February 15, 2006

WE'VE GOT MONEY:

Cost of E85 fuel is higher than gasoline (James R. Healey, 2/14/06, USA TODAY)

The heavily promoted alcohol fuel called E85 might cut America's oil use and help support U.S. agriculture, but it's not reducing motorists' fuel bills. It's boosting them significantly.

It's not about cost.

Posted by Orrin Judd at February 15, 2006 7:26 AM
Comments

I'll bite. Is it about transferring aggregate national wealth to ADM and other agri-business?

Posted by: John Sterling at February 15, 2006 8:03 AM

Mr. Sterling:

Close. It's about not transferring national wealth.

Posted by: oj at February 15, 2006 8:07 AM

Spoken like a true elitist, Orrin. I'd add some four letter words, but my better nature counsels me against it.

Posted by: Ptah at February 15, 2006 9:48 AM

Like most innovations, the costs will plunge/plummet/drop like a stone as more people use them. The TI calculator we bought 30 years ago cost $125.00. A vastly superior one is now a give-away in promotions for magazine subscriptions.

It's puzzling that this rule doesn't seem to be working for the new televisions. They're still far too expensive to justify buying, especially since both our old sets are still working fine.

Posted by: erp at February 15, 2006 9:57 AM

So we transfer wealth to ADM and agribusiness instead of Oil Producing Countries, losing family wealth and purchasing power in the process?

Why not just apply the same argumentation to all "trade" debates and go "native" on all of us. Let's cut ot the chase and "save" GM and Ford by putting 20% tarriffs on Hyundais.

Ridiculous.

Your disdain for the motor car is skewing your usual brilliance. Stick with a 50 cent gas tax (and only if replacing income of SSec taxation) and other intellectually defensible ideas.

Posted by: Bruno at February 15, 2006 9:57 AM

Bruno:

Yes, we transfer money to shareholders rather than to unstable enemy regimes.

We don't need Ford and GM, we do need a reliable energy supply.

Posted by: oj at February 15, 2006 10:12 AM

P:

Yes, America is elite.

Posted by: oj at February 15, 2006 10:16 AM

Um, anything to prevent unstable enemy regimes from buying shares? You're an awfully odd duck, oj. You're talking about nationalising the energy sector --that's what would be required to enforce the sort of purity you seem to want -- while at the same time you've nothing but ridicule for "nativism."

Posted by: joe shropshire at February 15, 2006 10:21 AM

Or to put it more simply: if we have all this money, then we can too afford that fence.

Posted by: joe shropshire at February 15, 2006 10:22 AM

Bruno I heartily agree with only one of your statements: Ridiculous.

Ptah, exactly how is preventing the transfer of national wealth to our enemies elitist?

I can't begin to express the disdain I have for this article and its premise that about $.40 a gallon is too much to pay for a fuel that would be cleaner and reduce gasoline usage. I hope our service members active in the "Long War" never read it and I don't have to explain why, except to dolts.

To the extent refineries will end up reducing gasoline production and oil imports reduced, the cost of oil may be reduced. Therefore the answer to the pricing problem is an increased fuel tax on gasoiline to the point that E85 will be equalized eventually at about current prices.

During WW2 gasoline was strictly rationed and most people understood the reasons and abided, except for the bastards who profited and bought from the black market. Unfortunately, their ilk will always be with us, evidently.

Posted by: Genecis at February 15, 2006 10:36 AM

OJ & Gen,

While both of you make interesting points, the experience of these types of schemes have an awful track record.

Brazil tried to go "alcohol" and ended up subsidzing deferestation.

The 70s "Synfuels" saga is a primer in waste, fraud, and abuse.

OJ argues that I'm better off funding corrupt American Companies (ADM is a piggish welfare queen no different than the New Orleans thug scamming debit cards) than I am foreign enemies.

I see some difference between the two, but not much. Further, I offered a solution far better than this silly subsidy, which is actually OJs idea.

Institute a gas tax. Heck, allow the tax to float with the prices so as to ameliorate price swings. It serves more purposes (yours, as well as others) with out picking favorites, or turning the American plains into "switch grass" (or some other massive misallocation of resources.)

As an aside, the "bastard" who buys plywood in IL and drives it down it down to FL after a hurricane, is serving as useful market function. The more freedom he has to operate, the faster plywood gets to where it is needed. (and the faster prices come down)

Call it the "ilk of human kindness."

