March 22, 2009

Economic Impacts of Biofuel Development

The impact of biofuel development should be significant to the economy of any nation that successfully deploys it. By becoming more energy self-sufficient, the balance of trade of otherwise energy-dependent nations should improve dramatically - as it has in Brazil.

However, the impact on the economy of the region producing the biofuels is even more impressive. Iowa was one of the most energy dependent states in the Union. Now, because of corn ethanol, it is one of the most energy independent. The state's economy has improved, schools are better, and land prices are higher - not because of ethanol subsidies, but because of the invigorating impact of the formation of new business ventures and the production of a valuable product to export.

Now a new report from researchers from North Dakota State University, published on the Agricultural Marketing Resource Center website, measures the statewide impact of the corn ethanol industry in North Dakota and projects the economic impact of cellulosic ethanol production on the Midwest and Great Plains states. Of course, the feedstocks for cellulosic ethanol are not only to be found in this region. It is not too much of a stretch to believe that these impacts could be duplicated, if not surpassed, in other regions of the country (and the world) where feedstocks are abundant and the need is greatest.

Summary findings from their report are excerpted below...

Economic Impacts of Biofuel Development

by Nancy M. Hodur, Research Scientist and Larry Leistritz, Professor of North Dakota State University

In recent years, the most prevalent type of new agricultural processing ventures in the Midwest and Great Plains states has been corn ethanol plants. Like other types of agricultural processing, these biofuel ventures have generally received widespread support, and numerous studies have addressed their contributions to local or regional economies. The rapid growth of the corn-based ethanol industry shows the potential for biofuels. However for biofuels to make a substantial contribution to the domestic liquid fuel supply, the industry must expand beyond corn-based ethanol. Accordingly, substantial resources have been devoted in both the public and private sector to the research and development of cellulosic biomass conversion. Much work has focused on technical issues, and several studies have examined potential biomass feedstock supplies. However, one aspect of biomass conversion to liquid fuels that has received very little attention is its potential as an economic development stimulus for rural areas with high biomass production potential and how that potential compares to the economic impact of corn based ethanol.

. . .

North Dakota and other “biomass belt” states are particularly well placed to capture the economic impact of an emerging biomass industry as plants will undoubtedly be located near the feedstock source. The potential economic development contributions of an emerging biofuels industry are particularly significant because many of the areas where such an industry could concentrate have in the not-distant-past faced adverse economic and demographic trends. The rural, agricultural counties of the western Corn Belt and northern Great Plains have experienced long term trends of farm consolidation, leading to fewer and larger farms. In the absence of major nonfarm employers, many counties have experienced substantial out-migration and population losses.

Farm households have also become more dependent on off-farm employment. In North Dakota, during the period 1993-2007, off-farm wages and salaries of farm households more than doubled, growing from $6,847 in 1993 to over $16,000 in 2007. An emerging biofuels industry could offer new jobs that would help to support rural communities and farm households and provide the kind of economic stimulus many agriculturally dependent areas have been seeking. Further, the sheer scope of the potential development, with capital cost of $34 billion and annual regional operational expenditures of over $10 billion, suggests that a biofuels industry could also substantively change the economic and demographic makeup of some Midwest and Great Plains counties.

Click here for the full story.

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March 16, 2009

Everyone Hates Ethanol?

It is a sad day when even the Wall Street Journal takes a page from the petroleum industry playbook and chop blocks the only national defense that makes a dent in their monopoly on supplying fuel to Americans (accounting for less than 5% of transportation fuels sold here). Offensive foul - intentional roughing.

The cheapest shot is the indiscriminant use of the term "ethanol." Ethanol, while chemically varying very little from batch to batch, comes from many feedstocks using a variety of very distinguishable processes. Those knowledgeable in the field are careful to specify whether they are talking about 1st generation ethanol (sugar and starch fermentation) or 2nd generation (converting cellulose using enzymes or Fischer-Tropsch process); the sugar feedstock (corn vs. sugar) or the cellulosic feedstock (i.e., woodchips, cultivated energy crops, switchgrass, MSW, algae, etc.); the cultivation method (if any); and the process fuel input. Each combination can vary dramatically for energy return on investment, lifecycle impacts, process emissions, feedstock cultivation, land and water use, economic return, and other factors.

The tiresome target for the smear here is where it traditionally aimed - against the American corn ethanol industry that only uses corn kernels, fossil fuel for process heat, and petroleum-fertilized land that has been tilled. However, by being indiscriminant, this editorial (from one of America's few trusted journalistic brands remaining) paints the entire multi-faceted industry with the same "gotcha" brush. Not even biorefineries within a single company can be painted with the same brush, and there over 150 biorefineries in operation.

Shouldn't the WSJ use more judgment than Rolling Stone which did their own hatchet job titled "The Ethanol Scam." It is hard for this reader to see a difference.

Here is a suggested followup opinion piece for the editors to ponder - what alternative to fossil transportation fuels do you support? It should be remembered that even the former "oil" President of U.S. - leader of the "Drill Baby Drill" Republican Party - lamented that "America is addicted to oil." Is there some "methadone" that does warrant support? Or is it your opinion that the country remain hooked?

Below is a response to the article on a point by point basis.

Everyone Hates Ethanol
March 16, 2009, Wall Street Journal opinion piece

These days, it's routine for businesses to fail, get rescued by the government, and then continue to fail. But ethanol, which survives only because of its iron lung of subsidies and mandates, is a special case. Naturally, the industry is demanding even more government life support.

