Energy piracy

Alan Reynolds
Posted: Jun 30, 2005 12:00 AM

The Senate voted 85 to 12 in favor of a 768-page grab-bag full of subsidies, tax breaks, loan guarantees and mandates. They describe this, gratuitously, as an "energy bill." The Congressional Budget Office (CBO) estimates that "implementing the bill would cost $5.1 billion in 2006 and $35.9 billion over the 2006-2010 period."
Despite the bill's well-worn rationale of reducing energy imports, the senators obviously don't expect all that pork to make a dent in energy imports. They therefore pass the buck to the White House to somehow reduce U.S. oil imports by 1 million barrels per day from levels "projected" for 2015.

 Imports are projected to rise from 10 million barrels a day to 13.3 million by 2015. The Senate's quixotic proclamation that someone else should trim that figure by 1 million amounts to a confession that it expects its bill to have even less effect than that, and that it expects imports to rise 22 percent in 10 years.

 The actual objective of these new energy bills, like those that came before them, is to give away the maximum amount of taxpayer's money. President Bush is likewise eager to sign anything called an energy bill, so long as it has what it takes to placate those who contribute sufficient money to politicians to feel entitled to feed at this trough, such as ethanol producer Archer Daniels Midland. That is why the House bill required that 5 billion gallons of corn-derived ethanol be added to the gasoline supply annually by 2012, and why the Senate upped that to 8 billion.

 The lobbying behind this ethanol crusade has been deceptive or delusional. A May 26 Associated Press story spoke of the ethanol industry "lobbying blitz arguing that 8 billion gallons of ethanol would replace 2 billion barrels of crude oil."

 Well, there are 42 gallons in a barrel of crude oil, so we would need 84 billion gallons of ethanol -- not 8 billion -- to replace 2 billion barrels of crude. But we would actually need much more than 84 billion because there is much less energy in a gallon of ethanol than a gallon of gasoline. A math whiz at calculated it would take 156 billion gallons of ethanol to replace 2 billion barrels of crude.

 Eight billion gallons of ethanol is a drop in the bucket, and that drop won't replace a drop of petroleum. Ethanol cannot be produced from corn without wasting huge amounts of petroleum. Petroleum is needed to fuel farm machinery, to produce fertilizer and insecticide, and to transport the corn and ethanol by diesel truck or train.

 Former CIA Director R. James Woolsey noted in congressional testimony this April that if ethanol is produced from corn, then "it takes about seven gallons of oil to produce eight of ethanol."

 He went on to say, "(Alan) Reynolds clearly does not understand the comparatively small amount of fuel required to produce cellulosic ethanol" from farm waste.

 What I understand is that hoping to get much fuel from farm waste is technically speculative and politically naive. The CBO says, "The technology that would be used to process ethanol from such sources (agricultural residue) is new and is not well-proven." Besides, the farm lobby would never allow much ethanol to be produced from anything except new crops of corn or sugar (or soybeans for biodiesel).

 Ethanol already gets an indefensible tax break at the pump of 51 to 71 cents a gallon, but Congress now wants to compel everyone to add it to their tanks. But doing so would leave us with less fuel at higher prices. Why? Because there is much less energy in eight gallons of ethanol than in the seven gallons of gasoline it takes to produce it.

 In his June 15 speech, President Bush said: "Ethanol comes from corn -- and we're pretty good about growing corn here in America; we've got a lot of good corn-growers. Therefore, it makes sense to promote ethanol as an alternative to foreign sources of oil. Ethanol can be mixed with gasoline to produce a clean, efficient fuel. In low concentrations, ethanol can be used in any vehicle. And with minor modifications, vehicles can run on a fuel blend that includes about 85 percent ethanol and 15 percent gasoline. Ethanol helps our farmers find new markets ..."

 Efficient fuel? Check the official mileage estimates at A Dodge Stratus gets 20 miles to the gallon in city driving on gasoline, but that drops to 15 mpg on E85 (the 85 percent ethanol fuel) -- and highway mileage drops from 28 mpg to 20 mpg.

 A Ford Explorer is rated at 16 mpg in the city and 21 on the highway, but those figures drop to 12 and 16 on E85. If gasoline were $2 a gallon, E85 would have to sell for about $1.40 to compete on a cents-per-mile basis. But E85 doesn't come close to being competitive even with huge subsidies. The Economist got that all wrong -- it didn't check the mileage.

 Even the 10 percent ethanol blend Congress is so eager to force upon us would reduce fuel economy. People would notice. Do legislators imagine that pleasing a few corn farmers will bring them so many votes that it won't matter if they anger millions of drivers?

 "We're trying to encourage people to make right choices in the marketplace," says the president. He believes those who can afford a 400 horsepower 2007 Lexus GS 450h (hybrid) should get a $4,000 tax credit because they made the "right choice." A hybrid Chevy Silverado truck is a right choice -- a Chevy Cobalt is not.

 If the actual point of these energy-subsidy bills were to economize on motor fuel or reduce its cost, then the most obvious "right choice" for consumers is to never let anyone add even a drop of corn-based ethanol to your gasoline.

 For Congress, the right choice would be to end all subsidies to producers of flexible fuel vehicles and end all tax subsidies for consumers of fuel containing corn-based ethanol. The people need to encourage politicians to make the right choices, not the other way around.