Topic: Global Warming
Biodiesel Scam against U.S. Taxpayers, European Producers In an effort for politicians to appear “green”, the U.S. subsidies for biofuels are having unintended consequences on two continents.by DigitalBob
(Libertarian)
Thursday, April 3, 2008
This week I came across several articles at the websites for the Wall Street Journal ("U.S. Biofuels Subsidies: Not for Farmers, but for Europeans", [link edited for length]) and the UK paper, The Guardian ("Demands for crackdown on biofuels scam" , [link edited for length] ). Anyone who pays taxes and wants to do the right thing for the environment should read both. I'll save you some time by summarizing and criticizing.
In a nutshell, in order to give the biodiesel industry in the U.S. a nudge, Congress has authorized subsidizing adding biodiesel mix to regular diesel fuel. There were neither the restrictions on where the original diesel came from, nor which markets the final diesel product went.
Oil traders quickly realized that Europe has a much higher demand for diesel than the U.S., and they can get more for their product. That's where they ship it.
At the same time, Europe produces its own biodiesel and refines its own petroleum-based diesel.
To streamline the process, a tanker ship of diesel (petroleum or plant-based) comes from Europe; it gets mixed with the subsidized biodiesel, and then is shipped back to Europe. This round trip process is called "splash and dash". The round trip cost is less than the subsidy, so it is paid for entirely by the grace of the U.S. Taxpayer.
So, keeping score of the Winners and Losers:
Winners
U.S. Politicians: they can claim that they were doing something good for the planet, farmers and the domestic biofuels industry, while pleading ignorance of the consequences.
The oil traders: they get 11 pence per liter or about $1 gallon that gets shipped.
The farmers: although the subsidy was meant to support them, it ends up being very small since the subsidy doesn't go to them directly, but those who blend the fuel. They are helped, slightly more than hurt.
European consumers: they get lowered diesel prices by a market that is artificially suppressed, courtesy of a foreign government.
Losers
U.S. Taxpayer: every gallon that's shipped is $1 added to the national debt.
European biofuels manufactures. Despite $100 barrel oil, "British, German and Spanish producers are in financial trouble at a time when biodiesel prices remain high", according to The Guardian. European biofuels manufactures cannot stay in business because it is much cheaper to import biodiesel and diesel mix from the United States.
The Planet. By subsidizing this transit across the Atlantic, unnecessary hydrocarbons and CO2 are being dumped into the air, for no productive use.
Conclusion
If you want to help the environment, consumers, and everyone else, quit subsidizing energy! The marketplace always creates the lowest-cost solution and delivery mechanisms. That is why the NY Merchantile Exchange exists. You can trade oil futures. It projects demand and tells the market what is needed and what should be delivered months or years into the future.
If you truly believe in the free-market, most of these problems will solve themselves by individuals and institutions that are profit driven.
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2008 DigitalBob, all rights reserved.
Published: Thursday, April 3, 2008
Last modified: Thursday, April 3, 2008
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My faith in the free market, even when it truly is free, which it's not in this country, has been shaken. The unbridled free market has done as much harm as anything else. Some kind of balance seems appropriate to me.
However, I just read something from Patrick Henry, a participant on this forum, in the comments section on another article. He writes about using Hemp as a source for bio fuel. I would hope he might research and write further about that as it sounds like a interesting alternative. I think we all know how easy it is to grow hemp. The exhaust may even be a secondary asset. :-)
Posted By: David H. Lommen
Date: 2008-04-03 23:23:47
The oil, gas and utilities have been subsidized since Rockefeller put in the first Standard oil gas station. In fact, these industries are still subsidized to the tune of around 50 billion a year of our tax dollars. The idea behind subsidies is to take an industry that is in its infancy, help it grow to maturity and then pull the subsidies once the industry can stand on its own. I think that we can all agree that with record profits (in the hundreds of billions a quarter now) the utilities and the oil and gas gang have grown up in a big way. They definitely no longer need any subsidies. The democratic congress attempted to pull all subsidies for oil and gas in the energy bill this year (twice) and have them all go to renewable power and lost by one vote. Where is Jimmy Stewart and the grand mechanism of the filibuster when you need it? Even though George was on record as saying he would veto if it passed.
While imperfect and with the learning curve being what it is in Congress there is beginning to be an understanding of the current problems with rules regarding subsidies for first generation biofuels. The renewable power sector has already moved on and is beginning to work with second generation biofuel production technologies. Renewably powered, biobased, non food feedstock biofuel production etc.
Absolutely let’s work out the absurd kinks (which Congress is now attempting to do) with the subsidies for first generation biofuels. But the fact is that oil, gas and power generation through the utilities have always been subsidized. Let’s not throw the baby out with the bath water. Renewable power deserves and needs (for now, and it is going to be for a very short time) subsidies. Oil and gas had their day and it should have been over a long time ago. Let’s give the new players some crumbs off the table for a while and get it done the right way this time.
First off, I agree that splash and dash is an abomination, but probably not what our legislature intended. When this abuse started they should have closed this hole within a few weeks, not the many months they've taken.
I do not however agree with not subsidizing biofuels. Petroleum has been subsidized for decades, that’s why we pay less at the pump than almost any other country. With the profits petroleum makes now, I think we can safely take subsidies away from it and apply them to alternative energy. With a little extra money in the pot there will be more innovation to move us past the early stages of this market. Corn and soybeans are not the answer, so we need to invest in alternative feedstocks like algae.
Corn ethanol has about the same energy ratio (energy in vs. energy out) as petroleum: 1.1-1.2, not very good. Soy-based biodiesel has an energy ratio of 3.5, a hell of a lot better. I'm growing jatropha in emerging countries where planting, tending and harvesting are all done by hand. Our energy ratio is extremely high and our environmental footprint is tiny. With algae we'll probably do even better.
My point is, just because there are issues with the emerging biofuels market, we simply need to work through these issues instead of throwing in the towel.We’ll be out of petroleum fairly soon, so we need to come up with some viable alternatives.
To clear up one misconception, the inefficiencies of ethanol do not apply to Biodiesel. The refining cost and energy expenditure to make biodiesel is minimal, and it uses much more of the source material than ethanol does, so it is inherently more efficient.
But the big irony in all of this is that it's getting hard to find biodiesel here in the US because of ridiculous restrictions and the fact that so much is going overseas.
On the other hand, our local co-op is producing B100 from WVO for far less than petrodiesel costs. I just wish thye could produce more of it faster.
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2008 DigitalBob, all rights reserved.