Oil vs. ethanol: What’s riskier?

The price of crude oil broke through the $120 a barrel barrier earlier this week. In part, according to Bloomberg News, the price increase is influenced by political unrest in Nigeria, Africa’s largest oil producer. Rebel attacks on an oil flow-station curtailed an unspecified amount of the country’s oil output.
 
Instability in the oil-producing areas of the world is often cited as a major reason for creating a domestic ethanol industry by subsidizing the industry and supporting it by mandating the ethanol content of gasoline at the pump. Corn-based fuel grown right here in Minnesota, so the reasoning goes, contributes to the American security and energy independence. But other news stories this week raise questions about the absoluteness of that claim. Spring planting for Minnesota farmers is behind schedule, and delays in getting the state’s corn crop in the ground can have significant negative effects on the state’s corn yield and hence ethanol production.
 
Energy independence or weather dependent
“I believe our nation’s addiction to foreign oil represents a threat to our national security, our economy, and our freedom,” writes Sen. Norm Coleman on his website, parading the patriotic pitch for ethanol. “By 2025 it is estimated that nearly 75 percent of America’s oil supply will be imported, much of it from volatile regions of the world dominated by tyrants.”

Praise God and pass the legislative mandates and ethanol subsidies that are helping the United States achieve energy independence based on a stable source of fuel — home-grown Midwest corn. But not so fast.
 
A cold and soggy spring across the Midwest is keeping farmers out of the fields, reports the St. Paul Pioneer Press. Only 8 percent of Minnesota’s corn crop is in the ground, compared to a normal 65 percent by the first week in May. In Minnesota, the target date to plant is April 25. Every additional day of delay reduces potential yield.
 
Using data from the National Corn Growers Association to justify state support for the ethanol industry, Minnesota Department of Agriculture website claims, “an increase of just two bushels per acre results in an additional 150 million bushels of corn, which can produce 420 million gallons of ethanol.”  A bushel of corn produces about 2.8 gallons of ethanol. Conversely, then, a reduction of just two bushels per acre due to late planting or adverse weather conditions would reduce ethanol output by 420 million gallons.
 
A University of Minnesota Extension Service report found that while bushel per acre yields continue to rise in Minnesota, “weather remains the major limiting factor in determining corn yield.” In low-yield years, early frost, dry or dry hot weather and late planting and cold wet weather produced deviations from the upward trend lines for corn yields between 20 to 50 percent measured in bushels per acre. Based on an output of 160 bushels per acre (the 2005 yield cited by the study), weather could reduce corn yields between 32 and 80 bushels per acre. That’s a lot of ethanol.
 
It’s also a lot of math and a lot of assumptions, but the analogy is simple: weather is to ethanol supply as political unrest is to oil supply — perhaps even more so.
 
Weighing the risks
Speaking at a Chicago City Seminar in Nov. 2007, Cato Institute senior fellow Jerry Taylor discounted the notion that because corn is grown right here in the United States and oil is harvested in areas of the world where instability, terrorism or simple antipathy to the United States can dramatically affect supply, ethanol supply is more dependable than oil supply.
 
The assumption of dependable supply made by ethanol supporters is not supported by data, according to Taylor. From 1960 to 2005, a period which includes the 1970s oil embargo by the Organization of Petroleum Exporting Countries (OPEC) and the recent worldwide growth in demand for oil, corn production was twice as variable as oil imports. It was riskier to depend on corn than on oil imports for consuming needs.
 
Looking at the historical record, Taylor points out that oil prices go through boom and bust periods and that this particular boom looks a lot like the 1973-1986 price explosion — “actually, almost eerily so looking just at price movement and duration up to this point,” he wrote in an email.  “Hence, current oil market behavior is not unprecedented.”
 
“Oil markets may indeed become more volatile over time,” he adds. “But they would have to become twice as volatile in absolute terms to match the historical volatility of corn markets. Because it doesn’t always rain the optimal amount, the sun doesn’t shine the optimal amount, corn yield can vary considerably.”
 
Taylor could have added a cold soggy spring and late planting to that weather litany. According to the USDA, the current spring planting situation in Minnesota is not unprecedented. Similar conditions in 2001 produced the lowest yields in a decade.
 
“Bottom line,” says Taylor, “if you move from oil to ethanol you trade off a set of geopolitical risks for a set of natural risks that are at least twice as great as geographical risks you left.”  As a source of energy, data reveals “corn is even more risky than oil.”

Comments (20)

  1. Submitted by John Olson on 05/08/2008 - 06:35 am.

    Comments accepted. 🙂

  2. Submitted by John Olson on 05/07/2008 - 11:16 am.

    Yes, you do trade off geopolitical risks for natural risks on the question of oil versus corn.

