By Erwin Seba
Reuters
Jul 9, 2009
U.S. refiners face a shakeout due to pending environmental regulations in the coming years that could shrink national refining capacity by up to 2 million barrels per day (bpd), according to a study issued on Thursday by financial consultant Deloitte.
"As the impact of the new regulations is realized over the next several years, up to 2 million bpd of crude processing capacity in this country may be eliminated," according to the study.
The Deloitte study follows similar research issued throughout the year that temporary reductions in U.S. refining capacity because of the recession would likely become permanent in the next 10 years as new vehicle efficiency standards and requirements for renewable fuels cut the need for motor fuels made from crude oil.
Refiners have temporarily shuttered refineries and individual processing units throughout the year as the economic downturn crushed demand for motor fuels.
Valero Energy Corp (VLO.N: Quote, Profile, Research, Stock Buzz) said on Thursday it had turned off the first units in a sequential plantwide shutdown that could last up to three months at its 235,000-bpd Aruba refinery, which supplies the U.S. market.
On Wednesday, the U.S. Energy Information Administration said U.S. refinery utilization was running at 86.8 percent of national capacity of 17.67 million bpd. [EIA/S]
Refiners that have invested heavily in the past decade to shift their plants to run cheaper heavy, sour crude oil grades will likely face new hurdles in rules to limit carbon emissions expected to take effect within 10 years.
"The added processing needed to turn this more challenging feedstock into clean fuels consumes more energy than refining light, sweet crude," the study said. "With the advent of caps on carbon emissions, what once looked like a cheap feedstock may now mean a costly carbon footprint."
Some refiners are already adapting to the new challenges their industry will face, according to the study.
"Valero and Sunoco Inc (SUN.N: Quote, Profile, Research, Stock Buzz) have recently announced significant acquisitions of ethanol manufacturing plants from distressed sellers," the study said.
Refiners are also seeking ways to produce biofuels in addition to adding ethanol facilities.
"The future of a refinery will depend on whether it is a low-cost operator, the sort of competition it faces, and whether its profits justify the cost to comply with regulatory changes," according to the study.
Thursday, July 9, 2009
Latin America Ramps-up Ethanol Production
By Ryan C. Christiansen
Ethanol Producer Magazine
From the August 2009 Issue
Latin American countries are ramping up ethanol production despite the fact that many people in countries outside of Brazil are not aware of ethanol as a fuel.
In Central America, Guatemala is the number one producer of high-yield sugarcane and produces over 44 percent of Central America’s sugarcane-based ethanol. According to Karla Tay, agricultural specialist for the USDA, five of Guatemala’s 14 sugar mills produced approximately 64 MMgy of dehydrated ethanol from sugarcane in 2008, up from 42 MMgy in 2007 and 18 MMgy in 2006. Most of Guatemala’s ethanol was exported to the U.S. and Europe. Production for 2009 is expected to be approximately 93 MMgy. Having eight of Central America’s top 13 processing plants, Guatemala is expected to produce approximately 130 MMgy of ethanol by 2010. Guatemala’s largest ethanol producer is Bio-Ethanol SA, which has a 13 MMgy plant and is expected to triple its capacity by the end of 2010. Meanwhile, ethanol producer La Union SA operates a 7 MMgy ethanol plant. Guatemala is the fourth-largest producer of sugarcane in all of Latin America with 530,000 planted acres and the potential for 870,000 acres.
In South America, Colombia, which began producing ethanol from sugarcane in 2005, is the world’s second-largest sugarcane-ethanol producer with an approximate capacity of 64 MMgy from five plants in the Cauca River Valley in southwestern Colombia. According to Leonardo Pinzon, agricultural specialist for the USDA, Colombia has a mandate to use E10 by 2010 and current production can supply 85 percent of the requirement. In March, the Colombian government issued a decree that, beginning in 2012, all new vehicles sold in the country must be flexible fuel vehicles. Ethanol production dropped 6.1 percent in 2008 due to a sugarcane workers strike, but production is expected to increase to a record high in 2009. The government is sponsoring research and feasibility studies for new feedstocks for ethanol production, including sugar beets and yucca.
In Uruguay, new investments in ethanol production are expected to bear fruit in 2009, with approximately 1.5 MMgy of ethanol expected to be produced this year from molasses, sugarcane, and sweet sorghum, according to Ken Joseph, agricultural specialist for the USDA. Two additional projects, one backed by a French company and another by a U.S. company, are expected to be complete within five years to produce approximately 25 MMgy of ethanol each from sweet sorghum. Ethanol produced in Uruguay is expected to be exported to Brazil and Venezuela.
Meanwhile, according to a recent Gallup poll, citizens in only a handful of countries in the Caribbean and Latin America have heard of ethanol, and only 47 percent of all poll respondents in the region have heard of ethanol. In eight countries, including Brazil, Costa Rica, Nicaragua, Uruguay, Paraguay, Colombia, the Dominican Republic, and Panama, the majority of respondents have heard of ethanol; however, in Peru, Ecuador, Bolivia, and Mexico, less than 40 percent of poll respondents have heard of the fuel.
Ethanol Producer Magazine
From the August 2009 Issue
Latin American countries are ramping up ethanol production despite the fact that many people in countries outside of Brazil are not aware of ethanol as a fuel.
In Central America, Guatemala is the number one producer of high-yield sugarcane and produces over 44 percent of Central America’s sugarcane-based ethanol. According to Karla Tay, agricultural specialist for the USDA, five of Guatemala’s 14 sugar mills produced approximately 64 MMgy of dehydrated ethanol from sugarcane in 2008, up from 42 MMgy in 2007 and 18 MMgy in 2006. Most of Guatemala’s ethanol was exported to the U.S. and Europe. Production for 2009 is expected to be approximately 93 MMgy. Having eight of Central America’s top 13 processing plants, Guatemala is expected to produce approximately 130 MMgy of ethanol by 2010. Guatemala’s largest ethanol producer is Bio-Ethanol SA, which has a 13 MMgy plant and is expected to triple its capacity by the end of 2010. Meanwhile, ethanol producer La Union SA operates a 7 MMgy ethanol plant. Guatemala is the fourth-largest producer of sugarcane in all of Latin America with 530,000 planted acres and the potential for 870,000 acres.
In South America, Colombia, which began producing ethanol from sugarcane in 2005, is the world’s second-largest sugarcane-ethanol producer with an approximate capacity of 64 MMgy from five plants in the Cauca River Valley in southwestern Colombia. According to Leonardo Pinzon, agricultural specialist for the USDA, Colombia has a mandate to use E10 by 2010 and current production can supply 85 percent of the requirement. In March, the Colombian government issued a decree that, beginning in 2012, all new vehicles sold in the country must be flexible fuel vehicles. Ethanol production dropped 6.1 percent in 2008 due to a sugarcane workers strike, but production is expected to increase to a record high in 2009. The government is sponsoring research and feasibility studies for new feedstocks for ethanol production, including sugar beets and yucca.
In Uruguay, new investments in ethanol production are expected to bear fruit in 2009, with approximately 1.5 MMgy of ethanol expected to be produced this year from molasses, sugarcane, and sweet sorghum, according to Ken Joseph, agricultural specialist for the USDA. Two additional projects, one backed by a French company and another by a U.S. company, are expected to be complete within five years to produce approximately 25 MMgy of ethanol each from sweet sorghum. Ethanol produced in Uruguay is expected to be exported to Brazil and Venezuela.
Meanwhile, according to a recent Gallup poll, citizens in only a handful of countries in the Caribbean and Latin America have heard of ethanol, and only 47 percent of all poll respondents in the region have heard of ethanol. In eight countries, including Brazil, Costa Rica, Nicaragua, Uruguay, Paraguay, Colombia, the Dominican Republic, and Panama, the majority of respondents have heard of ethanol; however, in Peru, Ecuador, Bolivia, and Mexico, less than 40 percent of poll respondents have heard of the fuel.
Senate Ag Panel's Members Look to Stake Major Claim in Climate Bill
By ALLISON WINTER of ClimateWire
The New York Times
July 9, 2009
Powerful members of the Senate Agriculture Committee are angling to include even more farm and ethanol-friendly provisions to their chamber's energy and climate legislation than the House added to its bill last month.
Chairman Tom Harkin (D-Iowa) and other members of his panel say they want to ensure any effort at wide-ranging climate legislation in the Senate will include all of the provisions that House Agriculture Chairman Collin Peterson (D-Minn.) brokered for the House cap-and-trade bill, H.R. 2454 (pdf). With the hard-fought Peterson deal as their starting point, the farm state lawmakers could have leverage to capture additional benefits for farmers and ranchers.
As Senate leadership aims to advance the bill this fall, agricultural interests could form a formidable coalition. Several key fence-sitters on the bill sit on the Agriculture Committee, and farm interests have wide appeal in the Senate. Each senator has some farm interests in his or her state -- unlike the House, which has more representatives from urban and suburban areas.
"You're going to see more interest in agriculture on the Senate side, I think," Sen. Saxby Chambliss (R-Ga.), the ranking member of the Agriculture Committee, said this week of the climate bill.
House leaders compromised with Peterson and included a raft of changes he suggested for the cap-and-trade bill in order to win his and other key votes for the bill. The changes were a major victory for farm groups, but a disappointment to many environmentalists who are concerned it could weaken efforts to cut down on emissions.
Harkin said yesterday that he would like to repeat all of Peterson's language in the Senate bill and potentially build on it further. He had his first meeting last night with Senate Environment and Public Works Chairwoman Barbara Boxer (D-Calif.), leadership and other Senate committee leaders and the top White House energy adviser, Carol Browner.
The much-publicized deal that Peterson brokered on the House side put the Agriculture Department, rather than U.S. EPA, as overseer of programs that would offset emissions with conservation efforts on farms, ranches and forests. Peterson's language also allowed "early actors," farmers who have been doing such conservation practices for years, to participate in the program.
Peterson also included a raft of provisions friendly to corn-based ethanol, another important issue for farm states. His language would temporarily block EPA from calculating a fuel's total worldwide carbon footprint before determining whether it qualifies as a biofuel eligible for incentives. The language in the bill that passed the House bars EPA for five years from including emissions from indirect land-use changes abroad.
"If it's like the House bill, I'll be reasonably happy," Harkin told E&E. "We want no indirect land use, things like that in there -- there is no scientific basis for that."
But the provisions from Peterson were not welcome additions for many environmental groups. In testimony this week to the Environment and Public Works Committee, Dave Hawkins of the Natural Resources Defense Council said he hopes the Senate will weed out some of the language. "These amendments run the risk of creating a subprime market in both offsets and biofuels," said Hawkins. "They seriously damage the environmental integrity of the bill, and they will undermine public confidence in the markets for both products."
Harkin wants to build on the Peterson language with "a little bit of other stuff," including more expansive offsets for sequestration and the ability for farmers to "stack" benefits -- using land enrolled in farm bill conservation programs to also gain carbon offsets. He admitted that he has been more concerned with work on health care legislation but said his committee would hold a hearing on the issue July 22, and he would expect to work on more legislative language in the fall.
"I don't think it will bother Senator Boxer or anybody at all," Harkin said.
The Iowa Democrat, a major advocate for ethanol, also wants to expand opportunities for the corn-based version of the fuel. He said he would like to include language that would raise the amount of ethanol that can be blended into gasoline from 10 percent to 15 percent -- a change the ethanol industry has been lobbying for but auto manufacturers have been hesitant to embrace and environmental groups have balked at.
"EPA's got to get over their absolute rejection of ethanol. They've just got to get over it," Harkin said. "And we're going to force them to get over it."
The Peterson amendment also has the support of Sen. Amy Klobuchar (D-Minn.), who sits on both the Agriculture and EPW committees. "I'm very hopeful that those changes will be included," Klobuchar said yesterday. "I'm not concerned we're going to see any backtracking."
Fence-sitters remain on fence
Attempts to broaden opportunities for farmers and corn-based ethanol could lose some support for the bill from environmental groups, which have been critical of the fuel for the land, pesticides and water pollution involved in its use.
But at least some concessions for agriculture may be necessary to secure the bill's passage. The Senate Agriculture Committee includes some key members that Boxer will need to win over if she is to get the crucial 60 votes needed to pass the bill, including fence-sitters on the bill like Sens. Kent Conrad (D-N.D.), Blanche Lincoln (D-Ark.) and Debbie Stabenow (D-Mich.).
Lincoln said this week that she has "a lot of concerns" with how the bill would affect Arkansas -- noting that her commitment is to represent the people of her state, not necessarily to help the caucus get to 60 votes. "I have great concerns with what the House has done, but I haven't seen it on this side," Lincoln said.
Meanwhile, Conrad said he has started to meet with key members of the EPW Committee in an attempt to make sure agricultural concerns are addressed early on -- not late in the negotiation stages as they were in the House. The Budget Committee chairman is a key voice for agricultural interests -- he showed himself a tough negotiator on the farm bill and frequently got his way on provisions large and small. Conrad said this week he wants the Senate climate bill to include something "very much on the same lines" as Peterson's amendments in the House.
But even with those farm-friendly provisions, Conrad said he is still on the fence about the bill -- since he must also think about his state as the nation's fifth-largest oil producer and a major consumer of coal for electricity. He said more allocations or offsets might help encourage him to vote for the measure.
"In North Dakota we have more than agriculture concerns, we're a major energy state as well," Conrad said. "So we've got a lot of concerns ... they've certainly improved substantially from where it was last year by what they did in the House, but it has a ways to go before I can vote for it."
And Sen. Ben Nelson (D-Neb.) said that to win his support, the bill will have to ensure it does not raise utilities rates or include "anything that would adversely impact agriculture." He said he has discussed the bill with Sen. John Kerry (D-Mass.) and passed on some of his concerns to Boxer.
Ag groups weigh in
Farm groups, which were divided on the House climate bill, have not started heavy lobbying in the Senate. Influential groups like the American Farm Bureau Federation and the National Pork Producers Council did not support the House-passed measure.
But farmland conservation groups and the National Farmers Union, a left-leaning group active in organizing farmers to sequester carbon, eventually endorsed the bill. Those groups came out against the version of the bill that cleared the House Energy and Commerce Committee but rallied behind the cap-and-trade effort after Peterson included his changes.
The farmers union, considered very influential among Democrats, is planning to circulate letters on the climate bill in the Senate within the next week. NFU spokeswoman Liz Friedlander said they want to be sure any Senate bill puts USDA at the helm for offsets and allows for the inclusion of "early actors," but she said her group is not seeking anything beyond the House provisions "at this time."
The American Farm Bureau Federation, on the other hand, opposes the House bill but is not making direct requests to senators for things they could do to improve it. The group is concerned that higher costs for fertilizer and fuels would outweigh any benefits from the legislation, especially as U.S. farmers have to compete with producers in China and India.
Richard Krause, the farm bureau's director of congressional relations, said his group would be talking to members about their concerns about the bill, but said they do not have a list of particular changes that could be made to gain their support.
"Right now our opposition still remains and it probably will unless something changes our mind, and I'm not sure how that will be," said Krause. "It would take a lot to change our minds, I won't say it can't be done but at this point, I don't see it."
The New York Times
July 9, 2009
Powerful members of the Senate Agriculture Committee are angling to include even more farm and ethanol-friendly provisions to their chamber's energy and climate legislation than the House added to its bill last month.
Chairman Tom Harkin (D-Iowa) and other members of his panel say they want to ensure any effort at wide-ranging climate legislation in the Senate will include all of the provisions that House Agriculture Chairman Collin Peterson (D-Minn.) brokered for the House cap-and-trade bill, H.R. 2454 (pdf). With the hard-fought Peterson deal as their starting point, the farm state lawmakers could have leverage to capture additional benefits for farmers and ranchers.
As Senate leadership aims to advance the bill this fall, agricultural interests could form a formidable coalition. Several key fence-sitters on the bill sit on the Agriculture Committee, and farm interests have wide appeal in the Senate. Each senator has some farm interests in his or her state -- unlike the House, which has more representatives from urban and suburban areas.
"You're going to see more interest in agriculture on the Senate side, I think," Sen. Saxby Chambliss (R-Ga.), the ranking member of the Agriculture Committee, said this week of the climate bill.
House leaders compromised with Peterson and included a raft of changes he suggested for the cap-and-trade bill in order to win his and other key votes for the bill. The changes were a major victory for farm groups, but a disappointment to many environmentalists who are concerned it could weaken efforts to cut down on emissions.
Harkin said yesterday that he would like to repeat all of Peterson's language in the Senate bill and potentially build on it further. He had his first meeting last night with Senate Environment and Public Works Chairwoman Barbara Boxer (D-Calif.), leadership and other Senate committee leaders and the top White House energy adviser, Carol Browner.
The much-publicized deal that Peterson brokered on the House side put the Agriculture Department, rather than U.S. EPA, as overseer of programs that would offset emissions with conservation efforts on farms, ranches and forests. Peterson's language also allowed "early actors," farmers who have been doing such conservation practices for years, to participate in the program.
Peterson also included a raft of provisions friendly to corn-based ethanol, another important issue for farm states. His language would temporarily block EPA from calculating a fuel's total worldwide carbon footprint before determining whether it qualifies as a biofuel eligible for incentives. The language in the bill that passed the House bars EPA for five years from including emissions from indirect land-use changes abroad.
"If it's like the House bill, I'll be reasonably happy," Harkin told E&E. "We want no indirect land use, things like that in there -- there is no scientific basis for that."
But the provisions from Peterson were not welcome additions for many environmental groups. In testimony this week to the Environment and Public Works Committee, Dave Hawkins of the Natural Resources Defense Council said he hopes the Senate will weed out some of the language. "These amendments run the risk of creating a subprime market in both offsets and biofuels," said Hawkins. "They seriously damage the environmental integrity of the bill, and they will undermine public confidence in the markets for both products."
Harkin wants to build on the Peterson language with "a little bit of other stuff," including more expansive offsets for sequestration and the ability for farmers to "stack" benefits -- using land enrolled in farm bill conservation programs to also gain carbon offsets. He admitted that he has been more concerned with work on health care legislation but said his committee would hold a hearing on the issue July 22, and he would expect to work on more legislative language in the fall.
"I don't think it will bother Senator Boxer or anybody at all," Harkin said.
The Iowa Democrat, a major advocate for ethanol, also wants to expand opportunities for the corn-based version of the fuel. He said he would like to include language that would raise the amount of ethanol that can be blended into gasoline from 10 percent to 15 percent -- a change the ethanol industry has been lobbying for but auto manufacturers have been hesitant to embrace and environmental groups have balked at.
"EPA's got to get over their absolute rejection of ethanol. They've just got to get over it," Harkin said. "And we're going to force them to get over it."
The Peterson amendment also has the support of Sen. Amy Klobuchar (D-Minn.), who sits on both the Agriculture and EPW committees. "I'm very hopeful that those changes will be included," Klobuchar said yesterday. "I'm not concerned we're going to see any backtracking."
Fence-sitters remain on fence
Attempts to broaden opportunities for farmers and corn-based ethanol could lose some support for the bill from environmental groups, which have been critical of the fuel for the land, pesticides and water pollution involved in its use.
But at least some concessions for agriculture may be necessary to secure the bill's passage. The Senate Agriculture Committee includes some key members that Boxer will need to win over if she is to get the crucial 60 votes needed to pass the bill, including fence-sitters on the bill like Sens. Kent Conrad (D-N.D.), Blanche Lincoln (D-Ark.) and Debbie Stabenow (D-Mich.).
