Editorial: Ethanol Roller Coaster Has Lots Of Ups And Downs

If a boulder rolls down a mountain, it will gather momentum until it runs into obstructions or reaches a plateau, where it loses speed. If it encounters the upward slope of the “other” side of the valley, it will come to a stop and roll back down to the bottom.

When we wrote about ethanol production last week, our main purpose was to indicate, generally, that it has been a complicated undertaking and that there are problems as well as benefits. The potential benefits vary, depending upon whether the investors fall into the “little guy” or “big guy” class. We didn’t then and don’t now want to give the impression that everything is going great.

The ethanol roller coaster first launched in 1979 after Roger Hill, who opened a small ethanol plant in Princeton, Ill., bought a recipe for the stuff from a moonshiner for $50 (St. Louis Post-Dispatch, December 2). His operation attracted worldwide attention and even a phone call from President Jimmy Carter.

By 1983, corn prices collapsed and Hill lost his investment. Since then, there have been numerous ups and down, many caused by factors investors never gave thought to. Now, according to the Post, Hill is general manager of Golden Triangle Energy Coop, a small ethanol operation in Craig, Mo., with 300 investors.

Among the many factors that have caused ups and downs is that corn prices rose to as much as $4 (a good thing, it seemed, for farmer investors). A grain-farm operator visited this writer recently and discussed those ups and downs. While the price of corn seemed a blessing, corn to feed the plants became more expensive. The cost of production rose, and higher gasoline prices made getting corn to the plants more expensive.

To many investors, the ethanol breakthrough seemed a natural gold rush. Stakes ranged from the $20,000 farmer investors were putting into the pot to the millions being entered into the formula by billionaire investors. The small guy can’t wait out the roller coaster downs, while the big operator can. The little guy is being squeezed out.

One of the key factors that helped convince investors to part with their money, we think, was the U.S. Department of Agriculture’s 1995 report giving ethanol a 1.24 power production edge over gasoline. The DOA followed in July 2002 with a report increasing that edge to 1.34. The report said that for every unit of energy dedicated to produce gasoline there was a 19.5 percent energy loss. Ultimately it rated ethanol as 81 percent better than gasoline.

Jump ahead to a November 13, 2007, Internet blog about a Rand Corporation report that compares diesel vs. hybrid vs. ethanol to determine which is best. If we can believe the blog, the study determined that diesel tops hybrids, and ethanol isn’t even in the game. What’s a fella to think?

The 2002 DOA report contained a table indicating that gasoline and diesel registered a net energy loss of 19.5 and 15.7 percent respectively, while ethanol (1.34) showed a 34 percent gain, and the gain for bio diesel was 220 percent. The energy gain for ethanol and bio diesel was attributed to solar energy collected by crops from which the fuel is made. Impressive, right? It even said that for every British thermal unit of liquid fuel used to produce ethanol, there was a 6.34 Btu. gain. Makes a person want to invest. Many did.

According to the blog, Rand researchers “did a cost-benefit analysis of the top near-term alternatives to standard gasoline power-trains that looked at fuel savings, technology costs, and performance. Blog writer Sam Abuelsamid said, “They also factored in societal costs in the form of noxious pollutants, greenhouse gas emissions, and energy security costs. Based on consumer factors, modern clean diesels yielded net savings over the life of the vehicle from $460 to $2,289 for the different vehicle types. Hybrids yielded smaller but still net positive savings of $198 to $1,066.”

Ethanol did not do well. “In spite of the relatively small cost premium to create an E85 capable vehicle, [fuel containing 85 percent ethanol and 15 percent gasoline] ethanol…costs substantially more over the life of the car,” Abuelsamid wrote. Skipping to the bottom line on ethanol, we find that the ethanol combination societal costs ranged from $1,046 more for cars to $2,049 for pickups. That may make people want to uninvest.

What can we believe? While we would like to trust the U.S. government to write accurately and do what is best for society, we know politics and money play a role in what gets reported. When it comes to private studies, we know that sometimes what gets reported depends on who’s paying for the study. We do not suggest that happened in these studies, but we don’t know that it didn’t.

Our grain-farm visitor talked about costly, completed ethanol-plant expansions that now may never go into operation because product demand presently does not exist. Doug Durante, a consultant to the ethanol industry, told the Post that “…of 100 serious ethanol-plant proposals six months ago, at least half have been put on hold and others have virtually no chance of getting off the ground.” The industry reports that 72 ethanol plants are still being built.

Smart investors with deep pockets may make money. Some smaller ones will lose. As the boulder loses and/or gains momentum, there will be some business for the towing industry. But there are 370,000 Internet entries related to ethanol. Readers can pick and choose which ones they want to believe.

The Waterways Journal encourages letters to the editor.
Have something on your mind?
Send letters to: jshoulberg@waterwaysjournal.net.
(Please indicate whether or not your letter is intended for publication.)