By Samir Syed
March 27, 2008 - 5,922 Views
Timothy Gardner and Rebekah Kebede of Reuters [via the Calgary Herald ] claim that an increase in America's output of cheap, subsidized ethanol, along with additional gasoline refining capacity coming online, may lower U.S. gas prices. According to the U.S. Department of Energy, American production will rise by 130k barrels of ethanol per day in 2008 (up to 550,000). Gardner and Kebede note that the government subsidizes blenders to the tune of $0.51/barrel of blended ethanol, and that "the subsidies have made ethanol cheaper than gasoline and a much sought after component for blending into motor fuel." Another factor that could contribute to falling prices: the slowing of American demand for gasoline. While demand grew by 1.3 percent annually from 1971 to 2007, growth has slowed down 0.7 percent in 2007 and the government forecasts a paltry 0.4 percent for 2008. And what of transportation costs and logistics? (Ethanol can't be transported via existing pipes; it must be transported by diesel burning tanker trucks.) Or consumer reluctance to use corn juice once they figure out the (often hidden) fact that 85 delivers significantly less bang-for-the-buck? Nothing.
Subscribe to Newsletter19 Responses to “ E85 Boondoggle of the Day: “Ethanol boom will help lower gasoline prices” ”
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March 27th, 2008 at 8:21 am
Seeing as how on E10 (90% gasoline 10% ethanol) I get 90% of the mileage I get on real gasoline, the ethanol might as well be dumped down the drain. Unless you charge me $0 for ethanol or actually PAY me to take it, it cannot possibly lower gas prices.
screw ethanol welfare: i want my tax money back.
March 27th, 2008 at 8:26 am
Ethanol from corn makes no sense unless you’re going to run in the Iowa primary.
“Forget oil, the new global crisis is food
But Mr. Coxe warned U.S. corn exports were in danger of seizing up in about three years if the country continues to subsidize ethanol production. Biofuels are expected to eat up about a third of America’s grain harvest in 2007.
The amount of U.S. grain currently stored for following seasons was the lowest on record, relative to consumption, he said.”
http://www.nationalpost.com/news/story.html?id=213343
March 27th, 2008 at 8:28 am
Excluding taxpayer subsidies from the calculation, since E85 gets about 25% poorer fuel economy than gasoline, as long as it’s 25%+ cheaper than gasoline, it’s going to lower fuel costs for consumers.
My brother has a 2007 Avalanche and he’s dabbled with E85 a few times for grins and giggles, and the economy does work out to very close to a 25% penalty. So if E85 is 30% cheaper, he’s coming out ahead in terms of the price at the pump.
March 27th, 2008 at 8:40 am
“Excluding taxpayer subsidies from the calculation”
You will also need to exclude skyrocketing grain prices or raise the subsidies. What a mess.
March 27th, 2008 at 9:05 am
Good luck bringing MTBE back. They labeled it a danger to the environment and cleared the way for lawsuits against any company that uses it in fuel. ADM probably spent quite a bit at the Emperors Club for that.
March 27th, 2008 at 9:06 am
Again, I feel obligated to say, don’t throw out ethanol altogether. Corn ethanol definitely has is problems, but there are other more efficient ways of creating ethanol that are much more sensible. I for one am a fan of gasification, which gives the ability to create liquid fuel from nearly any source of long chain carbon - including trash.
Keep in mind Brazil runs very well on high ethanol fuels, and its economy is booming. If we have an efficient way of producing ethanol (not from corn), it can definitely be feasible as a gasoline substitute.
March 27th, 2008 at 9:35 am
Farmers have benefited greatly from increase corn/wheat/soybean prices the past few years, when in the past few decades they were hurting in a state of “welfare” from government subsidies. My father took a stab at farming in the late 70’s, but even though he thought it was his calling, he went back to engineering. He kept the land that I have now, because he had the same mindset so many other farmers had, “demand will catch up with supply by sheer population growth.” Something like ethanol brought this about quicker, and even though my neighbor farmers know ethanol is a “total crock of sh\t” (one of them in their actual words about a year ago), they fully embrace it, because the equipment is SOOO expensive and they want to leave a legacy other than vast amounts of land for their children and grandchildren.
Even though higher prices benefit me because less people are growing hay and cash renting land is (almost) a profitable practice, I don’t want to see these continued high prices, but that being said, I think farmers deserve 4-5-6 years of artificially high prices to weather them to population catching up to capacity.
March 27th, 2008 at 10:05 am
“Keep in mind Brazil runs very well on high ethanol fuels, and its economy is booming.”
The USA produces more ethanol than Brazil.
Economy booming is relative. The average Brazilian lives on a tiny portion of what people in the USA take for granted.
March 27th, 2008 at 10:25 am
Gasoline/oil is a world commodity, not just a US commodity. Even if our demand for it goes down from E85 China’s and India’s is still rising. The price will not go down on regular gasoline.
March 27th, 2008 at 11:47 am
Keep in mind,too,that Brazil is slashing and burning rain forests to plant more sugar cane on the “reclaimed land”.
So much for the idea that burning ethanol is “better” for the environment than burning petroleum.