Lincoln said this week that she has "a lot of concerns" with how the bill would affect Arkansas -- noting that her commitment is to represent the people of her state, not necessarily to help the caucus get to 60 votes. "I have great concerns with what the House has done, but I haven't seen it on this side," Lincoln said.
Meanwhile, Conrad said he has started to meet with key members of the EPW Committee in an attempt to make sure agricultural concerns are addressed early on -- not late in the negotiation stages as they were in the House. The Budget Committee chairman is a key voice for agricultural interests -- he showed himself a tough negotiator on the farm bill and frequently got his way on provisions large and small. Conrad said this week he wants the Senate climate bill to include something "very much on the same lines" as Peterson's amendments in the House.
But even with those farm-friendly provisions, Conrad said he is still on the fence about the bill -- since he must also think about his state as the nation's fifth-largest oil producer and a major consumer of coal for electricity. He said more allocations or offsets might help encourage him to vote for the measure.
"In North Dakota we have more than agriculture concerns, we're a major energy state as well," Conrad said. "So we've got a lot of concerns ... they've certainly improved substantially from where it was last year by what they did in the House, but it has a ways to go before I can vote for it."
And Sen. Ben Nelson (D-Neb.) said that to win his support, the bill will have to ensure it does not raise utilities rates or include "anything that would adversely impact agriculture." He said he has discussed the bill with Sen. John Kerry (D-Mass.) and passed on some of his concerns to Boxer.
Ag groups weigh in
Farm groups, which were divided on the House climate bill, have not started heavy lobbying in the Senate. Influential groups like the American Farm Bureau Federation and the National Pork Producers Council did not support the House-passed measure.
But farmland conservation groups and the National Farmers Union, a left-leaning group active in organizing farmers to sequester carbon, eventually endorsed the bill. Those groups came out against the version of the bill that cleared the House Energy and Commerce Committee but rallied behind the cap-and-trade effort after Peterson included his changes.
The farmers union, considered very influential among Democrats, is planning to circulate letters on the climate bill in the Senate within the next week. NFU spokeswoman Liz Friedlander said they want to be sure any Senate bill puts USDA at the helm for offsets and allows for the inclusion of "early actors," but she said her group is not seeking anything beyond the House provisions "at this time."
The American Farm Bureau Federation, on the other hand, opposes the House bill but is not making direct requests to senators for things they could do to improve it. The group is concerned that higher costs for fertilizer and fuels would outweigh any benefits from the legislation, especially as U.S. farmers have to compete with producers in China and India.
Richard Krause, the farm bureau's director of congressional relations, said his group would be talking to members about their concerns about the bill, but said they do not have a list of particular changes that could be made to gain their support.
"Right now our opposition still remains and it probably will unless something changes our mind, and I'm not sure how that will be," said Krause. "It would take a lot to change our minds, I won't say it can't be done but at this point, I don't see it."
Monday, July 6, 2009
Corn Ethanol Has Little Effect on Food Prices
By Jim Nussle
Agweek
July 6, 2009
WASHINGTON — A new report from the Congressional Budget Office confirms what hundreds of economists and industry experts have stated for months: Using corn for ethanol has little impact on the price of food. Rather, the main culprits driving the higher cost of food are energy costs, excessive unregulated speculation in the commodities future market and a weak dollar.
The CBO analysis says ethanol was only responsible for 0.5 percent to 0.8 percent of the rise in food prices.
For far too long, the ethanol industry has been the scapegoat for last year’s dramatic increase in food prices. As former director of the Office of Management and Budget and former chairman of the House Budget Committee, I recognize the unbiased credibility of the recent CBO report and hope that it will serve as the final nail in the coffin of the half-baked theory that ethanol was somehow to blame for high food prices. The evidence is in — ethanol is not to blame.
Big Food
The average cost of food increased 5.1 percent last year — again, less than 1 percent was attributed to ethanol, according to the CBO. Big food corporations posted big gains in profits during this time, yet tried to blame ethanol for higher food prices while the price of corn was at record highs. Now that prices for both corn and energy have fallen, excessive speculation has been curbed, the dollar strengthened and exports plummeted, why haven’t food prices come down?
It’s been more than 150 days since Growth Energy has called on Big Food to stop the finger-pointing and lower their prices so that millions of struggling Americans can put food on the table. They have yet to do it and have yet to be held responsible to ask the tough question why they haven’t come down. Maybe it’s time Congress got involved.
Despite the overall good news that ethanol was not the significant cause of higher food prices, CBO’s analysis used outdated information regarding the benefits to the environment of today’s modern ethanol. The latest ethanol study published in Yale’s Journal of Industrial Ecology demonstrates that U.S.-produced ethanol reduces greenhouse gas emissions by up to 59 percent compared with gasoline.
If Congress is serious about reducing the nation’s dependence on foreign oil, creating jobs that can’t be outsourced and trimming our environmental impact, it should stand with ethanol. As the only existing alternative to foreign oil that is ready today, ethanol already has saved Americans billions at the gas pump.
Outdated Rules
Now that we can stop pointing the finger of blame at ethanol, it’s time to figure out how we can let it meet its true potential. A 30-year-old government mandate requires 90 percent of fuel be gasoline as opposed to an arbitrary cap that 10 percent be ethanol. By increasing blend levels from 10 percent to 15 percent, we can create more than 136,000 new green-collar jobs, inject $24.4 billion into the U.S. economy and displace 7 billion gallons of imported gasoline each year. We’ll also reduce greenhouse gas emissions by another 20 million tons per year — about the same as removing 3.5 million cars from the roads.
Increasing blend levels to 15 percent creates domestic demand for farm commodities and saves taxpayers money by reducing federal outlays for the federal farm safety net program. Consumers benefited at the pump as ethanol production reduced gas prices by 29 cents to 40 cents per gallon in 2008. The science behind ethanol speaks for itself. We need to ignore those who are looking to protect the status quo and instead continue to invest in this homegrown resource. The government should continue to show its support by raising blend levels up to 15 percent.
Overall, the development and use of ethanol saves money for taxpayers, benefits consumers, reduces our dependence on foreign oil, creates green jobs, revitalizes our rural communities and reduces our environmental impact. This is good for America, good for our national security, good for our national energy strategy and frankly, is something that should have been done long ago.
Editor’s Note: Nussle served as director of the Office of Management and Budget from 2007 to ’09. A former eight-term member of Congress from Iowa, he now serves as special adviser to Growth Energy’s board of directors.
Agweek
July 6, 2009
WASHINGTON — A new report from the Congressional Budget Office confirms what hundreds of economists and industry experts have stated for months: Using corn for ethanol has little impact on the price of food. Rather, the main culprits driving the higher cost of food are energy costs, excessive unregulated speculation in the commodities future market and a weak dollar.
The CBO analysis says ethanol was only responsible for 0.5 percent to 0.8 percent of the rise in food prices.
For far too long, the ethanol industry has been the scapegoat for last year’s dramatic increase in food prices. As former director of the Office of Management and Budget and former chairman of the House Budget Committee, I recognize the unbiased credibility of the recent CBO report and hope that it will serve as the final nail in the coffin of the half-baked theory that ethanol was somehow to blame for high food prices. The evidence is in — ethanol is not to blame.
Big Food
The average cost of food increased 5.1 percent last year — again, less than 1 percent was attributed to ethanol, according to the CBO. Big food corporations posted big gains in profits during this time, yet tried to blame ethanol for higher food prices while the price of corn was at record highs. Now that prices for both corn and energy have fallen, excessive speculation has been curbed, the dollar strengthened and exports plummeted, why haven’t food prices come down?
It’s been more than 150 days since Growth Energy has called on Big Food to stop the finger-pointing and lower their prices so that millions of struggling Americans can put food on the table. They have yet to do it and have yet to be held responsible to ask the tough question why they haven’t come down. Maybe it’s time Congress got involved.
Despite the overall good news that ethanol was not the significant cause of higher food prices, CBO’s analysis used outdated information regarding the benefits to the environment of today’s modern ethanol. The latest ethanol study published in Yale’s Journal of Industrial Ecology demonstrates that U.S.-produced ethanol reduces greenhouse gas emissions by up to 59 percent compared with gasoline.
If Congress is serious about reducing the nation’s dependence on foreign oil, creating jobs that can’t be outsourced and trimming our environmental impact, it should stand with ethanol. As the only existing alternative to foreign oil that is ready today, ethanol already has saved Americans billions at the gas pump.
Outdated Rules
Now that we can stop pointing the finger of blame at ethanol, it’s time to figure out how we can let it meet its true potential. A 30-year-old government mandate requires 90 percent of fuel be gasoline as opposed to an arbitrary cap that 10 percent be ethanol. By increasing blend levels from 10 percent to 15 percent, we can create more than 136,000 new green-collar jobs, inject $24.4 billion into the U.S. economy and displace 7 billion gallons of imported gasoline each year. We’ll also reduce greenhouse gas emissions by another 20 million tons per year — about the same as removing 3.5 million cars from the roads.
Increasing blend levels to 15 percent creates domestic demand for farm commodities and saves taxpayers money by reducing federal outlays for the federal farm safety net program. Consumers benefited at the pump as ethanol production reduced gas prices by 29 cents to 40 cents per gallon in 2008. The science behind ethanol speaks for itself. We need to ignore those who are looking to protect the status quo and instead continue to invest in this homegrown resource. The government should continue to show its support by raising blend levels up to 15 percent.
Overall, the development and use of ethanol saves money for taxpayers, benefits consumers, reduces our dependence on foreign oil, creates green jobs, revitalizes our rural communities and reduces our environmental impact. This is good for America, good for our national security, good for our national energy strategy and frankly, is something that should have been done long ago.
Editor’s Note: Nussle served as director of the Office of Management and Budget from 2007 to ’09. A former eight-term member of Congress from Iowa, he now serves as special adviser to Growth Energy’s board of directors.
GM Thrives in Latin America
Fuel-efficient Vehicles from its Brazil Unit and Strong Sales in Latin America Look Promising for the Battered Carmaker's Future
By Chris Kraul and Ken Bensinger
The Los Angeles Times
July 4, 2009
Reporting from Bogota, Colombia, and Los Angeles — For all its miscues at home, General Motors Corp. has built a powerhouse operation in Latin America, where its fuel-efficient vehicles could play a crucial role in returning the battered company to health.
Since it filed for bankruptcy a month ago, the automaker has been striking deals to shed much of its operations, including its Hummer, Saturn and Saab brands and its Opel division in Europe. GM is closing more North American factories, laying off workers and slashing its U.S. dealership ranks.
But despite rumors this spring, GM's thriving Latin America operations are likely to escape the ax, analysts said.
The region is an important, low-cost manufacturing platform for the U.S. market. And to Latin American consumers, GM remains a respected brand with the highest market share -- 21% -- of any carmaker, said Guido Vildozo, an auto analyst with IHS Global Insight in Waltham, Mass. While GM's sales declined 23% last year in the U.S., they rose 3% in Latin America, and thanks to some timely government support, this year's sales are on track to match 2008's.
The automaker has been in the region for decades, opening its first factory in Argentina in 1925. It has kept ahead by continuing to invest billions of dollars, including on a new assembly plant in San Luis Potosi, Mexico, and a design center in Sao Jose dos Campos, Brazil, that the automaker hopes will become a source of cutting-edge know-how for gas-sipping cars it may someday sell in the United States.
"Latin America will keep its strategic role in the new GM," said Michel Pardal, chief Latin America market forecaster for J.D. Power and Associates in Troy, Mich. "GM has a good image, has been there for many years, and their engineers' capabilities are impressive."
In May, Italian automaker Fiat was said to be in negotiations to acquire GM's operations in the region as part of its bid to buy Opel. Fiat ended up gaining control of Chrysler -- and has plans to expand that automaker's undersized reach in South America -- but did not haul in Opel or GM's Latin America unit.
Perhaps because of those rumors, however, GM Brazil chief Jaime Ardila took the trouble last month to assure employees that not only would the unit remain part of GM, but slated investments totaling $1.5 billion would also go forward. Much of that money is going into a flex-fuel motor plant under construction in the southern state of Santa Catarina.
GM's Brazil operation, second only to its China outfit in foreign unit sales, has helped keep Detroit afloat. The company has "repatriated" annual profits of up to $800 million in some years this decade, at a time when GM's U.S. operations were bleeding cash, informed sources said.
Brazil has become a crucial stop on the career paths of company brass. GM Chief Executive Fritz Henderson and his predecessor Rick Wagoner both headed operations there earlier in their careers, and both have said that because of the region's size, complexity and importance, it's an invaluable training ground.
"The Brazilian operation of GM is one of the most successful in the world," said Alexandre Andrade, an economist at Tendencias, a Sao Paulo think tank.
Analysts expect GM to make Brazil, a world leader in vehicles that use ethanol and other biofuels, a key element of its survival plan, particularly in light of new fuel efficiency requirements being laid down by the U.S. government.
The first flex-fuel car model developed at the Sao Jose dos Campos research center is called the Prisma and will soon be in showrooms in Brazil. It is also slated for export, although GM has not said where. GM's Brazilian cars, including the Chevrolet Astra and Corsa models, are exported to Mexico and other Latin countries, though not to the United States. But with low labor costs compared with North America's despite a unionized workforce, that could change before long, analysts said.
"The Brazilian government wants its car industry to become a global exporter of 1 million cars a year and is working toward that goal," IHS Global Insight's Vildozo said. Overall exports from Brazil peaked at nearly 900,000 cars in 2005.
One element of uncertainty is that GM's Brazil operation has licensed the right to produce several small car models from the company's Opel unit, which was recently sold to a consortium of bidders led by Canadian auto parts maker Magna International Inc.
But because GM will retain 35% of Opel and is likely to retain control over much of the intellectual property developed at the European division, the Brazilian operation will probably still have the right to those designs, said Jeff Schuster, J.D. Power's global forecasting director.
GM has also invested big in Mexico, where it has 13,000 employees and four assembly plants. The newest is the $1-billion facility that opened in San Luis Potosi last year, which makes the Chevy Aveo subcompact for the Latin American market.
GM's Mexican division is a major supplier of cars and trucks to the U.S. market The unit exported just over 387,000 vehicles last year, most of which ended up in U.S. showrooms. Most of the automaker's Mexican exports are SUVs and trucks, including the Saturn Vue, Chevy Suburban, Cadillac Escalade, Chevy Yukon, Chevy Silverado and GMC Sierra.
Those vehicles aren't selling well at present, and exports this year have plunged. But analysts said they don't believe that GM's Mexican operations are vulnerable to sale or closure.
On the contrary, analysts said that with their low wages, high productivity and proximity to the U.S. market, those facilities stand to gain production lost in the United States.
By Chris Kraul and Ken Bensinger
The Los Angeles Times
July 4, 2009
Reporting from Bogota, Colombia, and Los Angeles — For all its miscues at home, General Motors Corp. has built a powerhouse operation in Latin America, where its fuel-efficient vehicles could play a crucial role in returning the battered company to health.
Since it filed for bankruptcy a month ago, the automaker has been striking deals to shed much of its operations, including its Hummer, Saturn and Saab brands and its Opel division in Europe. GM is closing more North American factories, laying off workers and slashing its U.S. dealership ranks.
But despite rumors this spring, GM's thriving Latin America operations are likely to escape the ax, analysts said.
The region is an important, low-cost manufacturing platform for the U.S. market. And to Latin American consumers, GM remains a respected brand with the highest market share -- 21% -- of any carmaker, said Guido Vildozo, an auto analyst with IHS Global Insight in Waltham, Mass. While GM's sales declined 23% last year in the U.S., they rose 3% in Latin America, and thanks to some timely government support, this year's sales are on track to match 2008's.
The automaker has been in the region for decades, opening its first factory in Argentina in 1925. It has kept ahead by continuing to invest billions of dollars, including on a new assembly plant in San Luis Potosi, Mexico, and a design center in Sao Jose dos Campos, Brazil, that the automaker hopes will become a source of cutting-edge know-how for gas-sipping cars it may someday sell in the United States.
"Latin America will keep its strategic role in the new GM," said Michel Pardal, chief Latin America market forecaster for J.D. Power and Associates in Troy, Mich. "GM has a good image, has been there for many years, and their engineers' capabilities are impressive."
In May, Italian automaker Fiat was said to be in negotiations to acquire GM's operations in the region as part of its bid to buy Opel. Fiat ended up gaining control of Chrysler -- and has plans to expand that automaker's undersized reach in South America -- but did not haul in Opel or GM's Latin America unit.
Perhaps because of those rumors, however, GM Brazil chief Jaime Ardila took the trouble last month to assure employees that not only would the unit remain part of GM, but slated investments totaling $1.5 billion would also go forward. Much of that money is going into a flex-fuel motor plant under construction in the southern state of Santa Catarina.
GM's Brazil operation, second only to its China outfit in foreign unit sales, has helped keep Detroit afloat. The company has "repatriated" annual profits of up to $800 million in some years this decade, at a time when GM's U.S. operations were bleeding cash, informed sources said.
Brazil has become a crucial stop on the career paths of company brass. GM Chief Executive Fritz Henderson and his predecessor Rick Wagoner both headed operations there earlier in their careers, and both have said that because of the region's size, complexity and importance, it's an invaluable training ground.
"The Brazilian operation of GM is one of the most successful in the world," said Alexandre Andrade, an economist at Tendencias, a Sao Paulo think tank.
Analysts expect GM to make Brazil, a world leader in vehicles that use ethanol and other biofuels, a key element of its survival plan, particularly in light of new fuel efficiency requirements being laid down by the U.S. government.
The first flex-fuel car model developed at the Sao Jose dos Campos research center is called the Prisma and will soon be in showrooms in Brazil. It is also slated for export, although GM has not said where. GM's Brazilian cars, including the Chevrolet Astra and Corsa models, are exported to Mexico and other Latin countries, though not to the United States. But with low labor costs compared with North America's despite a unionized workforce, that could change before long, analysts said.
"The Brazilian government wants its car industry to become a global exporter of 1 million cars a year and is working toward that goal," IHS Global Insight's Vildozo said. Overall exports from Brazil peaked at nearly 900,000 cars in 2005.
One element of uncertainty is that GM's Brazil operation has licensed the right to produce several small car models from the company's Opel unit, which was recently sold to a consortium of bidders led by Canadian auto parts maker Magna International Inc.
But because GM will retain 35% of Opel and is likely to retain control over much of the intellectual property developed at the European division, the Brazilian operation will probably still have the right to those designs, said Jeff Schuster, J.D. Power's global forecasting director.
GM has also invested big in Mexico, where it has 13,000 employees and four assembly plants. The newest is the $1-billion facility that opened in San Luis Potosi last year, which makes the Chevy Aveo subcompact for the Latin American market.
GM's Mexican division is a major supplier of cars and trucks to the U.S. market The unit exported just over 387,000 vehicles last year, most of which ended up in U.S. showrooms. Most of the automaker's Mexican exports are SUVs and trucks, including the Saturn Vue, Chevy Suburban, Cadillac Escalade, Chevy Yukon, Chevy Silverado and GMC Sierra.
