The Futility of Ethanol

There was a time not too long ago (like, less than 2 years) when one could comfortably budget for $4.00 wheat, $2.00 corn and $6.00 beans. As I write this, wheat is well over $10.00, corn is approaching $6.00 and soybeans are at $14.00. We're talking here about a doubling and tripling of price in our 3 largest crops! We're also talking about a shortage of agricultural inputs that affects everything from spinach to turkeys. Why? Certainly energy costs and the weakened dollar carry the lions share of responsibility, but the truth is that it all began about 2 years ago when we placed an adulterated demand upon corn for ethanol. We simply cannot grow enough fuel to have any significant impact on our petroleum usage.

Many will argue that corn producers responded to the demand by increasing the '07 corn crop 30% to 13 billion bushels. What gets lost in the debate is the fact that this was accomplished at the expense of soybean and cotton acreage (down 15.7% and 29% respectively). It should also be noted that the 2007 growing season was nothing less than perfect, boosting corn yields to 151 bushels per acre, second only to 2004 at 160 bushels per acre. I prepared this piece in February of 2007. The numbers have changed, but the fundamentals have not.

February, 2007

I had been neutral on the “ethanol thing” until I ran into the following headline in a trade publication:

“Efforts to repeal 54 cent-per-gallon tariff on imported ethanol to ease fuel costs being opposed by most farm state legislators.”

Hoard's Dairyman, May 25, 2006, page 353 “Washington Dairygrams” section, last paragraph, last sentence (emphasis added).

All of a sudden the whole “ethanol thing” smelled rotten. Imported ethanol??? 54 cent tariff???? $3.00 Gas??? I don't have a dog in this race, nor am I employed by anyone with a dog in this race. My background and career however, is agriculture, and I wasn't comfortable with the “spin” I was hearing. I did my own research and the results follow.

FACTS:

  • Domestic ethanol IS protected by a 54 cent tariff and a 2.5% ad valorem tariff (Center for Agriculture and Rural Development). In the 4 years ended in 2005 we DID import 402 million untaxed gallons from various Caribbean countries thanks to an obscure US loophole.
  • Ethanol enjoys a 51 cent competitive advantage because of an exemption from Federal Excise Taxes. (The White House)
  • According to the Department of Energy, it takes 1.52 gallons of ethanol to provide the same energy as one gallon of gasoline. This is called “GGE” (Gallon Gas Equivalent). 1.52 is not a big number, but give it a couple of paragraphs.
  • The energy efficiency ratio of Ethanol is 1.06 without byproduct credits and 1.67 with byproduct credits. (Ethanol.org). In other words, ethanol generates 6% more energy than is required for production. If you were to allocate 34% of the required energy to the production of the byproduct, then it produces 67% more energy than it consumes
  • In 2005 the US consumed 140.411 billion gallons of gasoline, motor gasoline only. (DOE)
  • In 2005 we consumed 318.9 billion gallons of petroleum (DOE-EIA), therefore gasoline at 140 billion gallons represents about 44% of our petroleum consumption.
  • In 2005 we produced 3.9 billion gallons of Ethanol, or about 2.78% of the 140 billion gallons of gasoline. (Renewable Fuels Assn.)
  • According to Ethanol.org, an ethanol advocate, Corn will produce about 2.8 gallons of ethanol per bushel (GPB). There are higher speculations, but none proven.
  • The US 5 year average corn yield is 145.8 BPA (bushels per acre). (USDA NASS).
  • The US 5 year average corn production is 10.5 billion bushels, (USDA NASS).
  • Dry mill ethanol production will produce 3.43 lb. of byproduct Dried Distillers Grains (DDG) per gallon of Ethanol. (ILIFT)

Crunching the numbers above, converting just 10% of our gasoline to ethanol will require 14 billion gallons of ethanol, 5.014 billion NEW bushels and 34.4 million NEW acres of Corn, an increase of 48% over our 5 year historical average, requiring an area the size of North Carolina and producing 24 million tons of byproduct.

Remember that little number, the 1.52 GGE. One way to interpret the GGE that the addition of 10% ethanol will result in a 3.4% increase in total gasoline consumption ((0.52/1.52) x 10% =3.4%). Another way is to assume that we must produce 52% more ethanol than the gasoline that it replaces. Now we're talking about 21.3 billion gallons, 7.62 billion NEW bushels and 52.3 million NEW acres, an increase of 76% over our 5 year historical average, or area the size of Kansas and 36.5 million tons of DDG.

