Ethanol is clearly not the answer. Instead of talking about ethanol, perhaps you can blog about the macro-energy policy instead. It seems as though politicians are making decisions within a vacuum.

Jeff: Amen! Why are we not having a national debate as to where we'd get the best bang for the buck for our $8 billion plus now largely wasted on ethanol subsidies? Perhaps, the best to be said about it is getting equipment ready for ethanol delivery and consumption that may be mfg by far more efficient means later. For now it appears "the vacuum" is Archer Daniels, Dwayne Andreas and a very powerful farm lobby.

Currently my own nomination for the most readily available, cheapest, and cleanest "alternative" is that of conserving some of what we now waste. Conserving would not increase food prices and would tend to lower the prices of existing energy --- assuming a working market exists which I doubt.

According to the EIA, the US goes through 150 billion gallons of gasoline a year (and this doesn't count all the other uses of oil including diesel fuel and kerosene). To produce the equivalent energy content in ethanol would require the harvesting of 600 million acres of corn (vs current record planting of 90 million) - nearly a million square miles and more than all the farmland in the US. Even with Brazilian sugarcane ethanol - over 300 million new acres of production (or about a quarter of the Amazon rainforest) would be required to replace oil for US gasoline consumption. Even cellulosic ethanol would require the dedication of hundreds of millions of acres to the production of only a small portion of the world's demand for transport fuel while severely curtailing the production of calories available for humans and livestock.

Even if that enormous task were undertaken - it would only "free up" about 8 million barrels per day of oil production (about 10%) for other purchasers, and one would expect huge emerging economies such as China and India to very quickly make up the difference.

So the economic effect might not be all that great for marginal consumers of oil - but it would potentially be catastrophic for marginal consumers of food! At any rate, eventually and probably before mid-century, the oil will start to run out and hopefully we'll develop some more preferable options by then than indirect population control.

Another considered and informative pair of posts.

But why the newspaper column style, free-floating from anything that has been said in the blogosphere this week? You'd attract a more sophisticated audience if you dropped it and engaged the other elite economics bloggers --- Brad DeLong, Tyler Cowen, and Paul Krugman. They're part of a friendly but critical conversation that has gained a lot of media influence.

You guys could really tear them up if you'd just engage! Please!

Also, where did you read about cellulosic ethanol--- in that special that the journal Nature ran a few months ago on switch grass and other alternatives?

If so, a link would be appropriate.

It's interesting that the topic of food prices kicked off with several energy posts, but not surprising since the US is subsidizing running our massive fleet of gashogs on food. So I thought some rough conversions might be in order:

A gallon of gasoline is about 115,000 btus

3000 nutritional calories are about 12,000 btus

So for foods made directly from grains or corn driving a 10mpg gas hog one mile consumes a day's worth of calories. As feedstocks, perhaps it takes five or more pounds of grain to grow a pound of meat so you could drive 5 miles for the three pounds of pork that would provide 3000 calories.

And the farm lobby gets away with subsidizing this with our tax dollar?

Most of the ethanol usage analysis seems unanimous about the fact that ethanol replacing fossil fuels is a joke! Really! One only needs to see the numbers to see how impossible the whole idea is. Economists, policy-makers, oil-majors everyone agrees.

Who does not agree? 1. ADM and the farmers who have a vested interest in ethanol based technology. 2. University academics working on these technologies; another vested interest.
3. Politicians and misinformed "greens"

The worst argument I heard has an apologetic tone of the sort: "Ok we know it does not work right now. But look things will get better and so you better pump money in here or else how could we come up with something better?" This one usually comes from the academics!

What is missing from the whole analysis is one word: "nuclear"! I strongly feel that is the one source independant from anything else and fits all desirable objectives: (1) Geo-political energy independance (2) Greenhouse emissions (3) Fossil fuel independance (4)No impact on fuel supply.

I realize that nuclear options have drawbacks but I think they have been overhyped. Any comments or is my position too radical! :-)

Sorry! I meant to write:
(4)No impact on food supply.