Those vehicles aren't selling well at present, and exports this year have plunged. But analysts said they don't believe that GM's Mexican operations are vulnerable to sale or closure.
On the contrary, analysts said that with their low wages, high productivity and proximity to the U.S. market, those facilities stand to gain production lost in the United States.
Sunday, July 5, 2009
Ethanol Bankruptcy Filing a Blow to Biofuels Industry
Bumpy Road for Ethanol
By BRETT CLANTON
Houston Chronicle
May 11, 2009
The bankruptcy filing last week by Texas’ largest ethanol producer deals yet another blow to the state’s struggling biofuels sector and is part of a broader industry downturn that analysts say may claim other victims before it is done.
Dallas-based White Energy said a Chapter 11 filing became necessary after high raw material costs coupled with low ethanol prices led to “minimal or nonexistent profit margins.” It also blamed significant debt payments and an inability to raise capital from frozen equity markets.
The move comes just three years after the privately held firm entered the business and on the heels of bankruptcy filings by ethanol powerhouse VeraSun Energy Corp. and Dallas-based Panda Energy, which in January placed its plant near Amarillo in Chapter 11.
“It’s clearly a challenging environment,” said Bob Thompson, partner in the Kansas City law office of Bryan Cave, who advises companies investing in renewable fuel and energy projects. “But the reality is that most of these ethanol producers are dealing with are problems that were created last year.”
In recent months, the industry has been pummeled by volatile corn and oil prices, seen funding dry up for new projects and watched demand stall as slowing gasoline consumption and lower pump prices reduce the incentive for blending the fuel with gasoline. Some producers have stayed afloat by cutting output or idling plants.
About 16 percent of the nation’s 12.6 billion gallons of corn ethanol production capacity is currently shut down, according to the Renewable Fuels Association, an ethanol trade group.
Two Out of Four
Among Texas’ four plants, just two are operating, while one is temporarily shut and another still under construction.
In January, White Energy halted production at its 100- million-gallon-per-year plant in Plainview, citing poor market conditions, but has continued production at a plant of similar size in Hereford and a 45-million-gallon-per-year plant in Kansas.
White officials did not return calls seeking comment but said in court papers filed Thursday that they intend to continue normal business operations in Chapter 11.
In its bankruptcy filing, the company listed assets and liabilities in the range of $100 million to $500 million and said its operations produced over $500 million in revenue in 2008.
In the U.S., ethanol is blended with gasoline to help reduce dependence on oil and improve air quality in densely populated areas like Houston and Dallas.
Slow Growth Expected
The Energy Independence and Security Act of 2007 requires greater usage of ethanol and other biofuels in coming years, growing to 36 billion gallons in 2022 — or about 25 percent of the 140 billion gallons of gasoline U.S. drivers now consume annually. This year, the law requires 10.5 billion gallons of grain ethanol in the fuel supply.
But the U.S. Energy Information Administration expects the growth in U.S. ethanol plant capacity and production over the last few years to slow dramatically in 2009 as lower gasoline prices depress ethanol production profits, and financial market constraints impede construction plans and bring plant shutdowns.
Thompson said the tough conditions will likely mean more ethanol company bankruptcies, but he believes the industry is about to stabilize.
Currently, the ethanol industry is pushing hard to raise the federal limit on the amount of ethanol that can be blended in gasoline from 10 percent to 15 percent.
Such a move would create a bigger market for the fuel, but critics argue higher blends could harm engines, which the ethanol industry disputes.
The industry is also challenging a decision last week by the EPA to enact the first-ever greenhouse gas performance standards for biofuels. The standards would take into account all emissions created in the process of making ethanol, rather than just emissions from burning the fuel.
But the industry has taken issue with how the government measures emissions under the proposed program.
By BRETT CLANTON
Houston Chronicle
May 11, 2009
The bankruptcy filing last week by Texas’ largest ethanol producer deals yet another blow to the state’s struggling biofuels sector and is part of a broader industry downturn that analysts say may claim other victims before it is done.
Dallas-based White Energy said a Chapter 11 filing became necessary after high raw material costs coupled with low ethanol prices led to “minimal or nonexistent profit margins.” It also blamed significant debt payments and an inability to raise capital from frozen equity markets.
The move comes just three years after the privately held firm entered the business and on the heels of bankruptcy filings by ethanol powerhouse VeraSun Energy Corp. and Dallas-based Panda Energy, which in January placed its plant near Amarillo in Chapter 11.
“It’s clearly a challenging environment,” said Bob Thompson, partner in the Kansas City law office of Bryan Cave, who advises companies investing in renewable fuel and energy projects. “But the reality is that most of these ethanol producers are dealing with are problems that were created last year.”
In recent months, the industry has been pummeled by volatile corn and oil prices, seen funding dry up for new projects and watched demand stall as slowing gasoline consumption and lower pump prices reduce the incentive for blending the fuel with gasoline. Some producers have stayed afloat by cutting output or idling plants.
About 16 percent of the nation’s 12.6 billion gallons of corn ethanol production capacity is currently shut down, according to the Renewable Fuels Association, an ethanol trade group.
Two Out of Four
Among Texas’ four plants, just two are operating, while one is temporarily shut and another still under construction.
In January, White Energy halted production at its 100- million-gallon-per-year plant in Plainview, citing poor market conditions, but has continued production at a plant of similar size in Hereford and a 45-million-gallon-per-year plant in Kansas.
White officials did not return calls seeking comment but said in court papers filed Thursday that they intend to continue normal business operations in Chapter 11.
In its bankruptcy filing, the company listed assets and liabilities in the range of $100 million to $500 million and said its operations produced over $500 million in revenue in 2008.
In the U.S., ethanol is blended with gasoline to help reduce dependence on oil and improve air quality in densely populated areas like Houston and Dallas.
Slow Growth Expected
The Energy Independence and Security Act of 2007 requires greater usage of ethanol and other biofuels in coming years, growing to 36 billion gallons in 2022 — or about 25 percent of the 140 billion gallons of gasoline U.S. drivers now consume annually. This year, the law requires 10.5 billion gallons of grain ethanol in the fuel supply.
But the U.S. Energy Information Administration expects the growth in U.S. ethanol plant capacity and production over the last few years to slow dramatically in 2009 as lower gasoline prices depress ethanol production profits, and financial market constraints impede construction plans and bring plant shutdowns.
Thompson said the tough conditions will likely mean more ethanol company bankruptcies, but he believes the industry is about to stabilize.
Currently, the ethanol industry is pushing hard to raise the federal limit on the amount of ethanol that can be blended in gasoline from 10 percent to 15 percent.
Such a move would create a bigger market for the fuel, but critics argue higher blends could harm engines, which the ethanol industry disputes.
The industry is also challenging a decision last week by the EPA to enact the first-ever greenhouse gas performance standards for biofuels. The standards would take into account all emissions created in the process of making ethanol, rather than just emissions from burning the fuel.
But the industry has taken issue with how the government measures emissions under the proposed program.
Saturday, July 4, 2009
NREL Report (October, 2008) – EFFECTS OF INTERMEDIATE ETHANOL BLENDS ON LEGACY VEHICLES AND SMALL NON-ROAD ENGINES
News Media Contact(s):
Jennifer Scoggins, (202) 586-4940
For Immediate Release
October 7, 2008
Fact Sheet: Effects of Intermediate Ethanol Blends
In August 2007, the U.S. Department of Energy (DOE) initiated a test program to assess the potential impacts of higher intermediate ethanol blends on conventional vehicles and other engines that rely on gasoline. The test program focuses specifically on the effects of intermediate blends of E15 and E20—gasoline blended with 15 and 20 percent ethanol, respectively—on emissions, catalyst and engine durability, drivability or operability, and materials associated with these vehicles and engines. This DOE test program includes technical expertise from DOE’s National Renewable Energy Laboratory (NREL) and Oak Ridge National Laboratory.This preliminary report, the first in a series of peer-reviewed reports that will summarize the results of intermediate ethanol blends, provides results from testing E15 and E20 on 13 popular late-model vehicles and 28 small non-road engines, including lawn equipment and generators.Vehicle results include the following when E15 and E20 were compared with traditional gasoline:
•Tailpipe emissions were similar;
•Under normal operations, catalyst temperatures in the 13 cars were largely unchanged;
•When tested under full-throttle conditions, about half of the cars exhibited slightly increased catalyst temperatures with E15 and E20, compared to traditional gasoline; and,
•Based on informal observations during testing, drivability was unchanged.
Small non-road engine results include the following when E15 and E20 were compared with traditional gasoline:
•As ethanol content increased:
◦Regulated emissions generally stayed within allowed limits,
◦Engine and exhaust temperatures increased;
•Commercial engines, as well as larger non-handheld residential engines in this limited study, exhibited no particular sensitivity to ethanol from a durability perspective; and,
•The effect of E15 and E20 on the durability of smaller, less-expensive handheld residential engines was not clear.
The full intermediate blend report is now available.
U.S. Department of Energy, Office of Public Affairs, Washington, D.C.
Jennifer Scoggins, (202) 586-4940
For Immediate Release
October 7, 2008
Fact Sheet: Effects of Intermediate Ethanol Blends
In August 2007, the U.S. Department of Energy (DOE) initiated a test program to assess the potential impacts of higher intermediate ethanol blends on conventional vehicles and other engines that rely on gasoline. The test program focuses specifically on the effects of intermediate blends of E15 and E20—gasoline blended with 15 and 20 percent ethanol, respectively—on emissions, catalyst and engine durability, drivability or operability, and materials associated with these vehicles and engines. This DOE test program includes technical expertise from DOE’s National Renewable Energy Laboratory (NREL) and Oak Ridge National Laboratory.This preliminary report, the first in a series of peer-reviewed reports that will summarize the results of intermediate ethanol blends, provides results from testing E15 and E20 on 13 popular late-model vehicles and 28 small non-road engines, including lawn equipment and generators.Vehicle results include the following when E15 and E20 were compared with traditional gasoline:
•Tailpipe emissions were similar;
•Under normal operations, catalyst temperatures in the 13 cars were largely unchanged;
•When tested under full-throttle conditions, about half of the cars exhibited slightly increased catalyst temperatures with E15 and E20, compared to traditional gasoline; and,
•Based on informal observations during testing, drivability was unchanged.
Small non-road engine results include the following when E15 and E20 were compared with traditional gasoline:
•As ethanol content increased:
◦Regulated emissions generally stayed within allowed limits,
◦Engine and exhaust temperatures increased;
•Commercial engines, as well as larger non-handheld residential engines in this limited study, exhibited no particular sensitivity to ethanol from a durability perspective; and,
•The effect of E15 and E20 on the durability of smaller, less-expensive handheld residential engines was not clear.
The full intermediate blend report is now available.
U.S. Department of Energy, Office of Public Affairs, Washington, D.C.
We’ll Never Pump Enough Oil
BY GAL LUFT
Miami Herald
June 13, 2009
This week America transitioned from analog to digital television broadcasts, ushering what could be described as an open standard for television. This means that consumers will have a choice between buying a digital set or signing up to cable or satellite service and keeping their old antenna by installing a signal-dumbing converter box which allows them to get analog signal.
Without the converter, an analog TV began showing snow on the screen starting as of Friday morning. Regardless of whether the shift is a good idea or not — it probably is as it allows better spectrum usage — it is sad commentary of our priorities as a society. Strategic as Congress may imagine television is in our lives, it is not nearly as important as transportation.
Yet, the same Congress that mandated consumer choice in television reception modes denies us choice in transportation fuels: our cars, trucks, ships and planes can run on nothing but petroleum.
Such choice at the pump is neither more difficult nor more costly to achieve than choice at the screen. In Brazil, more than 80 percent of the new cars are flex fuel vehicles capable of running on any combination of gasoline and alcohols like ethanol and methanol. To make a new car flex fuel costs an automaker an extra $100 or less.
All that is needed is a chip and corrosion resistant fuel line. To convert our television, Congress has already allocated nearly $2 billion in taxpayer money to provide $80 worth of coupons per household to subsidize conversion boxes. Brazilians may not have as sophisticated television system but they can choose among fuels.
Last year, when oil prices were at their three-digit level more alcohol was sold in Brazil than gasoline, and the Brazilian economy was hardly touched by the oil crisis. At the same time, with no such fuel choice Americans shelled out hundreds of billions of dollars for foreign oil, a monumental loss of national wealth that popped the mortgage bubble and brought the United States to the brink of economic collapse.
Brazil’s success story hasn’t escaped the eyes of our leaders. President Obama pledged numerous times to pass a law that would mandate flex-fuel engines in all automobiles in order to break oil’s virtual monopoly over transporation fuel. Secretary of Interior Ken Salazar, while still in the Senate, was the lead sponsor of legislation that would have ensured new cars sold in the United States offer fuel flexibility. Energy Secretary Steven Chu has also spoken on the merits of this policy. But judging from its recent actions Congress is not on board. What seems to be the signature energy legislation of the 111th Congress, the American Clean Energy and Security Act, (also known as the Waxman-Markey cap-and-trade bill) does almost nothing to break oil’s monopoly in transportation fuels and provide Americans the kind of choice they have in choosing a television set, a cup of coffee or any other consumer product.
A provision that could have made a difference, an Open Fuel Standard to ensure 50 percent of new cars are flexible-fuel capable of running on any blend of alcohol and gasoline was watered down to meaninglessness by the House Energy and Commerce Committee. Such a standard which could enable consumers to choose a fuel alternative at the pump next time gasoline prices rise to $5 a gallon was rejected by Chairman Henry Waxman due to pressure by the automakers.
The same distressed GM and Ford that, time after time, appeared before Congress asking for taxpayer money and promising that they would make 50 percent of their cars flex-fuel vehicles by 2012, ordered their lobbyists to scuttle any legislation that would require them to do just that.
Oil prices are rising, and pain will again be felt at the pump. Saudi Arabia’s oil minister Ali Naimi has recently predicted $150-a-barrel oil within three years.
Yet, as if nothing was learned from the previous oil shock of last summer, we continue to roll onto our roads 10 million new cars annually that can run on nothing but petroleum each with an average street life of 16 years. We are in for a shock, and when it comes we’ll again be able to view Americans’ vulnerability contrasted with Brazilians’ resiliency.
Only this time, we’ll be watching on our digital sets.
Gal Luft is executive director of the Institute for the Analysis of Global Security (IAGS). He is co-author of Energy Security Challenges for the 21st Century (2009).
Miami Herald
June 13, 2009
This week America transitioned from analog to digital television broadcasts, ushering what could be described as an open standard for television. This means that consumers will have a choice between buying a digital set or signing up to cable or satellite service and keeping their old antenna by installing a signal-dumbing converter box which allows them to get analog signal.
Without the converter, an analog TV began showing snow on the screen starting as of Friday morning. Regardless of whether the shift is a good idea or not — it probably is as it allows better spectrum usage — it is sad commentary of our priorities as a society. Strategic as Congress may imagine television is in our lives, it is not nearly as important as transportation.
Yet, the same Congress that mandated consumer choice in television reception modes denies us choice in transportation fuels: our cars, trucks, ships and planes can run on nothing but petroleum.
Such choice at the pump is neither more difficult nor more costly to achieve than choice at the screen. In Brazil, more than 80 percent of the new cars are flex fuel vehicles capable of running on any combination of gasoline and alcohols like ethanol and methanol. To make a new car flex fuel costs an automaker an extra $100 or less.
All that is needed is a chip and corrosion resistant fuel line. To convert our television, Congress has already allocated nearly $2 billion in taxpayer money to provide $80 worth of coupons per household to subsidize conversion boxes. Brazilians may not have as sophisticated television system but they can choose among fuels.
Last year, when oil prices were at their three-digit level more alcohol was sold in Brazil than gasoline, and the Brazilian economy was hardly touched by the oil crisis. At the same time, with no such fuel choice Americans shelled out hundreds of billions of dollars for foreign oil, a monumental loss of national wealth that popped the mortgage bubble and brought the United States to the brink of economic collapse.
Brazil’s success story hasn’t escaped the eyes of our leaders. President Obama pledged numerous times to pass a law that would mandate flex-fuel engines in all automobiles in order to break oil’s virtual monopoly over transporation fuel. Secretary of Interior Ken Salazar, while still in the Senate, was the lead sponsor of legislation that would have ensured new cars sold in the United States offer fuel flexibility. Energy Secretary Steven Chu has also spoken on the merits of this policy. But judging from its recent actions Congress is not on board. What seems to be the signature energy legislation of the 111th Congress, the American Clean Energy and Security Act, (also known as the Waxman-Markey cap-and-trade bill) does almost nothing to break oil’s monopoly in transportation fuels and provide Americans the kind of choice they have in choosing a television set, a cup of coffee or any other consumer product.
A provision that could have made a difference, an Open Fuel Standard to ensure 50 percent of new cars are flexible-fuel capable of running on any blend of alcohol and gasoline was watered down to meaninglessness by the House Energy and Commerce Committee. Such a standard which could enable consumers to choose a fuel alternative at the pump next time gasoline prices rise to $5 a gallon was rejected by Chairman Henry Waxman due to pressure by the automakers.
The same distressed GM and Ford that, time after time, appeared before Congress asking for taxpayer money and promising that they would make 50 percent of their cars flex-fuel vehicles by 2012, ordered their lobbyists to scuttle any legislation that would require them to do just that.
Oil prices are rising, and pain will again be felt at the pump. Saudi Arabia’s oil minister Ali Naimi has recently predicted $150-a-barrel oil within three years.
Yet, as if nothing was learned from the previous oil shock of last summer, we continue to roll onto our roads 10 million new cars annually that can run on nothing but petroleum each with an average street life of 16 years. We are in for a shock, and when it comes we’ll again be able to view Americans’ vulnerability contrasted with Brazilians’ resiliency.
Only this time, we’ll be watching on our digital sets.
Gal Luft is executive director of the Institute for the Analysis of Global Security (IAGS). He is co-author of Energy Security Challenges for the 21st Century (2009).
Friday, July 3, 2009
Breaking Oil’s Monopoly in the Transportation Sector
Breaking Oil’s Monopoly in the Transportation Sector
By Gal Luft
August 22, 2008
Ten years ago, Osama bin Laden set a target price for oil at $144 a barrel. At the time, crude oil prices stood at $12 a barrel and his figure, aimed to compensate the Muslims for what he called “the biggest theft in the history of the world,” sounded delusional.
Four years ago, just prior to the U.S. elections, when oil prices stood at $38, bin Laden explained his economic warfare strategy: “We bled Russia for ten years until it went bankrupt and forced to withdraw in defeat. We are continuing the same policy to make America bleed profusely to the point of bankruptcy.” Reputable energy analysis outfits held a completely opposite view on the future of oil. A 2005 report by Cambridge Energy Research Associates (CERA) held that by 2010 global oil supply would rise by as much as 16 million barrels per day (mbd). “We expect supply to outstrip demand growth in the next few years, which would take the pressure off prices around 2007-2008,” wrote the report’s authors. As we know, this never happened.
World oil production has been flat since 2005 and $144 might soon become a fond memory. Today, with oil prices above bin Laden’s stated goal, his economic warfare strategy seems like a resounding success. At a time al-Qaeda is on the run, $144 oil is a major morale booster and the best birthday present for its 20th anniversary next month. There is no need to elaborate on the implications of such a victory in terms of loss of U.S. prestige and our ability to prevail in the Long War of the 21st century. Furthermore, at current price level, the U.S. will spend over $600 billion on imported oil this year, more than our defense budget, and much of that money will flow into the coffers of those who wish us ill. It has long been clear that our oil dependence forces us to pay for both sides of the war on terrorism. In light of this year’s figures, we are paying the other side more than we invest in our own defense.