Your position seems to be that we need a Bureau of Plywood to "stabilize" prices and prevent "profiteering."

Posted by: Bruno at February 15, 2006 11:03 AM

Well Bruno, at last we agree on something, floating gas taxes as you describe, and as I did over a year ago on this site.

But all the other options must be developed and tried and let the market sort it all out.

Brazil has over 300 bio-fuel plants based on sugar, is energy independent, exports ethanol to China and sells it for half the current price of oil.

The 70's syn-fuel program never got off the ground because of cheap oil, and that was 35 years ago. In 1973 the US imported 35% of its oil, today we import almost 60% and consume more than the next five largest consumers combined.

And while your putting words in my mouth about needing a bureau, I'll put one in your mouth: "call it the ilk of human greed."

Posted by: Genecis at February 15, 2006 11:44 AM

joe:

Nationalize it? How? I don't care how much ADM shareholders make off ethanol.

We're building the fence aren't we? Even though it's a waste of money. We've got plenty to waste.

Posted by: oj at February 15, 2006 11:46 AM

Bruno:

Yes, we should tax consumption too.

Posted by: oj at February 15, 2006 11:47 AM

if a person can't see the difference between funding saudi arabia and iran, and funding share holders in an American company, then we really do need to get a card game going here.

Posted by: toe at February 15, 2006 12:06 PM

Again, toe, what is to prevent Saudi Arabia (or the PRC, for that matter) from buying an interest? Now, I don't think that will actually be a problem because I don't think ethanol subsidies are going to go up that much. But by the same token E85 isn't going to make any difference in our oil consumption or who we buy it from. It's a symbolic gesture for folks like Genecis.

Posted by: joe shropshire at February 15, 2006 12:43 PM

Whatever party establishes a 50 cent per gallon or greater gas tax is going down in flames for at least one elections cycle. Who's going to get on board that train?

Posted by: Patrick H at February 15, 2006 12:49 PM

By the way, the Saudis make money off all sorts of ventures. Here in Colorado Springs, for example, they own several large parcels of land. Now if you are serious about cutting off the flow of money to the madrassas, shouldn't you be worried about that also? To listen to you guys you would think there's something magical about oil that gives it unique powers of evil. Money is money.

Posted by: joe shropshire at February 15, 2006 12:54 PM

joe:

It's just one part of a wider strategy.

Posted by: oj at February 15, 2006 12:59 PM

Horsepuck. You don't have a strategy, you just hate cars. Now, that's fine -- if it makes you happy, you can go ahead and hate cars, just stop pretending you're rational about it.

Posted by: joe shropshire at February 15, 2006 1:02 PM

joe:

What portion of the Iranian/Venezuelan/Nigerian economy is oil and what hotels in CO?

Posted by: oj at February 15, 2006 1:02 PM

What portion of the Iranian/Venezuelan/Nigerian economy can you gain leverage over by subsidizing ADM, is the question you should be asking.

Posted by: joe shropshire at February 15, 2006 1:04 PM

joe:

You can use ethanol, electricty, and hydrogen in cars. One war at a time.

Posted by: oj at February 15, 2006 1:05 PM

Patrick:

Combine it with a dollar for dollar cut in income taxes and no one will say boo.

Posted by: oj at February 15, 2006 1:06 PM

Without our oil imports they'd have no economies.

Posted by: oj at February 15, 2006 1:08 PM

Hunh? Corporate welfare and tax cuts for the rich, and no one will say boo.

Posted by: joe shropshire at February 15, 2006 1:11 PM

Joe, They own a lot more in the USA than some land in Colorado. And they bought it all with our money. Lets hope they don't move it.

They're selling us oil for about $60.00 a barrel; they pump it out for about $.50 to $5.00 a barrel. Now that's making money.

Keep those symbolic gestures coming until they do make a difference.

Posted by: Genecis at February 15, 2006 1:17 PM

Without our oil imports the rest of the world would still buy as much of their oil as they cared to sell. You're wasting your time here. If you want to take the oil weapon away from the Saudis and the Iranians (and the Venezuelans), then do it: blockade the Straits of Hormuz, drop Ras Tanura to the bottom of the Red Sea, and put a couple of rounds through Chavez's forehead. Then get ready ,because you're going to need a bucket to catch the lead from China, India, the EU, and every other place that's also depends on that oil. It's a world market.

Posted by: joe shropshire at February 15, 2006 1:20 PM

Gen,

I googled Brazil & energy independence and found this.

http://www.truthabouttrade.org/article.asp?id=5029

Interesting article.

