Is Ethanol a Good Choice for Consumers?
Not if the price system is any guide.
The Environmental Protection Agency has decided that gasoline can contain at least 15 percent corn-based ethanol. Ethanol is what I call a “political fuel.” The EPA (despite all the claims that it operates according to the dictates of pure science) is a political tool of President Obama.
The EPA’s decision is anticonsumer. Ponder this from U.S. Agriculture Secretary Tom Vilsack, who declared that the decision “gives consumers the option of purchasing domestically produced renewable transportation fuels,” as though this is a great decision for fuel users. If ever a quote needed a “not so fast” rejoinder, this is it.
To fully understand why Vilsack’s comment is outrageous, one first has to understand what would occur with resources in a free market. By freely choosing goods via a system of mutual exchange, consumers direct resources from lower value to higher value uses.
Corn has many uses, from straight food (and, yes, I love to eat corn on the cob) to being the most important ingredient for Jack Daniel’s Tennessee Whiskey. (Being from Tennessee, I say the names “Jack Daniel’s” and “George Dickel” with the proper reverence they deserve.) Corn also is used to make many other things, from sweeteners to decorations to animal feed.
So decisions must be made about where to direct corn. For example, behind our property is a 100-acre farm where a farmer grows corn to feed his beef cattle. For him that is the best use of the factors of production (and the corn itself), and as long as consumers continue to purchase his beef (at prices that support his operations), he will direct corn to that end.
When the discussion turns toward corn as the key ingredient in an alcohol-based fuel, the question is: Do consumers wish to purchase this fuel when they have other alternatives? Indeed, they already have the choice of gasoline, which is petroleum-based and performs better in most internal combustion engines.
Consumer Choice
In fact, consumer choice expressly points toward gasoline, and no wonder. First, oil companies can make a profit selling gasoline at less than $3 a gallon. (True, many costs are socialized by government policy.) Second, it is impossible for companies that produce ethanol to make a profit selling a gallon for $3. (While ethanol hardly qualifies as premium whiskey, nonetheless it is instructive to note that a gallon of Jack Daniel’s would sell for about $80. Even an inferior corn-based whiskey certainly would sell for more than $3 a gallon. )
What does this mean? Consumers have shown they are willing to pay a lot of money for a corn-based alcoholic drink but not willing to pay enough for a gallon of alcohol fuel to make a profit for the producer.
There are other problems with ethanol. Because the alcohol eats through the seals, it cannot be moved by pipeline, so railroads and trucks bring the fuel across the country, adding to the transport costs.
So we have an inferior fuel that is more expensive than gasoline, yet 40 percent of the nation’s corn crop is dedicated to making it. This is not by consumer choice; the decision to use ethanol, to force motorists to put it in their vehicles, and to subsidize it comes from government, which supersedes the wishes of consumers.
When Vilsack claims that the 15 percent blend is good for consumers, he is wrong. Consumers already have rejected ethanol, but that does not matter to the government. Indeed, ethanol is a good deal — for ethanol producers — but it destroys the wealth of others.
Comment by Joe Schmoe on 26 January 2011:
“When Vilsack claims that the 15 percent blend is good for consumers, he is wrong. Consumers already have rejected ethanol, but that does not matter to the government. Indeed, ethanol is a good deal — for ethanol producers — but it destroys the wealth of others.”
You got that right. For the new users, this fact cannot be emphasized enough: there is always someone, whether playing behind the scenes or shaking the presidents hand on live television, who benefits from what the government spends most of its time and money on… and you are not that someone.
You will always be one of the many that gives the government the money so that this “someone” can benefit.
Comment by Matt on 26 January 2011:
Not to mention it destroys your engine, especially now that they are increasing the percentage from E10 to E15 (or even higher). I’m thinking diesel for my next car.
http://www.popularmechanics.com/cars/alternative-fuel/biofuels/e15-gasoline-damage-engine
Comment by Stephen W. Browne on 26 January 2011:
Not long ago I filled the tank of my Ford Ranger pickup with straight gasoling, and drove from our town in North Dakota to Minneapolis, Minnesota.