A cartel married to a monopoly
In order to chart the road to energy security, we must first understand why we are where we are. There are many reasons for the current oil crisis. Strong demand in developing Asia, speculation, geological decline, and malevolent disruptions have all contributed their share. But by far, the main culprit is OPEC’s reluctance to ramp up production. The cartel owns 78 percent of the world’s proven reserves and produces about 40 percent of its oil production. In 1973, OPEC produced 30mbd, while non-OPEC produced 25mbd. Today, OPEC produces 32mbd while non-OPEC production is close to 45mbd. In other words, OPEC today produces almost as much oil as it did 35 years ago while the world global demand for oil has nearly doubled.
Clearly it is not in OPEC’s interest to provide relief to the struggling global economy. The cartel enjoys a vertical monopoly of the world vehicle fuel supply, and it is currently at the receiving end of the biggest transfer of wealth in human history. To understand the magnitude of the forces in play it is instructive to visualize the scale of OPEC’s wealth in comparison to that of consuming countries: imagine that OPEC members are corporations and a barrel of oil is a share. At $125 oil, OPEC’s market capitalization based on its proven reserves stands today at roughly $137 trillion. This is roughly equivalent to the value of the world’s total financial assets--stocks, bonds, other equities, government and corporate debt and bank deposits--or roughly three times the market capitalization of all the companies traded in the world’s top 27 stock markets. Such monumental wealth potential will translate into unprecedented buying power for the oil countries. For demonstration sake, at $200 oil OPEC could potentially buy Bank of America in one month worth of production, Apple Computers in a week and General Motors in just 3 days. It would take less than two years of production for OPEC to own a 20 percent stake (which essentially ensures a voting block in most corporations) in every S&P 500 company.
OPEC’s reluctance to increase production is today the main factor contributing to global poverty. While we in the U.S., which enjoys a per capita income of over $40,000 a year, are feeling the sharp pinch of high oil prices, we should all consider the impact of these prices on the world’s poor. People throughout the world who live on $2 a day are being now looted by OPEC price fixing. This has profound implications for global security, driving regional unrest, increasing poverty, and nipping in the bud progress towards democracy.
Beware of perpetuation of the petroleum standard
The unique strategic importance of oil to the modern economy—beyond that of any other commodity today—stems from the fact that the global economy’s very enabler, the transportation sector, is utterly dependent on it, with 220 million cars and trucks in the United States alone (today, contrary to popular belief, only 2 percent of U.S. electricity is generated from oil, and conversely only about 2 percent of U.S. oil demand is due to electricity generation.) With 97 percent of U.S. transportation energy based on petroleum, oil is the lifeblood of America’s economy. America is poor in oil relative to its need. It consumes one of every four gallons in the world but has barely 3 percent of the world’s proven reserves of conventional oil. The United States now imports over 60 percent of its oil, more than twice the ratio of imports before the 1973–74 Arab oil embargo.
Neither efforts to expand petroleum supply nor those to crimp petroleum demand through increased CAFE standards will be enough to reduce America’s strategic vulnerability anytime soon. On the contrary, as the graph from OPEC’s own statistics shows, when we drill more, they drill less. Such policies at best buy us a few more years of complacency, while ensuring a much worse dependence down the road when America's conventional oil reserves are even more depleted.
Rather than focusing on solutions that perpetuate the petroleum standard, we should invest in transformational policies that aim to diminish the strategic importance of oil by breaking its monopoly in transportation.
Real energy security can be achieved only through fuel choice and competition. That competition cannot take place as long as we continue to put 16 million new cars that run only on petroleum on our roads every year, each with an average street life of 16.8 years -- thereby locking ourselves into decades more of petroleum dependence.
Barring a significant change, a senator elected in 2008 will witness the introduction of 102 million gasoline only cars during his or her 6-year term. I cannot think about something more detrimental to America’s security than Congress letting this happen.
When in a hole, stop digging
The first thing we must do is to ensure that the cars rolling onto America’s roads are platforms on which fuels can compete. For a cost of less than $100 extra as compared to a gasoline-only vehicle, automakers can make virtually any car a flex fuel vehicle, capable of running on any combination of gasoline and a variety of alcohols such as ethanol and methanol, made from a variety of feedstocks, from agricultural material, to waste, to coal. (Alcohol does not just mean ethanol, and ethanol does not just mean corn.) Flex fuel vehicles let consumers and the market choose the winning fuels and feedstocks based on economics. In Brazil, where ethanol is widely used, the share of flex fuel vehicles in new car sales rose from 4 percent to 90 percent in under five years. These cars are manufactured by the same automakers that sell to the U.S. market and entail no size, power, or safety compromise by consumers. The proliferation of flex fuel vehicles in Brazil has driven fuel competition at the pump to the point where the Brazilian oil industry has had to keep gasoline prices sufficiently low to compete with ethanol in order not to lose more market share, so low that it actually just received a government subsidy to do so. Indeed, in Brazil, ethanol will become this year an alternative fuel.
Expanding U.S. fuel choice to include biofuels imported from developing countries has significant geopolitical benefits at a time when U.S. global standing is eroding. Sugar, from which ethanol can be cheaply and efficiently produced, is now grown in one hundred countries, many of which are poor and on the receiving end of U.S. development aid. Encouraging these countries to increase their output and become fuel suppliers, opening our fuel market to them by removing the protectionist 54 cent a gallon ethanol tariff, could have far-reaching implications for their economic development. By creating economic interdependence with biomass-producing countries in Africa, Asia, and the Western Hemisphere, the United States can strengthen its position in the developing world and provide significant help in reducing poverty.
At this point, the fallacy that increased use of biofuels in general, and corn ethanol in particular, is driving world hunger must be addressed. The primary drivers of price increases for food commodities spanning the spectrum from fish to rice (neither of which are used to make fuel) and beyond are the massive increases in oil prices -- raising the cost of distribution, labor, packaging and so forth; commodity speculation driven by a weak dollar and increased calorie demand from hundreds of millions of people in China and India who have risen out of poverty and bare subsistence. Further, despite corn ethanol production, the U.S. corn food and feed product has increased 34 percent over the last five years, and U.S. food exports overall have increased 23 percent on the year. America is clearly doing its share to feed the world.
Furthermore, the International Energy Agency has reiterated that biofuels are key to keeping the lid on an overheated transportation fuel market. According to Merrill Lynch, without the increase in biofuels production, oil prices would have been 15 percent higher, which at current oil prices translates into a savings of over $80 billion a year to the U.S. economy. The much derided biofuels program which has facilitated this $80 billion saving, costs the taxpayer $4 billion a year. By any reasonable standard it is a far better deal to send money to America’s farmers than to various petro-dictators.
Methanol
True flex fuel cars should also accommodate another important fuel called methanol. China has embraced this alcohol fuel. Several provinces in China already blend their gasoline with methanol and scores of methanol plants are currently under construction there. The Chinese auto industry has already begun to produce flex-fuel models that can run on methanol. Methanol packs less energy per gallon and is more corrosive than ethanol. But it is cheaper and far easier to produce in bulk. While ethanol can be made only from agricultural products such as corn and sugar cane, methanol can be made from agricultural waste, natural gas, coal, industrial garbage and even recycled carbon dioxide captured from power stations' smokestacks -- an elegant way to reduce greenhouse gas emissions.
Electricity
Since we hardly generate any electricity from oil, using electricity as a transportation fuel enables the full spectrum of electricity sources to compete with petroleum. Plug in hybrid electric vehicles (PHEVs) can reach oil economy levels of 100 miles per gallon of gasoline without compromising the size, safety, or power of a vehicle. If a PHEV is also a flexiblefuel vehicle powered by 85 percent alcohol and 15 percent gasoline, oil economy could reach over 500 miles per gallon of gasoline. Ideally, plug-in hybrids would be charged at night in home or apartment garages, when electric utilities have significant reserve capacity. The Department of Energy estimates that over 70 percent of the U.S. vehicle market could shift to plug-in hybrids without needing to install additional baseload electricity-generating capacity. In addition, the U.S. is the world’s biggest potential market for electric cars which can be sold as second or third family car. Thirty one percent of America’s households own two cars and additional 35% own three or more vehicles. There are over 75 million households in the US that own more than one vehicle and that can potentially replace one or more gasoline only cars with cars powered with made-in-America electricity.
A nationwide deployment of flex-fuel cars, flex fuel plug-in hybrids, and alternative fuels could take place within two decades. But such a transformation will not occur by itself. Every year that passes without Congressional action to ensure that new cars sold in America are flex fuel vehicles is another year in which 16 million gasoline-only cars start their 17-year life on U.S. roads, further binding us to foreign oil. On the grounds of national security and in the interest of stemming the hemorrhaging of our economy, Congress should take swift action to require that new vehicles sold in the United States are flexible fuel vehicles through an Open Fuel Standard. Such an Open Fuel Standard would level the playing field and promote free competition among diverse energy suppliers. A few years ago Congress passed an open standard for television mandating that as of February 2009 every television sold in the U.S. must be digital enabled. Further, Congress allocated coupons in the amount of $80 per household to allow Americans to convert their analog TV to digital transmission. One would hope we consider our transportation sector at least as strategic as television watching.
I realize that many are opposed to any government interference in the market. Indeed, in a perfect world, government would not need to intervene in the energy market, but in a time of war, the United States is taking an unacceptable risk by leaving the problem to be solved by the invisible hand. This is especially true since the energy market is anything but free. It is manipulated by a cartel, heavily rigged in favor of the status quo, and, as the case of the ethanol tariff shows, riddled with protectionism.
Choosing not to embrace an Open Fuel Standard, is choosing to preserve oil’s monopoly in the transportation sector, and with it OPEC’s growing stranglehold over the global economy and in essence guaranteeing continuous economic and strategic decline.
Gal Luft is the Executive Director of the Institute for the Analysis of Global Security (IAGS) and Co-Founder of the Set America Free Coalition.
By Gal Luft
August 22, 2008
Ten years ago, Osama bin Laden set a target price for oil at $144 a barrel. At the time, crude oil prices stood at $12 a barrel and his figure, aimed to compensate the Muslims for what he called “the biggest theft in the history of the world,” sounded delusional.
Four years ago, just prior to the U.S. elections, when oil prices stood at $38, bin Laden explained his economic warfare strategy: “We bled Russia for ten years until it went bankrupt and forced to withdraw in defeat. We are continuing the same policy to make America bleed profusely to the point of bankruptcy.” Reputable energy analysis outfits held a completely opposite view on the future of oil. A 2005 report by Cambridge Energy Research Associates (CERA) held that by 2010 global oil supply would rise by as much as 16 million barrels per day (mbd). “We expect supply to outstrip demand growth in the next few years, which would take the pressure off prices around 2007-2008,” wrote the report’s authors. As we know, this never happened.
World oil production has been flat since 2005 and $144 might soon become a fond memory. Today, with oil prices above bin Laden’s stated goal, his economic warfare strategy seems like a resounding success. At a time al-Qaeda is on the run, $144 oil is a major morale booster and the best birthday present for its 20th anniversary next month. There is no need to elaborate on the implications of such a victory in terms of loss of U.S. prestige and our ability to prevail in the Long War of the 21st century. Furthermore, at current price level, the U.S. will spend over $600 billion on imported oil this year, more than our defense budget, and much of that money will flow into the coffers of those who wish us ill. It has long been clear that our oil dependence forces us to pay for both sides of the war on terrorism. In light of this year’s figures, we are paying the other side more than we invest in our own defense.
A cartel married to a monopoly
In order to chart the road to energy security, we must first understand why we are where we are. There are many reasons for the current oil crisis. Strong demand in developing Asia, speculation, geological decline, and malevolent disruptions have all contributed their share. But by far, the main culprit is OPEC’s reluctance to ramp up production. The cartel owns 78 percent of the world’s proven reserves and produces about 40 percent of its oil production. In 1973, OPEC produced 30mbd, while non-OPEC produced 25mbd. Today, OPEC produces 32mbd while non-OPEC production is close to 45mbd. In other words, OPEC today produces almost as much oil as it did 35 years ago while the world global demand for oil has nearly doubled.
Clearly it is not in OPEC’s interest to provide relief to the struggling global economy. The cartel enjoys a vertical monopoly of the world vehicle fuel supply, and it is currently at the receiving end of the biggest transfer of wealth in human history. To understand the magnitude of the forces in play it is instructive to visualize the scale of OPEC’s wealth in comparison to that of consuming countries: imagine that OPEC members are corporations and a barrel of oil is a share. At $125 oil, OPEC’s market capitalization based on its proven reserves stands today at roughly $137 trillion. This is roughly equivalent to the value of the world’s total financial assets--stocks, bonds, other equities, government and corporate debt and bank deposits--or roughly three times the market capitalization of all the companies traded in the world’s top 27 stock markets. Such monumental wealth potential will translate into unprecedented buying power for the oil countries. For demonstration sake, at $200 oil OPEC could potentially buy Bank of America in one month worth of production, Apple Computers in a week and General Motors in just 3 days. It would take less than two years of production for OPEC to own a 20 percent stake (which essentially ensures a voting block in most corporations) in every S&P 500 company.
OPEC’s reluctance to increase production is today the main factor contributing to global poverty. While we in the U.S., which enjoys a per capita income of over $40,000 a year, are feeling the sharp pinch of high oil prices, we should all consider the impact of these prices on the world’s poor. People throughout the world who live on $2 a day are being now looted by OPEC price fixing. This has profound implications for global security, driving regional unrest, increasing poverty, and nipping in the bud progress towards democracy.
Beware of perpetuation of the petroleum standard
The unique strategic importance of oil to the modern economy—beyond that of any other commodity today—stems from the fact that the global economy’s very enabler, the transportation sector, is utterly dependent on it, with 220 million cars and trucks in the United States alone (today, contrary to popular belief, only 2 percent of U.S. electricity is generated from oil, and conversely only about 2 percent of U.S. oil demand is due to electricity generation.) With 97 percent of U.S. transportation energy based on petroleum, oil is the lifeblood of America’s economy. America is poor in oil relative to its need. It consumes one of every four gallons in the world but has barely 3 percent of the world’s proven reserves of conventional oil. The United States now imports over 60 percent of its oil, more than twice the ratio of imports before the 1973–74 Arab oil embargo.
Neither efforts to expand petroleum supply nor those to crimp petroleum demand through increased CAFE standards will be enough to reduce America’s strategic vulnerability anytime soon. On the contrary, as the graph from OPEC’s own statistics shows, when we drill more, they drill less. Such policies at best buy us a few more years of complacency, while ensuring a much worse dependence down the road when America's conventional oil reserves are even more depleted.
Rather than focusing on solutions that perpetuate the petroleum standard, we should invest in transformational policies that aim to diminish the strategic importance of oil by breaking its monopoly in transportation.
Real energy security can be achieved only through fuel choice and competition. That competition cannot take place as long as we continue to put 16 million new cars that run only on petroleum on our roads every year, each with an average street life of 16.8 years -- thereby locking ourselves into decades more of petroleum dependence.
Barring a significant change, a senator elected in 2008 will witness the introduction of 102 million gasoline only cars during his or her 6-year term. I cannot think about something more detrimental to America’s security than Congress letting this happen.
When in a hole, stop digging
The first thing we must do is to ensure that the cars rolling onto America’s roads are platforms on which fuels can compete. For a cost of less than $100 extra as compared to a gasoline-only vehicle, automakers can make virtually any car a flex fuel vehicle, capable of running on any combination of gasoline and a variety of alcohols such as ethanol and methanol, made from a variety of feedstocks, from agricultural material, to waste, to coal. (Alcohol does not just mean ethanol, and ethanol does not just mean corn.) Flex fuel vehicles let consumers and the market choose the winning fuels and feedstocks based on economics. In Brazil, where ethanol is widely used, the share of flex fuel vehicles in new car sales rose from 4 percent to 90 percent in under five years. These cars are manufactured by the same automakers that sell to the U.S. market and entail no size, power, or safety compromise by consumers. The proliferation of flex fuel vehicles in Brazil has driven fuel competition at the pump to the point where the Brazilian oil industry has had to keep gasoline prices sufficiently low to compete with ethanol in order not to lose more market share, so low that it actually just received a government subsidy to do so. Indeed, in Brazil, ethanol will become this year an alternative fuel.
Expanding U.S. fuel choice to include biofuels imported from developing countries has significant geopolitical benefits at a time when U.S. global standing is eroding. Sugar, from which ethanol can be cheaply and efficiently produced, is now grown in one hundred countries, many of which are poor and on the receiving end of U.S. development aid. Encouraging these countries to increase their output and become fuel suppliers, opening our fuel market to them by removing the protectionist 54 cent a gallon ethanol tariff, could have far-reaching implications for their economic development. By creating economic interdependence with biomass-producing countries in Africa, Asia, and the Western Hemisphere, the United States can strengthen its position in the developing world and provide significant help in reducing poverty.
At this point, the fallacy that increased use of biofuels in general, and corn ethanol in particular, is driving world hunger must be addressed. The primary drivers of price increases for food commodities spanning the spectrum from fish to rice (neither of which are used to make fuel) and beyond are the massive increases in oil prices -- raising the cost of distribution, labor, packaging and so forth; commodity speculation driven by a weak dollar and increased calorie demand from hundreds of millions of people in China and India who have risen out of poverty and bare subsistence. Further, despite corn ethanol production, the U.S. corn food and feed product has increased 34 percent over the last five years, and U.S. food exports overall have increased 23 percent on the year. America is clearly doing its share to feed the world.
Furthermore, the International Energy Agency has reiterated that biofuels are key to keeping the lid on an overheated transportation fuel market. According to Merrill Lynch, without the increase in biofuels production, oil prices would have been 15 percent higher, which at current oil prices translates into a savings of over $80 billion a year to the U.S. economy. The much derided biofuels program which has facilitated this $80 billion saving, costs the taxpayer $4 billion a year. By any reasonable standard it is a far better deal to send money to America’s farmers than to various petro-dictators.
Methanol
True flex fuel cars should also accommodate another important fuel called methanol. China has embraced this alcohol fuel. Several provinces in China already blend their gasoline with methanol and scores of methanol plants are currently under construction there. The Chinese auto industry has already begun to produce flex-fuel models that can run on methanol. Methanol packs less energy per gallon and is more corrosive than ethanol. But it is cheaper and far easier to produce in bulk. While ethanol can be made only from agricultural products such as corn and sugar cane, methanol can be made from agricultural waste, natural gas, coal, industrial garbage and even recycled carbon dioxide captured from power stations' smokestacks -- an elegant way to reduce greenhouse gas emissions.
