July 18, 2013

EVERGREEN HEADLINE: Ethanol Still A Boondoggle.

The ethanol targets set by the Renewable Fuel Standard are out of sync with both the demand for ethanol and its potential supply. Gasoline consumption is projected to be relatively flat this year, a change that the Renewable Fuel Standard lacks a mechanism to account for. This shortfall in demand could potentially be fixed if producers up the percentage of ethanol they mix in with their gasoline past the current industry standard of 10 percent, but few oil companies are willing to move past this so-called “blend wall,” citing studies that link higher ethanol content with engine damage. Even if refiners started blending in more ethanol, the supply problem remains: this year’s supply is projected to be less than the mandate.

All of this explains why oil companies are snatching up increasingly-rare RINs at ever-higher prices. Oh, the RIN-sanity!

This is a mess even before you consider the foibles of the source of the lion’s share of this ethanol: corn. Before the Renewable Fuel Standard set these arbitrarily high targets, the US used just 23 percent of its corn to produce ethanol. Last year 43 percent of our corn crops went towards producing the biofuel. That shift has driven up global prices for corn, starving the world’s poor and potentially fueling food riots. And to what end? Corn ethanol is categorized as a biofuel, but it doesn’t reduce emissions. Advanced biofuels produced from such sources as sugarcane and algae pass the green test, but they haven’t yet proven their commercial viability.

It’s a crime against humanity. When do the trials start?

UPDATE: Reader J. Johnson writes:

Something that very seldom is mentioned in re the ethanol boondoogle is the profound effect the ethanol mandate has had on land prices in the midwest USA. The impact of ethanol on corn prices has been monumental, with average prices per bushel nearly double (and sometimes much more than that) what they were prior to the ethanol mandate. In turn, this has driven the prices of ‘corn ground’ profoundly higher, such that there are now hundreds of thousands of acres in the midwestern corn belt and elsewhere with prices (as much as $12,000/acre) which are completely unsustainable if the mandate was eliminated or substantially rolled back. It would result in a farm-belt crisis akin to what happened in the early 1980’s when tens of thousands of farmers went bankrupt when land prices collapsed.

A ‘partner in crime’ in this fiasco is Bernanke, whose zero interest rate policy has allowed farmers, bankers and speculators to pay exhorbitant prices for farm ground that is used strictly for producing corn for ethanol and servicing of the enormous debt associated with much of this acreage depends totally on continuation of the ethanol mandate. This mostly hidden debt bomb probably explains why the mandate not only continues, but is possibly going to get even more onerous. There are just too many money men who have too much to lose if anything changes.

Seems like it’s market-distorting cronyism all the way down, these days.

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