Tuesday, April 23, 2013

D.C. Chuckle


I got a laugh reading this one from the CBO (Link).




The cost of the review of ethanol is a measly $1m. Why has it taken so many years to have this study? More importantly, what happens if this study shows that ethanol is proven to be a dud? Answer:


No later than 30 days after the assessment is completed, EPA would be required to submit a report to the Congress, indicating whether the agency agrees with the study’s findings. The NAS and EPA would have 18 months from the time of enactment to complete the study. Mid-level ethanol blends could not be sold until after EPA issues its assessment report.


A few data points on ethanol:

- 10% of all gasoline sold contains ethanol. That comes to 13 billion gallons of alcohol, $25-30b of cash flow a year.

- The energy content of ethanol is 33% less efficient than gasoline by volume.

- Using E10 (10% ethanol) reduces mileage by 3.3%.

Americans drive 3 Trillion miles a year (incredible). If all of the drivers used blended gas containing 10% ethanol it would mean that the reduced efficiency would cost drivers 100b miles a year, or $350B. The actual losses to drivers is less than that calculation as not all gas consumed has ethanol, but the number that consumers pay as a result of ethanol is well in excess of $50b – serious money.

The politics of ethanol is interesting. The House Bill that would force the review of ethanol comes from Congressman Lamar Smith (R-TX). Lamar is the head of the Committee on Science, Space and Technology (CSST). Smith also represents Texas. Does Congressman Smith have an axe to grind in this story? Sure he does – Texas is oil and refining. Those who produce oil and the refiners who convert it into gasoline have a lot at stake. If ethanol is scrapped, then big oil and big refiners will win big. One can be pretty sure that the ‘results’ of the proposed study are already known. H.R. 875 would not have gotten as far as it has unless guys like Lamar Smith already know the answers on ethanol.

Ethanol is a renewable energy source – so that makes it Green. The Administration, and a fair number of Democratic Senators have IOUs to the Greens. The folks who want ethanol have a very big support base. That support base includes environmentalists, corn growers and ethanol producers – but it doesn’t include consumers.

There are some market related consequences to H.R. 875. Should it pass, it will knock the ethanol producers for a loop, the refiners will see a benefit, and I wouldn’t want to be long corn if this Bill comes into being.

I’m not worried too much about the companies who make ethanol, nor do I think that corn is headed for a tumble. H.R. 875 will never see the light of day. And that is the joke in this story. For a lousy million bucks the answers to this could be available for the public to consider. But the public will never have a chance to see those results. We will continue to burn our food and use inefficient energy supplies for years more to come. Welcome to America and its stupid politics.





  1. Welcome to America and its stupid politicians.

    There, I fixed it for ya.

  2. I read this article at ZeroHedge but don’t have commenting capability there. Nice article. A misconception that I detected by ZH commenters concerns the impact on refiners. I’m not an expert, but the blended gasoline in not made by the refinery. They can’t push blended gasoline through the pipeline because the ethanol in the blend would absorb the water in the pipeline. Instead, pure gasoline is sent through the pipeline to the distribution points and the ethanol is added there (splash blending). I think there are also pumps that blend at the service station. Except for the fact that there are government subsidies in the ethanol process, it would seem that going back to pure gas would reduce the price to the consumer.

  3. Is there any possible way the ethanol industry would even exist without government subsidies?

    • No. Interestingly enough, not only is it more expensive, produces worse performance, is bad for your car and costs us money, but it also happens to be bad for the environment. It’s pretty much a massive win all the way around.

      Of course its very good at exactly what our government excels at, namely rewarding a small segment of the population at the expense of everyone else. Doesn’t matter whether you are a young student, and old fogey, a farmer, a military contractor, a lazy loaf or a single mother – our government is here to steal from everyone else, introduce massive inefficiencies into the system and impoverish the country to make sure you get your ‘fair’ share.

      • You keep using “government” like it’s some faceless borg. It isn’t. It’s people. People like the Governors, Senators, and Representatives from the big corn producing states — who also happen to hold the early primaries in election season. You don’t win the early primaries unless you enthusiastically subsidize corn production.

        Our electoral process is what’s broken, not our government.