You are misleading the people. Ethanol is made from cattle corn, sugar cane, sugar beets. soybeens and whip grass. There is now enough ethanol to supply the United States needs. It is clean burning, no smog devices required on the vehicle, no smog check, no caffee rules, no paying the farmer not to grow, and we can burn as much as we want. Oil is out Ethanol is IN

All one need do is look at the numbers:
Corn Ethanol: Prod.cost $1.09 per gal.
Energy balance 1 input unit, 1.3 out
Gas cost equivalent $3.71

Cane Ethanol: Prod.cost $0.87 per gal.
Energy balance 1 input unit, 8 out
Gas cost equivalent $3.88

Cellulosic Ethanol: Prod.cost experimental(unknown
Energy balance 1 input unit,
2-36 out (depending on tecno
typ.)
Gas cost equivalent unknown

(data taken from Nat.Geo, Oct.2007)

So now the question becomes, which is more cost effective, efficient and is commercially viable at present. Take your pick, but my favorite is coal conversion technology, either gasification or liquifaction, there are enough coal reserves to last us for a few years and give the biochemists time to get the technology worked out and efficient.

All one need do is look at the numbers:
Corn Ethanol: Prod.cost $1.09 per gal.
Energy balance 1 input unit, 1.3 out
Gas cost equivalent $3.71

Cane Ethanol: Prod.cost $0.87 per gal.
Energy balance 1 input unit, 8 out
Gas cost equivalent $3.88

Cellulosic Ethanol: Prod.cost experimental(unknown
Energy balance 1 input unit,
2-36 out (depending on tecno
typ.)
Gas cost equivalent unknown

(data taken from Nat.Geo, Oct.2007)

So now the question becomes, which is more cost effective, efficient and is commercially viable at present. Take your pick, but my favorite is coal conversion technology, either gasification or liquifaction, there are enough coal reserves to last us for a few years and give the biochemists time to get the technology worked out and efficient.

Neil: Usually Nat Geos numbers are pretty good but these seem a bit curious.

First, knowing corn eth has a direct subsidy that is most of a buck, how do they come up with just one buck for production cost?

Then with the far better return in energy invested how does the lower "production cost" of cane ethanol end up being pricier that corn?

I'm puzzled.

Jack, OK let me try and explain the numbers. Prod. cost is all the costs (raw material, labor, utilities, maintenance, capital, loan interest, etc) that are all bundled together; that cost you see is the cost that must be charged to break even. "Gas cost equivalent" is the cost of the product in comparison to the cost of a gallon of gasoline. The difference lies in the fact of the "energy density" of the product. As an example, gasoline contains "3" energy units per volume/mass unit, whereas ethanol contains only "1" energy unit per volume/mass unit. So, in order to get the same energy output of 1 unit of gasloine one must use 3 units of ethanol. Now, the energy density of corn based ethanol is slightly higher than cane based. So that should explain the price differential.

Another consideration, is that ethanol fuel tanks will have to increase approx. "3" times in size in order to compensate for its lower energy density. That's one of the reasons, why E85 is being developed and marketed. So that the energy density issue is not so much of a problem.

It's all really all a simple problem in Science and Math.

Neil: Thanks for trying clear things up but the waters seem even muddier.

Perhaps you're using the "3" as an example, however ethanol with 80k btu/gallon is only 40% less energy dense than 115k btu/gallon gasoline. And we KNOW it's more expensive (by over a dollar) to produce a gallon of ethanol than a gallon of gasoline today. So, an 11.5 gallon tank would be all that would be needed to replace an 8 gallon gasoline tank.

The sugar cane numbers are even murkier. Both the conversion of corn or cane has labor and capital costs in addition to the cost of the raw material inputs, but cane uses one gallon of existing fuel to birth 8 gallons of new fuel. Especially as Geo reports less "production costs" for cane as compared to the miserably inefficient corn process it's hard to imagine why the cane product emerges as being more costly.

As a short cut to the math I'd submit that were Brazil a corn producing nation they'd not come close to being able to run most of their vehicles on ethanol. The current corn process is nothing but a government subsidized "make work" program in which the small energy gains are eaten up by labor and capital costs.

I remain cautiously hopeful that gains will be made in the future, but for now would think it a much better use of $8 billion in annual, and growing, subsidies to help Mexico update its sugar production and buy our ethanol from them which has the side benefit of keeping a couple million Mexicans employed at home. Ahh, but a shame they don't have a powerful lobby.

A better use of subsidies would be to offer a billion dollar prize to the scientist that comes up with an efficient gasoline replacement.

