Consumer Federation of America: The RFS and Ethanol Help Consumers

Should we let the “free” market decide the fate of alternative fuels?

“Contrary to the past several years, there is plenty of gasoline available, demand has fallen, and increased amounts of less expensive ethanol are being blended into more than 60 percent of the nation’s gasoline. It is critical for policy makers to shine a spotlight on the industry so it does not cut back on refinery runs to tighten the market, and they need to ensure that the 2007 Energy Independence and Security Act, is implemented vigorously since it emphasizes the two key long-term elements that can help consumes escape from the grip of both the domestic refining oligopoly and the crude oil cartel – expansion of alternative fuels and reduction of demand though increased fuel economy --  Dr. Mark Cooper, Director of Research, Consumer Federation of America, March 26, 2008, National Press Club

Reporters and cameras from NBC, CNN (watch it here) and other media outlets came to the National Press Club this morning to learn more about the release of a new report by the Consumer Federation of America, “Rising Gasoline Prices: Why Can’t Consumers Catch A Break.”  Several times during the press conference Dr. Cooper mentioned the important role ethanol is playing, and can play in the future, to help reduce gasoline prices and increase competition in the market place.  A related report from May 2005 “Over a Barrel: Why Aren’t Oil Companies Using Ethanol to Lower Gasoline Prices”  also discusses some of the dynamics of the gasoline market and the role ethanol can play to help consumers.

Some Highlights of the Press Conference and Report:

• There are two potential effects in the domestic market that might hold gasoline prices down. First, slack demand and increased supply may put downward pressure on the domestic spread. Second, spare capacity in the refining sector may create pressure to pass the lower cost of ethanol through to the consumer. Combined these two factors could prevent price increases of as much as $0.25 per gallon….If not, prices could increase by $0.75 per gallon, or $75 Billion in the final three quarters of the year.

[Save those economic stimulus checks]

• The gasoline market should act more like a free market, and be much more like the ethanol industry’s response to market indicators.  When the supply of ethanol goes up the price goes down, when the demand for ethanol goes up the price goes up, and when prices and demand are down, capacity slows down.  This does not appear to be the case with the U.S. gasoline market.
• The Energy Independence and Security Act of 2007 will save 100,000 barrels per day in gasoline demand from CAFE increases and the RFS will increase supplies by 600,000 barrels per day.
• The bite that declining demand has taken out of the refinery capacity gap is small compared to the bite that expanding use of ethanol has taken.  A 1.1.% decline in demand for gasoline in a winter month is somewhat less than 100,000 barrels per day.  By the end of 2007, domestic U.S. production of ethanol was over five times as high and the refining sector has taken notice.  Bill Day, a spokesman for Valero Energy Corp. The largest U.S. oil refiner, said his company foresees ethanol growth offsetting gasoline imports to the U.S.
• The number of major refiners is down by 50%.  Consumers are suffering from a concentrated refining market that resulted from mergers and the consolidation of the oil industry.  There is no competition in the marketplace and therefore no competitive forces to make refiners adjust prices, and no competitors to steal their customers during times of tight supplies, high prices, and high margins.  There are reports that Exxon/Mobil is now looking to increase its monitoring and control of ethanol blending at its terminals.
• The excessive profits enjoyed by these companies since 2002, above the normal return on equity earned by all manufacturing, equals over $190 billion in after tax dollars, which makes the pre-tax total increase in income about $280 billion.
• The increase in gasoline prices is having a spiraling effect on crude oil prices. That means that as gasoline prices go up, crude oil prices follow them.  When OPEC sees U.S. refiners experiencing high margins (e.g., $1.00 per gallon after hurricane Katrina), they raise their crude oil prices to reflect the ability of the U.S. gasoline market to pay more.
• The increase in ethanol production represents a doubling of what the U.S. refining industry has invested in increasing gasoline refining capacity in the last seven years.  While the refining industry complains about not being able to expand production in the U.S. because of environmental regulations and permitting issues and other reasons – they have not asked to build any new refineries either.  In fact, they turned down President’s Bush’s offer to build refiner capacity on U.S. military bases.
• The impact ethanol has on food is vastly overstated. The impact of higher crude oil prices and the cost of fuel to get the milk to market have a much bigger impact on consumer prices.

