Obama's Environmental Policy Needs More Backing of Ethanol and Other Oil Alternatives

I support Barack Obama's position of brushing aside climate change deniers and was pleased that his State of the Union address - while vague in many ways - spoke of the need to develop green energy solutions and to employ people in these industries.  Obama's point is that just because we supposedly lack empirical evidence of all of the ways in which our climate is being affected by having 7 billion inhabitants on earth is no reason to deny facts or avoid formulating public policy today.  Likewise, we don't know the precise place from which the next terrorist attack will come, but our government needs to always be heavily on risk avoidance.

Our alternative energy policy requires realism and that appropriate steps are taken to balance the need to curtail the environmental damage with our need to meet our energy needs.  One need not look too deeply into the 2009 Reinvestment and Recovery Act Section 1603 to see that our government's current policy is to oversubsidize wind and solar solutions.  Even if it were sunny and windy all the time, it is clear that production from these sources can never be so great to even make a dent in our supply.  It is also unclear whether photovoltaic cells can ever be produced at such a low cost to make solar production profitable without govrrnment subsidies.  We therefore shouldn't be putting large amounts of government money and incentives, and expecting large hiring, in the solar and wind areas.

In addition to wind and solar, Obama now seems open to more controversial solutions like nuclear, cleaner coal, biothermal or waste-to-energy solutions.  These solutions may or may not address our environmental problems and meet some of our energy needs at the same time.  Attention should be given to each of these solutions and research and debate on them should continue.  Still, not one of these solutions provides a realistic alternative to oil or fossil fuels.

The simple reality is that we are not going to transform ourselves to an economy where the internal combustion engine is going to be replaced by a battery or fuel cell.  In fact, the environmental impacts of hybrid cars outweigh any measurable reduction in greenhouse gases.  It has been proffered by many scientists that the large and heavy batteries found in Prius pose a serious and underestimated disposal problem.  We simply aren't all going to be driving cars fully electric cars like the Chevy Volt or the Telsa in two years or in twenty.

While plant oils as an alternative to fossil fuels are still under development, ethanol provides a realistic alternative to fossil fuels today.  Yet, the economics of ethanol are very poor as too much feedstock (mainly corn) and energy is required in production.   Ethanol production also results in large amounts of stillage which has terrible implications to the environment. 

Politically, ethanol has been tied to the last administration and its lobbyists and has now been quickly quieted.  Yet, it is not only an important piece of our energy puzzle, but it is one which, with 13 billion gallons produced in the US annually already, needs to be invested in.  

I believe that it is possible to change the economics of ethanol and change its environmental impact, not through subsidies, but through investment in new technologies around ethanol.  Our government should be funding or encouraging development in this area.  Oil alternatives are as vital as any other energy needs and the sheer numbers demonstrate that it is a much larger marketplace than those widget technologies like wind or solar that are getting all of the attention today.

We need to clear the deck for a renewable energy and energy efficiency bill that funds research on renewable energy and provides financing and subsidies for a broader set of renewable energy and energy efficiency projects with less emphasis on wind and solar and other alternatives that - while politically expedient and environmentally positive - neither ween us off of foreign oil nor provide a long-term solution to our energy needs.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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Comments

  • Subsidy Eye

    January 31, 2010

    MORE backing of ethanol? You've got to be kidding. The government has already rigged the transport-fuel market every which way it can to support ethanol. Besides the $0.45 per gallon ($0.67 oer gallon of gasoline equivalent) blenders' tax credit, it provides extra subsidies to small producers ($0.10 per gallon on the first 15 million gallons produced in a year), plus numerous special tax breaks for builders of ethanol plants. It has also mandated the consumption of 15 billion gallons of ethanol a year. And now some in government are considering providing $4 billion in federal loan guarantees to help finance a dedicated ethanol pipeline from the Midwest to the east coast -- despite the fact that ethanol derived from sugar cane (a more environmentally sustainable process) could be imported to the east coast from Brazil more cheaply (if it were not for the $0.54 per gallon import tariff on Brazilian ethanol). On top of that, many states have established their own ethanol mandates, and provide subsidies on top of the federal ones.

    And that's just for corn ethanol. Producers of ethanol derived from cellulosic biomass will earn $1.01 per gallon ($1.50 per gallon of gasoline equivalent), just from the federal producers' tax credit alone.