Let the free market work.

Jeff, The prize is much larger than that; currently the US market for crude oil alone is over $700 billion a year. A patent would be better than owing all of google. Pesky problem though finding a cheaper way than tapping pools in the ground.

Jack, yes it was an example of how it works and it seems to have helped you figure it out. Come now, get into the modern age, it's no longer BTU's but kJ (kilo-joules) or kWh (kilo Watt hours). I'm glad you did the research I no longer have time for. We're much to busy upgrading BP to handle Canadian oil sands or XOM to process liquified coal into fuel.

Jack, yes it was an example of how it works and it seems to have helped you figure it out. Come now, get into the modern age, it's no longer BTU's but kJ (kilo-joules) or kWh (kilo Watt hours). I'm glad you did the research I no longer have time for. We're much to busy upgrading BP to handle Canadian oil sands or XOM to process liquified coal into fuel.

A better use of subsidies would be to offer a billion dollar prize to the scientist that comes up with an efficient gasoline replacement.

Let's say there are 100 groups capable of winning the prize. Each group would then spend be reasonably expected to spend 1/100th of the total prize on their research. That means you would have 100 groups each spending $10 million on energy research. If each group is trying essentially the same approach then at the end of the day you only get $10 million worth of research for your $1 billion expenditure.

If you could coordinate the research and ensure that each group tried something different then you might approach the limit of getting $1 billion worth of research for your $1 billion expenditure. On the other hand, if you could identify the most competent group ahead of time then you could just pay that group $10 million to do $10 million worth of research.

While payment on success is an easy way to identify the most competent (or luckiest group), if you can identify that group before anyone has embarked on the project then you avoid (indirectly) paying for duplicated effort.

Let the free market work.

The thing about research is that it only needs to be done once. When you're making sandwiches, duplication of effort is fine because not everyone can eat exactly the same sandwich - everyone needs their sandwich. On the other hand, everyone can share exactly the same research discovery. Once you've discovered a better alternative to gasoline, everyone on the planet can use it - duplicating the effort and making the same discovery again is wasted effort.

Wes, Just one question, and what are we to do with the 100's of billions if not trillions of dollars invested in the energy production and distribution networks that already exist? Simply walk away and pretend that it doesn't exist? It would make the Sub-prime mortgage debacle look like a minor bankruptcy proceeding. If not pull down the entire international banking and finance system. Which would make the Great Depression look like picnic.

As for the "Free Market" it has never existed in the Energy industry. The reality is more like a symbiotic relationship between Industry, Business & Finance, and Government. To set one against the other in a true free market system is to force all of us to freeze and starve in the dark so to speak.

As for the 10 million research grant, that's just the starter for leasing space and office equipment. That doesn't even include setting up the labs, purchasing equipment and hiring the required talent. You might want to increase that by a factor of a hundred.

Just one last word, like Faust we've made our bargain with the devil and we can never go back.

Neil, Your resistance to a quantum leap in energy efficiency is a curiously protectionist argument that runs counter to most of my understanding of economic principles. The last century has really has been one of "creative destruction" as farming and mfg processes have been automated and dislocated millions of employees and rendered older investments worthless. Today, Intel and others compete with, and destroy, their own last generation of chips each time they spend billions creating new, faster and more efficient new chips.

What would happen if one of the "prize recipients" did patent a process that created energy pellets that replaced a gallon of gas that sold for say thirty cents? Obviously the change would not happen over night; as with even the slightly different product of ethanol equipment and delivery systems all have to change.

Of course, as you mention your business would take a hit and a big one over perhaps a fairly short time, but society and our economy too would benefit. Just as outrageous "war time" price gouging has put the brakes on our economy, the opposite, far cheaper energy would mean all of those dollars now enroute to the kings of OPEC would be spent in our own economy with some 20% going to re-fill our depleted Fed Treasury.

The people in oil today? They'd follow many others who were displaced by computers and other automation. The "lost investment?" Some would be salvaged, but much would go the way of copper wire and "switchboards" when fiber and chips replaced them. Result? nearly free telephone service and a bundle of new and wealthy companies.

The other way to look at it is to imagine the far cheaper energy is the norm. Then imagine someone saying "since unemployment is high" let's invest in coal and put folks to work blowing the tops off mountains and crushing coal. In short, ours, and the world's economies are well past the post Depression era of "creating jobs" via "make work" projects and, instead is in need improvements in efficiency and productivity.

