Tuesday, April 29, 2008

Ethanol: Convenient Scapegoat or Justified Target?

It seems everywhere you turn today, we see story after story highlighting the role of biofuels (and ethanol in particular) in the recent run-up of food prices world wide. Now we even see that petro-tyrant Hugo Chavez has joined Saudi Arabia's oil minister in denouncing biofuels as the primary factor in increased food prices. To hear them tell it, it would be as if $120 barrel oil, which costs as little as $2 per barrel to produce, has little to no effect on the price of growing, producing, and transporting food to the world marketplace.

And while nothing could be farther from the truth, it's much easier to draw a connection from a cob of corn to the price of food, than a barrel of oil.

In the real world though, the price of oil has a dramatic and real effect on food costs. It's an unavoidable reality, but one that seems lost in all the anti-ethanol hysteria of late. Whereas a box of corn flakes only contains about 5 cents worth of corn, the amount of fuel and energy that went into making that same box of corn flakes, transporting it from the factory to the distribution center and finally on to your local market has a substantially greater impact on the final price you pay than does the price of the corn that went into it. Each and every food item that we purchase is subject to this same correlation of fuel to food, much more so than the cost of the raw materials (including corn and wheat) that it takes to make them.

Energy is the closest thing to the be-all-end-all causative agent in the price of almost everything we make and buy than any other resource. And in today's world, energy = oil. And yet, to hear the critics of biofuels tell it, the role of the astronomical cost of energy in all of this is significantly downplayed due to the emergence of ethanol as an alternative fuel. To put it simply, ethanol has become the convenient scapegoat of the day.

Corn based ethanol is not the answer to our growing energy needs, by a long shot. However, the presence of ethanol on the world market has served to displace and reduce the price of oil. Consequently, the production of corn for food use has actually increased as a result of the greater demand for biofuels (a byproduct of the ethanol production process yields about 18 pounds, per bushel of food product). The net US corn harvest available for food and feed is up 34% since 2002! US farm exports are up 23% and contrary to the food vs fuel alarmists, we have much more farm capacity than we are even using today. Out of a total of 800 million acres of US farmland, only 280 million are actually being farmed!

There are two key transitions that are taking place in the energy marketplace: (1) Beginning this year, cellulosic ethanol will begin to supplant corn ethanol as the most cost effective and environmentally benign means of producing ethanol and (2) The electrification of the automobile will replace the internal combustion engine as the most efficient means of transport. First via plugin hybrids and extended range electric vehicles, then on to pure EVs that do not sacrifice any of the luxury, comfort and safety that US car consumers demand.

Both of these solutions have a very important bridge role to play as we transition our motor vehicle's over to electric propulsion. The first commercial cellulosic ethanol plant is already producing ethanol today in Upton Wyoming converting wood chips to fuel. And later this year, Range Fuels in Soperton Georgia will come online using the same wood chips to fuel production cycle. Later this year, Coskata, LLC will begin producing ethanol from cellulosic feedstocks such as wood chips, municipal waste and biomass at a pilot plant that will grow to full production by 2011. In Coskata's case, they have publically stated that they will be able to produce ethanol for $1 per gallon, we can expect similar efficiencies from the other cellulosic ethanol producers.

This will have a dramatic impact on lessening our reliance on foreign oil. Of additional benefit, cellulosic feedstocks such as switchgrass (in the east and southeastern US) and miscanthus (in the West and Midwestern US) are able to be grown with little or no pesticides, require minimal inputs of energy to cultivate and are able to be grown on land that would be unsuitable for food crops or other meaningful use. In the case of switchgrass, the root system is extends as deep into the soil as the plant itself and serves as a significant sink for CO2 sequestration, offsetting the CO2 that is released when it is burned as fuel. On the other hand, when oil is extracted from the ground (at a cost of about $2), sold on the futures market (at a cost of about $120 per barrel) refined into gasoline, and burned for motor fuel, the carbon emissions are completely released into our atmosphere.

At the same time this is happening, we are beginning to see the move towards the imminent electrification of the automobile. First, we will see electrically assisted propulsion, and then, once battery technology advances even further and costs continue to come down, fully electrical powertrains will supplant the internal combustion engine as we know it (Extended range electric vehicles will continue to utilize the super efficient, low emmissions internal combustion engine in the near term, most using flex fuel powertrains).

In the meantime, we will rely on biofuels, hybrid vehicles and increased mass transport to help supplant petroleum and combat the high costs of oil. The facts will continue to emerge on petroleum's impact on high food prices even as we continue to transition our automotive fleet as well as our biofuels production to newer more effective technologies for combating the stranglehold that petroleum has on our economy.

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