Category Archives: Energy

Ethanol versus food

Here is another misleading report, this time from Fortune:

We are facing an epic competition between the 800 million motorists who want to protect their mobility and the two billion poorest people in the world who simply want to survive. In effect, supermarkets and service stations are now competing for the same resources.

Sensationalist point, really, since it completely overlooks the simple fact that biofuel production can come from recycling waste instead or or in addition to grain stocks. Even more relevant to the bold claims by Fortune is that production has and can still significantly outpace consumption needs. The problem is not quantity of grain stocks as much as economic and policy decisions that have resulted in waste and graft rather than generosity. I have studied the impact of trade on international stability and security for many years and will never forget the US position twenty years ago. Here is some analysis from 1985 that perfectly describes the unusual economics and politics of US agriculture and foreign aid:

This is a strange and painful year to talk about grain. Our televisions bring us pictures of starving African children, but world grain stocks exceed 190 million tons; a record surplus.

[…]

Worldwide production of wheat and feed grains has grown 20 percent since 1974, 100 percent since 1964. Between 1960 and 1980, food production grew slightly faster than population, yielding a net increase in food supplies per person …

Although this production boom slowed down significantly after 2000, and by 2002 people were warning that climate change (i.e. global warming) could spoil the parade, it is not hard to find agriculture references that still show surplus that could be made into fuel in addition to food:

Compared to the wheat and corn markets, the soybean market has been relatively tame for the last several months. Record large world stocks, increased soybean acreage in the U.S., and prospects for at least a trend yield in the U.S. suggest that surpluses will continue for another year. Soybean oil prices have been supported by speculative demand in light of prospects for increased bio-fuel demand, even though domestic soybean oil stocks have grown to the highest level in four years. Soybean meal prices remain at a low level, reflecting the large supply situation.

[…]

Stocks of U.S. soybeans on June 1, 2006 were estimated at 990.1 million bushels, 290.8 million more than on the same date last year and the largest ever June 1 inventory.

Treehugger on ethanol versus biodiesel

many things are missing in this thread, such as the fact that biodiesel can be made from recycling *extant* oils as well as made from new crops.

that means you are significantly reducing landfill and other hazards while simultaneously reducing petroleum dependence. fish and meat packing plants, tanneries, orchards, farms, fast-food chains, etc. all have waste that can be used for fuel.

moreover, cross-overs are possible too. for example, ethanol can be used to create biodiesel.

and finally, the “complete switch” argument is dangerously misleading. since when does a giant landmass with hundreds of millions of people perform a complete switch for anything?

how long did it take *vast majority* of people to stop smoking? you don’t need to produce 100% biofuel to make a huge boost in emissions quality while significantly reducing the amount of petroleum used. 10% of 150 billion gallons is 15 billion gallons!

even if you can only make 10% of all the fuel you need today by recyling waste, you have just reduced dependence 10% and created new economic incentives to drive innovation and growth. some european countries have mandated just 5%, for example. they’re not sitting on the fence and wondering about dreamy 100% planned solutions that will never come to fruition. diversification an localization of energy sources is clearly more secure than centralized distribution.

you have to take the first step to understand what it means to be headed in the right direction.

Students school Detroit with diesel-hybrid project

An inspirational story from last February:

A car that can go from zero to 60 in four seconds and get more than 50 miles to the gallon would be enough to pique any driver’s interest. So who do we have to thank for it. Ford? GM? Toyota? No — just Victor, David, Cheeseborough, Bruce, and Kosi, five kids from the auto shop program at West Philadelphia High School

Still amazes me that ethanol gets any news at all when there are projects like this out there. As I have said before, ethanol is a great way to make biodiesel. And hybrid-diesel engines are the right technology right now. But these kids have not only proven this fact, they seem rather astute about what is blocking innovation:

Stepping up is something the big automakers have yet to do. They’re still in the early stages of marketing hybrid cars while playing catch-up to the Bad News Bears of auto shop.

“We made this work,” says Hauger. “We’re not geniuses. So why aren’t they doing it?”

Kosi thinks he knows why. The answer, he says, is the big oil companies.

Imagine if the US government would give tax incentives to people developing alternative energy vehicles (like schools!) rather than to people buying Hummers and Escalades. Frankly, I don’t think you can blame just the oil companies:

However, owners of small businesses who buy a Hummer, Ford Excursion or other SUV weighing more than 3 tons get a deduction of up to $25,000 – depending on tax bracket – if they use the vehicle exclusively for work.

The benefits don’t stop there. Once they subtract the $25,000 from the cost of their 3-ton SUV, small-business owners can deduct the depreciation on the remaining amount. Someone who bought a $60,000 SUV, for example, can claim the remaining $35,000 over six years.

No such luck for small-business owners who buy cars weighing less than 3 tons. No matter how much the vehicles cost, they can claim just $15,535 in depreciation over six years and $1,675 each additional year. Deductions for depreciation on trucks and vans weighing less than 3 tons are slightly more generous.

The logic used to be that vehicles weighing over three tons would have to be some kind of heavy equipment like a specialized work truck that no-one would buy unless they had to do some good old fashioned American labor. Of course, that rule went right up in smoke as those with the most money found another way to shelter themselves:

Trying to jump-start the economy after the attacks of Sept. 11, 2001, Congress increased the deduction for small businesses from $25,000 to $100,000 for 2003 and most of 2004.