Electricity
Since we hardly generate any electricity from oil, using electricity as a transportation fuel enables the full spectrum of electricity sources to compete with petroleum. Plug in hybrid electric vehicles (PHEVs) can reach oil economy levels of 100 miles per gallon of gasoline without compromising the size, safety, or power of a vehicle. If a PHEV is also a flexiblefuel vehicle powered by 85 percent alcohol and 15 percent gasoline, oil economy could reach over 500 miles per gallon of gasoline. Ideally, plug-in hybrids would be charged at night in home or apartment garages, when electric utilities have significant reserve capacity. The Department of Energy estimates that over 70 percent of the U.S. vehicle market could shift to plug-in hybrids without needing to install additional baseload electricity-generating capacity. In addition, the U.S. is the world’s biggest potential market for electric cars which can be sold as second or third family car. Thirty one percent of America’s households own two cars and additional 35% own three or more vehicles. There are over 75 million households in the US that own more than one vehicle and that can potentially replace one or more gasoline only cars with cars powered with made-in-America electricity.
A nationwide deployment of flex-fuel cars, flex fuel plug-in hybrids, and alternative fuels could take place within two decades. But such a transformation will not occur by itself. Every year that passes without Congressional action to ensure that new cars sold in America are flex fuel vehicles is another year in which 16 million gasoline-only cars start their 17-year life on U.S. roads, further binding us to foreign oil. On the grounds of national security and in the interest of stemming the hemorrhaging of our economy, Congress should take swift action to require that new vehicles sold in the United States are flexible fuel vehicles through an Open Fuel Standard. Such an Open Fuel Standard would level the playing field and promote free competition among diverse energy suppliers. A few years ago Congress passed an open standard for television mandating that as of February 2009 every television sold in the U.S. must be digital enabled. Further, Congress allocated coupons in the amount of $80 per household to allow Americans to convert their analog TV to digital transmission. One would hope we consider our transportation sector at least as strategic as television watching.
I realize that many are opposed to any government interference in the market. Indeed, in a perfect world, government would not need to intervene in the energy market, but in a time of war, the United States is taking an unacceptable risk by leaving the problem to be solved by the invisible hand. This is especially true since the energy market is anything but free. It is manipulated by a cartel, heavily rigged in favor of the status quo, and, as the case of the ethanol tariff shows, riddled with protectionism.
Choosing not to embrace an Open Fuel Standard, is choosing to preserve oil’s monopoly in the transportation sector, and with it OPEC’s growing stranglehold over the global economy and in essence guaranteeing continuous economic and strategic decline.
Gal Luft is the Executive Director of the Institute for the Analysis of Global Security (IAGS) and Co-Founder of the Set America Free Coalition.
Some Fear Biofuel Production Will Dry Up Water Supplies
Some Fear Biofuel Production Will Dry Up Water Supplies
www.redorbit.com
April 14, 2009
As corn farmers in the U.S. begin readying their crops, many critics claim that increased pressure to produce large portions of crops for biofuels is robbing the public’s water resources.
Kansas corn farmer Merl “Buck” Rexford told Reuters he hopes to produce more than 150 bushels an acre with this year’s crop. Like many American corn farmers, a large portion of Rexford’s crop will go to an ethanol production plant.
Backers of biofuels like corn-based ethanol say it reduces dangerous greenhouse gas emissions, which have been linked to global warming, and it is a valuable substitute that will lead the nation in a direction away from dependence on foreign oil.
“We really have to ask ourselves, do we want to be driving with renewable fuels or with gasoline made from petroleum resources,” Brent Erickson, executive vice president at the Biotechnology Industry Organization, which backs ethanol, told Reuters.
But critics say increased biofuel production is coming at a high cost for Americans, as increased demand for biofuels is leading to a larger demand for water.
Additionally, it takes a substantial amount of energy to create corn-based ethanol, which could prove to be counterproductive, critics claim.
“Biofuels are off the charts in water consumption. We’re definitely looking at something where the cure may be worse than the disease,” said Brooke Barton, a manager of corporate accountability for CERES, a group backed by institutional investors focused on the financial risks of climate change.
According to Reuters, corn plants require about 20 inches of soil moisture per acre to grow a good crop, but most farmers rely on rain rather than irrigation. Manufacturing plants that convert corn’s starch into fuel have a larger thirst for public water supplies.
A typical plant uses about 4.2 gallons of water to make one gallon of ethanol, according to the Institute for Agriculture and Trade Policy. That’s about 3 gallons of water for every one gallon of fuel, according to the ethanol industry.
As legislators continue to push for the use of ethanol and federal mandates are being put in place, many groups are voicing their concerns that population growth and increased demand for energy will lead to a global drought.
“We’re headed in the wrong direction and this problem is not going away,” Mark Muller, program director at the Institute for Agriculture and Trade Policy, told Reuters.
“This water issue is like the financial crisis… and I’m afraid something awful is going to happen.”
“Water use could be a limiting factor (for ethanol) if we don’t introduce and support more water-saving technologies, ” added the Institute’s Jim Kleinschmit.
Those in support of ethanol will not deny the large amount of water that goes into production, but they claim that the corn crop relies primarily on rain rather than ground water.
In January 2009, there were 170 ethanol plants operating in the United States and 24 more new or expanding plants, according to Reuters.
Freshwater demand for consumption is expected to increase 25 percent by 2030 globally as the world population expands from 6.6 billion to about 8 billion and more than 9 billion in 2050, according to Ceres.
___________
On the Net:
•CERES
•Biotechnology Industry Organization
•Institute for Agriculture and Trade Policy
___________
About Renergie
Renergie was formed by Ms. Meaghan M. Donovan on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten ethanol plants in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita. Each ethanol plant will have a production capacity of five million gallons per year (5 MGY) of fuel-grade ethanol. Renergie’s “field-to-pump” strategy is to produce non-corn ethanol locally and directly market non-corn ethanol locally. On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida Department of Environmental Protection’s Renewable Energy Technologies Grants Program. Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice. On April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector. On January 20, 2009, Florida Energy & Climate Commission amended RET Grant Agreement S0386 to increase Renergie’s funding from $1,500,483 to $2,500,000. By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is renewable, more economical, cleaner, and more efficient than unleaded gasoline. Moreover, the Renergie project will mark the first time that Louisiana farmers will share in the profits realized from the sale of value-added products made from their crops.
www.redorbit.com
April 14, 2009
As corn farmers in the U.S. begin readying their crops, many critics claim that increased pressure to produce large portions of crops for biofuels is robbing the public’s water resources.
Kansas corn farmer Merl “Buck” Rexford told Reuters he hopes to produce more than 150 bushels an acre with this year’s crop. Like many American corn farmers, a large portion of Rexford’s crop will go to an ethanol production plant.
Backers of biofuels like corn-based ethanol say it reduces dangerous greenhouse gas emissions, which have been linked to global warming, and it is a valuable substitute that will lead the nation in a direction away from dependence on foreign oil.
“We really have to ask ourselves, do we want to be driving with renewable fuels or with gasoline made from petroleum resources,” Brent Erickson, executive vice president at the Biotechnology Industry Organization, which backs ethanol, told Reuters.
But critics say increased biofuel production is coming at a high cost for Americans, as increased demand for biofuels is leading to a larger demand for water.
Additionally, it takes a substantial amount of energy to create corn-based ethanol, which could prove to be counterproductive, critics claim.
“Biofuels are off the charts in water consumption. We’re definitely looking at something where the cure may be worse than the disease,” said Brooke Barton, a manager of corporate accountability for CERES, a group backed by institutional investors focused on the financial risks of climate change.
According to Reuters, corn plants require about 20 inches of soil moisture per acre to grow a good crop, but most farmers rely on rain rather than irrigation. Manufacturing plants that convert corn’s starch into fuel have a larger thirst for public water supplies.
A typical plant uses about 4.2 gallons of water to make one gallon of ethanol, according to the Institute for Agriculture and Trade Policy. That’s about 3 gallons of water for every one gallon of fuel, according to the ethanol industry.
As legislators continue to push for the use of ethanol and federal mandates are being put in place, many groups are voicing their concerns that population growth and increased demand for energy will lead to a global drought.
“We’re headed in the wrong direction and this problem is not going away,” Mark Muller, program director at the Institute for Agriculture and Trade Policy, told Reuters.
“This water issue is like the financial crisis… and I’m afraid something awful is going to happen.”
“Water use could be a limiting factor (for ethanol) if we don’t introduce and support more water-saving technologies, ” added the Institute’s Jim Kleinschmit.
Those in support of ethanol will not deny the large amount of water that goes into production, but they claim that the corn crop relies primarily on rain rather than ground water.
In January 2009, there were 170 ethanol plants operating in the United States and 24 more new or expanding plants, according to Reuters.
Freshwater demand for consumption is expected to increase 25 percent by 2030 globally as the world population expands from 6.6 billion to about 8 billion and more than 9 billion in 2050, according to Ceres.
___________
On the Net:
•CERES
•Biotechnology Industry Organization
•Institute for Agriculture and Trade Policy
___________
About Renergie
Renergie was formed by Ms. Meaghan M. Donovan on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten ethanol plants in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita. Each ethanol plant will have a production capacity of five million gallons per year (5 MGY) of fuel-grade ethanol. Renergie’s “field-to-pump” strategy is to produce non-corn ethanol locally and directly market non-corn ethanol locally. On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida Department of Environmental Protection’s Renewable Energy Technologies Grants Program. Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice. On April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector. On January 20, 2009, Florida Energy & Climate Commission amended RET Grant Agreement S0386 to increase Renergie’s funding from $1,500,483 to $2,500,000. By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is renewable, more economical, cleaner, and more efficient than unleaded gasoline. Moreover, the Renergie project will mark the first time that Louisiana farmers will share in the profits realized from the sale of value-added products made from their crops.
Don’t Sink Energy Independence by Crimping Biofuels
Don’t Sink Energy Independence by Crimping Biofuels
By Gal Luft
The Detroit News
April 20, 2009
This week, the California Air Resources Board, or CARB — the same agency that only five years ago gained notoriety for its role in “killing” the electric car — could be in a position to deliver another crippling blow to the United States’ effort to achieve energy independence.
As part of California’s strategy to reduce greenhouse gas emissions from transportation fuels, CARB is pushing for the enactment of a low-carbon fuel standard, or LCFS, that aims to regulate the emissions level of petroleum refiners, biofuels producers and others that produce or import the transportation fuels used in California. The credit or penalty would be assessed according to both the direct and indirect greenhouse gas emissions associated with each of the steps in the fuel’s life cycle, including production, transport and tailpipe emissions.
Such “cradle to grave” accounting sounds logical only if it allows all fuels to compete on an equal footing. But this is what the fuel standard in its current version fails to do.
At a time when the U.S. is charting its way out of its debilitating — and growing — oil dependence, CARB’s plan puts biofuels at a comparative disadvantage against petroleum. It does so by requiring that indirect greenhouse gas-emitting activities, such as deforestation and plowing up grasslands — which are often associated with increased use of biofuels — be considered, while failing to account for indirect carbon-emitting activities related to petroleum production. CARB’s explanation: “No other significant indirect effects that result in large greenhouse gas emissions have been identified.”
That statement may be true for roughly half of California’s oil, which is either drilled in the state or imported from Alaska, but certainly not for the half coming from distant places such as Saudi Arabia, Iraq or Colombia. Some of the direct carbon-intensive activities that CARB’s staff prefer to ignore are: pumping seawater into the wells of Saudi Arabia to increase reservoir pressure, transporting the crude to processing facilities where sulfur and other impurities are removed, and powering a tanker during a long voyage across two oceans.
But what makes their model truly discriminatory is the failure to account for the environmental impact of indirect activities, such as the military operations related to our oil use. The jets, tanks, ships and Humvees patrolling the Persian Gulf or used by the Special Forces protecting the oil pipelines in Colombia don’t run on vegetable oil, and the electricity powering military bases dedicated to protecting our access to oil is not made in wind farms. Ignoring those factors while speculating about the role of deforestation (much deforestation has nothing to do with biofuels but with the logging industry) is intellectually dishonest.
Recent studies have shown that the amount of fossil fuel needed to make gasoline is nearly twice the amount needed for corn ethanol production and more than 10 times that for cellulosic ethanol (made from switchgrass and other non-food plants). Further, there is a net reduction in greenhouse gas emissions as a result of using ethanol as fuel. The Argonne National Laboratory found that, on a per-gallon basis, even the most inefficient form of biofuel — corn ethanol — reduces greenhouse gas emissions by 18 percent to 29 percent compared with gasoline; sugar-cane ethanol reduces emissions by 56 percent, and cellulosic ethanol has an even greater benefit with a more than 80 percent reduction.
A 2009 report commissioned by the International Energy Agency reached similar conclusions. Despite these clear benefits to the environment, CARB is bent on singling out biofuels as enemies of the planet.
Putting aside the bureaucratic nightmare the state of California would have to endure in analyzing the carbon footprint of each step in the pathway for each gallon of fuel sold in the state, the indirect carbon accounting could have a chilling effect on new investment and the development of new technologies — all at a time when the nascent biofuels industry is already challenged by the economic downturn. This is all too unfortunate because scientific advancement is exactly what is needed to advance biofuels from corn to ultra-low carbon sources such as switchgrass, forestry residues, urban waste or algae.
The proposed standard is not simply a scientific or environmental issue. It is a matter of national security, which is threatened by our reliance on oil. With hundreds of billions of dollars leaving our economy annually to finance our oil dependence, it is also a matter of economic security.
It is often the case that as California goes, so goes the country. Gov. Arnold Schwarzenegger should realize that implementing the fuel standard as proposed would only cement oil’s virtual monopoly in the transportation sector and dial back the progress made toward energy independence.
Gal Luft, executive director of the Institute for the Analysis of Global Security and co-founder of the Set America Free Coalition, is a coauthor of “Energy Security Challenges for the 21st Century” and “Turning Oil into Salt: How Breaking the Oil Monopoly Can Make Us Prosper Again.” Originally published in the Los Angeles Times.
About Renergie
Renergie was formed by Ms. Meaghan M. Donovan on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten ethanol plants in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita. Each ethanol plant will have a production capacity of five million gallons per year (5 MGY) of fuel-grade ethanol. Renergie’s “field-to-pump” strategy is to produce non-corn ethanol locally and directly market non-corn ethanol locally. On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida Department of Environmental Protection’s Renewable Energy Technologies Grants Program. Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice. On April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector. On January 20, 2009, Florida Energy & Climate Commission amended RET Grant Agreement S0386 to increase Renergie’s funding from $1,500,483 to $2,500,000. By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is renewable, more economical, cleaner, and more efficient than unleaded gasoline. Moreover, the Renergie project will mark the first time that Louisiana farmers will share in the profits realized from the sale of value-added products made from their crops.
By Gal Luft
The Detroit News
April 20, 2009
This week, the California Air Resources Board, or CARB — the same agency that only five years ago gained notoriety for its role in “killing” the electric car — could be in a position to deliver another crippling blow to the United States’ effort to achieve energy independence.
As part of California’s strategy to reduce greenhouse gas emissions from transportation fuels, CARB is pushing for the enactment of a low-carbon fuel standard, or LCFS, that aims to regulate the emissions level of petroleum refiners, biofuels producers and others that produce or import the transportation fuels used in California. The credit or penalty would be assessed according to both the direct and indirect greenhouse gas emissions associated with each of the steps in the fuel’s life cycle, including production, transport and tailpipe emissions.
Such “cradle to grave” accounting sounds logical only if it allows all fuels to compete on an equal footing. But this is what the fuel standard in its current version fails to do.
At a time when the U.S. is charting its way out of its debilitating — and growing — oil dependence, CARB’s plan puts biofuels at a comparative disadvantage against petroleum. It does so by requiring that indirect greenhouse gas-emitting activities, such as deforestation and plowing up grasslands — which are often associated with increased use of biofuels — be considered, while failing to account for indirect carbon-emitting activities related to petroleum production. CARB’s explanation: “No other significant indirect effects that result in large greenhouse gas emissions have been identified.”
That statement may be true for roughly half of California’s oil, which is either drilled in the state or imported from Alaska, but certainly not for the half coming from distant places such as Saudi Arabia, Iraq or Colombia. Some of the direct carbon-intensive activities that CARB’s staff prefer to ignore are: pumping seawater into the wells of Saudi Arabia to increase reservoir pressure, transporting the crude to processing facilities where sulfur and other impurities are removed, and powering a tanker during a long voyage across two oceans.
But what makes their model truly discriminatory is the failure to account for the environmental impact of indirect activities, such as the military operations related to our oil use. The jets, tanks, ships and Humvees patrolling the Persian Gulf or used by the Special Forces protecting the oil pipelines in Colombia don’t run on vegetable oil, and the electricity powering military bases dedicated to protecting our access to oil is not made in wind farms. Ignoring those factors while speculating about the role of deforestation (much deforestation has nothing to do with biofuels but with the logging industry) is intellectually dishonest.
Recent studies have shown that the amount of fossil fuel needed to make gasoline is nearly twice the amount needed for corn ethanol production and more than 10 times that for cellulosic ethanol (made from switchgrass and other non-food plants). Further, there is a net reduction in greenhouse gas emissions as a result of using ethanol as fuel. The Argonne National Laboratory found that, on a per-gallon basis, even the most inefficient form of biofuel — corn ethanol — reduces greenhouse gas emissions by 18 percent to 29 percent compared with gasoline; sugar-cane ethanol reduces emissions by 56 percent, and cellulosic ethanol has an even greater benefit with a more than 80 percent reduction.
A 2009 report commissioned by the International Energy Agency reached similar conclusions. Despite these clear benefits to the environment, CARB is bent on singling out biofuels as enemies of the planet.
Putting aside the bureaucratic nightmare the state of California would have to endure in analyzing the carbon footprint of each step in the pathway for each gallon of fuel sold in the state, the indirect carbon accounting could have a chilling effect on new investment and the development of new technologies — all at a time when the nascent biofuels industry is already challenged by the economic downturn. This is all too unfortunate because scientific advancement is exactly what is needed to advance biofuels from corn to ultra-low carbon sources such as switchgrass, forestry residues, urban waste or algae.
The proposed standard is not simply a scientific or environmental issue. It is a matter of national security, which is threatened by our reliance on oil. With hundreds of billions of dollars leaving our economy annually to finance our oil dependence, it is also a matter of economic security.
It is often the case that as California goes, so goes the country. Gov. Arnold Schwarzenegger should realize that implementing the fuel standard as proposed would only cement oil’s virtual monopoly in the transportation sector and dial back the progress made toward energy independence.
Gal Luft, executive director of the Institute for the Analysis of Global Security and co-founder of the Set America Free Coalition, is a coauthor of “Energy Security Challenges for the 21st Century” and “Turning Oil into Salt: How Breaking the Oil Monopoly Can Make Us Prosper Again.” Originally published in the Los Angeles Times.
About Renergie
Renergie was formed by Ms. Meaghan M. Donovan on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten ethanol plants in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita. Each ethanol plant will have a production capacity of five million gallons per year (5 MGY) of fuel-grade ethanol. Renergie’s “field-to-pump” strategy is to produce non-corn ethanol locally and directly market non-corn ethanol locally. On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida Department of Environmental Protection’s Renewable Energy Technologies Grants Program. Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice. On April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector. On January 20, 2009, Florida Energy & Climate Commission amended RET Grant Agreement S0386 to increase Renergie’s funding from $1,500,483 to $2,500,000. By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is renewable, more economical, cleaner, and more efficient than unleaded gasoline. Moreover, the Renergie project will mark the first time that Louisiana farmers will share in the profits realized from the sale of value-added products made from their crops.