I could not agree more.  More supplies should lower prices for gasoline, and then crude oil, and therefore all consumer products.  Ethanol deserves some financial credit for lowering gasoline and oil prices.  That credit should be worth something to consumers at the pump and policy makers in Washington DC.  If gasoline prices don't come down then we are going to need more that just an RFS to create a competitive U.S. gasoline market and home for the growing amount of alternative fuels.

What do you think?

Experts Respond to Land Use: Data Abuse

While serving as a moderator during the recent Ethanol 2008: Emerging Issues Forum in Omaha I had some unique time to reflect on many of the obstacles and emerging issues that ethanol has faced – like the recent land use issue.  This new scuttlebutt appears to be in the same historical vain as past emerging issues that fell victim to the rapid media response to disseminate misinformation that was not given a proper or fair chance for peer review before publishing.  And once again, we have witnessed the eventual saving face of ethanol from what appears to be a lack of data integrity and the traditional “yelling fire in a crowded theater” report release technique that has been used in the past to slow down the development of ethanol and other biofuels.  There have been, and will continue to be, many more issues that emerge about ethanol considering this is a fight for the $500 billion U.S. gasoline market.

In the past 30 years I have witnessed many other emerging issues evolve and be resolved:

• Automakers evolved from voiding warranties for using 10% ethanol blends to them becoming members of the Clean Fuels Development Coalition and encouraging the use of 85% ethanol blends in their six million flexible fuel vehicles in commercials on the Super Bowl.
• A government that has evolved from one that did not support the ethanol industry lawsuit against the oil industry for unfair trade practices case it had before the FTC because of the national “no alcohol in my gasoline” sign campaign during the 1980’s to a government that is protecting those same independent gasoline dealers from their suppliers as they try to sell E10 or E85 to meet the provisions in the new Energy Independence and Security Act of 2007.
• The evolution of thinking from “there will never be significant ethanol production” to “what are we going to do with the extra 4 billion gallons of new capacity this year.”
• And then there has always been the ongoing response and proof to the constant barrage of recycled anti-ethanol messages like negative energy balances, too much water use, food vs. fuel, and how ethanol is driving up the price of everything – but $100+ per barrel oil is not.
• And now...The Shot at Ethanol heard around the world -- land use.

Hopefully, the land use issue will emerge and submerge, and then be placed in the “put out to pasture” category.  I hope this link to the summary CFDC provided the media and Congress on land use and the following accumulation of responses and data will support the evolution of thinking – ethanol and biofuels are still better than oil.

"Two studies posted last week on ScienceExpress -- an advance web version of Science Magazine -- and widely reported in the press, raise important issues but often read like conclusions looking for an underlying rationale.  These two studies fundamentally misunderstand the local forces behind land use change issues and make no provision for mitigating impacts such as the slowdown in urbanization that a vibrant agricultural economy would bring.  Further, these two studies somewhat conflict with one another, with one supporting cellulosic ethanol and the other one opposing it, except if produced from waste." U.S. Department of Energy, Argonne National Lab, National Renewable Energy Lab, Oak Ridge National Lab, Pacific Northwest Lab, and the U.S. Department of Agriculture.

Michael Wang of Argonne's Transportation Technology R&D Center and Zia
Haq of the Department of Energy's Office of Biomass responded to the article by Searchinger et al. in the February 7, 2008, SciencExpress, "Use of U.S. Croplands for Biofuels Increases Greenhouse Gases through Emissions from Land Use Change" The eight-page response from the Department of Energy that claims many wrongful assumptions in the report that include ethanol production estimates, fertilizer use, exports, technology, corn yields, and land use in foreign countries – to name a few.

Todd Sneller, Administrator, Nebraska Ethanol Board and Chairman, Clean Fuels Development Coalition stated:

Numerous scientific studies have proved that ethanol fuels emit fewer greenhouse gas emissions than gasoline and create a net energy gain.  Several states are currently evaluating low carbon gasoline standards as a means of reducing greenhouse gases (GHG). Such standards may require that future gasoline blends reduce greenhouse gases by at least 20% over a conventional gasoline baseline. Greater use of ethanol in gasoline is considered the most economic means of reducing GHG emissions to required levels. A recent study at the University of Nebraska found that ethanol from switchgrass has 94% lower lifecycle GHG emissions than gasoline and creates a 540% net positive energy gain.

In their response to the study, The 25x25 Steering Committee reinforced the Nebraska study, that was published in the Proceedings of the National Academy of Sciences, which also shows that along with the energy advances, switchgrass also offers significant environmental benefits, including many conservation uses the deep fibrous roots of the plant help to keep soil intact and virtually stop runoff.