"plenty of land, rain, & cheap labor" Ahh the wonders of "comparative advantage." Adam Smith would be proud.

I notice how much wealthier the Brazilians are than us Americans, but that could be a function of other things.

All-in-all, you haven't convinced me that we must engage in these schemes to forestall Islamic terror or become more wealthy.

It is also interesting how quickly some of us revert to socialistic ideas of "central planning" and "managed competition" when our own pet ideas are on the line.

I'm mostly with you re: "greed" and with OJ on consumption taxes over income taxes, but you seem to miss the fact that ADM is just as motivated by "greed", as are many others in the "farm sector," who complain about New Orleans bailouts while ferreting out their own version of Federal "truffles".

Posted by: Bruno at February 15, 2006 1:27 PM

joe:

We don't need to do all that, though I'd certainly whack Chavez just for sport. We can easily lead a transition away from oil just because of the size of our market and by doing so we corner all the new technology.

Posted by: oj at February 15, 2006 1:27 PM

Bruno:

Yes, it's working even in Brazil. If ADM is a monopoly break them up.


http://www.post-gazette.com/pg/06012/637006.stm

Posted by: oj at February 15, 2006 1:35 PM

Although I agree with the assessment of ADM, a subsidy to them, given the strategic importance of reducing oil dependency, is perhaps no different than the graft routinely plied on defense corporations. They too are welfare queens, what the benefit we derive from them is considered good enough that we put up with it.

Posted by: Chris Durnell at February 15, 2006 1:43 PM

Joe:

How many times since World War 11 have we seen tyrannical, destabilizing regimes and lunatics in the Middle East cause all sorts of havoc simply by playing the "It's our oil" or "America is stealing our oil" cards? Somehow I don't think "America is stealing our shares in land near Colorado Springs" would have quite the same mass appeal.

Posted by: Peter B at February 15, 2006 1:44 PM

To the extent one cares about such things, note that E85 would contribute dramatically less to global warming than oil... assuming it doesn't just make Saudi oil cheap enough that China can afford to buy more, which is also possible.

Still, being able to put a cap on the price of oil is no bad thing.

Posted by: Mike Earl at February 15, 2006 1:53 PM

Peter: then the problem is the tyrannical, destabilizing regimes, who we help keep in existence by ensuring a stable flow of oil. I never said we had to do that: in fact I'm all in favor of bombing the Saudi oil industry back to the stone age. They can resume selling the stuff when they develop the capacity to rebuild on their own, which would mean they'd need genuine political stability, the rule of law, decent education, all of the things we're trying to transplant. What you and oj are suggesting is just the reverse: we stay in the region militarily and politically, spend pretty much the same amount of blood and treasure to guarantee the flow to the rest of the world, but abstain from consuming ourselves. Very virtuous and noble, if by virtuous and noble you mean stupid.

Posted by: joe shropshire at February 15, 2006 2:15 PM

it's a lot easier to use the oil you own (and have possession of) as a weapon, than it is to use your shareholder proxy form as a weapon. with the ethanol program, the strategic energy needs of the u.s. economy are protected by their being located here. if people can't be honest, just because they want to score points of of oj, then just post directly to DU or one of those other fetid sites.

Posted by: toe at February 15, 2006 2:22 PM

Not really, toe. Oil you possess is pretty much valueless. It's oil you can sell that counts, and the Saudis can't sell a barrel unless we guarantee the flow. One of the oddest ideas out there is the notion that our only leverage over the Saudis is how much of their product we do or do not consume, when we only account for 20 percent of their sales but essentially 100 percent of the security they need to sell anything. The oil weapon is actually our weapon, we just don't have the nerve to use it.

Posted by: joe shropshire at February 15, 2006 3:08 PM

What Joe says.

Plus: 1. You can't possibly begger Saudi Arabia, et al., enough to make a difference to terrorism. The whole point of terrorism is that it is the poor man's bomb. The PLO started its terror campaign with no land and no money and got both from terror. 9/11 cost, at most, $500,000; our enemies are always going to be able to afford $500,000. Poor old Bangladesh spends a billion dollars on its military.

2. America has plenty of cheap energy available, if we choose to use it. The idea that we're now going to start expanding our farms like we would have to in order to power all our cars is just nuts.