In '05 we produced almost 4 billion gallons of ethanol. We've been subsidizing ethanol for 30 years. Is it paying off? Here's the chart. You decide.

Gasoline data from DOE .

Ethanol data from Renewable Fuels Assn

Let’s consider the implications:

  • Feasibility – It took us 400 years to get to 10 billion bushels. The next 5 billion or more will be much more difficult and expensive. Many respond that North Carolina and Kansas are not THAT big. Excuse me? Compared to what? Remember, we are still only talking about 10% of our gasoline and 4.4% of our petroleum! By the way, 5 billion bushels is only 140 million tons. It would take 5.8 million semi-loads burning 72.9 million gallons of diesel fuel just to move it 100 miles!
  • Energy Efficiency – It is common knowledge that ethanol has an energy efficiency of about 1.67 (Ethanol.org). In other words ethanol generates 67% more energy than is used for production. However, this attractive efficiency of 1.67 is obtained only after allocating 34% of the energy consumed to the production of byproducts (Ethanol.org). Without this “byproduct credit”, the energy efficiency is reduced to a “break-even” 1.06 (Ethanol.org). Furthermore, we’re only talking about “energy” efficiency. What about the “dollar” efficiency?
  • Value of byproducts –Referring to the point above, allocating 34% of the energy cost to byproducts is particularly offensive if the byproducts are worthless. Dried Distillers Grains (DDG) is the only byproduct of the dry mill process. According to DistillersGrains.org, an ethanol and DDG advocate, all new ethanol facilities are dry mill process. DDG has some value in dairy rations, less value in beef rations, and virtually no value in non-ruminants. DistillersGrains.org can document no findings that DDG is “an excellent feed for all animals” as promoted in the media. The latest data I can find from USDA shows about 14 million cattle on feed and 9 million dairy cows. This would mean that each and every mature ruminant must consume a minimum of 5.7 lb. of DDG to dispose of the byproduct from the ethanol produced to replace just 4.4% of our petroleum. A daunting task indeed! The point to be made is that whether the byproduct is distillers grains, corn oil, or gold, the market will be flooded and the cost of disposal needs to be dealt with.
  • Supply and demand – By placing an adulterated demand on corn, it has responded (not surprisingly) by doubling in price. At this writing it is comfortably in the mid $4.00 range. In livestock nutrition, (nutritive) energy is and always has been the largest single input and corn is the standard for energy. Certainly, there are alternatives to corn, but they are all priced based on the value of corn. If the price of corn goes up, the price of the alternatives responds likewise. At this writing, we have doubled the cost of the single largest input in livestock nutrition, thus causing upheaval down here at the lower level of the food chain to be realized in the future as an increase in the grocery store, the extent of which will eclipse any cost or benefit realized in petroleum usage. Placing a significant adulterated demand on corn will also place a significant adulterated increase or decrease in the supply and demand of everything related to it. Consider the following (just a few examples):
  • Was ethanol feasible with $2.00 corn? Is it feasible with $4.00 corn? $6.00 corn?
  • The bottom has fallen out of feeder cattle. What next?
  • Corn growers have been informed that they may not receive all the seed corn they’ve ordered.
  • What will distillers grains be worth when we’re drowning in it?
  • How much will 5 billion bushels of storage cost?
  • Who pays for the roads? – Ethanol enjoys a 51 cent exemption from Federal Excise Taxes (The White House). Our highway system is the envy of the world. It got that way because it’s paid for by the users in the form of excise taxes. Every gallon of ethanol produced is 51 cents less available to maintain our highways.

Many believe that cellulosic ethanol derived from fibrous sources such as corn stover, wood chips and switchgrass is the panacea for our energy woes. Corn stover at a generous 5 tons per acre (Iowa State) could yield 71.42 gallons/ton or 357 gallons per acre (Purdue). When added to the 408 gallons from the corn grain, the result is an impressive 765 gallons per acre. Switchgrass, the holy grail of ethanol, yields 11.50 tons per acre and 100 gallons per ton for a whopping 1,150 gallons per acre (DOE Bioenergy Feedstock Development Program).