    Oil, however, is a finite resource. Corn can be planted year after year. The limiting factor on corn is what percentage is diverted from ethanol production over to feed and/or food. Or vice-versa.

    Having grown up in a rural area and spent my share of time as a young man on a tractor, I can assure you that farmers will complain about anything and everything: too dry, too wet, too cool, too hot, too cloudy, and so on.

    I do agree that it is time to drop the subsidy for ethanol.

  3. Submitted by Robert Moffitt on 05/07/2008 - 12:28 pm.

    “I do agree that it is time to drop the subsidy for ethanol.”

    Is it time also to drop the tax breaks for oil companies?

    In the form of E85, ethanol is a cleaner-burning, largely renewable alternative to gasoline, for those luckey enough to have a flex-fuel vehicle (about 170,000 on the road now in Minnesota). E85 is sold on the free market as an alternative to gasoline for these vehicles. Flex-fuel drivers can choose E85 or gasoline.

    Increasingly, more are choosing E85. Sales have increased every year at the 350 or so stations that sell the fuel.

  4. Submitted by Dan Hintz on 05/07/2008 - 10:15 am.

    Yet another reason why corn ethanol is a terrible product. The biggest problem, of course, is that corn ethanol is an environmental disaster, but a lot of would be environmentalist legislators don’t dare cross the corn lobby. So not only are we stuck with corn ethanol, we are subsidizing it and mandating its use. Its embarassing that its the free-marketers who are right on this and who are leading the charge against corn ethanol.

  5. Submitted by Dan Hintz on 05/07/2008 - 01:07 pm.

    Robert, E85 is not a cleaner burning alternative to gasoline. In fact, a recent study found that using corn ethanol resulted in twice the greenhouse emissions as gasoline.

    http://www.sciencemag.org/cgi/content/abstract/1151861

    The negative environmental effects of using ethanol go far beyond just greenhouse emissions. For example, since you work for the American Lung Association, you might be interested in the results of this recent study by Stanford University atmospheric scientist Mark Z. Jacobson:

    “Jacobson found that while E85 vehicles reduce atmospheric levels of two carcinogens, benzene and butadiene, they increase two others—formaldehyde and acetaldehyde.

    “As a result, cancer rates for E85 are likely to be similar to those for gasoline,” he said. “However, in some parts of the country, E85 significantly increased ozone, a prime ingredient of smog.”

    Smog is known to reduce lung capacity, worsen asthma and impair the immune system according to the U.S. EPA. The World Health Organization estimates that 800,000 people die each year due to smog.

    “In our study, E85 increased ozone-related mortalities in the United States by about 200 deaths per year compared to gasoline, with about 120 of those deaths occurring in Los Angeles,” Jacobson said. “These mortality rates represent an increase of about 4 percent in the U.S. and 9 percent in Los Angeles above the projected ozone-related death rates for gasoline-fueled vehicles in 2020.”

    * * *

    Today, there is a lot of investment in ethanol,” he said. “But we found that using E85 will cause at least as much health damage as gasoline, which already causes about 10,000 U.S. premature deaths annually from ozone and particulate matter. The question is, if we’re not getting any health benefits, then why continue to promote ethanol and other biofuels?”

    http://news.mongabay.com/2007/0418-ethanol.html

    While I would agree that we need to end tax breaks for oil companies and reduce our dependence on oil, E85 and other biofuels are simply not the way to do that. Sadly, in a comparison between oil and E85, oil is the environmentally responsible choice.

  6. Submitted by John Olson on 05/07/2008 - 01:15 pm.

    Robert, you and I will agree on this one! Yes, the tax breaks for the oil companies should have been gone a long time ago. Given the profitability of these companies, tax breaks are not needed.

    I own a 2003 flex-fuel vehicle (one of the first) and I can tell you a couple of things about its performance:

    – on the open road, the miles per gallon using E85 are comparable to using unleaded (87 octane).

    – in the city, however, mpgs drop off by roughly 20 percent with E85. Depending on price fluctuations, its more often than not a breakeven proposition (in terms of miles per gallon).

    Dan, you (or someone) need to explain to a stupid country boy like me why corn ethanol is such a terrible product. I agree the subsidy needs to go, so we are already covered there.

  7. Submitted by Dan Hintz on 05/07/2008 - 01:57 pm.

    Jon, first I certainly wouldn’t accuse you of being dumb on this issue – there is a lot of misinformation out there, and a lot of the information about ethanol’s negative effects has only come to light in the last few years.

    Ethanol is marketed as a green alternative to oil, and as a domestic alternative to foreign oil. The problem is that, for corn ethanol at least, its not greener than oil. As the linked study to one of my other comments explains, corn ethanol results in twice the greehouse emissions as oil. Growing corn is also a very fertilizer-intensive process, and that fertilzer ends up polluting waterways. The ethanol production process also requires significant amounts of water (an increasingly scarce resource in many places), which is becoming a concern even in Minnesota.

