Wednesday, June 21, 2006

Ethanol: Rent Seeking in Action

Yesterday I was going to write a thread on ethanol if I could not put together a net neutrality thread. In a nice stroke of serendipity I received this in my in box last night

Experts: Ethanol's water demands a concern

Hat tip: Wyn A

That article misses three critical points:

1.) The water mentioned is only the water used in the plant itself, not in actually growing the corn. Consumptive water use according to THIS Penn state report is around 9000 gallons of water per acre of corn per day (they said hot July day, your mileage may very). Let’s just say 4.5K gallons of water per day for the hell of it. In the Yahoo article, they said 50 acres of corn per plant. So, that is 50*4.5K*100 (the growing season of corn, which is actually longer then 100 days in IL). That is 22.5M gallons of water out of the system PER plant just to grow the crop. If we use their 300K per acre per season number, we get 30M gallons of water. Mind you, this area is already producing corn.

Now, they tossed out that 40M annual recharge rate. Doesn’t look so high all of a sudden does it? But, you say, we have over a hundred years to figure it out! And this leads me to my second point.

2.) I actually believe the Ethanol people when they say the probability of any ground water pollution caused directly by them is low. I also believe them when they say they will pump out water cleaner then when they got it. That’s great. I am not a hydrologist, but one of the more interesting is the physical properties of water. The hydrological pressure underground actually helps to keep the baddies out while keeping the goodies in. This is mostly a concern for places near the shore like in Israel, but salt water intrusion or what we are talking about here simply increased salinity could eventually be a problem. Further more, all those pesticides used in growing the corn will have a higher concentration in the ground then they did previously.

3.) Lastly, I am curious who is paying for that plant. Generally, with ethanol, government subsidies are not very far behind.

My point? The community is right to raise an eyebrow, but the situation may be worse they what they are accounting for.

So that’s that.

In other ethanol news, over at Crooks and Liars, you can see Jack Cafferty going off on big oil, John Hofmeister who runs Royal Dutch / Shell to be specific. In short, The Hofmeister says “energy independence has gone too far”. Well, if the CEO of an oil firm says it then it must be so, I mean, they are the experts after all, right?

In my quest to find out a little more about The Hofmeister, go to THIS article and watch the feeding frenzy of politicians jockeying for position in the subsidy race.

"It would be absurd in 10 years if we're doing 60 billion gallons of ethanol, and the only crop in America that's not participating is sugar," said Sen. Norm Coleman, a Minnesota Republican and one of Congress' leading champions of sugar-based ethanol. Coleman is backing legislation that would encourage the use of renewable fuels.

Jack Roney, an economist with the American Sugar Alliance, agreed that the government would need to step in to stimulate a sugar-to-ethanol industry.

"It would take a combination of consumption mandates to ensure that the demand would be there, and conceivably some production incentives to use sugar ethanol," he said.

Now, moving right along, I was wondering what the good senator from MN had to say about this legislation and I found some interesting things along the way.




“In the past week, the ethanol lobby has stepped up pressure for even faster phase-in, angering some House members.”

I could go on and on. The point here is, none of this will mean a better price the consumer, lower taxes, more consumer choice, and in the end will probably end up not being very good for the environment.

One of things I haven’t mentioned along the way is rents. Forgetting the subsidy rents for a moment, all that water extracted is a rent. All that waste water injected is a rent. Less we forget the carbon emissions from ethanol. Ethanol only reduces emissions by 20%, it is another filtered cigarette. Read my proposal on the SKY TRUST for my position on emissions reductions.

I am not saying ethanol is bad. I am saying they should have to pay the market rent like anyone else and not doing so will cause more harm then good. If all rents were taxed, people would naturally gravitate towards fuel alternatives like ethanol anyway and with better results.