Wrong. The industry expects a level playing field and the chance to provide a viable alternative product to those foisted on a disenfranchised consumer by a monopolistic industry that has been subsidized and protected for over 100 years. We need cleaner, more sustainable alternatives at the pump.

Corn ethanol producers -- led by Wesley Clark, the retired general turned chairman of a new biofuels lobbying outfit called Growth Energy -- want the Obama Administration to make their guaranteed market even larger. Recall that the 2007 energy bill requires refiners to mix 36 billion gallons into the gasoline supply by 2022. The quotas, which ratchet up each year, are arbitrary, but evidently no one in Congress wondered what might happen if the economy didn't cooperate.
What happened to the world economy is, in great measure, a result of the spike in the price of oil and the national security subsidies we pay to defend this country against predatory speculators, producers, and regimes. It is fitting that a distinguished General (joined by ex-CIA Director Jim Woolsey and others) would step into the breech to defend their country. It is a motivating conviction shared by most in the emerging industry.

Now the recession is hammering demand for gas. The Energy Information Administration notes that U.S. consumption fell nearly 7% in 2008 and expects another 2.2% drop this year. That comes as great news for President Obama, who is achieving his carbon-reduction goals even without a new carbon tax, but the irony is that the ethanol industry is part of the wider collateral damage.
Damage to the broader industry sure to be exacerbated by opinion pieces such as this one.

Americans are unlikely to use enough gas next year to absorb the 13 billion gallons of ethanol that Congress mandated, because current regulations limit the ethanol content in each gallon of gas at 10%. The industry is asking that this cap be lifted to 15% or even 20%. That way, more ethanol can be mixed with less gas, and producers won't end up with a glut that the government does not require anyone to buy.

The ethanol boosters aren't troubled that only a fraction of the 240 million cars and trucks on the road today can run with ethanol blends higher than 10%.
To the contrary, many in the industry strongly believe that all cars should be flex-fuel compatible. This is the cheapest way to implement change to a multi-fuel distribution infrastructure. Even a third world power, Brazil, found it to be easily achievable.

It can damage engines and corrode automotive pipes, as well as impair some safety features, especially in older vehicles. It can also overwhelm pollution control systems like catalytic converters. The malfunctions multiply in other products that use gas, such as boats, snowmobiles, lawnmowers, chainsaws, etc.
Actually, it is the "10%" number that is arbitrary. New research is being conducted which supports contentions that much higher blends are viable in conventional internal combustion engines.

That possible policy train wreck is uniting almost every other Washington lobby -- and talk about strange bedfellows. The Alliance of Automobile Manufacturers, the Motorcycle Industry Council and the Outdoor Power Equipment Institute, among others, are opposed, since raising the blend limit will ruin their products. The left-leaning American Lung Association and the Union of Concerned Scientists are opposed too, since it will increase auto emissions. The Natural Resources Defense Council and the Sierra Club agree, on top of growing scientific evidence that corn ethanol provides little or no net reduction in CO2 over the gasoline it displaces.
Low level blends are always available to small engine machines - which, incidentally are very polluting no matter what they run on. The Sierra Club, in partnership with Worldwatch Institute, just published a report titled "Smart Choices for Biofuels" in strong support of development of 2nd generation ethanol... an important distinction.

The biggest losers in this scheme are U.S. oil refiners. Liability for any problems arising from ethanol blending rests with them, because Congress refused to grant legal immunity for selling a product that complies with the mandates that it ordered. The refiners are also set to pay stiff fines for not fulfilling Congress's mandates for second-generation cellulosic ethanol. But the cellulosic ethanol makers themselves already concede that they won't be able to churn out enough of the stuff -- 100 million gallons next year, 250 million gallons in 2011 -- to meet the targets that Congress wrote two years ago.
Cellulosic ethanol technology is being fast-tracked to satisfy a mandate that developers would be all too happy to satisfy. It takes time to launch new commercial-scale biorefineries. Meanwhile, the demand for ethanol needed to replace toxic MTBE oxygenates needs to be filled by existing production facilities. Unless you want to import it, that would be the corn ethanol industry.

So successful but politically unpopular businesses will be punished for not buying a product that does not exist -- from companies that haven't yet found a way to succeed despite generous political and taxpayer advantages. The next step is to use cap and trade to make green alternatives look artificially good by comparison. Even then they'll probably still be bottomless money pits.
Fossil industries are not guilty for selling fossil products - rather for engaging in fossil thinking. Who knows better than they that U.S. production of oil has been on the decline for thirty years. If they had admitted to themselves the longterm folly of only offering one source of fuel over which they have dwindling authority, they could have lead the development and commercialization of alternative fuels technology. Instead they have yet to build a new refinery of any kind in thirty years while the ethanol industry has built over a hundred.

To recap: Congress and the ethanol lobby argue that if some outcome would be politically nice, it should be mandated (details to follow). Then a new round of market interventions is necessary to fix the economic harm resulting from the previous requirements, while creating more damage in the process. Ethanol is one of the most shameless energy rackets going, in a field with no shortage of competitors.
A final chop block. Let's cripple the only longterm alternatives to fossil fuels, be indiscriminate in the smear piece, and paint everyone even tangentially associated as a racketeer. Is there to be no alternative fuel available at the pump?

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