From a reader:
Your blog is one of my required daily readings and I appreciate the effort you put into it.
Today's "Iowa Starts E85 Pump Grants" you tell of ethanol being higher priced than gasoline saying , "This is going to be a gigantic disaster." The higher price of ethanol is going to be a short term problem.
I am one of the farmers who put money into the ethanol plant at Lakota, IA and voted to give 60% control to Global Ethanol of Australia last spring. At the information meeting it was pointed out right now there is a billion gallon ethanol shortage. There is two billion gallons of ethanol coming on line in the next year between new plants and expansion of existing plants. That means in a year we will have a billion gallons of surplus ethanol and we would be in the position of exporting ethanol, probably to southeast Asia where demand is growing.
Thanks for the additional information.
I should probably clarify my opinion concerning ethanol and E85.
I think ethanol production is generally good for Iowa farmers, even if it involves insane amounts of corporate welfare and tax breaks. It is good to see that nasty MTBE stuff eliminated as an oxygenate and ethanol used as a replacement, but there are some problems lurking on the horizon.
If corn remains $2 a bushel and the cost of creating a gallon of ethanol remains around $1.35, then we might see a backlash against ethanol producers if a gallon of hooch keeps selling for $4. It won't take long for some politician from a non-farm state to start ranting about the "windfall profits" of ethanol producers and threatening to take away the tax incentives that makes US production possible and remove tariffs that prevent massive importation of cheap ethanol from Brazil.
In other words, if you're a farmer and you're investing a lot of money in an ethanol production plant, better make sure
the politicians don't pull a Touchplay Slottery Machine bait-and-switch and sell you out to the Poor Farm.
The problem I have is the government pushing E85 on the public and spending hundreds of millions of tax dollars in order to do it.
E85 is a commodity. Even if ethanol production vastly increases and the current price decreases, E85 will never cost any less than 20% to 30% below conventional gasoline (20% to 30% is the fuel efficiency loss of E85 compared to 100% gasoline).
If ethanol demand remains high, then the price of E85 will remain high. If E85 is priced higher than 100% gasoline, nobody will buy it except government fleet vehicles like Vilsack's 11 mpg Chevy Tahoe FFV. There might be a wealthy farmer, politician, or member of the Corn Promotion Board who will pose for TV news cameras in front of an E85 pump, but that will be it.
If governments and taxpayers are going to be pushing fuels, it should be bio-diesel and not E85. Diesel engines get better mileage, period. Toyota sells a small pickup in Europe with a common-rail direct injection turbodiesel engine
that gets 34 mpg. And ask anybody who owns a VW TDI about
mileage in the mid 40's. As for emissions,
bio-diesel complies with the Clean Air Act.
It's not like bio-diesel is something that farmers can't make money on.
The problem is the automakers. They don't want to put diesel engines in their cars for the US market.
They'd rather go the easy route by making their gasoline engines E85 compatible and game the system in order to subvert CAFE standards. And the automotive press constantly reminds readers of the problems with Detroit's diesels in the late 70s and early 80s. Well, things have changed. And automakers sell a lot of diesels overseas, especially in Europe where 60% of passenger vehicles have diesel engines, so it's not like they don't know.
The US could probably end dependence on foreign oil tomorrow if most passenger cars and trucks were plug-in electric/bio-diesel engine hybrids. It's possible that such an engine combination could get well over 100 mpg. But why do that?
Update: Mitsubishi Fuso, owned by DaimlerChrysler, is creating
a diesel-electric hybrid delivery truck with 30% better mileage.