I arrived with a quarter of a tank left, which I used running about the city.
I filled the tank with the ethanol blend mandated by state law and drove the same route home – and arrived with the needle on empty.
Considering the ethanol blend is only 10 cents cheaper per gallon than straight gas, or about two dollars cheaper per tank – I lost money.
I defy anyone to do the same experiment and not conclude that the “blenders credit” oil companies receive for making the ethanol blend is essentially a license to sell watered-down gas.
Comment by Heather on 26 January 2011:
Am I mistaken in thinking that this practice will also drive up the cost of corn as a food staple?
Comment by Old Oz on 26 January 2011:
My car is “Flex Fuel” capable.
When I asked the dealer about using E-85, he said it would reduce the mileage by about 1/3.
That is ridiculous.
Why would I want to pay 50 cents less a gallon on E-85, to get 1/3 less mileage.
No thanks.
I’m forced to buy 10% Ethanol, as there are no dealers selling pure gasoline where I live.
Just anothe bureaucratic mess, that doesn’t help the consumer.
Comment by Bullseye on 26 January 2011:
Moving product by ship, train, and/or truck also has an environmental impact. Pipelines are the safest means to transport product as measured by amount spilled per million gallons transported.
Comment by JT on 26 January 2011:
Ethanol blended gasoline (E10) has been mandated in the metro area where I live by the local authorities as a means of complying with EPA mandates for reduced air pollution by emphasizing reduced emissions from automobiles and light trucks. In my metro area, unblended gasoline is not even available. The tailpipe emissions from E10 may be better, but ethanol blended gasoline has less chemical energy than straight gasoline, and the amount of energy in the fuel blend decreases as the amount of ethanol increases. This means you must use more fuel to do the same amount of work, and an average car will see its fuel mileage decrease by 10% to 13%. Also, we saw that when blended gasoline was mandated, the price per gallon of fuel increased about 5%. So, with ethanol blended gasoline, you pay more, and get less. My next vehicle will definitely have a turbo diesel engine. Volkswagen, here I come.
Comment by Ron Leininger on 27 January 2011:
I agree with, and have personally experienced, all of the above. We would be better off without the Dept of Energy. What we need is development of domestic oil production, both on land and offshore, (aiming for national self-sufficiency) more nuclear power plants, and continued development of electric automobiles. But we DON’T need the government’s involvement in any of it!
Comment by Louis Woods on 27 January 2011:
Though dated, you may wish to look at David Pimentel’s “Energy and Costs of Ethanol Production with Corn.” Pimentel refers to this as ‘unsustainable subsidized food burning.’ Pimentel is in the Ag School at Cornell
Lou Woods
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Comment by Scott on 2 February 2011:
Ethanol mixed gasoline introduces an element of uncertainty into the sale/purchase of gasoline which benefits the seller only. Similar to Stephen Browne’s comment above, the mixed gasoline has a considerably quicker usage rate.
It’s watered down so that we burn through a tank quicker. But gasoline sellers are “allowed” to mix “up to” the legal limit. They’re also allowed to mix less or none at all. And this introduces uncertainty for consumers.
And it’s an opportunity for producers. They can manipulate the blend so that when demand is low, they back-off on the ethanol allowing customers to get a few more miles per tank.
In turn, consumers drive a little more and become temporarily accustomed to a level of consumption. Gradually, the blend can be shifted to include more ethanol. Consumers continue at the same rate of consumption which now equates to more gallons and more dollars at the pump. But before they’ve had a chance to adjust, the blend is changed again.
Comment by Robert on 6 February 2012:
Hi William,
Is that your photo of the corn? We’d like to reuse it in an educational PDF that we are putting together about energy. If it is yours we would like to ask your permission and give you a credit line: photo courtesy of William Anderson. Otherwise, can you tell us where it is sourced from?
Thanks!
Robert
(there’s no need to approve this comment for general viewing)