March 25, 2011
The Energy Myth That Won't DieBy Jerry Shenk
The renewed prospect of $4.00 or even $5.00 per gallon gasoline has brought greater urgency, if not clarity, to a debate about national energy policy.
Predictably, the response of liberal energy navel-gazers has been off the mark. According to this group, the answer to the liquid motor fuel supply problem is...more ethanol.
Ethanol remains a case study in poor choices and the negative effects of government intervention in markets. The problems with alcohol-based "renewable" fuels are well-documented. Both corn-based and cellulosic ethanol have significant drawbacks, not the least of which is that artificial demand for corn to produce ethanol is driving up global food prices and contributing to civil unrest in parts of the world.
Using carbohydrates to replace hydrocarbons is not nearly as simple as the words politicians use to promote the practice, and the outcomes from converting carbohydrates to fuel are not as benign as they would have us believe.
Not only is the EPA prepared to authorize an increase in the domestic ethanol mandate from 10 percent to 15 percent, there is pressure to authorize importation of foreign-sourced ethanol.
A several-year-old ethanol scheme has recently attracted more interest - a demand to open American energy markets to Brazilian biofuel. Some call the Brazilian product "the good ethanol."
If we're smart, we'll kill this monstrous idea - and quickly.
Brazil, the world's largest producer of sugar, uses much of its sugar to produce ethanol, a process which bypasses the prior distillation of corn to sugar. American advocates of importing Brazilian ethanol ignore two inconvenient facts: Not only does Brazilian cane ethanol have the same problems as corn ethanol, Brazil has proven that, even by removing a step in the manufacturing process, ethanol is not a competitive fuel.
Brazilian ethanol has been a nightmare of impracticality. Production began in the 1970's as a response to the Arab oil embargo and to use only surplus sugar. Over the years, the Brazilian ethanol program morphed into a national energy policy. In order to "support" their expanding ethanol market and to make up for ethanol's fuel efficiency deficit, Brazil mandated flex-fuel vehicles and taxed ethanol at a rate less than gasoline (America taxes ethanol motor fuel content at the same rate as gasoline). Early on, Brazil mandated a 20-percent ethanol fuel mix for gasoline. Today, many vehicles in Brazil use mostly or only ethanol fuel. Brazil also nationalized their oil industry and generously and expensively subsidized ethanol production.
Surely, such massive government intervention in at least two markets would be sufficient to insure the success of ethanol.
Since their ethanol program was conceived and implemented, Brazil has begun to aggressively develop newly-discovered offshore petroleum reserves. Petroleum development would be unnecessary if the Brazilian ethanol experiment had been successful. Environmentalists should note that the new Brazilian petroleum operations lie offshore some of the world's most pristine beaches.
The Brazilian experience with sugar-based ethanol has proven that alcohol fuels can't compete effectively in markets fixed to favor them, much less in open markets.
The socialization of ethanol in America and Brazil has encouraged large agricultural interests to acquire smaller farms and erode the family farm tradition in both countries. Other unintended consequences of both American and Brazilian ethanol policies are priceless -- as in unaffordable: The United States is the world's largest producer of ethanol from corn; Brazil is the world's largest producer of sugar cane ethanol. The world prices for both corn and sugar are currently at or near historically high levels, demonstrating the effects of artificial ethanol demand complicated by the vagaries of supply. The petroleum market works in the same way, except that the demand for petroleum, a single-use commodity, is practical, as is the development of untapped reserves by private investment.
The hypocrisy of elected officials on energy policy is staggering. Politicians demand more ethanol while preventing domestic petroleum exploration and production.
The price of oil recently exceeded $104 per barrel before retreating. It may go higher in the future, yet alternative energy advocates continue to tell us that we need not find and consume far more American gas, oil and coal. By denying practical supply sources, progressive energy policies play into the hands of some of the world's worst and least stable petroleum-producing countries.
At the same time, progressives denounce NAFTA and open trade with Mexico and Canada, our largest and best non-domestic sources of natural gas and oil.
Most American consumers favor free energy markets. They understand that, without overly-oppressive regulation and political obstacles to conventional sources of energy, free-market private investors and technological innovators accessing American energy resources can solve America's fuel-scarcity problems as well as associated environmental concerns.
Nevertheless, politicians prefer tinkering in energy distractions that are largely relevant only in the problems they create and the campaign donations they produce. If wind, solar, biofuels, wave power and other alternatives to hydrocarbon-based sources were economically viable and competitive in energy markets, all would be made available by "greedy" private investors without government subsidy. It is only government-enforced taxpayer investment in these alternatives that attracts private money interests. The real greed lies, mutually, in private "investors" chasing public funds for private profit with the complicity of politicians. Politicians promote energy alternatives and then harvest campaign cash from the recipients of taxpayer handouts. It's an insiders' game, a closed loop: politicians and rent-seekers are playing taxpayers and consumers for chumps on marginally viable and impractical alternative energy sources.
Any rational American energy policy must begin with carbon-based energy.
Our dependence on oil is one of necessity. The world's energy demands are simply too great for energy alternatives to provide much offset.
If the world is to move away from petroleum, radically new energy technologies must be developed. In the meantime, the most potentially successful solutions to lowering liquid fuel costs are the things progressives and many politicians oppose: increased exploration and responsible exploitation of our own fossil fuel-based energy resources offshore, in ANWR, in the Bakken Layer, in Marcellus Shale deposits and elsewhere in and around America.
The truth is that the best way to lower energy -- and, as a byproduct, food -- costs and to increase energy availability is to increase the supply of conventional, practical, domestic energy assets.