  4. I think if I were a long term planner, I would gin up the production of any food product in the US including what used to be cheaper than dirt corn. I understand that the corn now grown is a sugar producer for gas and Twinkies and not the nutritional corn of 50 or 100 years ago. However the process of getting it planted and harvested and the equipment to do so is greatly improved.

    With World Wide food demand continuing to increase, and weather being weather (Texas and Oklahoma being in another 7 year drought) , conversion of large production fuel and sugar corn to nutritional corn should not that much of a problem. Assuming there is enough seed stock developed to make the conversion.

    I would suggest that some of the million could be used to make 100 phone calls and get data from the appropriate sources regarding improved food corn seed availability.

    Although this scenario is simplistic to the point of being a given, and certainly can not be claimed as original thinking, I have read nothing of it. Anyone have any sources relating to this??

    • Yes. Central planning doesn’t work very well. See ‘Soviet Union’ and ‘China’ circa late 20th century. A better idea would be to get the government completely out of the picture and let market forces determine how resources should be allocated. The market always beats the alternative.

      • >Central planning doesn’t work very well. See ‘Soviet Union’ and ‘China’ circa late 20th century.

        Half-true. If central planning didn’t work at all, then why do we have subsidies for businesses to encourage development? And why do the subsidies work, time after time?

        The real truth: America has been Centrally Planned for decades now. We allocate resources to corn, the farmers take the lead and plant corn, and we get corn. You need to be a little more clear about “Market Forces” here: in America, “Market Forces” usually means planned government subsidies, smoke-filled back-room deals, or some dabling in insider trades. If you mean rea hands-offl “Market Forces”, well, I’m sure the sudden in-rush of prostitution in major cities might wake some people up overnight.

  5. Ethanol is a really bad idea for consumers. Oil producers and corn producers love it though. Corn producers make alot of money selling corn to the ethanol producers. Oil companies make alot of money selling oil to fertilizer producers and farmers for their giant farm machines. Plus they get to operate the ethanol plants. Consumers don’t know the difference but their cars get way less mpg and their engines corrode way faster from all the water vapor ethanol makes. Politicians love it for the drama and the moolah. Engineers know it’s stupid but what can we do but chuckle.

    • Engines corrode faster? You have data to back this up? Burning gasoline produces water, so an engine that’s designed to run on gas has to take care of that, right?

      Don’t get me wrong, I think the whole ethanol industry along with the gov’t subsidies is bogus, a waste of tax dollars and a waste of farmland and farm equipment and manpower. It’s also questionable whether it’s net energy positive when you consider all the energy costs that go into producing it.

      But I prefer to stick with the facts and not make statements that don’t have data to back them up. The facts are damning enough.

      • Oh please – ethanol is too caustic to pipeline, caustic to your fuel system, caustic your engine its self.

        All the major manufacturers have a disclaimer “If you put over 10% ethanol in your car it VOIDS your warranty”. Why? because ethanol does NOT mix with gasoline, and beyond 10% there will be pockets of fuel that are mostly ethanol and it will eat through engine components. They know it, the automotive engineers know it, and the WSJ has been reporting on this for nearly a decade!!!

        • Wow, that’s quite a litany of strong opinions, but where are the facts to back it up??

          1) Show me the data on ethanol being caustic to a car’s fuel system.
          2) Show me a warranty that states ethanol voids the warranty.
          3) Ethanol does mix with gasoline. It also mixes with water and can therefore help to remove water from your fuel system. Methanol will do the same thing.
          4) Show me the data that proves ethanol will “eat thru engine components”
          5) Please provide links to WSJ articles about ethanol eating thru engine components.

          It’s this kind of misinformation and bias that makes rational discussion impossible. Let’s talk about the truth and not descend into half truths, lies, and opinions.Otherwise, you just give the other side of the argument (the ethanol lobby) more legitimacy to their case. They can point to these statements of yours as being untrue and founded on nothing but emotional bias.

        • Ethanol too caustic to pipeline? Please show me the data that supports that statement.

          • Ethanol absorbs water and corrodes pipe (well, the water does). It is not allowed in gasoline pipelines. It is blended into the gasoline at the terminal and is delivered to the terminal via truck and probably rail car.
            Ethanol also attacks rubber, so things like o-rings, gaskets, and hose have to be modified. Ethanol by itself will not attack metal. But it always carries water with it. The water will also plug your fuel filter.

