Friday, February 01, 2008

Coal, corn, or cane   [Edward John Craig]

Anne Korin from the Institute for the Analysis of Global Security writes in:

Flex-fuel vehicles (FFVs) provide a platform on which fuels can compete, at a cost of $100 or so over a gasoline-only car. The CEOs of the Big Three automakers have repeatedly stated their willingness to commit to making half of all new cars FFVs by 2012. The reason we need to buttress that commitment with federal law is that investors considering big capital outlays for alternative-fuel plants need to know the rules of the game aren't going to change midstream, if, say, a CEO leaves or changes his mind. If it is a law, they can project how potential demand will grow year to year with new vehicles coming on the market and can go off and compete. The lifetime of a car on U.S. roads is just under 17 years, at that point it gets scrapped or sold overseas, so every year about a 1/17 of the vehicle fleet is replaced.

FFVs don’t need to use corn ethanol. It costs about 50 cents per gallon to make methanol from coal. Methanol has about half the energy of gasoline so that's a cost of about a dollar per gasoline equivalent gallon. China, which like the US has a great deal of coal, is moving very aggressively in this direction. Chinese methanol production almost doubled this past year and is expected to hit 20 billion gallons by 2015 or earlier. The Methanol Institute's China report contained a statement that says it all: “In the U.S., corn ethanol may be king, but in China where pure economics matter most, methanol is the dominant alternative fuel.” The irony is thick.

Ethanol from corn is the dominant alternative fuel in the US because of political kowtowing. No more and no less. Ethanol proponents that care about energy security should be those shouting the loudest about removing the ridiculous 54 cent per gallon tariff on ethanol imports, which serves to block a drastic increase in sugarcane ethanol imports. That tariff, on an energy equivalent basis, is like a $23 tax on a barrel of oil. The biggest obstacle to a bigger alternative fuel market in the US is ethanol protectionism, which acts against not just foreign sugar cane ethanol, but also against methanol, foreign and domestic.

Ask yourself why the recently passed Soviet central planning style renewable fuel mandate did not explicitly include the word "methanol" as one of the eligible fuels - it wasn't because the methanol folks didn't ask, that's for sure. You can take a guess which big lobby objected. Particularly shameful since it is far more efficient to make methanol out of cellulosic biomass than ethanol, and doesn't require taxpayer outlay for R&D (same process is used as with coal.))

The only way, given political reality, that the ethanol tariff will be repealed is if FFVs become standard. That way domestic corn ethanol producers will lose their fear of the tariff as within a few years of new car sales the potential alcohol demand would be larger than their biggest imagined capacity.

One more thing. The food vs. fuel argument is ridiculous. Our agricultural policy is rampant with legalized corruption. We have a federal sugar program that acts as a transfer of wealth from the American taxpayers to key political contributors, doubling the price of sugar in the US as compared with the rest of the world. Our corn program acts in concert with the above to colonize every aspect of our food supply. Do you really think that, were it not for these two programs, we'd be using so much corn syrup as a sweetener instead of sugar? Would we really be feeding corn to cows if corn wasn't so heavily subsidized? Strip all the subsidies and quotas and the market would likely go back to using sugar to make cookies and sodas, and maybe even grass to feed cows, and perhaps we'd even find (assuming FFVs are standard) that the most economical use for corn is to make ethanol, despite it being more expensive than making it from sugarcane and more expensive than making methanol from coal.

02/01 09:39 AMShare