Biofuel Production And Water Scarcity: A Drink-Or-Drive Issue?
Biofuel Production And Water Scarcity: A Drink-Or-Drive Issue?
ScienceDaily (May 11, 2009) — Federal requirements to increase the production of ethanol has developed into a “drink-or-drive issue” in the Midwest as a result of biofuel production’s impact on water supplies and water quality, says an environmental engineering researcher at Missouri University of Science and Technology in the latest issue of the journal Environmental Science & Technology.
In an analysis of the water required to produce ethanol from various crops, Dr. Joel G. Burken, a professor of environmental engineering at Missouri S&T, and colleagues from Rice University and Clarkson University find that ethanol could become a costly proposition in terms of “gallons per mile” and other water quality issues. They describe the Midwest’s water needs and impacts as the ’water footprint’ in their cover feature for the May 1 issue of Environmental Science & Technology.
The researchers report that ethanol derived from corn grown in Nebraska, for example, would require 50 gallons of water per mile driven, when all the water needed in irrigation of crops and processing into ethanol is considered. Fuel derived from irrigated sorghum grown in that state would require even more water to produce – as much as 115 gallons per mile.
Moreover, increasing production of biofuels from row crops will likely result in more water pollution due to soil erosion and the increased use of pesticides to grow enough crops to meet federal mandates for more ethanol, the researchers say. The mandated production using the current technology has driven the use of ethanol production from corn and biodiesel from soybeans as these are the currently available technologies.
In their Environmental Science & Technology article, the researchers suggest that federal regulators take a closer look at how a push for bioenergy will affect water resources.
“Developing a sustainable national biofuels program requires careful consideration of logistical concerns … and of unintended environmental impacts,” write Burken and his co-authors, Rosa Dominguez-Faus and Dr. Pedro J. Alvarez of Rice University and Dr. Susan E. Powers of Clarkson University, in their article, “The Water Footprint of Biofuels: A Drink or Drive Issue?”
To arrive at their gallons-per-mile figures, the researchers first looked at the amount of water required to produce a single gallon of ethanol. In Nebraska, for example, it takes 800 gallons of water – from crop irrigation through final processing into ethanol – to create a single gallon of the corn-derived transportation fuel. Divide that by an average mileage of 16 miles per gallon (or two-thirds the average for gasoline-powered cars, a standard average for ethanol-powered vehicles), and the result is 50 gallons of water per mile.
While previous studies have examined biofuel production’s impact on air quality, land use and net energy value, “the effect of increased biofuel production on water security has not been subjected to the same scrutiny,” the researchers write. The main focus of previous studies looked at environmental trade-offs to fossil-fuel usage and not other aspects of biofuel production, according to the researchers.
“The overall water footprint associated with biofuels must recognize the impact of increased agricultural activity on water quality as well as water consumption,” they write. With the federal Energy Independence and Security Act (EISA) of 2007 calling for a dramatic ramp-up in ethanol production by 2015, Burken and his colleagues foresee additional water quality problems due to “increased agricultural activity such as tilling more land for row crops and higher fertilizer and agrichemical application.”
The Energy Independence and Security Act requires the United States to produce 15 billion gallons of corn-derived ethanol annually by 2015 and 16 billion gallons of fuel from cellulosic crops, such as switchgrass, by 2016. The researchers note that 44 percent of all the corn produced in the United States from 2007 would be required for ethanol production to meet the 2015 goal.
“The decision to mandate ethanol production may look great initially as we all like the concept of biofuels,” Burken says, “but really our difficult energy position and reliance on foreign oil is the result of our lack of an energy policy and investing a decade ago in biofuel technologies. Biofuel production is part of our energy future, but it needs to be considered as part of a portfolio of energy sources and technologies.”
While it’s unlikely the EISA will be repealed, Burken hopes lawmakers and regulators at the state and federal levels “consider a life-cycle analysis before implementing future mandates” for energy sources. Lawmakers and regulators need to consider all of the economic and environmental trade-offs – not just reducing greenhouse gas emissions, for instance. “Otherwise, we may be thinking we’re addressing one environmental issue while in fact sacrificing another,” Burken says.
Burken and his colleagues suggest that “drought-tolerant, high-yield plants grown on little irrigation water” would have less impact on water resources. One such crop, Burken says, is miscanthus, a fast-growing perennial grass that “grows so dense you can’t walk through it and grows about 9-10 feet a year.” Currently, however, no technology is available to convert the cellulosic biomass and produce it in large quantities. Once alternative biofuel production crops and processes are developed, selecting the best crop for individual settings will help to optimize biofuel production and minimize the environmental impacts of the production, Burken says.
“Developing the crops and distribution of crop production took about 100 years to get to where it was a few years ago,” Burken says. “Redeveloping this production with the goal of biofuel production will take time and effort of farmers and engineers. While miscanthus may or may not be a part of our biofuels future, we at least need a little time and investment to develop the best solutions for our future.”
Quoting Texas oilman T. Boone Pickens, whom Burken met on April 22 during the Missouri Energy Summit, Burken says, “The best time to plant a tree was 20 years ago, but the next best time if you didn’t is today.”
--------------------------------------------------------------------------------
Journal reference:
1.Dominguez-Faus et al. The Water Footprint of Biofuels: A Drink or Drive Issue? Environmental Science & Technology, 2009; 43 (9): 3005 DOI: 10.1021/es802162x
Missouri University of Science and Technology (2009, May 11). Biofuel Production And Water Scarcity: A Drink-Or-Drive Issue?. ScienceDaily. Retrieved May 11, 2009, from http://www.sciencedaily.com /releases/2009/05/090501204627.htm
ScienceDaily (May 11, 2009) — Federal requirements to increase the production of ethanol has developed into a “drink-or-drive issue” in the Midwest as a result of biofuel production’s impact on water supplies and water quality, says an environmental engineering researcher at Missouri University of Science and Technology in the latest issue of the journal Environmental Science & Technology.
In an analysis of the water required to produce ethanol from various crops, Dr. Joel G. Burken, a professor of environmental engineering at Missouri S&T, and colleagues from Rice University and Clarkson University find that ethanol could become a costly proposition in terms of “gallons per mile” and other water quality issues. They describe the Midwest’s water needs and impacts as the ’water footprint’ in their cover feature for the May 1 issue of Environmental Science & Technology.
The researchers report that ethanol derived from corn grown in Nebraska, for example, would require 50 gallons of water per mile driven, when all the water needed in irrigation of crops and processing into ethanol is considered. Fuel derived from irrigated sorghum grown in that state would require even more water to produce – as much as 115 gallons per mile.
Moreover, increasing production of biofuels from row crops will likely result in more water pollution due to soil erosion and the increased use of pesticides to grow enough crops to meet federal mandates for more ethanol, the researchers say. The mandated production using the current technology has driven the use of ethanol production from corn and biodiesel from soybeans as these are the currently available technologies.
In their Environmental Science & Technology article, the researchers suggest that federal regulators take a closer look at how a push for bioenergy will affect water resources.
“Developing a sustainable national biofuels program requires careful consideration of logistical concerns … and of unintended environmental impacts,” write Burken and his co-authors, Rosa Dominguez-Faus and Dr. Pedro J. Alvarez of Rice University and Dr. Susan E. Powers of Clarkson University, in their article, “The Water Footprint of Biofuels: A Drink or Drive Issue?”
To arrive at their gallons-per-mile figures, the researchers first looked at the amount of water required to produce a single gallon of ethanol. In Nebraska, for example, it takes 800 gallons of water – from crop irrigation through final processing into ethanol – to create a single gallon of the corn-derived transportation fuel. Divide that by an average mileage of 16 miles per gallon (or two-thirds the average for gasoline-powered cars, a standard average for ethanol-powered vehicles), and the result is 50 gallons of water per mile.
While previous studies have examined biofuel production’s impact on air quality, land use and net energy value, “the effect of increased biofuel production on water security has not been subjected to the same scrutiny,” the researchers write. The main focus of previous studies looked at environmental trade-offs to fossil-fuel usage and not other aspects of biofuel production, according to the researchers.
“The overall water footprint associated with biofuels must recognize the impact of increased agricultural activity on water quality as well as water consumption,” they write. With the federal Energy Independence and Security Act (EISA) of 2007 calling for a dramatic ramp-up in ethanol production by 2015, Burken and his colleagues foresee additional water quality problems due to “increased agricultural activity such as tilling more land for row crops and higher fertilizer and agrichemical application.”
The Energy Independence and Security Act requires the United States to produce 15 billion gallons of corn-derived ethanol annually by 2015 and 16 billion gallons of fuel from cellulosic crops, such as switchgrass, by 2016. The researchers note that 44 percent of all the corn produced in the United States from 2007 would be required for ethanol production to meet the 2015 goal.
“The decision to mandate ethanol production may look great initially as we all like the concept of biofuels,” Burken says, “but really our difficult energy position and reliance on foreign oil is the result of our lack of an energy policy and investing a decade ago in biofuel technologies. Biofuel production is part of our energy future, but it needs to be considered as part of a portfolio of energy sources and technologies.”
While it’s unlikely the EISA will be repealed, Burken hopes lawmakers and regulators at the state and federal levels “consider a life-cycle analysis before implementing future mandates” for energy sources. Lawmakers and regulators need to consider all of the economic and environmental trade-offs – not just reducing greenhouse gas emissions, for instance. “Otherwise, we may be thinking we’re addressing one environmental issue while in fact sacrificing another,” Burken says.
Burken and his colleagues suggest that “drought-tolerant, high-yield plants grown on little irrigation water” would have less impact on water resources. One such crop, Burken says, is miscanthus, a fast-growing perennial grass that “grows so dense you can’t walk through it and grows about 9-10 feet a year.” Currently, however, no technology is available to convert the cellulosic biomass and produce it in large quantities. Once alternative biofuel production crops and processes are developed, selecting the best crop for individual settings will help to optimize biofuel production and minimize the environmental impacts of the production, Burken says.
“Developing the crops and distribution of crop production took about 100 years to get to where it was a few years ago,” Burken says. “Redeveloping this production with the goal of biofuel production will take time and effort of farmers and engineers. While miscanthus may or may not be a part of our biofuels future, we at least need a little time and investment to develop the best solutions for our future.”
Quoting Texas oilman T. Boone Pickens, whom Burken met on April 22 during the Missouri Energy Summit, Burken says, “The best time to plant a tree was 20 years ago, but the next best time if you didn’t is today.”
--------------------------------------------------------------------------------
Journal reference:
1.Dominguez-Faus et al. The Water Footprint of Biofuels: A Drink or Drive Issue? Environmental Science & Technology, 2009; 43 (9): 3005 DOI: 10.1021/es802162x
Missouri University of Science and Technology (2009, May 11). Biofuel Production And Water Scarcity: A Drink-Or-Drive Issue?. ScienceDaily. Retrieved May 11, 2009, from http://www.sciencedaily.com /releases/2009/05/090501204627.htm
House Climate Bill Wouldn’t Cut U.S. Oil Dependence Much
Climate Bill Wouldn’t Cut U.S. Oil Dependence Much
By Renee Schoof
McClatchy Newspapers
July 3, 2009
WASHINGTON — Despite its title as the “American Clean Energy and Security Act,” the energy and climate bill that the House of Representatives passed recently takes only a modest step toward reducing U.S. dependence on foreign oil.
Two studies project that the legislation would cut oil use in the future, but not enough to make much of a dent in dependence on oil from unstable or unfriendly foreign suppliers. Some experts say that other steps will be needed to cut U.S. oil use significantly.
The nonprofit American Council for an Energy-Efficient Economy examined the bill’s efficiency provisions and concluded that they would save 1.4 million barrels of oil per day in 2030. That’s roughly 10% of the projected use of 14.3 million barrels a day in that year, according to the government’s Energy Information Administration.
The Environmental Protection Agency put the oil savings at 700,000 barrels a day by 2030. The EPA looked mainly at the bill’s terms that would put a declining cap on the amount of emissions of heat-trapping gases allowed each year and create a pollution-permit trading system.
EPA’s analysis showed only a modest decrease because the bill would have little impact on the price of gasoline — and thus little impact on people’s driving behavior and choice of cars. EPA estimated that gasoline prices would go up about 25 cents a gallon in 2030 as a result of the bill.
EPA also projected that U.S. oil use would hold fairly steady from now to 2050.
The House-passed climate legislation focuses primarily on electricity generation. Its backers said they sought the quickest and cheapest ways to bring down U.S. emissions to 83% below 2005 levels by 2050.
U.S. electricity generation is half from coal and the rest mostly from nuclear energy, hydro and renewable energy. Only about 2% is from oil.
House Speaker Nancy Pelosi’s office said that the bill, when combined with the 2007 energy bill and the president’s fuel efficiency plan, would cut the use of oil by 5 million barrels a day in 2030.
The Rocky Mountain Institute, a nonprofit energy policy center, has argued that the climate bill would help establish clean sources of electricity, but wouldn’t solve the problem of U.S. oil dependence.
Amory Lovins, an energy expert who leads RMI, said he didn’t object to the House bill’s focus on climate, but he argued that other policies are needed to break dependence on oil. And a reduction of oil use would sharply reduce greenhouse gas emissions, he added.
“We just want to make sure the policy apparatus can walk and chew gum at the same time — that by focusing on climate, which is an urgent issue, it does not delay similarly urgent consideration of breaking oil dependence,” he said.
Lovins argues that energy efficiency and greater use of natural gas and biofuels not related to food could displace much U.S. oil use.
A move away from oil could be sped up with policies like “feebates” for cars: People who buy inefficient cars would pay a fee, and those who buy more efficient ones would get a rebate. Lovins said such a program in France has been a “stunning success” in getting people to buy fuel-efficient cars.
The Obama administration has shifted U.S. energy policy’s emphasis to efficiency and renewable energy “to a much greater extent than we’ve seen previously,” Lovins added. “I think that ultimately will bear fruit for getting us off oil as well as reducing carbon emissions. But this does take a more specific focus on oil dependence than what we’ve gotten in the climate bill.”
A gathering of energy, security and environmental experts brought together by RMI and the Brookings Institution in December produced some consensus ideas for how to cut U.S. oil use.
They said that the United States should reduce the use of cars through increased funding for public transit and other measures; increase the fuel-efficiency of cars; reduce the amount of fuel needed to move freight; and encourage development of alternative sources of energy for transportation.
Anne Korin of Set America Free, an alliance that promotes ways to reduce dependence on foreign oil, argued that the climate bill does very little to increase energy security. She argues that Congress should require all new cars to be equipped to run on ethanol as a way to help break the near total dependence of U.S. transportation on oil.
A recent report by Environment America, an advocacy group, tallied the costs of continued U.S. dependence on oil and other fossil fuels.
The report, based on an analysis of government energy data, found that by 2030, the United States is expected to spend $360 billion more per year on fossil fuels than the $921 billion it spent in 2006. If oil prices rise, the spending increase could soar to $750 billion more per year, the group estimated.
More than 70% of fossil fuel spending each year is for oil, and oil prices are expected to rise much more than coal prices.
“The United States cannot afford to wait to break our dependence on fossil fuels,” the report concluded. “The cost of fossil fuels to our economy and our environment will continue to mount in the years to come unless the nation takes bold steps now to embrace the benefits of a clean energy future.”
By Renee Schoof
McClatchy Newspapers
July 3, 2009
WASHINGTON — Despite its title as the “American Clean Energy and Security Act,” the energy and climate bill that the House of Representatives passed recently takes only a modest step toward reducing U.S. dependence on foreign oil.
Two studies project that the legislation would cut oil use in the future, but not enough to make much of a dent in dependence on oil from unstable or unfriendly foreign suppliers. Some experts say that other steps will be needed to cut U.S. oil use significantly.
The nonprofit American Council for an Energy-Efficient Economy examined the bill’s efficiency provisions and concluded that they would save 1.4 million barrels of oil per day in 2030. That’s roughly 10% of the projected use of 14.3 million barrels a day in that year, according to the government’s Energy Information Administration.
The Environmental Protection Agency put the oil savings at 700,000 barrels a day by 2030. The EPA looked mainly at the bill’s terms that would put a declining cap on the amount of emissions of heat-trapping gases allowed each year and create a pollution-permit trading system.
EPA’s analysis showed only a modest decrease because the bill would have little impact on the price of gasoline — and thus little impact on people’s driving behavior and choice of cars. EPA estimated that gasoline prices would go up about 25 cents a gallon in 2030 as a result of the bill.
EPA also projected that U.S. oil use would hold fairly steady from now to 2050.
The House-passed climate legislation focuses primarily on electricity generation. Its backers said they sought the quickest and cheapest ways to bring down U.S. emissions to 83% below 2005 levels by 2050.
U.S. electricity generation is half from coal and the rest mostly from nuclear energy, hydro and renewable energy. Only about 2% is from oil.
House Speaker Nancy Pelosi’s office said that the bill, when combined with the 2007 energy bill and the president’s fuel efficiency plan, would cut the use of oil by 5 million barrels a day in 2030.
The Rocky Mountain Institute, a nonprofit energy policy center, has argued that the climate bill would help establish clean sources of electricity, but wouldn’t solve the problem of U.S. oil dependence.
Amory Lovins, an energy expert who leads RMI, said he didn’t object to the House bill’s focus on climate, but he argued that other policies are needed to break dependence on oil. And a reduction of oil use would sharply reduce greenhouse gas emissions, he added.
“We just want to make sure the policy apparatus can walk and chew gum at the same time — that by focusing on climate, which is an urgent issue, it does not delay similarly urgent consideration of breaking oil dependence,” he said.
Lovins argues that energy efficiency and greater use of natural gas and biofuels not related to food could displace much U.S. oil use.
A move away from oil could be sped up with policies like “feebates” for cars: People who buy inefficient cars would pay a fee, and those who buy more efficient ones would get a rebate. Lovins said such a program in France has been a “stunning success” in getting people to buy fuel-efficient cars.
The Obama administration has shifted U.S. energy policy’s emphasis to efficiency and renewable energy “to a much greater extent than we’ve seen previously,” Lovins added. “I think that ultimately will bear fruit for getting us off oil as well as reducing carbon emissions. But this does take a more specific focus on oil dependence than what we’ve gotten in the climate bill.”
A gathering of energy, security and environmental experts brought together by RMI and the Brookings Institution in December produced some consensus ideas for how to cut U.S. oil use.
They said that the United States should reduce the use of cars through increased funding for public transit and other measures; increase the fuel-efficiency of cars; reduce the amount of fuel needed to move freight; and encourage development of alternative sources of energy for transportation.
Anne Korin of Set America Free, an alliance that promotes ways to reduce dependence on foreign oil, argued that the climate bill does very little to increase energy security. She argues that Congress should require all new cars to be equipped to run on ethanol as a way to help break the near total dependence of U.S. transportation on oil.
A recent report by Environment America, an advocacy group, tallied the costs of continued U.S. dependence on oil and other fossil fuels.
The report, based on an analysis of government energy data, found that by 2030, the United States is expected to spend $360 billion more per year on fossil fuels than the $921 billion it spent in 2006. If oil prices rise, the spending increase could soar to $750 billion more per year, the group estimated.
More than 70% of fossil fuel spending each year is for oil, and oil prices are expected to rise much more than coal prices.