  6. Bruce-

    You are right. But here’s the math not discussed:

    In early 2011, the Arab Spring in Libya knocked 2% of global crude oil production off line, & prices rose 30%.

    If the US cut using ethanol, our fuel supplies would fall by 10%…how much would gasoline prices rise as a result? let’s say 30% to start as well…which do you think is more politically unpalatable: $5-6/gallon gasoline in the Midwest or 10% ethanol?

    And then if we took gasoline to just $5/gallon, what would the economic impact be? There are plenty of well-established economic surveys that tell you how much GDP gets cut for every $0.10 in gasoline prices…

    In that context, ethanol looks positively cheap, no? Regardless, it leaves me with the conclusion that it is going nowhere.

    • Remove the requirement that ethanol be addded to gasoline, and the market will decide.

      Non-mandatory doesn’t mean not available. If ethanol is desireable because it adds to the fuel supply, that will become apparant as motorists choose between fuels based on price.

      By the way, BK says above that “10% of all gasoline sold contains ethanol.” So, removing all ethanol would be a 1% reduction in fuel volume, and then only a 0.66% reduction in available energy (because ethanol contains less energy than gasoline). That is still significant, but not a crisis.

      • They can’t let the market decide because they already know the answer would be a giant no. I lost a snowblower to deathanol and many of my friends have had their boat’s fuel system destroyed by this congressionally imposed requirement. I’ve seen articles warning the farm lobby is now pushing for 15% ethanol so they can ruin our cars too.

  7. This does not even consider the destruction to motor vehicle parts that ethanol inflicts. And along with the stupidity of forcing the input of less-efficient energy sources is the idea that there is such a thing as Corporate Average Fuel Economy (CAFE) for auto manufacturers. How brilliant is it that the EPA enforces this, while at the same time inflicting upon the car buyer a cruel joke of what mileage they can expect from their new vehicle?

    At the same time, I would like to give a shout out to one of my state’s Senators (Jim Inhofe) for at least allowing us Okies to drive around with clear (non-ethanol-laced) gas.

  8. its a fallacy that u can produce fuel from corn ??its takes more energy to produce a gallon of fuel from corn??switch grass on the other hand produces 7 to 1 an acre against corn the effencency factor is overwhelming and u dont have to fertilize switch grass compared to corn production ??no fertilizer and ur corn production drops way down ???we r not concerened with the good of the country as we r with put donaros in farmers pockets???and CON-GRESS men??if we put 1/8 of the state of kansas n 2 switch grass production u wouldnt have enough storage capacity in cushing ok to facilitate all the production.Y r we waseting our energy and resources???motorhomelasvegas

  9. The govt also has a form you can apply for licence to make ethanol at home.BUT YOUR NOT ALLOWED TO DRINK IT

  10. Since nearly all yellow corn is GMO, it’s much better to burn it as ethanol than to eat it and suffer the health consequences.

    • Besides ethanol, the rest is fed to cattle and chickens. Humans don’t eat that kind of corn. It is grown for starch and doesn’t taste very good.

  11. “the reduced efficiency would cost drivers 100b miles a year, or $350B”

    That’s $3.50/mile, a bit high I’d say. 10% of 3 trillion is 300b miles, which equates to $70b assuming 15mpg on average and $3.50/gal for gas.

  12. GEORGE jOHNSON, What is GMO. AND that makes no sence. Why not just grow edible corn,instead of using govt subsidies to grow un edible corn,or do you like govt subsidies that ruins fuel systems.

  13. Water use is another big problem with ethanol.

    Corn to ethanol plants require enormous amounts of water, in places like the Great Plains where the aquifer already is dropping to low levels.

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  15. BRUCE CAMPBELL says:


  16. The ethanol producers have been Obama’s biggest financial contributors after Penny Pritzker.

  17. Blacque Jacques Shellacque says:

    What’s that “and for other purposes” crap? Why can’t those idiots in Congress confine their legislation to one subject and one subject only, and stop trying to sneak other things past when no one’s looking?