Wednesday, May 31, 2006

Bob Caylor of the News Sentinel wrote a good piece on Ethanol. The Indiana Department of Agriculture commissioned an economic analysis of ethanol production and based on the scope of the analysis is actually a waste of money. Why pay for a research if what you get is worthless information? Why do I call the analysis worthless?

First of all, if you are going to do an analysis, it should be complete. Yes you can grow enough corn, but what happens to the corn used to feed to cattle, our dinner tables and corn oil? There is jus so much land available to grow corn.

Second, corn is harsh on the land.

Third Chris Hurt, professor of agricultural economics at Purdue University in West Lafayette readily admits he does not know how increase demand will affect commodity prices. Well I have relatives who farm and they like ethanol because it increases the prices they are paid for their corn. Good for farmers, bad for consumers.

Fourth, each gallon of ethanol gets a 51 cent per gallon tax credit. This is money you and I pay for in taxes. So if you are paying $2.75 for a gallon of E-85, the actual cost is more like $3.18 after paying the tax credit and since the E-85 is not as "energy concentrated" as regular gas, you are really paying more than $4.50 for that gallon of E-85.

But the real problem is not that you cannot calculate the true impact on commodity prices, but rather the wrong analysis was done. How much fuel/energy is consumed to produce one gallon of ethanol? Is it positive meaning you get more energy out than you put in? The answer is it take more energy to grow, harvest, transport, distill, build & operate the plant and all associated tasks than the gallon of ethanol contains.

But then we have politicians who are trying to buy votes, make themselves appear to be cutting our need for foreign oil while being part of the band wagon on renewable energy. Yes, ethanol is renewable as long as we have other energy sources to make it.

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