Posted by: David Cohen at February 15, 2006 3:52 PM

And 3: we're facing an enemy that prefers to bomb targets in our most densely-populated areas. UBL didn't blow up a bunch of farms on 9/11, he dropped the two biggest buildings in Manhattan. In the meantime, we have about a bazillion square miles of unpopulated prairie, and the best use we can think to make of that is...switch grass? Why don't we try planting houses on it, and if you're all dying to command-and-control something so as to better fight this war, then let's tell the blue staters to get the !@#$% out of their kill zones and find a spot that's not as crowded. When you are in range, the three magic words are don't bunch up.

Posted by: joe shropshire at February 15, 2006 4:03 PM

A bit off topic, but why did the innocent Brazilian carpenter shot by the police as a terrorist move to London to make some money for his grandmother's operation or some such nonsense if things are booming in Brazil?

That story just didn't compute.

Posted by: erp at February 15, 2006 4:38 PM

Terrorism has nothing to do with it. We fund their anti-democratic governments. Bernard Lewis is very good on the topic. Governments that don't need to tax aren't representative.

Posted by: oj at February 15, 2006 5:33 PM

joe:

You're too obsessed with the Saudis. Almost al of the oil producing nations have been blighted by it. We need to stop using it for their sakes.

Posted by: oj at February 15, 2006 5:36 PM

In terms of powering the future nation, we aren't talking about ethanol made from ag products like corn, we're talking about cellulose ethanol, which is made from current ag waste like straw, corn husks and stalks, and brush.

It's not a complete solution, but it could be a very effective part of a foreign-petroleum-use-reducing strategy, like drilling in ANWR.

Posted by: Michael Herdegen [TypeKey Profile Page] at February 15, 2006 5:49 PM

and taxes and hydrogen...

Posted by: oj at February 15, 2006 6:07 PM

Unbelievable!

Posted by: Genecis at February 15, 2006 7:07 PM

My apologies. I should simply have asked, "Well, what is it about, then?" And you would have answered: "Saving the oil producers from themselves", and I would have said: "Really? How extraordinary." And we would have saved a lot of shouting.

Posted by: joe shropshire at February 15, 2006 7:11 PM

You left out sugar cane Michael.

You left out coal oil OJ.

I left out shale gas and algea scrubbers.

we left out Nuclear and coal scrubbing generators that are great cogenerators.

We left out the promise of cogeneration that can make all of the above feasible.


Posted by: Genecis at February 15, 2006 7:19 PM

joe:

Transitioning from oil has so much upside and so little down--cost being the only one--that you could explore the benefits the rest of your life. Feel free to.

Posted by: oj at February 15, 2006 7:22 PM

Well, Joe, I have this problem. A local merchant hates me and has been threatening me and my family everytime we buy his fruits and vegetables. Really nasty, serious stuff--I think it is a joke, but the family is terrified. I thought I was hanging tough by telling him I'm no longer going to buy his stuff, but now you have made me see that is just giving in to his barbarity. What I should do is demand to buy his produce at my price or bomb him. Have I got it?

Heck of a foreign policy.

Posted by: Peter B at February 15, 2006 8:00 PM

He hates you enough to make threats and your response is a boycott? Remind me to stay on your good side.

Posted by: joe shropshire at February 15, 2006 8:14 PM

Seriously, Peter. I have no objection to ethanol or anything else you want to burn so long as it pays for itself. But as the title of the post hints, oj's just plying one of his hobbies, namely saving other people/countries from themselves. That's really a heck of a foreign policy.

Posted by: joe shropshire at February 15, 2006 9:25 PM

No, the title suggests that we have enough money that we can afford the transition to a more sensible fuel source. that it's good fopr the oil producing countries is just one of many benefits.

Thus far your only argument against it is your emotional attachment to gasoline.

Posted by: oj at February 15, 2006 9:36 PM

let's hope joe isn't a buddhist.

Posted by: toe at February 15, 2006 11:03 PM

I'm Irish. Yes, oj, at the end of the day it is about the emotional significance of gasoline.

Posted by: joe shropshire at February 15, 2006 11:47 PM

Wow, what a row! Sorry to leave you all alone with these social engineers Joe.

[BTW - did I mention to y'all that I have a brand new non-brokered 2 hour a day radio show. OJ's hits are already climbing, which is only fair, since he does about 60% of my show prep.]

As persuasive as Gen & OJ may appear, social engineering schemes often fail for various unforeseen consequences. If you are going to engage in such, use simple, not complex models.

Consumption taxes are far superior to subsidization schemes, so why bother?