But for now, despite oil and coal being outmoded sources of energy that are increasingly destructive to the environment there is nothing on the near horizon that threatens to replace them. In fact, as the price of oil soared past the $50 mark it opened the door for the yet more labor intensive and environmentally destructive processes of flushing oil out of tar sands and liquefying coal along with trying to run our fleet of gas hogs on heavily subsidized and costly food.

Let's hope that a new source or many new sources do come along soon. Jack

Jack, We live in the "Here & Now", not some romanticized fanatasy of the science fiction writer. The problem is here, the problem is now, and it must be solved NOW. We can't afford to wait for some mythical silver bullet to come along and solve the problem for us. In order to do that, we have to use the resources and technologies available and at hand. As for your "energy pellets" they already exist as nuclear fuel, but due to the collapse of the symbiosis between industry, finance and government, that technology has been put on the shelf out of reach. So what are we back to? Fossil fuels; coal, oil & gas. Do you realize that reason for the increase in petrochemical products, electrical and natural gas cost is primarily due to the elec. power companies converting their boilers over to Nat. Gas, sucking up the excess supply and implementing the Law of Supply and Demand. Now where are those pesky "quantuum leap energy pellets" when we really need them?

In the real world, science lurches forward at a snails pace, but the problem is here and the problem is now. Until those "Quantuum Leap Energy Pellets" come out of the lab, we're stuck with fossil fuels. I for one don't want to freeze and starve in the dark. As most others don't.

I take issue with the statement that ethanol burning does not produce carbon monoxide. Am I wrong in thinking that incomplete combustion of ANY carbon-based fuel can produce carbon monoxide?

I take issue with the statement that ethanol burning does not produce carbon monoxide. Am I wrong in thinking that incomplete combustion of ANY carbon-based fuel can produce carbon monoxide?

jim, You're right. Without going into the arcane details of combustion mechanics or stoiciometry, the complete combustion of hydrocarbon fuel will result in H2O & CO2. Whereas, the incomplete combustion can and will result in CO2, H2O, unburnt Hydrocarbons, CO, NOx, SOx, Particulate Matter, and other combustion byproducts dependant on the type of contaminates in the fuel and combustion air.

Ah, yes! The importance of maintaing the proper amount of "excess air" and flame temperature and geometry. Subjects worthy of a dissertation or two.

Neil: Sorry about the "sci-fi" but surely your deep concern of the investment in fossil fuel infrastructure being rendered worthless overnight put us out there quite some time into the fantasy world.

And yes, I'm aware of where we are today and what precious few options we have. It's been a somewhat frustrating ride for me to watch as Congress and several oil admins and a whole pile of industry lobbyists have flown us up a blind canyon since the warning bell went off back in the mid-70's and we were but 40% dependent on imported oil. Do you suppose selling us a fleet of gas guzzling dreadnaughts was an act of national sabotage?

Interestingly, Cspan was reviewing the Carter years this week and his speech on our energy problems could have been repeated today with virtually not a changed word. At the time he held out considerable hopes for a combo of CAFE stds, lower per capita consumption/waste, solar, wind and improved hydro-power. After CAFE standards and some rational response to jacked up oil prices you'll recall we broke the OPEC cartel, oil prices tanked and didn't come back for quite a long time.

I suppose that Reagan coming in and sending Carter's White House solar installation to the museum was a clear signal to all of banking us sharply up the course that ended in the blind canyon were we are today.

Yes, I live in Alaska and follow energy politics and am well aware of dumping such a precious fuel and petrochemical feedstock as is NG into power generation, a process I suspect will be looked upon by those to follow much as we look upon killing a sperm whale to provide lamp oil.

Perhaps, it is good in the longer run that "someone" has been sitting on the 50 inch pipeline project to bring Alaska's domestically produced gas to mid-America and front-run costly LNG plants in order to import NG from abroad; it's amazing what connected and adept bands of lobbyists can achieve.