Biotechnology Industry Organization (BIO) Executive Vice President, Industrial & Environmental Section, Brent Erickson released a statement about the short comings of the report.

"As outlined in a recent BIO report, "Achieving Sustainable Production of Agricultural Biomass for Biorefinery Feedstock," farmers will be able to produce, harvest and deliver sufficient feedstock to the growing biorefinery industry in an economically and environmentally sustainable way through increased use of no-till agriculture. The report identifies available techniques for sustainable harvesting of agricultural residues - such as corn stover and cereal straws - for use as feedstocks for advance biofuel biorefineries. "With agricultural biotechnology, farmers can continue to increase yields of crops to meet the demands for both food and fuel. Over the past 10 years, agricultural biotechnology has helped U.S. farmers increase yields by 30 percent, a rate of yield increase that will be sufficient to meet the goals of the new renewable fuel standard.

David Morris, Institute for Local Self-Reliance disputes conclusions of recent anti-ethanol land use studies in a study and press release.

"The studies usefully estimate how much carbon will be released when new land is brought into crop production," says David Morris, ILSR's Vice President and author of Ethanol and Land Use Changes. "But the authors' declarations that ethanol increases greenhouse gas emissions, a conclusion that has made headlines around the world, is not supported, and may be contradicted, by their own data." The report notes that the vast majority of today's ethanol production comes from corn cultivated on land that has been in corn production for generations.  "Since little new land has come into production, either directly or indirectly, the current use of ethanol clearly reduces greenhouse gas emissions," says Morris, who served six years on an Advisory Committee on biomass to the U.S. Departments of Energy and Agriculture. The studies fail to recognize the very low greenhouse gas emissions from advanced ethanol plants, plants that can reduce emissions by over 50 percent as compared to gasoline.  Nor do the studies factor in the higher greenhouse gases that will be emitted when crude oil is extracted from unconventional sources like tar sands. The full report, Ethanol and Land Use Changes

And let’s not forget about the alternative to biofuels and ask the age old question “biofuels compared to what? – oil.

As the ‘easy’ sources of oil decline, development of exotic resources, like tar sands in Canada, are being pursued. Tar sands, by comparison, release some 300 percent more greenhouse gas emissions than traditional petroleum recovery. Biofuels alone are not the silver bullet to the energy or environmental challenges our planet faces. But they do offer a pathway forward.   Statement of the Renewable Fuels Association

And we come full circle, as The American Coalition for Ethanol (ACE) believes the RFS needs to be adjusted, eliminating the "indirect land use" provision as published in Myke Feinman's, BioFuels Journal Editor Blog response.

History has proven time and time again that the continued development of biofuels, like ethanol, will help evolve science and help evolve some of our conventional thinking.

$4 gasoline and 4,000 troops: The Not So -- Hidden Costs of Oil

The Hidden Cost of Oil

A tribute to Milton Copulos (1947-2008).

Milton Copulos was a Vietnam war hero, a colleague in the fight for the development of alternative fuels, an advocate of ethanol and biofuels, and an energy security visionary. His work through the National Defense Council Foundation  on the “Hidden Costs of Oil” will always remain a very thoughtful analysis that will help consumers quantify what they are really paying for gasoline when the multitude of indirect costs that do not appear at the pump are added.

Elements of the “Hidden Cost of Oil” include:

• The Cost of Oil-Related Defense Expenditures.
• The Loss Current Economic Activity Due to Capital Outflow.
• The Loss of Domestic Investment.
• The Loss of Government Revenues.
• The Cost of Period Oil Supply Disruptions.

When combined, these “hidden” elements amounted to consumers paying over $5 per gallon of gasoline and the economy taking a $825 BILLION annual loss – in 2006!  Those costs are no longer hidden as they are appearing on retail gasoline signs along our highways and in our national headlines.  Consumers are paying much for gasoline then they know or may care to admit.

Mr. Copulos’ The Hidden Cost of Oil: an Update and America's Achilles Heel, The Hidden Cost of Imported Oil, his testimony before Congress, and a National Security briefing he prepared for then Texas Governor George Bush can all be found on the homepage of the National Defense Council Foundation at www.ndcf.org.

"You are a warrior for freedom, I appreciate your relentless drive to work for the betterment of all mankind" Then-Governor George W. Bush