Now, it is also fair to say that oil has an installed base of "subsidies" in the form of roads, etc.

As bright as all of us are, we still wouldn't know the long term impact of favoring ethanol over gas. When in doubt, let the market decide.

Posted by: Bruno at February 16, 2006 12:26 AM

It's just not likely to happen.

In 2002, the US consumed 3.23 billion barrels of gasoline to produce 16 quadrillion btus. E85 gets about 2/3's as many miles per gallon as gasoline, so that implies a need for 4.9 billion barrels of E85, or 4.17 billion barrels of ethanol. Now, switch grass will make 1150 gallons of ethanol per acre per year, or 27.38 barrels.

So, to convert our gasoline usage to E85, we need to grow 152 million acres of switch grass each year, which would require an increase in US cultivated land of about one-third.

What's going to happen is that, if used at all, E85 will be a very small part of the market. It will not have much of an effect on oil-state revenues.

Posted by: David Cohen at February 16, 2006 12:30 AM

Row? That was just an icebreaker, Bruno. And none of us are alone here, we've all got the voices in our heads to keep us company. But thanks.

Posted by: joe shropshire at February 16, 2006 1:03 AM

David:

Of course it's going to happen, the only question is the pace, on whose terms, and who benefits. We ought to hasten it for ourselves.

Posted by: oj at February 16, 2006 7:41 AM

Bruno:

Yes, that's why you don't want to follow the model the Swedes are and use state-down social engineering to achieve this end. Just hike gas taxes and society will engineer itself.

Posted by: oj at February 16, 2006 7:42 AM

joe:

Which is why the objection is not to be taken seriously. Emotion is the politics of the feminine.

Posted by: oj at February 16, 2006 7:43 AM

Is "it" going to happen? Depends upon what it is. Will we start finding alternatives to foreign oil. Sure, if we want to. Will ethanol be a small part of that? Yes. Shale oil will be a bigger part of it. But as I've said before, there is a perfectly good proxy for determining when we're serious about energy dependency, global warming, air pollution, etc. When we start to build new nuclear reactors, we'll be serious.

But even if we replace all our middle eastern oil with domestic alternatives, it won't break the Saudi's, et al. We are less dependent upon the middle east for our oil than any other major economy. We can lower the price, if we find alternatives and lower global demand for oil, but we can't make it worthless. It is not in our power -- through the demand side -- to begger the Arabs.

We could withdraw our security guarantees from the region and from shipping in international waters. That would force someone else, probably Europe and Japan to spend money to keep the oil flowing, which is, all other things being equal, ok with me. I have to think about it some more to decide whether all other things are equal. It seems too much like a free lunch to be true.

Posted by: David Cohen at February 16, 2006 10:33 AM

When American aren't buying cars that run only on gasoline the auto market everywhere will follow. Our demand drives the entire global economy.

Posted by: oj at February 16, 2006 10:43 AM

No, our consumption does not. What does drive (or enable) the global economy is our production, what we provide: stability and security. As David says, we are the Wal-Mart, the monopolist because the low-cost provider, of that commodity, and we are going to stay the low-cost provider, because we aren't going to brook a serious competitor. That much we did learn from the Cold War. As long the Caliph lives in Washington, the oil states aren't going to have to change their behaviors, and the rest of the world isn't going to have to change their consumption patterns either.

Posted by: joe shropshire at February 16, 2006 11:25 AM

I hope it isn't too emotional* to state the obvious that, for better or worse, the market decides.

*I agree with oj.

Posted by: erp at February 16, 2006 11:27 AM

joe:

We provide security to facilitate sating our demands. If no one had anything we wanted we'd let them stew.

Posted by: oj at February 16, 2006 11:34 AM

That's why it is too much of a free lunch. By the way, you're openly lusting after Sean Connery and that mountie guy, what was his name, so you're in no position to impugn anybody else's masculinity. And the profound sense of sin you have about petroleum is hardly an artifact of cold reason. That whole emotion-is-feminine schtick is basically tax evasion for your Christianity, which is deeply emotional and very masculine.

Posted by: joe shropshire at February 16, 2006 11:37 AM

joe:

Yes, the key to the "Men Whose Bitch I Could Face Being" is that they not actually be sodomites, else it suggests femininity and possible enjoyment of the experience. Your willingness to keep taking it from the sheiks when there's a way out is the problem.

Posted by: oj at February 16, 2006 11:46 AM
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