

The news is even worse for E-85, which has an energy ratio of .711. If E-85 is priced at $2.50 today, it is nine cents above the breakeven price of $2.41. A tank of E-85 will make it only 355 miles, rather than the 500 miles for unleaded gasoline. E-85 also requires a special flex fuel engine, and will not work in a regular gasoline engine.

But E-85 isn't priced at $2.50. On May 30 at Scottsbluff, Neb., it was $3.38. That's nearly a dollar above breakeven.

Ethanol also costs you more than the pump price reflects. In addition to higher food and fuel prices, ethanol costs you more in taxes. Because it’s more expensive to produce than gasoline, and because it’s a weaker, less energy dense fuel, the ethanol industry cannot compete in the marketplace or even exist without taxpayer money. Though in January Congress allowed both the 45 cent-per-gallon Volumetric Ethanol Excise Tax Credit and the 54 cent-per-gallon ethanol import tariff to expire, the Small Ethanol Producer Credit, and the Alternative Vehicle Refueling Property Tax Credit are stillo in place, propping up the industry. It is also protected by the ethanol import tariff. As Senator Diane Feinstin (D-CA) said in 2011 year, “The ethanol industry is the only one to ever receive the triple crown of government intervention. Ethanol use is mandated by law, its users receive federal subsidies and domestic production is protected by tariffs. That policy is not sustainable.”

Direct federal subsidies to the ethanol industry rang up at more than $6 billion in 2011. With about 200 corn ethanol plants in the U.S., that means that each plant receives subsidies worth on average $30 million. Looked at another way, the cost of the ethanol industry to each American taxpayer is more than $36 each year. There’s nothing fundamentally wrong with ethanol as a fuel, or with having an ethanol industry, or even with basing so much of it on corn. But like all for-profit industries receiving federal subsidies, ethanol should be able to make it on its own in the market on the merits of its product.

All in all, corn ethanol really doesn’t deliver very well on the promises made by the major media, corn and ethanol advocates and lobbyists, and environmental activist organizations. It costs more and delivers less energy, emits the same carbon footprint as gasoline, and emits both ozone and carcinogens. It does increase the profitability of corn farmers, but at the cost of increased food prices, fuel prices, and taxes.

Does corn ethanol help or hinder ag producers, consumers, or taxpayers? You be the judge.

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