Apr 9, 2009

Ethanol the $3 billion a year fail...


The Production Subsidy
(Source CBO)
Since 1978, firms that blend ethanol with gasoline have received a tax incentive from the federal government. The incentive has been adjusted periodically; today, ethanol blenders receive a tax credit of 45 cents for each gallon of ethanol blended into the supply of gasoline. The subsidy has helped keep ethanol competitive with gasoline, even when prices for corn are high. In 2007, the cost of the credit in forgone federal tax revenues was $3 billion.
    Read more at by Douglas Elmendorf's blog here or full report here

CBO - Today, with better technologies, a bushel of corn yields 2.8 gallons of ethanol, and newer facilities may improve yields to 3.0 gallons per bushel.

The break-even ratio also depends on federal policies. At the current subsidy of 45 cents per gallon of ethanol produced, the break-even ratio that would allow producers to cover their fixed and variable costs falls to 0.7.


Ethanol Production and Food Prices

Producing ethanol for use in motor fuels increases the demand for corn, which ultimately raises the prices that consumers pay for a wide variety of foods at the grocery store,

In addition, the demand for corn may help push up the prices of other commodities, such as soybeans.

From April 2007 to April 2008, the increasing... use of corn for ethanol accounted for about 10 percent to 15 percent of the increase in the CPI-U for food over the April-to-April
period.


Cellulosic ethanol

According to researchers, cellulosic ethanol, if successfully developed...
The technology for large-scale commercial production of the fuel, however, has not yet been developed.

... researchers believe that if sufficient grasslands and forests are converted into cropland for producing ethanol feedstocks and for producing the crops displaced by those feedstocks, the potential benefits of ethanol in terms of lower greenhouse-gas emissions will be reduced or eliminated... the conversion of those lands releases greenhouse gases and reduces their ability to sequester carbon—that is, to capture and store carbon to prevent its release into the atmosphere— because cropland absorbs less carbon than do grasslands and forests.
Read full report from CBO



Haase Comment:
Ouchh... although they did not mention the the massive toll
ethanol takes on fresh water sources, this should be enough fuel to end three decades of trillion dollar subsidized mistakes.