However, lawyers, doctors and others also took advantage of the measure.

That’s right. If you were in the right tax bracket, you could get $100,000 deduction on a vehicle over three tons. Great way to “jump-start the economy”, don’t you think? More doctors and lawyers with luxury SUVs has really made a difference. Just look at the wonderful results, as only three years later GM and Ford are finding a great deal of insecurity in their industry — tens of thousands of workers laid-off.

Dealers and owners who have benefited from the SUV tax incentive say it helps spur a key part of the economy – automaking – and allows small-business owners to purchase vehicles that improve their bottom line.

Short-sightedness. The benefit was like a shot in the arm that killed the symptoms but left the problem to grow worse. Now small-business owners must wonder if they will have to off-load their guzzler before it’s worthless and be forced to buy a foreign vehicle to improve their bottom line.

California Prop 87

This is a rather sharp counter to the multi-million dollar campaign led by Chevron to kill Proposition 87 in California:

The full page New York Times ad run yesterday by your national political operation — the American Petroleum Institute — highlighted a messaging problem within your California campaign against Proposition 87. The ad stated: “… the global price of crude oil is the single most important factor in what you pay for fuel at the pump.” (Please see the full text of this ad, which I have attached.)

As a professional, I feel compelled to inform you that your California agents are taking your money and taking you for a ride.

The oil companies’ top flack in California, Chamber CEO Alan Zaremberg, has been saying Proposition 87 will increase gas prices at the pump. But according to the API “the global price of crude oil is the single most important factor in what you pay for fuel at the pump,” not local fees like the ones already charged in Alaska, Louisiana and Texas. Zaremberg is clearly off message and is clearly disregarding the oil industry’s talking points.

Zaremberg should be doing a better job in exchange for the $345,000 your industry has recently given to Chamber PACs. And he should remember who he works for: the California Chamber Board, on which Shell, Chevron, and Aera Energy, the Exxon/Shell joint venture, hold seats. In fact, the Immediate Past Chair of the Chamber is Aera’s CEO.

You might as well replace Zaremberg with Jack Coffey, who is currently a lobbyist for Chevron.

He at least was telling the truth when he summed up your position against Proposition 87 to the LA Times by saying:

“This is worth a lot of money to us.”

I urge you to make Mr. Coffey an offer without delay.

The level of corruption today in American politics, especially from the lure of petroleum companies, is said to be at an all time high (a tall order, given the infamous Harding and Grant administrations), but also disturbing is how these companies try to stoke fear in consumers by spreading disinformation about the economics of petroleum.

Edited to add (9/28/06):

I’ve noticed this post is getting a lot of traffic, even though I only provided an excerpt and a link to other sources. Some have even grouped me in with the “one-sided” list of pro-87 sites.

What I have found, essentially, is that people are intent on discussing the future cost of CA gasoline as though it is the most important consideration. In other words, some are trying to distill this measure down to a question of whether you are for or against higher prices at the pump. I find this disturbing as such a lopsided risk model has very dangerous consequences.

If we care only about the cash we hand over at the pump, and not other things at risk such as our health and welfare, then the business model for big oil is clear — manipulate pump costs with disregard for other factors.

The consequences of this are dangerous because this actually might be exactly what some consumers want. They would gladly have cheap gas at the cost of people being killed or maimed abroad or even at home.

Anyone who believes in obtaining the absolute maximum best for themselves while feeling little or no responsibility towards others (and expects everyone else to act this way) is not going to make intentionally good decisions for the majority of people. Beware the extremists who claim they are center-right or even centrists in the political spectrum and thus advocating for improvements to the general welfare, when they are not. They will make decisions that are good only for those who share their extreme minority views.

And so, with Prop 87, you find a number of extremists coming forward to say “hey, don’t touch my gas prices!”. Compare that to the ruling this week by a U.S. District Judge that the Department of Interior’s Bureau of Land Management (BLM) failed to consider the cumulative environmental impact of widespread oil and gas drilling (e.g. the big picture of risk) in the National Petroleum Reserve, Alaska (NPRA). The judge rejected the BLM’s decision and sent the matter back to the agency for further analysis.

The difference in perspective might be best explained with food as an analogy. Would someone pay $1 for a burger instead of $2, if they were told that by paying $1 today they would have to pay $50 for that same burger five years from now to survive? In other words, would they be willing to make a small investment now in order to maintain a relatively flat cost of living adjustment versus face a crisis? Before you answer, extremists would try to divert the argument away from a yes or no and instead ask whether anyone should ever trust a government to invest money wisely. Their position on this issue is that you should only give your hard-earned money to the oil companies, because in some weird way they think that oil companies will be more fair, more representative and more in tune with your interests than your elected representatives.

The foundation of California Prop 87 is the economics of risk. We know that the oil companies have been given tax breaks and therefore extra margins in California. And we know that they are not using their record profits to create an alternative energy market. Many see this as mismanagement of the resources they are allowed to refine. Some see this as their discretion to do as they please. The question is whether they should continue to get giant tax breaks or should taxes be applied, just like in every other state, in order for the state to allocate funds towards new technology and emerging energy markets that will lower the future cost of living from a broad perspective.

Choose your risks and manage them wisely.