“The United States cannot afford to wait to break our dependence on fossil fuels,” the report concluded. “The cost of fossil fuels to our economy and our environment will continue to mount in the years to come unless the nation takes bold steps now to embrace the benefits of a clean energy future.”
Why the Ethanol Import Tariff Should be Repealed
Repeal Would Enable Ethanol Demand to Move Beyond Being Just a Blending Component in Gasoline to a Truer Transportation Fuel Alternative
By Brian J. Donovan
Renergie, Inc.
Gainesville, FL (August 3, 2008) – The question is whether the 54 cents per gallon tariff the United States places on imported ethanol should be eliminated when:
(a) U.S. farm acreage is being diverted from the production of food crops to energy crops and record high corn prices are impacting the agriculture, food and beverage industries;
(b) American families and businesses are paying record high prices for fuel;
(c) U.S. oil companies are using ethanol merely as a blending component in gasoline rather than a true alternative transportation fuel;
(d) The renewable fuels standard (“RFS”) requires that gasoline sold in the United States contains a renewable fuel, such as ethanol, and the expanded RFS specifically requires the use of an increasing amount of “advanced biofuels” – biofuels produced from feedstocks other than corn; and
(e) U.S. oil companies, due to a loophole in the Caribbean Basin Initiative, are currently allowed to import thousands of barrels of ethanol every month without having to pay the 54 cents per gallon tariff.
The Ethanol Import Tariff of 1980
Since 1978, in order to stimulate an increase in U.S. ethanol production and consumption, producers of ethanol-blended gasoline have received a subsidy, or tax credit. This incentive, known as the Blender’s Tax Credit, is currently valued at 51 cents per gallon of pure ethanol used in blending.
Ethanol imported into the United States is subject to two customs duties: an ad valorem tariff rate of 2.5 percent and a secondary tariff of 54 cents per gallon. The Ethanol Import Tariff of 1980 imposed the 54 cents per gallon tariff on imported ethanol. A key motivation for the establishment of the tariff on imported ethanol was to offset the Blender’s Tax Credit incentive for ethanol-blended gasoline. Unless imports enter the United States duty-free, the tariff effectively negates the incentive for those imports.
Food Prices
Corn is used as the feedstock for approximately 98% of the ethanol produced in the United States. Brazil uses sugarcane as a feedstock, while China is focusing on using cassava and sweet potatoes as feedstocks for ethanol production. USDA estimates that 3.2 billion bushels of corn (or 24% of the 2007 corn crop) will be used to produce ethanol during the September 2007 to August 2008 corn marketing year. In January, 2002, the price for a bushel of corn was $1.98. In July, 2008, the price for a bushel of corn was $5.61.
Corn is a significant ingredient for meat, dairy, and egg production. However, while increased ethanol production is partially responsible for the increase in corn prices, the real factors driving up retail food prices are: rising demand for processed foods and meat in emerging markets such as China and India; droughts and adverse weather around the world; commodity market speculation; export restrictions by many exporting countries to reduce domestic food price inflation; the declining value of the dollar; and skyrocketing oil prices.
Record high prices for diesel fuel, gasoline, natural gas, and other forms of energy affect costs throughout the food production and marketing chain. Higher energy prices increase producers’ expenditures for fertilizer and fuel, driving up farm production costs and reducing the incentive for farmers to expand production in the face of record high prices. Higher energy prices also increase food processing, marketing, and retailing costs. In 2005, the most recent year for which data are available, direct energy costs and transportation costs accounted for roughly 8 percent of retail food costs. These higher costs, especially if maintained over a long period, tend to be passed on to consumers in the form of higher retail prices.
Increased demand for farm commodities could outstrip existing production capabilities, straining food supplies and boosting prices. Moreover, population growth and rising incomes are altering global food consumption patterns and boosting the demand for food, further supporting higher prices. Demand for bio-fuels, especially in the United States, has led to a decline in corn inventories, despite a record corn crop. This increase in U.S. corn acres limited the production of other crops.
Historically, food prices have surged during times of higher crude oil prices. Moreover, research shows that energy prices are quickly passed through to higher retail food prices, with retail prices rising 0.52 percent in the short-term for every 1 percent rise in energy prices. As a result, a 10 percent gain in energy prices could contribute 5.2 percent to retail food prices.
Fuel Prices
Gasoline is one of the major fuels consumed in the United States and the main product refined from crude oil. Consumption in 2007 was about 142 billion gallons, an average of about 390 million gallons per day and the equivalent of about 61% of all the energy used for transportation, 44% of all petroleum consumption, and 17% of total U.S. energy consumption.
In January, 2002, the price of oil was US$18.68 per barrel. As of the date of this article, the price of oil is US$125.10 per barrel. In January, 2002, the average U.S. retail price for a gallon of regular grade gasoline was US$1.11. As of the date of this article, the price for a gallon of regular grade gasoline is US$3.96.
The price of crude oil is set through the interaction of world demand and supply. The following factors are driving up crude oil and gasoline prices: (a) increased world demand for crude oil as witnessed by the sharp increase in imported crude oil by China and India; (b) instability in oil-producing regions, including Iraq and Nigeria’s delta region; (c) limited U.S. refinery capacity to supply gasoline; (d) a decline in the value of the dollar compared to other currencies has increased the dollar price of oil on futures markets; (e) the continuing possibility of a supply disruption from natural disasters like Hurricanes Katrina and Rita in 2005; (f) speculators, who have entered the commodity markets in large numbers looking for ways to increase their monetary investments rather than to trade in oil and oil products, are causing an unacceptable upward pressure on prices; and (g) governments in developing countries are subsidizing energy, blunting the incentive to conserve by keeping prices low. China is expected to spend about $40 billion this year in subsidies. Venezuela and Egypt are forecast to spend more than 5 percent of their total economic output on subsidies this year. As a result, while demand for oil in the developed world is expected to fall about 1 percent this year, consumption in emerging and developing countries is forecast to rise 3 percent, according to estimates by I.M.F. economists.
World demand for crude oil grew by 1.3% in 2007 to 86.0 mbd. It is forecast to grow by 1.5% to 87.3 mbd in 2008. World supply was 87.3 mbd in March 2008, leaving relatively little excess supply to draw on if the market were disrupted by natural or political disasters. When excess supply on the market is low, prices tend to rise and become more volatile.
Higher prices for crude oil tend to translate directly into higher prices for gasoline. Currently, crude oil accounts for about 72% of the cost of gasoline. Refining, distributing, and marketing account for about 16% of the cost of gasoline, and taxes account for about 13%. However, until recently crude oil’s share of the cost of gasoline has been more typically in the range of 45% to 55%. In May 2007, for example, with gasoline at $3.15 per gallon, crude oil contributed 46% of the cost; refining, distributing and marketing 41%; and taxes 13%.
On July 31, 2008, Exxon Mobil Corp. reported second-quarter earnings of $11.68 billion, the biggest quarterly profit ever by any U.S. corporation. On August 1, 2008, Chevron reported record oil prices drove second-quarter earnings up 11 percent to $5.98 billion, its highest-ever profit.
Imported petroleum does not pay a tariff, yet clean, renewable ethanol from our own hemisphere is assessed a 54 cent-per-gallon tariff.
Lack of Ethanol Infrastructure
U.S. oil companies are using ethanol merely as a blending component in gasoline (in the form of E10) rather than a true alternative transportation fuel. There is not an oversupply of ethanol. The major obstacle to widespread ethanol usage continues to be the lack of fueling infrastructure. Only 1,528 of the nearly 180,000 (or 8/10 of 1%) retail gasoline stations in the United States offer E85. These E85 fueling stations are located primarily in the Midwest.
While alleging an oversupply of corn ethanol, U.S. oil companies still import thousands of barrels of ethanol from foreign sources every month without having to pay the 54 cents per gallon import tariff. Can ethanol provide any relief at the pump to the U.S. driving public? Renergie, Inc. believes that ethanol can significantly lower the pump price if it is produced from a non-corn feedstock and marketed directly by the producer as E85. Ethanol must compete against, rather than be an inexpensive blending component in, gasoline.
Renergie’s “field-to-pump” strategy is to produce ethanol locally and market ethanol locally. The day of building 100 MGY corn-to-ethanol plants in the Midwest corn belt, for the sale of E10 to consumers on the U.S. East Coast and West Coast, is over! Renergie is focusing its efforts on locally growing ethanol demand beyond the 10% blend market. Initially, Renergie will directly market E85, a blend of 85 percent ethanol and 15 percent gasoline for use in FFVs, to local fuel retailers under the brand Renergie E85. Renergie’s unique strategy is to blend fuel-grade ethanol with gasoline at the gas station pump. Currently, ethanol providers blend E10 and E85 at their blending terminal and transport the already blended product to retail gas stations. Once state approval is received, Renergie’s variable blending pumps will be able to offer the consumer a choice of E10, E20, E30 and E85. A recent study, cosponsored by the U.S. Department of Energy and the American Coalition for Ethanol, found E20 and E30 ethanol blends outperform unleaded gasoline in fuel economy tests for certain autos. Via capturing the Blender’s Tax Credit, Renergie will be able to ensure that gas station owners are adequately compensated for each gallon of fuel-grade ethanol that is sold via Renergie’s variable blending pumps at their gas stations.
Renergie will further grow ethanol demand beyond the 10% blend market by being the first company to test hydrous ethanol blends in the U.S. As provided for in Act No. 382, the use of hydrous ethanol blends of E10, E20, E30, and E85 in motor vehicles specifically selected by Renergie for test purposes will be permitted on a trial basis in Louisiana until January 1, 2012. The hydrous blends will be tested for blend optimization with respect to fuel consumption and engine emissions. Preliminary tests conducted in Europe have proven that the use of hydrous ethanol, which eliminates the need for the hydrous-to-anhydrous dehydration processing step, results in an energy savings of between ten percent and forty-five percent during processing, a four percent product volume increase, higher mileage per gallon, a cleaner engine interior, and a reduction in greenhouse gas emissions.
Imported ethanol is especially important for coastal states since almost all domestic ethanol is produced in the Midwest and is costly to transport because it cannot be moved through a pipeline. Elimination of the ethanol import tariff would provide the U.S. with sufficient ethanol to: (a) move ethanol demand beyond being just a blending component in gasoline to a truer transportation fuel alternative; and (b) create the required fueling infrastructure.
Renewable Fuels Standard (“RFS”)
The Energy Policy Act of 2005 established the Renewable Fuels Standard (“RFS”) which directs that gasoline sold in the U.S. contain specified minimum volumes of renewable fuel. The Energy Independence and Security Act of 2007 (“H.R. 6”), which became law on December 19, 2007, sets a new RFS that starts at 9.0 billion gallons of renewable fuel in 2008 and rises to 36 billion gallons by 2022. Of the latter total, 21 billion gallons of renewable fuel in U.S. transportation fuel is required to be obtained from advanced biofuels. The term “advanced biofuel” means renewable fuel, other than ethanol derived from corn. Brazil uses sugarcane as a feedstock for its ethanol production.
The CBI Loophole
U.S. oil companies, due to a loophole in the Caribbean Basin Initiative (“CBI”), are currently allowed to import thousands of barrels of ethanol every month without having to pay the 54 cents per gallon tariff.
The CBI was established in 1983 to promote a stable political and economic climate in the Caribbean region. The CBI allows the imports of most products, including ethanol, duty-free. While many of these products are produced in CBI countries, ethanol entering the United States under the CBI is generally produced elsewhere and reprocessed in CBI countries for export to the United States. The U.S.-Central America Free Trade Agreement (CAFTA) would maintain this duty-free treatment and set specific allocations for imports from Costa Rica and El Salvador.
Duty-free treatment of CBI ethanol has raised concerns, especially as the market for ethanol has the potential for dramatic expansion under P.L. 109-58 and P.L. 110-140. In the United States, fuel ethanol is largely domestically produced. A value-added product of agricultural commodities, mainly corn, it is used primarily as a gasoline additive. To promote its use, ethanol-blended gasoline is granted a significant tax incentive. However, this incentive does not recognize point of origin, and there is a duty on most imported fuel ethanol to offset the exemption. But a limited amount of ethanol may be imported under the CBI duty-free, even if most of the steps in the production process were completed in other countries. This duty-free import of ethanol has raised concerns, especially as U.S. demand for ethanol has been growing. Further, duty-free imports from these countries, especially Costa Rica and El Salvador, have played a role in the development of the U.S.-Central America Free Trade Agreement (CAFTA).
The main steps to ethanol production in the U.S. are as follows:
a. The feedstock (e.g., corn) is processed to separate fermentable sugars.
b. Yeast is added to ferment the sugars.
c. The resulting alcohol is distilled.
d. Finally, the distilled alcohol is dehydrated to remove any remaining water.
This final step – dehydration – is at the heart of the issue over ethanol imports from the CBI, as discussed below.
According to the United States International Trade Commission, the majority of all fuel ethanol imports to the United States came through CBI countries between 1999 and 2003. In 2004, imports from Brazil to the United States grew dramatically, but in 2005, CBI imports again represented more than half of all U.S. ethanol imports. With an increase in ethanol demand in 2006 due to voluntary elimination of MTBE – a competitor for ethanol in gasoline blending – imports grew dramatically, roughly quadrupling imports in any previous year. Most of this increase was in direct imports from Brazil. Historically, imports have played a relatively small role in the U.S. ethanol market. Total ethanol consumption in 2005 was approximately 3.9 billion gallons, whereas imports totaled 135 million gallons, or about 4%. Imports from the CBI totaled approximately 2.6%. In 2006, total imports represented roughly 13% of the 5.0 billion gallons consumed in 2006; ethanol from CBI countries represented roughly 3.4%. In 2007, total imports represented roughly 6% of U.S. consumption (6.8 billion gallons); ethanol from CBI countries represented roughly 3.6%.
As part of the initiative, duty-free status is granted to a large array of products from beneficiary countries, including fuel ethanol under certain conditions. If produced from at least 50% local feedstocks (e.g., ethanol produced from sugarcane grown in the CBI beneficiary countries), ethanol may be imported duty-free. If the local feedstock content is lower, limitations apply on the quantity of duty-free ethanol. Nevertheless, up to 7% of the U.S. market may be supplied duty-free by CBI ethanol containing no local feedstock. In this case, hydrous (“wet”) ethanol produced in other countries, historically Brazil or European countries, can be shipped to a dehydration plant in a CBI country for reprocessing. After the ethanol is dehydrated, it is imported duty-free into the United States. Currently, imports of dehydrated ethanol under the CBI are far below the 7% cap (approximately 3% in 2006). For 2006, the cap was about 270 million gallons, whereas about 170 million gallons were imported under the CBI in that year.
Dehydration plants are currently operating in Jamaica, Costa Rica, El Salvador, Trinidad and Tobago, and the U.S. Virgin Islands. Jamaica and Costa Rica were the two largest exporters of fuel ethanol to the United States from 1999 to 2003. Despite criticisms in the U.S., new dehydration facilities began production in Trinidad and Tobago in 2005 and the U.S. Virgin Islands in 2007.
If there is such an over-abundant domestic supply of ethanol in the U.S., why are U.S. oil companies purchasing ethanol from foreign sources? As domestic ethanol consumption continues to grow, so will the volume of imported duty-free ethanol under this CBI loophole.
Conclusion
As discussed above, the Ethanol Import Tariff should be repealed for the following reasons:
(a) Record prices for gasoline are increasing the costs of producing, transporting, and processing food products. Research shows that energy prices are quickly passed through to higher retail food prices, with retail prices rising 0.52 percent in the short-term for every 1 percent rise in energy prices. As a result, a 10 percent gain in energy prices could contribute 5.2 percent to retail food prices.
(b) Imported petroleum does not pay a tariff, yet clean, renewable ethanol from our own hemisphere is assessed a 54 cent-per-gallon tariff.
(c) Elimination of the ethanol import tariff would provide the U.S. with sufficient ethanol to move ethanol demand beyond being just a blending component in gasoline to a truer fuel alternative and create the required fueling infrastructure.
(d) The Energy Independence and Security Act of 2007 sets a new RFS that starts at 9.0 billion gallons of renewable fuel in 2008 and rises to 36 billion gallons by 2022. Of the latter total, 21 billion gallons of renewable fuel in U.S. transportation fuel is required to be obtained from renewable fuel, other than ethanol derived from corn.
(e) U.S. oil companies, due to a loophole in the CBI, are currently allowed to import thousands of barrels of ethanol every month without having to pay the 54 cents per gallon tariff.
At a time of record high gas prices, repeal of the 54 cents per gallon import tariff on foreign ethanol would create market competition by allowing U.S. blenders to purchase cheaper ethanol from foreign sources, which could help lower gas prices, increase the supply of ethanol to coastal markets, and ease the economic strain that is impacting the agriculture, food and beverage industries.
U.S. oil companies, corn farmers and fertilizer producers are benefiting from the 54 cents per gallon import tariff on foreign ethanol at the expense of the average American consumer. At a time when our own government’s Federal Reserve Chairman is saying food inflation and fuel costs are contributing to our dangerous economic condition, working toward eliminating this barrier to free market competition is more needed than ever.
By Brian J. Donovan
Renergie, Inc.
Gainesville, FL (August 3, 2008) – The question is whether the 54 cents per gallon tariff the United States places on imported ethanol should be eliminated when:
(a) U.S. farm acreage is being diverted from the production of food crops to energy crops and record high corn prices are impacting the agriculture, food and beverage industries;
(b) American families and businesses are paying record high prices for fuel;
(c) U.S. oil companies are using ethanol merely as a blending component in gasoline rather than a true alternative transportation fuel;
(d) The renewable fuels standard (“RFS”) requires that gasoline sold in the United States contains a renewable fuel, such as ethanol, and the expanded RFS specifically requires the use of an increasing amount of “advanced biofuels” – biofuels produced from feedstocks other than corn; and
(e) U.S. oil companies, due to a loophole in the Caribbean Basin Initiative, are currently allowed to import thousands of barrels of ethanol every month without having to pay the 54 cents per gallon tariff.
The Ethanol Import Tariff of 1980
Since 1978, in order to stimulate an increase in U.S. ethanol production and consumption, producers of ethanol-blended gasoline have received a subsidy, or tax credit. This incentive, known as the Blender’s Tax Credit, is currently valued at 51 cents per gallon of pure ethanol used in blending.
Ethanol imported into the United States is subject to two customs duties: an ad valorem tariff rate of 2.5 percent and a secondary tariff of 54 cents per gallon. The Ethanol Import Tariff of 1980 imposed the 54 cents per gallon tariff on imported ethanol. A key motivation for the establishment of the tariff on imported ethanol was to offset the Blender’s Tax Credit incentive for ethanol-blended gasoline. Unless imports enter the United States duty-free, the tariff effectively negates the incentive for those imports.
Food Prices
Corn is used as the feedstock for approximately 98% of the ethanol produced in the United States. Brazil uses sugarcane as a feedstock, while China is focusing on using cassava and sweet potatoes as feedstocks for ethanol production. USDA estimates that 3.2 billion bushels of corn (or 24% of the 2007 corn crop) will be used to produce ethanol during the September 2007 to August 2008 corn marketing year. In January, 2002, the price for a bushel of corn was $1.98. In July, 2008, the price for a bushel of corn was $5.61.