Using a “best case” scenario, replacing 10% of our gas, or 4.4% of our petroleum with ethanol from switchgrass at 1,150 gallons per acre, would require between 140 and 210 million tons of switchgrass using between 12.2 and 18.3 million acres. This is a substantial improvement over corn or corn /stover ethanol, however it is not without fault:

  • Cellulosic ethanol is unproven. There are no commercial facilities and the pilot facilities rely heavily on subsidies and grants (Wikipedia)
  • Must it be harvested and stored or can it stand in the field until needed?
  • What about disposal of byproducts?
  • What does it cost to transport or store something as bulky as hay or straw?

We must grant that the yield per acre and range of waste materials that it can utilize makes cellulosic ethanol attractive, however at this juncture we have to assume that the process is infeasible as there are no commercial facilities in production.

The United States is blessed with 1.9 billion acres of land, (exclusive of Alaska) (Wikipedia). 342 million acres (18.01%) of that land is arable (CIA Factbook). Producing 14 billion gallons of ethanol from 34 million acres of corn will demand 10% of our arable acres. We can’t manufacture more arable land. Something has to give.

Thus far I’ve cited only sources favorable or neutral to ethanol and have given every benefit of doubt to ethanol. Let’s now paint a more realistic picture. It takes 1.52 gallons of ethanol to replace the energy of 1 gallon of gasoline (DOE – EERE). It takes 1 unit of input energy to produce 1.67 units of Corn Ethanol (assuming that 34% of the input energy is allocated to byproducts) (Ethanol.org). The unit of input energy could be anything, but for the sake of argument, let’s assume that the energy comes from ethanol. This would mean that it would take 2.54 gallons of ethanol (1.67 X 1.52) to replace 1 gallon of gasoline. With corn at $4.00 the cost of the raw material for 2.54 gallons of ethanol would be $3.63 before extraction! Crunching these numbers means that replacing 14 billion gallons of gasoline with corn ethanol could conceivably require 35 billion gallons of ethanol from 12.5 billion bushels of corn (125% of our corn crop) grown on 85.7 million acres or 25% of our arable land, and producing 60 million tons of byproduct.

Some interesting statistics in summary

  • Our entire corn crop of a little over 10 billion bushels (72 million acres) would produce 29.4 billion gallons of ethanol consuming in the process, the equivalent of 17.6 billion gallons, netting 11.8 billion gallons, displacing 7.76 billion gallons of gasoline ( 5.5% of our gas, 2.4% of our petroleum) while generating 50.42 million tons of byproduct.
  • Our entire soybean crop of 3.2 billion bushels would produce 4.48 billion gallons of biodiesel, displacing all of 1.4% of our petroleum (1.4 gallons per bushel, 60 gallons per acre) (DOE EERE).
  • The complete diversion of our 2 largest field crops (above) to biofuels, requiring 150 million acres (44% of our arable land) displaces only 3.8% of our petroleum, but of course at this point, livestock agriculture ceases to exist because the feeds are going into biofuels
  • Our entire peanut crop of 3.5 billion lbs (1.2 million acres) would produce 135.6 million gallons of biodiesel, displacing 0.04% of our petroleum (113 gallons per acre) (Wikipedia)
  • Our entire crop of waste vegetable oil of 300 million gallons would displace less than 1% of our petroleum (Wikipedia).
  • On the other hand, a promising new technology of algaculture requiring neither farmland nor fresh water (Wikipedia – Biodiesel) could replace 100% of our petroleum on 16-64 million acres (Wikipedia – Algaculture). I am also under the impression that this research was “defunded” by the government in the early 1980’s. It is currently funded with private money. I’ll follow private money over government money any day!

In a nutshell, the sheer magnitude and scale of the project and the ripple effect through the economy have conveniently been ignored or underestimated by the powers that be.

As of January 22nd, 2007 there were 5.48 billion gallons of operational ethanol capacity (Ethanol.org). Corn shattered and held historic prices because of it. The ramifications are only beginning to be felt. As of January 22nd there were an additional 5.9 billion gallons under construction (Ethanol.org). What will corn cost when that new 5.9 billion gallon (2.1 billion bu. 20% of our crop) demand materializes?

Are we just one drought away from $10 corn or are we just one drought away from famine?

And all this in exchange for an insignificant amount of petroleum and subject to the fickleness of Mother Nature!


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