    Ethanol, at least corn ethanol, takes almost as much energy to produce as it gives off, and according to some studies, it takes more energy to produce. That is, you aren’t becoming less dependent on other sources of fuel by using ethanol. One reason why is that because ethanol has corrosive qualities, it can’t be transported by pipeline like oil can, and has to be carried in trucks. On that topic, you should be aware that ethanol blends will damage the gas tanks on your boat and lawnmower.

    The other problem with ethanol is that it is driving up food prices, damaging industries in the United States and causing starvation in other parts of the world. Now, with rising fuel costs and other factors, the extent ethanol is responsible for these things is debatable, but there is at least some correlation.

    http://ap.google.com/article/ALeqM5h2Rm3TrrnUGd0oi2gvn83OYZ7ExQD90GCA2G1

    Ron Way, a writer on this site, has written a number of very good articles on ethanol, and I would suggest reading his past (and hopefully future) articles on this topic.

  8. Submitted by Mark Hammerlinck on 05/07/2008 - 02:09 pm.

    Basing an argument against corn ethanol on anything a senior fellow from the Cato Institute has is laughable. At the very least, it deserves some context, like, for instance, the fact that Cato was founded by David Koch, whose family derives their fortune from Koch Industries (think oil refining).

    And, shouldn’t readers know that funding for the Cato Institute also comes from the likes of the American Petroleum Institute and Exxon Mobil? Or that Cato contributors include the Scaife Foundations, which were founded on the millions the Mellon family made in their family business- Gulf Oil?

    Read more about the Cato Institute here: http://sourcewatch.org/index.php?title=Cato_Institute

    The National Corn Growers Association isn’t ashamed to put their name to their research and arguments. The same can’t be said for Big Oil.

  9. Submitted by John Olson on 05/07/2008 - 02:22 pm.

    Based on computer modeling…..

    Sorry Dan, I am not buying any of it. Any schmoe can churn out a computer model that can portray just about any position on a given issue.

    Robert can (at least) point to decades of lung biopsies and real science that has been vetted on all kinds of topics related to pulmonary diseases. This is hypothetical and the operative word in that whole one article is “MAY.”

    Until someone comes up with something better…..

  10. Submitted by Robert Moffitt on 05/07/2008 - 02:57 pm.

    I am very much aware of the research of Mark Z. Jacobson, Don. I attended his recent guest lecture at the University of Minnesota, and responded with this op/ed piece in the Minnesota Daily:

    http://www.mndaily.com/articles/2008/03/28/72166348

    Unlike Jacobson, we have tested emissions from real vehicles using E85 and gasoline. Here are the results, from our website:

    http://www.cleanairchoice.org/fuels/bio_outdoor04.cfm

    Regarding the Science article, that has been rebutted by the US Department of Energy and noted biofuel experts like Dr. Michael Wang of the Aragone National Laboratory.

    Robert Moffitt
    Communications Director
    Clean Fuel & Vehicle Technologies Program
    American Lung Association of the Upper Midwest

  11. Submitted by Dan Hintz on 05/07/2008 - 03:11 pm.

    Mark, its pretty rich for you to question someone else’s motives when you are the spokesperson for the Corn Growers Association. And Cato certainly isn’t the only group that opposes corn ethanol.

    I think the Corn Growers Association revealed its true colors when it joined with oil interests in opposing legislation to increase fuel efficiency standards in Minnesota.

    http://www.minnpost.com/ronway/2008/04/23/1609/clean_cars_opponent_switches_sides

    John, as far as Robert’s research goes, ethanol hasn’t been around long enough to generate the same kind of data as oil. And the health concerns are only one of many reasons why ethanol is a terrible product.

    “Any schmoe can churn out a computer model that can portray just about any position on a given issue.”

    When you make arguments like that, I expect you really aren’t interested in the truth, anyway.

  12. Submitted by Robert Moffitt on 05/07/2008 - 03:25 pm.

    Least I forget, Craig made some valid points in this piece, in pointing out that weather could be a major factor in producing biofuels in Minnesota.

    Likewise, a major storm in the Gulf of Mexico or other oil producing regions of the world whould also likely cause price spikes, shortages and other problems in the fuel supply. So it cuts both ways.

    Craig is correct that we can’t “grow our way” to energy independence, but what we have done so far is a good fisrt step away from oil. It offers the “second generation” biofuels a chance to get out of the lab and into the marketplace, where customers used to using cleaner-burning E85 (as well as E10 blends) will be waiting.

  13. Submitted by Dan Hintz on 05/07/2008 - 03:41 pm.

    Robert, thanks for the links.