As for freezing in the dark which would be no fun at all in Anchorage I'm not up for it myself nor advocating even melting in the bright hot sunshine of the sunbelt where A/C pushes up utility costs higher than ours here in Anchorage. As you point out, once in a blind canyon there's not much else to do buy pull the throttle wide for full power and hope we can climb out. While you do your part in the predictable "emergency" on providing ever more costly and environmentally destructive means of bring oil to us, it's my hope that we'll soon be going forth with the cleanest, cheapest, and least polluting source of "new power" which would be that of conserving what we now waste.

Where are guys with foresight like Carter when you need them? With the pellets? Funny thing being a nuclear scientist and skipper of a nuke sub, that at the time he wasn't much of an advocate for nuclear power. Suppose it might be due to fore sight on the "exhaust" problem? Jack

Why blame the oil-companies and the car manufacturers? Weren't they maximizing their shareholder value? Should we stop the "eat more beef" campaign since it surely will boost cardiovascular problems?

Jack, Yes, there is an "exhaust problem" with Nuc's, but that's due to the symbiosis breakdwon I touched upon earlier. The D.O.E. and Industry are still waiting on the government to decide where and setup safe and secure storage for the waste. How long have we been waiting? Twenty or thirty years? So this stuff is still piling up on the sites. A rather scary thought.

Ahh Yes, if only I could invent a cheap, powerful, efficient, environmentally friendly, energy source I could retire a rich man. But there is that pesky problem of science fact versus science fiction.

Nabr asks: Why blame the oil-companies and the car manufacturers? Weren't they maximizing their shareholder value?

......... Good question which sums up the question of our age. IS "shareholder value" THE god of our time as we run out the resources we inherited?

I guess that would be bad enough by itself, but then there are the "extras" like the 6000 pound GVW tax deduction (only recently ended) that made it cheaper for businessmen to drive Hummers than for a secretary to drive a small sedan. Dare we even mention the goodies given by government to oil companies?

.......... and, have they maxxed shareholder value? Chrysler was sold for just three times Youtube's valuation. As Toyota steams past GM as the world's largest car mfg? And either Ford or GM can be bought for break-up value?

"Should we stop the "eat more beef" campaign since it surely will boost cardiovascular problems?"

.......... Not sure. Should we let "the market", CEO gleanings, and "shareholder value" run us off the cliff like so many lemmings?

Did you know that those of us who were in the Alaska salmon business wanted to tell Americans how much better wild salmon and omega III oils are for them but our industry and advertising resources were miniscule compared to beef, so you heard only the "eat more beef" and see many of the results. Some you don't see, like 70% of Alaska's salmon going to Japan where it improves the health of their consumers instead.

Neil; has some luddite or other rascal been sitting on the safe and secure storage spot for all these years? But more seriously France seems to make nuclear work for them, but then they've few other options. With the world "up the canyon" more will be forced to turn to nuclear. Even the Iran's or my state of Alaska will consider alternatives as fuel is just as expensive for an Alaskan consumer as for anyone else and we'd rather maximize what we can sell than to consume it ourselves. For the NK's and others with very low wages and few resources nuclear may be the ONLY choice.

And Ha! I do like the idea of science over fiction, including the gangs of lobbyists that "gave us" heavily subsidized corn based ethanol and spineless pols who've ignored conservation efforts since Carter left office. (Except for Clinton's foiled attempt to pass a BTU tax on non-renewables.)

Jack: I think the dire straits of the car companies does not reflect their big-car (fuel-guzzler) bias so much as their labor troubles and management inefficiencies. Those were unrelated issues. Another way to look at it: Another typical candidate for blame is the oil companies. But they have indeed maximized their shareholder value, right?

So the question is again: "Should companies maximize shareholder value?" I think they should maybe for the simple reason "if not shareholder value then what?" Can you give any other tangible that a company should shoot for? "Social responsibility" and "stakeholder value" are other terms touted by how does when quantify those? And then is a company management well suited to determine what level of compromise it seeks between these , often contrarian, goals?

So, should the cigarette companies sell cigarettes? Absolutely! So should car companies sell whatever cars they can make that maximize profits. (no matter how environmentally inefficient) Any other prescription leads to unnecessary ambiguity in the role of firms.

Now, it is up to the government to decide whether cigarettes (or big cars) are bad and then depending on those impose uniform regulation (or Stygian taxes) that make the production of these undesirable goods uneconomical or even illegal.

So, please, try to apportion a fair share of the blame where it is due! The regulatory bodies.

