Ethanol will fail this year to fulfill promises made on its behalf about lowering US dependence on imported oil. It won’t be the first time—or the last.
The failure will result from the energy required to grow and process corn and to transport corn to ethanol plants and ethanol to blending facilities.
Ethanol’s supporters argue that modern processing technology endows their favorite fuel additive with a positive energy balance, that energy content of ethanol exceeds energy consumed in its manufacture. They’re right.
But their optimistic assessments of ethanol’s energy balance underestimate the energy used outside processing plants for essentials like its transportation and the production of fertilizer. As corn takes over land once dedicated to crops such as soybeans and wheat, which require less fertilization than corn, and as the industry spreads geographically, those energy needs grow.
And grow they surely will. The energy bill passed and signed into law in December greatly expands the ethanol mandate, beginning this year.
Expanding mandate
The original mandate for ethanol and other renewable fuels, set by the Energy Policy Act of 2005, increased in annual steps to 7.5 billion gal/year by 2012. But production has increased ahead of schedule. Ethanol production in 2007 was expected to exceed 6 billion gal, above not only that year’s mandate but this year’s as well.
In fact, the supply surge has suppressed the ethanol price while demand for raw material has zoomed, driving up the price of corn. Ethanol plant operators are caught in the squeeze.
So the new energy bill, the Energy Independence and Security Act, lifts this year’s production requirement to 9 billion gal (from the original mandate of 5.4 billion gal) and raises the threshold in steps to 36 billion gal in 2022. Beginning in 2016, a rising share of each year’s total, reaching 21 billion gal in 2022, must be “advanced” renewable fuel such as cellulosic ethanol.
Meeting the targets will be neither easy nor cheap. That ethanol production at current levels strains crop supplies is evident in rising prices for corn and the food crops it increasingly replaces. Escalation of the mandate will increase the stress. And a 51¢/gal tax credit costs the US Treasury, after adjustments for energy content and tax not paid by displaced gasoline, 45¢/gal. Federal subsidies for corn add more cost.
The stated reason for the imposition of these burdens is the replacement by fuel made from domestic crops of oil imported from unstable if not hostile countries. So a test should be possible: Do imports fall in step with the increase in ethanol production?
Imports dip
Imports indeed declined in 2007, according to December projections by the US Energy Information Administration. But the amount of the decrease was less than the rate of ethanol output and attributable to other factors.
EIA expected net crude and product imports to be down by an average of 170,000 b/d for 2007 in a market that expanded by 70,000 b/d. Ethanol production in the first 9 months averaged 406,000 b/d, the energy equivalent of 264,000 b/d of gasoline.
If other elements of the import equation hadn’t changed, ethanol thus would seem nearly to have lived up to its billing as a replacement for foreign oil. But those other elements moved in directions that suppressed imports.
Total US production of crude oil and gas liquids, for example, rose by an average 20,000 b/d, according to EIA. And a 120,000 b/d draw on stocks further enhanced supply.
Other variables affect imports, of course. But it’s clear that ethanol last year didn’t reduce imports barrel-per-barrel or anywhere near that much. A big part of the reason is energy use stimulated by increased corn cultivation and ethanol-industry logistics.
To some important extent, gasoline consumption reduced by the use of ethanol is offset by gains in ethanol-related demand for transport fuels, especially diesel because so much corn and ethanol moves by rail and truck. Last year, according to EIA, demand for distillate oils, the category that includes diesel, increased by an estimated 70,000 b/d—coincidentally, the same amount by which total US demand is estimated to have grown.
The promise implied by the wildly successful politics of ethanol is that reliance on imported oil will decline as a direct function of increased use of ethanol.
It didn’t happen in 2007. It won’t happen in 2008.