    I was not familiar with the study you cite and need to digest that and look at some of the secondary material.

    As far as Wang “rebutting” Searchinger article, Searchinger has since “rebutted” the Wang rebuttal, and has arguably “rebutted” all the work that Wang has ever done on biofuels.

    http://www.bioenergywiki.net/images/3/31/Searchinger_Response.pdf

  14. Submitted by John Olson on 05/07/2008 - 05:30 pm.

    I forgot to add a last point (old age does that):

    Even though I own a flex-fuel vehicle, I’m still not totally sold on ethanol as a viable option for the long term. What I am convinced of is that offering up subsidies for ethanol and tax breaks on oil should both be eliminated.

    I’m open to concerns about ethanol as a long-term (or perhaps an intermediate) fuel, but I want something more to sink my teeth into than a computer model.

  15. Submitted by John Olson on 05/07/2008 - 05:18 pm.

    “When you make arguments like that, I expect you really aren’t interested in the truth, anyway.”

    Dan, that’s crap. Is that how you deal with anyone who disagrees with your position? I don’t always agree with Robert, Craig or several others in here, but the debate focuses on the issue at hand and does not resort to personal attacks. You and I can agree to disagree and that’s fine, but we should not have to turn this into your garden-variety blog.

    “John, as far as Robert’s research goes, ethanol hasn’t been around long enough to generate the same kind of data as oil. And the health concerns are only one of many reasons why ethanol is a terrible product.”

    You have just confirmed my argument in your first sentence. The second sentence would, therefore be based on a hypothesis.

    A computer model is just that…a model.

  16. Submitted by Dan Hintz on 05/07/2008 - 10:30 pm.

    John, I cited a peer-reviewed published article, and you dismissed it as something that “any schmoe” could turn out to support any position. If you are going to make comments like that, you can’t turn around and lecture me about my arguments.

    The fact that computer modeling is used does not render a study invalid. Similarly, the fact that vehicle testing was involved in the study cited by Robert does not make that study valid. Robert’s study, which was prepared for the American Lung Association, and almost certainly was not peer reviewed (at least to the extent Jacobsen’s published article was) is not based solely on vehicle testing, and relies on questionable assumptions from other studies.

    Reading your last comment, I can see that you are, in fact, open minded about this and that you are interested in the truth, so I will officially retract my prior comment. Not everyone on this thread (I won’t name names) is going to look at this issue objectively, and I assumed the same of you. I am also in complete agreement with you on eliminating mandates and subsidies on both oil and ethanol.

  17. Submitted by Craig Westover on 05/08/2008 - 02:14 pm.

    Sorry, Bob, but when I read this in you Minnesota Daily opinion piece I had to chuckle:

    “Jacobson repeated some outlandish claims he published last year, that air pollution from E85 would kill people – in the Los Angeles of the future. Sound like science fiction? To me, it sounds like more fiction than science, and I was astounded that a visiting professor with such impressive-sounding credentials would offer cherry-picked, tortured data to support his study on E85 and mortality rates.”

    Sounds to me like Jacobson is saying “there is no safe-level of E85 emissions.” Sounds like he wants to impose his view on you and decide what type of private property (a car) you should drive. He’s saying your right to drive an E85 car doesn’t give you the right to emit your exhaust on, say, smokers standing outside a smoke-free bar. I seem to have heard a similar line of argument from someone once.

  18. Submitted by Robert Moffitt on 05/09/2008 - 08:26 am.

    I’m glad we both can still laugh, Craig — especially at ourselves, from time to time. As I said, you made some valid points in this piece.

    For the record, my 2001 VW Golf can’t use E85. Boo!

    On a more serious note, Please pass on my best wishes to David & Margaret. I hope he’s feeling better.

  19. Submitted by Robert Moffitt on 05/12/2008 - 08:34 am.

    For those who missed the story on Minnesota drivers turning toward E85 in Sunday’s Strib, here’s a link:

    http://www.startribune.com/business/18812524.html

  20. Submitted by Robert Moffitt on 08/15/2008 - 09:14 am.

    “Spring planting for Minnesota farmers is behind schedule, and delays in getting the state’s corn crop in the ground can have significant negative effects on the state’s corn yield and hence ethanol production.”

    A followup on the Minnesota corn crop forcast for 2008: after a slow start, we have had ideal weather for growing corn in most parts of the state. Soybeans are doing better, too.

    The US Department of Agriculture has revised its forcast on US corn, it now looks like a very good crop indeed. The price of corn is down, and several new ethanol plants in the region have begun production, including a cellulosic ethanol plant in South Dakota.

    In other news, the price of gasoline and crude oil has dropped as Minnesotans significanly reduced their consumption of gasoline in the Summer of 2008. At the same time, E85 sales are up by 13% from 2007.

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