Corn is a significant ingredient for meat, dairy, and egg production. However, while increased ethanol production is partially responsible for the increase in corn prices, the real factors driving up retail food prices are: rising demand for processed foods and meat in emerging markets such as China and India; droughts and adverse weather around the world; commodity market speculation; export restrictions by many exporting countries to reduce domestic food price inflation; the declining value of the dollar; and skyrocketing oil prices.
Record high prices for diesel fuel, gasoline, natural gas, and other forms of energy affect costs throughout the food production and marketing chain. Higher energy prices increase producers’ expenditures for fertilizer and fuel, driving up farm production costs and reducing the incentive for farmers to expand production in the face of record high prices. Higher energy prices also increase food processing, marketing, and retailing costs. In 2005, the most recent year for which data are available, direct energy costs and transportation costs accounted for roughly 8 percent of retail food costs. These higher costs, especially if maintained over a long period, tend to be passed on to consumers in the form of higher retail prices.
Increased demand for farm commodities could outstrip existing production capabilities, straining food supplies and boosting prices. Moreover, population growth and rising incomes are altering global food consumption patterns and boosting the demand for food, further supporting higher prices. Demand for bio-fuels, especially in the United States, has led to a decline in corn inventories, despite a record corn crop. This increase in U.S. corn acres limited the production of other crops.
Historically, food prices have surged during times of higher crude oil prices. Moreover, research shows that energy prices are quickly passed through to higher retail food prices, with retail prices rising 0.52 percent in the short-term for every 1 percent rise in energy prices. As a result, a 10 percent gain in energy prices could contribute 5.2 percent to retail food prices.
Fuel Prices
Gasoline is one of the major fuels consumed in the United States and the main product refined from crude oil. Consumption in 2007 was about 142 billion gallons, an average of about 390 million gallons per day and the equivalent of about 61% of all the energy used for transportation, 44% of all petroleum consumption, and 17% of total U.S. energy consumption.
In January, 2002, the price of oil was US$18.68 per barrel. As of the date of this article, the price of oil is US$125.10 per barrel. In January, 2002, the average U.S. retail price for a gallon of regular grade gasoline was US$1.11. As of the date of this article, the price for a gallon of regular grade gasoline is US$3.96.
The price of crude oil is set through the interaction of world demand and supply. The following factors are driving up crude oil and gasoline prices: (a) increased world demand for crude oil as witnessed by the sharp increase in imported crude oil by China and India; (b) instability in oil-producing regions, including Iraq and Nigeria’s delta region; (c) limited U.S. refinery capacity to supply gasoline; (d) a decline in the value of the dollar compared to other currencies has increased the dollar price of oil on futures markets; (e) the continuing possibility of a supply disruption from natural disasters like Hurricanes Katrina and Rita in 2005; (f) speculators, who have entered the commodity markets in large numbers looking for ways to increase their monetary investments rather than to trade in oil and oil products, are causing an unacceptable upward pressure on prices; and (g) governments in developing countries are subsidizing energy, blunting the incentive to conserve by keeping prices low. China is expected to spend about $40 billion this year in subsidies. Venezuela and Egypt are forecast to spend more than 5 percent of their total economic output on subsidies this year. As a result, while demand for oil in the developed world is expected to fall about 1 percent this year, consumption in emerging and developing countries is forecast to rise 3 percent, according to estimates by I.M.F. economists.
World demand for crude oil grew by 1.3% in 2007 to 86.0 mbd. It is forecast to grow by 1.5% to 87.3 mbd in 2008. World supply was 87.3 mbd in March 2008, leaving relatively little excess supply to draw on if the market were disrupted by natural or political disasters. When excess supply on the market is low, prices tend to rise and become more volatile.
Higher prices for crude oil tend to translate directly into higher prices for gasoline. Currently, crude oil accounts for about 72% of the cost of gasoline. Refining, distributing, and marketing account for about 16% of the cost of gasoline, and taxes account for about 13%. However, until recently crude oil’s share of the cost of gasoline has been more typically in the range of 45% to 55%. In May 2007, for example, with gasoline at $3.15 per gallon, crude oil contributed 46% of the cost; refining, distributing and marketing 41%; and taxes 13%.
On July 31, 2008, Exxon Mobil Corp. reported second-quarter earnings of $11.68 billion, the biggest quarterly profit ever by any U.S. corporation. On August 1, 2008, Chevron reported record oil prices drove second-quarter earnings up 11 percent to $5.98 billion, its highest-ever profit.
Imported petroleum does not pay a tariff, yet clean, renewable ethanol from our own hemisphere is assessed a 54 cent-per-gallon tariff.
Lack of Ethanol Infrastructure
U.S. oil companies are using ethanol merely as a blending component in gasoline (in the form of E10) rather than a true alternative transportation fuel. There is not an oversupply of ethanol. The major obstacle to widespread ethanol usage continues to be the lack of fueling infrastructure. Only 1,528 of the nearly 180,000 (or 8/10 of 1%) retail gasoline stations in the United States offer E85. These E85 fueling stations are located primarily in the Midwest.
While alleging an oversupply of corn ethanol, U.S. oil companies still import thousands of barrels of ethanol from foreign sources every month without having to pay the 54 cents per gallon import tariff. Can ethanol provide any relief at the pump to the U.S. driving public? Renergie, Inc. believes that ethanol can significantly lower the pump price if it is produced from a non-corn feedstock and marketed directly by the producer as E85. Ethanol must compete against, rather than be an inexpensive blending component in, gasoline.
Renergie’s “field-to-pump” strategy is to produce ethanol locally and market ethanol locally. The day of building 100 MGY corn-to-ethanol plants in the Midwest corn belt, for the sale of E10 to consumers on the U.S. East Coast and West Coast, is over! Renergie is focusing its efforts on locally growing ethanol demand beyond the 10% blend market. Initially, Renergie will directly market E85, a blend of 85 percent ethanol and 15 percent gasoline for use in FFVs, to local fuel retailers under the brand Renergie E85. Renergie’s unique strategy is to blend fuel-grade ethanol with gasoline at the gas station pump. Currently, ethanol providers blend E10 and E85 at their blending terminal and transport the already blended product to retail gas stations. Once state approval is received, Renergie’s variable blending pumps will be able to offer the consumer a choice of E10, E20, E30 and E85. A recent study, cosponsored by the U.S. Department of Energy and the American Coalition for Ethanol, found E20 and E30 ethanol blends outperform unleaded gasoline in fuel economy tests for certain autos. Via capturing the Blender’s Tax Credit, Renergie will be able to ensure that gas station owners are adequately compensated for each gallon of fuel-grade ethanol that is sold via Renergie’s variable blending pumps at their gas stations.
Renergie will further grow ethanol demand beyond the 10% blend market by being the first company to test hydrous ethanol blends in the U.S. As provided for in Act No. 382, the use of hydrous ethanol blends of E10, E20, E30, and E85 in motor vehicles specifically selected by Renergie for test purposes will be permitted on a trial basis in Louisiana until January 1, 2012. The hydrous blends will be tested for blend optimization with respect to fuel consumption and engine emissions. Preliminary tests conducted in Europe have proven that the use of hydrous ethanol, which eliminates the need for the hydrous-to-anhydrous dehydration processing step, results in an energy savings of between ten percent and forty-five percent during processing, a four percent product volume increase, higher mileage per gallon, a cleaner engine interior, and a reduction in greenhouse gas emissions.
Imported ethanol is especially important for coastal states since almost all domestic ethanol is produced in the Midwest and is costly to transport because it cannot be moved through a pipeline. Elimination of the ethanol import tariff would provide the U.S. with sufficient ethanol to: (a) move ethanol demand beyond being just a blending component in gasoline to a truer transportation fuel alternative; and (b) create the required fueling infrastructure.
Renewable Fuels Standard (“RFS”)
The Energy Policy Act of 2005 established the Renewable Fuels Standard (“RFS”) which directs that gasoline sold in the U.S. contain specified minimum volumes of renewable fuel. The Energy Independence and Security Act of 2007 (“H.R. 6”), which became law on December 19, 2007, sets a new RFS that starts at 9.0 billion gallons of renewable fuel in 2008 and rises to 36 billion gallons by 2022. Of the latter total, 21 billion gallons of renewable fuel in U.S. transportation fuel is required to be obtained from advanced biofuels. The term “advanced biofuel” means renewable fuel, other than ethanol derived from corn. Brazil uses sugarcane as a feedstock for its ethanol production.
The CBI Loophole
U.S. oil companies, due to a loophole in the Caribbean Basin Initiative (“CBI”), are currently allowed to import thousands of barrels of ethanol every month without having to pay the 54 cents per gallon tariff.
The CBI was established in 1983 to promote a stable political and economic climate in the Caribbean region. The CBI allows the imports of most products, including ethanol, duty-free. While many of these products are produced in CBI countries, ethanol entering the United States under the CBI is generally produced elsewhere and reprocessed in CBI countries for export to the United States. The U.S.-Central America Free Trade Agreement (CAFTA) would maintain this duty-free treatment and set specific allocations for imports from Costa Rica and El Salvador.
Duty-free treatment of CBI ethanol has raised concerns, especially as the market for ethanol has the potential for dramatic expansion under P.L. 109-58 and P.L. 110-140. In the United States, fuel ethanol is largely domestically produced. A value-added product of agricultural commodities, mainly corn, it is used primarily as a gasoline additive. To promote its use, ethanol-blended gasoline is granted a significant tax incentive. However, this incentive does not recognize point of origin, and there is a duty on most imported fuel ethanol to offset the exemption. But a limited amount of ethanol may be imported under the CBI duty-free, even if most of the steps in the production process were completed in other countries. This duty-free import of ethanol has raised concerns, especially as U.S. demand for ethanol has been growing. Further, duty-free imports from these countries, especially Costa Rica and El Salvador, have played a role in the development of the U.S.-Central America Free Trade Agreement (CAFTA).
The main steps to ethanol production in the U.S. are as follows:
a. The feedstock (e.g., corn) is processed to separate fermentable sugars.
b. Yeast is added to ferment the sugars.
c. The resulting alcohol is distilled.
d. Finally, the distilled alcohol is dehydrated to remove any remaining water.
This final step – dehydration – is at the heart of the issue over ethanol imports from the CBI, as discussed below.
According to the United States International Trade Commission, the majority of all fuel ethanol imports to the United States came through CBI countries between 1999 and 2003. In 2004, imports from Brazil to the United States grew dramatically, but in 2005, CBI imports again represented more than half of all U.S. ethanol imports. With an increase in ethanol demand in 2006 due to voluntary elimination of MTBE – a competitor for ethanol in gasoline blending – imports grew dramatically, roughly quadrupling imports in any previous year. Most of this increase was in direct imports from Brazil. Historically, imports have played a relatively small role in the U.S. ethanol market. Total ethanol consumption in 2005 was approximately 3.9 billion gallons, whereas imports totaled 135 million gallons, or about 4%. Imports from the CBI totaled approximately 2.6%. In 2006, total imports represented roughly 13% of the 5.0 billion gallons consumed in 2006; ethanol from CBI countries represented roughly 3.4%. In 2007, total imports represented roughly 6% of U.S. consumption (6.8 billion gallons); ethanol from CBI countries represented roughly 3.6%.
As part of the initiative, duty-free status is granted to a large array of products from beneficiary countries, including fuel ethanol under certain conditions. If produced from at least 50% local feedstocks (e.g., ethanol produced from sugarcane grown in the CBI beneficiary countries), ethanol may be imported duty-free. If the local feedstock content is lower, limitations apply on the quantity of duty-free ethanol. Nevertheless, up to 7% of the U.S. market may be supplied duty-free by CBI ethanol containing no local feedstock. In this case, hydrous (“wet”) ethanol produced in other countries, historically Brazil or European countries, can be shipped to a dehydration plant in a CBI country for reprocessing. After the ethanol is dehydrated, it is imported duty-free into the United States. Currently, imports of dehydrated ethanol under the CBI are far below the 7% cap (approximately 3% in 2006). For 2006, the cap was about 270 million gallons, whereas about 170 million gallons were imported under the CBI in that year.
Dehydration plants are currently operating in Jamaica, Costa Rica, El Salvador, Trinidad and Tobago, and the U.S. Virgin Islands. Jamaica and Costa Rica were the two largest exporters of fuel ethanol to the United States from 1999 to 2003. Despite criticisms in the U.S., new dehydration facilities began production in Trinidad and Tobago in 2005 and the U.S. Virgin Islands in 2007.
If there is such an over-abundant domestic supply of ethanol in the U.S., why are U.S. oil companies purchasing ethanol from foreign sources? As domestic ethanol consumption continues to grow, so will the volume of imported duty-free ethanol under this CBI loophole.
Conclusion
As discussed above, the Ethanol Import Tariff should be repealed for the following reasons:
(a) Record prices for gasoline are increasing the costs of producing, transporting, and processing food products. Research shows that energy prices are quickly passed through to higher retail food prices, with retail prices rising 0.52 percent in the short-term for every 1 percent rise in energy prices. As a result, a 10 percent gain in energy prices could contribute 5.2 percent to retail food prices.
(b) Imported petroleum does not pay a tariff, yet clean, renewable ethanol from our own hemisphere is assessed a 54 cent-per-gallon tariff.
(c) Elimination of the ethanol import tariff would provide the U.S. with sufficient ethanol to move ethanol demand beyond being just a blending component in gasoline to a truer fuel alternative and create the required fueling infrastructure.
(d) The Energy Independence and Security Act of 2007 sets a new RFS that starts at 9.0 billion gallons of renewable fuel in 2008 and rises to 36 billion gallons by 2022. Of the latter total, 21 billion gallons of renewable fuel in U.S. transportation fuel is required to be obtained from renewable fuel, other than ethanol derived from corn.
(e) U.S. oil companies, due to a loophole in the CBI, are currently allowed to import thousands of barrels of ethanol every month without having to pay the 54 cents per gallon tariff.
At a time of record high gas prices, repeal of the 54 cents per gallon import tariff on foreign ethanol would create market competition by allowing U.S. blenders to purchase cheaper ethanol from foreign sources, which could help lower gas prices, increase the supply of ethanol to coastal markets, and ease the economic strain that is impacting the agriculture, food and beverage industries.
U.S. oil companies, corn farmers and fertilizer producers are benefiting from the 54 cents per gallon import tariff on foreign ethanol at the expense of the average American consumer. At a time when our own government’s Federal Reserve Chairman is saying food inflation and fuel costs are contributing to our dangerous economic condition, working toward eliminating this barrier to free market competition is more needed than ever.
Tennessee Lawmakers Pass Biofuels Bill After Compromise
Tennessee Lawmakers Pass Biofuels Bill After Compromise
By George Orwel
DTN Ethanol Center
June 16, 2009
NEW YORK (DTN) — The Tennessee legislature passed legislation that compels refiners and other fuel suppliers in the state to make available to wholesalers unblended gasoline and gasoline blending stock so they can blend it themselves with ethanol.
The legislation was passed by Tennessee’s House of Representatives on June 9 and the state senate on June 12. The legislation awaits the signature of Gov. Phil Bredesen to become law, said Lee Harrell, a legislative aide for Speaker Pro Tempore of the Senate Jamie Woodson.
The bill also forces refiners and suppliers to make available to wholesalers diesel that is suitable for blending with biodiesel.
The passage of the bill came after Tennessee state lawmakers last month worked out a compromise between Valero Energy Corp and Tennessee fuel wholesalers over the bill.
Valero had threatened to shut down its 195,000 bpd refinery in Memphis if lawmakers advanced the bill into law. The refinery employs about 310 people, according the company’s Web site, and so a shutdown of the plant would mean job losses.
Valero appealed to Bredesen to intervene, arguing the proposal to require the refinery to allow “our wholesale customers to blend ethanol into gasoline made at the refinery” would require capital expenditures of between $130 million and $150 million.
“Coupled with the current economic downturn, this makes no economic sense for the refinery, and the expenditure would cause Valero to seriously consider closing the plant,” company spokesman Bill Day told DTN at the time.
Day added that in order to make gasoline on demand for wholesalers to do their own blending, the Memphis refinery would need to have separate storage and pipeline systems for ethanol-blended fuels and conventional unblended fuels.
Soon after, Tennessee House Speaker Kent Williams brought together representatives from both Valero and the wholesalers to work out a compromise. Both sides reached a deal that allowed the bill to proceed into law.
Emily LeRoy, a spokeswoman for Tennessee Fuel and Convenience Store Association, which represents wholesalers, told DTN that the compromise offered Valero some leeway, but the refiner would still have to provide unblended gasoline and diesel to wholesalers.
The version of the bill passed by the state’s congress, a copy of which was made available to DTN, protects refiners and suppliers from any liability in lawsuits arising from downstream blending.
That’s what Valero got out of the compromise, LeRoy said Tuesday.
The legislation also provides a fine of $5,000 per day for noncompliance, and gives the state commissioner of agriculture the authority to inspect refinery premises to ensure compliance. Refiners are also required to keep business records and to make them available to inspectors charged with enforcing the law.
By George Orwel
DTN Ethanol Center
June 16, 2009
NEW YORK (DTN) — The Tennessee legislature passed legislation that compels refiners and other fuel suppliers in the state to make available to wholesalers unblended gasoline and gasoline blending stock so they can blend it themselves with ethanol.
The legislation was passed by Tennessee’s House of Representatives on June 9 and the state senate on June 12. The legislation awaits the signature of Gov. Phil Bredesen to become law, said Lee Harrell, a legislative aide for Speaker Pro Tempore of the Senate Jamie Woodson.
The bill also forces refiners and suppliers to make available to wholesalers diesel that is suitable for blending with biodiesel.
The passage of the bill came after Tennessee state lawmakers last month worked out a compromise between Valero Energy Corp and Tennessee fuel wholesalers over the bill.
Valero had threatened to shut down its 195,000 bpd refinery in Memphis if lawmakers advanced the bill into law. The refinery employs about 310 people, according the company’s Web site, and so a shutdown of the plant would mean job losses.
Valero appealed to Bredesen to intervene, arguing the proposal to require the refinery to allow “our wholesale customers to blend ethanol into gasoline made at the refinery” would require capital expenditures of between $130 million and $150 million.
“Coupled with the current economic downturn, this makes no economic sense for the refinery, and the expenditure would cause Valero to seriously consider closing the plant,” company spokesman Bill Day told DTN at the time.
Day added that in order to make gasoline on demand for wholesalers to do their own blending, the Memphis refinery would need to have separate storage and pipeline systems for ethanol-blended fuels and conventional unblended fuels.
Soon after, Tennessee House Speaker Kent Williams brought together representatives from both Valero and the wholesalers to work out a compromise. Both sides reached a deal that allowed the bill to proceed into law.
Emily LeRoy, a spokeswoman for Tennessee Fuel and Convenience Store Association, which represents wholesalers, told DTN that the compromise offered Valero some leeway, but the refiner would still have to provide unblended gasoline and diesel to wholesalers.
The version of the bill passed by the state’s congress, a copy of which was made available to DTN, protects refiners and suppliers from any liability in lawsuits arising from downstream blending.
That’s what Valero got out of the compromise, LeRoy said Tuesday.
The legislation also provides a fine of $5,000 per day for noncompliance, and gives the state commissioner of agriculture the authority to inspect refinery premises to ensure compliance. Refiners are also required to keep business records and to make them available to inspectors charged with enforcing the law.
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