Whenever someone mentions ethanol on this blog, someone else says that the energy cost of producing it is greater than the energy ethanol generates and then someone says the opposite. I'm always confused because ... well ... I'm always confused. Good thing for me that whenever there is an important national debate the Wall Street Journal's Numbers Guy, Carl Bialik (also co-author of the WSJ's The Daily Fix), figures things out (Digging into the ethanol debate):
President Bush announced in his State of the Union address in January that he backed funding for research into producing ethanol from corn and other farm products, with the goal of making a viable fuel alternative to gasoline for automobiles. Since then, Congress has wrangled over how to implement the idea.
Critics, meanwhile, have blasted the viability of ethanol. A central argument is that corn-based ethanol, the most-common form today, is literally a waste of energy. Detractors say that it takes more fuel to make ethanol -- growing the corn, bringing it to a processing plant and converting it to fuel -- than would be saved by using it.
Two prominent researchers are chiefly responsible for the energy-efficiency claim: Cornell University's David Pimentel and Tad Patzek of the University of California, Berkeley. In a co-written paper published last year in Natural Resources Research, Profs. Pimentel and Patzek wrote, "Ethanol production using corn grain required 29% more fossil energy than the ethanol fuel produced." By comparison, production of gasoline or diesel uses about 20% more fossil energy than the fuels produce. (For automobiles, ethanol is generally blended with gasoline in either 90-10 or 85-15 proportions, but the studies focused on the energy content of the ethanol itself.)
But the analysis stacks the deck against ethanol in a number of ways. Perhaps most important: The researchers attributed a wide array of energy costs to ethanol production, including the energy required to produce tractors used in cornfields and even all forms of energy consumed by workers for things such as food, transportation and police protection. Equivalent factors generally aren't included in comparable analyses of rival fuels like gasoline. Also, researchers didn't take into consideration the value of ethanol by-products, which can be used in cattle feed.
What's more, the skeptical analysis was based on all technology in use at the time, including old plants. Ethanol has become a hot business and a target of venture capitalists. There is reason to believe that ethanol production is only going to become more efficient, possibly at a faster rate than the more-mature petroleum industry. The newest plants incorporate technology to streamline the process and save energy and money. Researchers are also looking at methods to get ethanol from sugar cane and switchgrass, which appear to be more energy-efficient than those for corn. "There are a lot of new technologies," said Hosein Shapouri, an agricultural economist for the U.S. Department of Agriculture. "It's going to continue to improve the yield, and also lower the energy."
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Other researchers have disagreed with Profs. Pimentel and Patzek. Michael Wang, a vehicle fuel-system analyst at Argonne National Laboratories in Lemont, Ill., calculates numbers that are frequently cited for the efficiency of producing petroleum and diesel fuel. He said those numbers don't include the energy needed for labor and to produce the equipment -- in large part because there aren't reliable, up-to-date estimates for that energy -- and therefore, neither should the ethanol numbers.
By his reckoning, it takes 0.74 BTU of fossil fuel to create 1 BTU of ethanol fuel, compared with a ratio of 1.23 BTUs to 1 BTU for gasoline -- that's 66% more than ethanol. (Dr. Wang's calculations are contained in a rather dense set of appendices to this report; the conclusions are presented in a more user-friendly format in this brochure.)
Prof. Pimentel defended his work in an interview. "I don't see how you could or should eliminate the labor of the farmer," he said. "He eats, sleeps, uses the highways, depends on the police force, fireman, and so forth."
And there is the big problem with the contrary analysis, I think. The labor of the farmer is compensated by the sale of the corn. Period. The use of highways, police force, etc has nothing to do with ethanol (now, I don't know if Prof. Pimentel included these costs in the costs of ethanol, I'm simply jumping on what may be a poor choice of words).
The cost of ethanol production is its opportunity cost -- the value of the next best alternative of the resources used to produce it. All this stuff about the farmer has nothing to do with opportunity costs.
If the ethanol producer adds value to corn then ethanol can be sold for a profit. In the end, if ethanol is profitable then it represents more energy than is used to produce it. All we need to do is end the subsidies and see if ethanol revenues exceed the costs!
But, the subsidies may be justified by market failure arguments: national security and other spillover benefits can be had by shaking loose of imported oil. A subsidy might jump start a technology that pushes production down the learning curve so that the product can be produced profitably at a later date. Without the subsidies we may never reach that date. The trick is having the will to remove the subsidies at some point -- whether the experiment succeeds or fails.