Of course, I think I'm taking far more of a radical position that I normally would but I think it helps clarify the argument. [ I personally would neither make cigarettes, or drive big cars! :-) ]

Nabr: I don't have any real disagreement on maxxing shareholder value, except perhaps I'd ding management not keeping a weather eye out for changing markets. I lived through the 70's "crisis" which caught them flat-footed at the time and imports clobbered them; is my memory all that much better than their institutional memory? Do you suppose anyone up there gave any thought to building an unsustainable fleet of gas hogs and putting their own future at risk?

I don't give much, perhaps any, credence to "it's labor's fault" as the UAW guys assemble a car built of virtually the same outsourced parts as the "imports" use in 30 man-hours. The exception might be the effect of our miserably inefficient and costly patchwork of health care delivery and its overhang or legacy costs that I guess have been third partied now to the UAW itself. Paying twice as much for healthcare as do the Euros is yet another impediment to our becoming competitive.

But, yes, my view of capitalism is that of it doing what is expected of it and our democracy being efficient in regulation and making is serve us instead of us serving "the market".

In the matter of fuel efficiency probably any 50 people chosen at random could have continued a rational energy policy from its modest beginnings in the 70's. Trouble is you can have all the debate in the world and then send the operator's manual to DC, but surely along the way bands of roving lobbyists will intercept the stage coach and command them to "Throw down the box".

Thus we end up consuming/wasting twice as much fuel per capita as does Euro, which is now putting a very serious drag on our economy and a nasty component of our soaring trade deficit, with the "response" being the phony enthusiasm of putzing around with turning corn into gas guzzler feed. If we are ever to "compete" in the global economy of our own design we'd better not hamstring ourselves with silly energy policies or setting whole sectors such as Big Pharma aside and protecting them from the very competition we claim as healthy and to our advantage.

And Ha! my boy and I have often chuckled over the car ads depicting fording streams and driving around rocky mountain tops; perhaps it would be wise to spend some of their ad budgets on something a bit more rational? Doing well by doing good?

Much of the comment on the poor economics, carbon balance, energy efficiency etc of ethanol is incorrect, but would be correct if the comment was referenced to CORN ethanol.
CELLULOSIC ethanol has entirely better prospects and can be produced from various crops that could be grown on marginal land that is not currently productive, thus not putting pressure on food prices. The energy balance is much better. Further, valuable lignin can be extracted from a ligno-cellulosic crop. The lignin can be used as a polymer substitute for manufacture of various plastics and resins.

Jack, the info campaign should have been directed at the fish farming industry when it was getting started rather than beef consumption. That is what has capped wild salmon usage here in America.

Brian; Thanks, but what we ran into is precisely the problem of one airline claiming they are less miserable than their competitor, ie. that a public squabble with farmed (already backed by larger pots of international corporate money) would further confuse the public on an already confusing situation.

(Wild salmon are not allowed an "organic" label while drug-ridden pen-raised non-salmon (Atlantics) with little to no Omega III oils are allowed an "organic" label even when fed land based feed.)

Developing the "wild" and "sustainable" image is about the best of the positive approaches and the one taking place today, but considering that in a highly labor intensive industry confronting the price advantage of fish farmed in venues of less than $1/hr labor is a bit of a tough row to hoe. As the low labor costs are so attractive in Chile, Norway and others have invested a lot into state of the art processing equipment that can be utilized year around while Alaska is stuck with "processors" using 100 year old shore based canneries and floating freezer plants that are utilized for only a small part of the year.

(In the accepted principles of economics did "relative advantage" intend to include vastly disparate wage levels?)

It's not trivial to try to figure out whether pricier "real salmon" is best off trying to snag a small percentage of the similarly priced beef market or to try to upgrade consumers from the lower priced Chilean farmed "salmon". I'm in the mid-west right now where the bland taste of the farmed gunked up with a sauce is perhaps preferable to many. It's all made worse by processors not caring too much whether they get their margins in Japan or the US though there are "boutique" efforts to re-develop the US market.

I personally asked "Flat-Earth" Friedman about the situation of Alaska having the valuable resource to harvest and process but is stuck with the high labor and other costs of operating in remote areas of Alaska having to "compete" with third world labor costs, and he tap-danced around with a shuck and jive about "things not looking too good for US exporters". Indeed.