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Ethanol as an excuse

A year ago, ethanol was a media darling. This summer, it became a whipping boy.

A good example of this involved the debate over federal energy policies this summer. That legislation included a provision that would boost biofuels usage to 36 billion gallons. Food processors, soda bottlers and even livestock groups spoke out against that provision, often using ethanol's current success as a reference.

Coca-Cola and PepsiCo, alarmed that converting more grain to biofuels would drive up the cost of their corn syrup, complained that the price of such sweeteners is already too high, thanks to ethanol.

Food processors like Kellogg Company worried that expanding biofuel usage would drive up their costs. Even representatives from the livestock industries bellyached about ethanol's deleterious effects.

You too, Brutus?

During testimony, ethanol was blamed time and time again for driving up the cost of corn. No one bothered to mention the impact that low world food stocks and increasing consumption may have had on grain prices. No, it was easier to blame ethanol.

Need another example of ethanol's fall from grace? Take Big Oil.

During the energy bill debate, that industry claimed expanding biofuels would prompt them to scale back plans for refinery expansions.

Honest to Pete! Big Oil is actually accusing the itty bitty ethanol industry of preventing them from building more refineries!

My grandpa, Otto Mowitz, liked old sayings. He once warned me that "figures don't lie, but liars figure."

So let's take a look at the figures behind Big Oil's claim that ethanol is discouraging them from building more refining capacity.

The current demand for gas in the U.S. is 143 billion gallons a year.

The current U.S. refinery gas production is 136 billion gallons a year.

So Big Oil comes up short in refining by 7 billion gallons of gas a year. We have to import that difference.

Furthermore, gas consumption is expected to grow 18 billion gallons a year in the next decade.

So Big Oil is saying business is great now and is expected to get better in the future, "but we couldn't possibly risk more refining capacity."

Why not?

"Evil ethanol," Big Oil replies.

And what is evil ethanol's annual production today?

A whopping 5 billion gallons.

So if every drop of ethanol produced today were used as fuel, we'd still be short 2 billion gallons.

But wait, it gets better. Roughly 68% of all the ethanol is added to gasoline as a federally required environmental additive. The fuel industry used to add petroleum-derived MTBE (methyl tertiary butyl ether) to gas as an oxygenating additive. But then it was found in ground-water and was subsequently banned. The only alternative additive was ethanol.

So bear in mind that most, if not all, of the recent expansion in ethanol distillation was made to meet the demand for an environmentally friendly, federally mandated additive -- not as a fuel replacement.

"But, but, but," stammers Big Oil, "how can you expect us to build more refineries if Congress is going to increase future biofuel usage?"

Big Oil, you're currently not meeting five percent of the demand for gas because you lack the facilities. And gas consumption is expected to grow 12.5%.

Those figures don't lie.

So now Big Oil says they can't justify the investment of building new refineries. But bear in mind they have been raking in the largest profits ever recorded by a single industry.

They should take a lesson from farmers, who have been dealing with tight margins over the last decade yet still have managed to find the money to build ethanol distilleries.

A year ago, ethanol was a media darling. This summer, it became a whipping boy.

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