July 07, 2010
Ken Silverstein
EnergyBiz Insider
Editor-in-Chief
The BP oil spill could give biofuels the bump they need to fuel America's automobiles and hit the road running. Ethanol advocates are saying that they are ready to step up production, although others are cautioning against the move.
Federal policies already favor ethanol production as a way to lessen the dependence on foreign oil and as an innovative to way to clean the air. Critics say that such as strategy is not working, however, pointing out that because most of today's ethanol is made from corn, it is causing food shortages. They are also saying that it is not as clean as it purports to be. Greening the transportation sector, they argue, centers for now on electric cars.
"More than anything else, this economic and environmental tragedy -- and it's a tragedy -- underscores the urgent need for this nation to develop clean, renewable sources of energy," President Obama said after the BP oil spill. "Doing so will not only reduce threats to our environment, it will create a new, homegrown, American industry that can lead to countless new businesses and new jobs."
That could be construed as an implicit endorsement of ethanol, which currently enjoys broad support in the U.S. Congress. The Energy Act of 2007 laid out a plan to grow ethanol use from a base of 6.5 billion gallons to 15 billion gallons by 2015 and 36 billion gallons by 2022.
Federal law also gives generous tax breaks to ethanol producers, providing them with $3.2 billion in all, says the U.S. Energy Information Administration. The result has created a skewed marketplace. Farmers are replacing other crops with corn, thereby creating shortages of other food products.
Ethanol's stock is also expected to rise in light of the oil's woes. The president is now enforcing a ban on new deepwater drilling for at least six months. That equates to stopping 33 deepwater exploratory wells in the Gulf of Mexico not to mention those that would have gotten underway in Alaska, the Pacific and the Atlantic.
Advocacy groups representing the ethanol sector have been quick to gear up, trying to make clear distinctions between oil slicks in the Gulf and wheat fields in the Midwest. In the short run, some of them are calling for a greater blend of ethanol in fuel tanks. Right now it is 10 percent but they are saying 12 percent is now doable, although critics say that such an increase would harm engines.
"Increasing America's ability to fuel itself through the use of domestic renewable fuels in and of itself will not solve all our problems," says Bob Dinneen, head of the Renewable Fuels Association. "Nor would it have prevented this most recent oil tragedy from occurring. But with sound policies and forward thinking, it can greatly reduce the likelihood of such an event occurring again by reducing demand for oil."
Slow Down
Slow down, say ethanol detractors, who fear that Congress is just trying to appease the powerful agricultural lobby. They are also saying that the amount of energy it takes to convert corn to ethanol produces less power and more emissions than if oil is just refined and combusted. That's something contradicted by other studies including one by the International Energy Agency in Paris.
The Environmental Working Group says that reducing fossil fuel use and greenhouse gas emissions is a top national priority -- one that must be met without adding to environmental degradation, poverty or hunger. The desire to increase ethanol production as a means to achieve energy independence is wrongheaded, it says.
"Over three-quarters of the tax credits the federal government provides for renewable energy goes to corn ethanol," says the Environmental Working Group. "This despite growing evidence that corn ethanol won't make a dent in fossil fuel use, does little to reduce greenhouse gas emissions, and threatens our soil, water and wildlife habitat."
Expanding drilling rights won't help much either, adds the Union of Concerned Scientists. At present, the country currently consumes about 20 million gallons of oil a day. And if the additional exploratory rights are eventually lifted, it would add very little supply to the mix -- all at a great cost, as the BP oil spill now shows, it adds.
By contrast, the Obama administration's new fuel economy standards will do much more to encourage conservation and therefore help cut the overall costs of driving, say the scientists. Obama's Environmental Protection Agency and Department of Transportation have written federal rules requiring vehicles to travel an average of 35.5 miles per gallon by 2016 and 42 miles per gallon by 2020.
The conversation then circles back to ethanol and whether it should be subsidized, particularly to the tune of billions per year. If it can supplant foreign oil and diminish greenhouse gases, then a strong case can be made. But if that is wishful thinking that leads to adverse consequences, then the overall policy needs to be rethought.
Part of the dialogue invariably turns to whether the national emphasis -- and government's limited resources -- should be placed on the electric car. That industry says that in the decades to come such cars could comprise 40 percent or more of all vehicles on the road. Here, utilities say that they stand ready to serve.
"We are positioning ourselves for this market," says Jim Rogers, chief executive of Duke Energy.
If the BP oil spill proves anything it is that alternatively-fueled vehicles must become a national priority. While the choices could be wide-ranging, ethanol and electricity are angling for position. Regardless of which technologies prevail, it has become clear the country cannot sustain its current oil consumption without adverse consequences.
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