    You write, "Yet, it is not only an important piece of our energy puzzle, but it is one which, with 13 billion gallons produced in the US annually already, needs to be invested in." Why? You give no reasons and simply assert that you think it needs more support. Or are you encouraging investors to put their money in ethanol companies?

    How wise is that? For most of the U.S. experience with producing fuel ethanol (which dates back more than 30 years), the fuel has required subsidies. But who benefits from those subsidies? Ultimately, owners of arable land. As the price of feedstock is bid up, it is they, not ethanol plant investors, who make out like bandits.

    You write, "I believe that it is possible to change the economics of ethanol and change its environmental impact, not through subsidies, but through investment in new technologies around ethanol. Our government should be funding or encouraging development in this area." Well, belief does not trump thermodynamics, except in the world of politics. And, in any case, the government IS funding R&D into advanced ethanol technologies -- big time!

    So what in the world are you talking about?

  • Subsidy Eye

    January 31, 2010

    Mr. Socolow: If you are going to write on the topic of biofuels policy, you might want to do a little research first. The Federal Government has been supporting ethanol blending with gasoline since it forgave the $0.04 per gallon federal excise tax on gasahol (E10) -- equivalent to $0.40 per gallon of pure ethanol -- way back in 1978. It has had an import tariff in place since 1980. The current policy supports the blending at a rate of $0.45 per pure gallon of ethanol blended, independent of the percentage of ethanol in the blend. (It was reduced from $0.51 per gallon as of 1 January 2009.)

    As for alternatives to corn ethanol, yes they exist technically. But even the offer of a $1.01 per gallon producer credit has not stimulated a big wave of investment in cellulosic ethanol plants. Indeed, the country is behind schedule in its production of this fuel. Cellulosic ethanol plants are highly capital intensive, which means that there is only so much to which production costs (INCLUDING capital recovery) can be reduced. Also, competing demands for wood (including woody biomass for power generation) is driving up the price of cellulosic feedstocks.

    Algae? In our dreams. A spate of recent studies have underscored that there are all manner of problems facing large-scale algal biodiesel. Currently the cost per gallon is at least $20. The algal oil (procured from a producer of algal oil for cosmetics) that was used for Japan Air Line's test flights is reported to have cost close to $100 per gallon.

    "Our government has never supported research on these technologies". Come again? It spent YEARS researching both algae and cellulosic ethanol, starting in the 1970s.

    It is now pouring hundreds of millions of dollars into all manner of research supporting advanced biofuels, including almost $80 million into algae alone:

    http://www.popsci.com/technology/article/2010-01/us-government-throws-78-million-algae-biofuels-research

    Again, man, do some research, starting with this article:

    http://seekingalpha.com/article/185070-algae-biofuels-not-sustainable?source=commenter

  • Yury Rahubin

    February 01, 2010

    Mr. Socolow, thank you for bringing up the subject. Dear Subsidy Eye, thank you for all your most interesting comments and articles. You have provided sufficient depth to your point and it is very well received. I head a research company which created a technology that was able to increase efficiency of a conventional ethanol production plant while decreasing the environmental impact. With this \"add-on\" technology, conventional plants will be able to install the upgraded technology developed by our company, EcoFuel Labs, and reach the following results:
    1. lower the use of corn by 20-30% by substitution of corn by growing algae using their own nitrogen-rich waste water and CO2
    2. eliminate 50-75% of their produced CO2 during the ethanol fermentation process
    3. decrease the use of power required for ethanol processing by 50% or more
    4. Environmentally process their waste water (stillage) and turn it into fertilizer for growing of algae to substitute corn
    5. Eventually the goal of the EcoFuel technology is 100% substitution of feedstock and switching to algae as well as potato chip and berry production waste streams.

    As a result, the ethanol industry will:
    1. become more environmentally conscious
    2. become less dependent on feedstock, lands, and human/animal food
    3. become more profitable and thus not requiring government subsidies.

    It is not right that somebody is building something to fulfill their greedy nature while us, taxpayers, help them get there. Our technology, which is already proven on smaller scale at the Czech Academy of Sciences lab, is one of the potential paths to turn ethanol hurdles into solutions.

    Again, I thank both of you for your valuable contribution of thought and rational.

    Best regards,
    Yury Rahubin, CEO
    EcoFuel Labs

  • Subsidy Eye

    February 01, 2010

    Well, Mr. Rahubin, all I can say is good luck! I\'ll be watching the biofuel news to see how your idea makes out.

    By the way, I couldn\'t find a web site for EcoFuel Labs.

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