The Great Ethanol Debate

Watching a congressional hearing on gasoline and ethanol prices yesterday on C-span prompted me to write this article. It seems that ethanol, according to yesterday's testimony, is not yet the answer (unless you happen to grow corn for a living).Proponents say ethanol has a positive energy yield (yields more Btu’s than are needed to produce it) while its detractors assert the opposite: more energy is needed to produce ethanol than the finished product will yield.

This debate is beginning to look more and more like the global warming debate: pick a side and enjoy the ride. I have sourced a few interesting tidbits, some more reputable than others, which, on the balance, seem to imply that ethanol is nothing more than corn grower's welfare. At approximately $2.90 a gallon (the same as the U.S. gasoline average price) you can expect 2/3 the energy output of gasoline - and whether you use any of the ethanol derivatives (E10,E85) your tax dollars will still go to subsidize ethanol at a .54/gallon rate. Feel free to add any additional viewpoints/data; balance, as always, is the name of the game here.

The cost of producing and transporting ethanol will continue to limit its use as
a renewable fuel. Ethanol relies heavily on Federal and State subsidies to
remain economically viable as a gasoline-blending component. The current Federal
subsidy, at 54 cents per gallon, makes it possible for ethanol to compete as a
gasoline additive. Corn prices are the dominant cost factor in ethanol
production, and ethanol supply is extremely sensitive to corn prices, as was
seen in 1996. Ethanol production dropped sharply in mid-1996 (Figure 3), when
late planting due to wet conditions resulted in short corn supplies and higher
prices.

Source

From a national supply perspective, it is useful to note the energy impacts of
adding ethanol to gasoline as well as the volume effects. Conventional gasoline
without ethanol contains about 115,000 Btu in a gallon8. Ethanol contains 76,000
Btu in a gallon, or about two-thirds the energy of gasoline. Thus, when 90
gallons of conventional gasoline are extended to 100 gallons by adding 10
gallons of ethanol, the volume of the base 90 gallons has increased by about
11.1 percent, but the energy has only increased about 7.5 percent. Table 2
summarizes both the energy and the volume impacts of adding ethanol to gasoline
with and without an RVP waiver.

Source

Most expensive is Washington's 54 cent-per-gallon tax break for gasohol. This
special-interest loophole accounts for the bulk of the more than $10 billion in
subsidies to ADM since 1980. All told, analyst James Bovard estimates that every
dollar in profits earned by ADM costs taxpayers $30.

Source

Here's a response by The American Coalition for Ethanol:

What does “net energy balance” mean?

What is ethanol’s energy balance? Net energy balance is a term used to
describe how much energy is needed to produce a product versus how much energy
that product provides. Two professors that are long-time critics of ethanol
claim that ethanol has a negative energy balance, meaning more energy is
required to produce ethanol than ethanol offers as a motor fuel.This is not
true. Scientific study after study has proven ethanol’s energy balance to
clearly be positive. The latest USDA figures show that ethanol made from the dry
mill process provides at least 77% more energy as a fuel than the process it
takes to make it.The bottom line is that it takes about 35,000 BTUs (British
Thermal Units) of energy to create a gallon of ethanol, and that gallon of
ethanol contains at least 77,000 BTUs of energy.

Source


Ethanol Futures are currently trading at $2.90/galSee price history here: Source

Note: I have added a U.S. gas price ticker to the side column; just type in your state to see the updated average prices.