Here’s an article on Ethanol, by Scott Reeves, Courtesy of Minyanville
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The Ethanol Myth
No apes for biofuel!
Growing demand for ethanol has driven up the cost of corn in the United States and led to clearing rainforests in Indonesia, Malaysia and Thailand to plant oil palm, a highly productive oil seed used to make biofuel. Demand is so strong that some now fret about destruction of the natural habitat for orangutans.
It takes more energy to produce a gallon of ethanol than the ethanol provides, making biofuel the triumph of politics over logic. Congress mandates the use of the alternative fuel, creating a guaranteed market, but rising costs have hammered ethanol stocks. Nevertheless, President Bush wants to increase the use of ethanol so don’t bet on the primates in Asian rainforests.
Oil surged to a record $139.89 per barrel Monday before falling back to $133.35 the next day. This should be good news for ethanol because the biofuel allows oil companies to add octane more cheaply than additional refining. But the market has turned thumbs down on ethanol producers VeraSun (VSE), Aventine (AVR) and Pacific Ethanol (PEIX) as the price of corn continues to rise. Archer Daniels Midland (ADM), a major ethanol producer, is a diversified company and its stock recently hit a 52-week high.
The basic question: Why did anyone think ethanol made sense?
The sales pitch for biofuel is simple and intriguing: Ethanol produced from corn — good old grain alcohol — allows oil refiners to produce greater quantities of lower octane fuel, cutting costs at the refinery. Use of ethanol as a fuel additive boosts octane, reduces tailpipe pollution and increases the volume of available fuel. About 30% of the gasoline sold in the U.S. contains 10% ethanol. Use of E85, a blend containing 85% ethanol, may increase as carmakers build more vehicles capable of using the fuel. Ford Motor Company (F) and General Motors (GM) now offer flex-fuel vehicles.
In 1979, the last year of President Carter’s administration, Congress approved ethanol subsidies in an effort to offset an embargo by the Organization of Petroleum Exporting Countries. (Does anyone remember gas lines, the “energy crisis” and “malaise” – or care to?)
Federal subsidies for ethanol totaled about $6.8 billion in 2006 and will increase to about $8.7 billion a year if current policy holds – and there’s no reason to think it will change. The Clean Air Act of 1990 boosted demand for ethanol by mandating its use as a gasoline additive to replace MTBE, an octane booster that turned out to be a pollutant. In last year’s State of the Union address, President Bush proposed reducing gasoline use by 20% in ten years, mostly by replacing gasoline with ethanol and by increasing overall fuel economy for the nation’s vehicles.
Uncle Sam’s subsidies for corn and ethanol production are a tribute to the political muscle of Midwestern lawmakers and Iowa’s first-in-the-nation presidential caucus. Candidates routinely bow to the wisdom of ethanol and so far only Senator John McCain of Arizona, the presumptive Republican nominee, has questioned its economics. In 2006, subsidies averaged about $1.21 for each gallon of ethanol produced, or about 48.5 percent of its wholesale price. By contrast, federal oil subsidies total about 0.3 cents per gallon of gasoline. 
Demand for corn has driven up food prices – corn futures recently fetched $6.23 a bushel on the Chicago Board of Trade, a record high. The World Bank reports “almost all of the increase in global maize production from 2004 to 2007 (the period when grain prices rose sharply) went for biofuels production in the U.S.”
Ethanol proponents seem to have overlooked a basic point: Diverting corn production to ethanol doesn’t mean people (or cattle) eat less. Corn available to consumers has decreased, driving up the cost at home and leading to food riots in several countries, including Cameroon, Egypt, Mozambique and Senegal.
UK Prime Minister Gordon Brown says he may seek to change a European Union target to boost biofuel usage to 10% of road fuel by 2020. UK Energy Minister Malcolm Wicks says the goal should be changed because of growing concern that it’s contributing to food shortages.
The dirty little secret of biofuels: It takes a lot of dirty fossil fuel to produce “clean” ethanol. Despite the hype, ethanol doesn’t produce a net energy gain because corn production requires large amounts of fertilizer, herbicides and pesticides. The production and application of these chemicals requires large amounts of energy. The corn must be harvested and hauled to production plants to be distilled into alcohol, which requires more fuel. Finally, the ethanol must be distributed to users. Then it’s time to think about the air and wastewater created by ethanol production.
David Pimentel, a researcher at Cornell University, and Tad Patzek, a researcher at the University of California at Berkeley, concluded that it takes 29% more energy to make corn-based ethanol than the energy released when ethanol is burned as fuel. Wood biomass takes 57% more energy to convert into ethanol than it provides as fuel and switch grass takes about 50% more energy to convert to biofuel than it releases in an engine.
Backers say the additional crop plantings are good for the environment. But Timothy Searchinger, a researcher at Princeton University, found that production of corn-based ethanol nearly doubles greenhouse emissions over 30 years and ethanol derived from switchgrass and other plants increase emissions by 50% if grown on land previously planted to corn used for food.
Ethanol made from cellulose, the fibrous material found in plants, contains less energy than fuel derived from corn. If forest or grassland is cleared to plant crops used to make ethanol, it’s usually done by burning off the existing vegetation, and this releases huge amounts of carbon dioxide. Some say the problem could be resolved in part by using agricultural waste or trash as the feedstock for ethanol or by growing grass on marginal land that won’t support commercial crops. But that will require new technology because only sugars and seeds now can be distilled efficiently into alcohol. Chevron (CVX) is working with major universities in an effort to develop plants that make better feedstock for cellulosic ethanol and to improve processing methods.
Rule of thumb: If you subsidize something, you get a lot of it. In 2007, there was an oversupply of ethanol, squeezing profit on the top line as production costs continued to rise. Ethanol has traded at a premium to gasoline, but last summer, it traded at or below the price of gasoline. This hammered the stock of ethanol producers and Microsoft (MSFT) founder Bill Gates announced that Cascade Investment planned to sell its 21% stake in Pacific Ethanol.
Ethanol looks like a scam to shovel federal tax dollars from non-farm states to the heartland while politicians pocket fat campaign contributions from producers. It would have been less harmful for the environment and food prices if Congress had just transferred trainloads of money to the Midwest and dropped all the save-the-world ecological claptrap.
It shouldn’t surprise anyone that you get politically based decisions when you substitute mandates from Washington for the ruthless efficiency of the free market.
In a report for the Cato Institute, a Libertarian think tank based in Washington, D.C., James Bovard wrote: “The Archer Daniels Midland Corporation has been the most prominent recipient of corporate welfare in recent U.S. history. ADM (has) lavishly fertilized both political parties with millions of dollars in handouts and in return (has) reaped billion-dollar windfalls from taxpayers and consumers.”
Relax, it’s only your money. What this really means is that you can forget about that “no blood for oil” contretemps because the next environmentalist battle cry will be: No apes for biofuel! 
Excerpt from James Bovard’s Archer Daniels Midland: A Case Study in Corporate Welfare:
Introduction:
"ADM is certainly the nation’s most arrogant welfare
recipient. And it is one of the few welfare recipients that
spend millions of dollars each year advertising on Sunday
morning television shows populated and watched by politi-
cians. Chairman Dwayne Andreas’s and ADM’s success in farm-
ing Washington represents the rational result of contempo-
rary government policies that turn elections into "an ad-
vanced auction of stolen goods," as H. L. Mencken quipped.
Thanks to its multi-million-dollar hustling in Washington, a
company that lives and dies on the generosity of the Ameri-
can taxpayer has managed to get itself revered as a great
public servant. Although ADM is not the only corporation
with its hand out in Washington, it is easily one of the
most successful beggars on the block.(1)"
