Ethanol

[Graeme]

It is not often that The Economist finds itself in agreement with Fidel Castro, but when he roused himself from his sickbed last week to write an article criticising George Bush’s unhealthy enthusiasm for ethanol, he had a point. Along with other critics of America’s ethanol drive, Mr Castro warned against the “sinister idea of converting food into fuel�. America’s use of maize to make ethanol biofuel, which can then be blended with petrol to reduce the country’s dependence on foreign oil, has already driven up the price of maize. As more land is used to grow maize rather than other food crops, such as soy, their prices also rise. And since maize is used also as animal feed, the price of meat goes up too. The food supply, in other words, is being diverted to feed America’s hungry cars.

Ethanol is a fuel additive in America, and a growing number of cars can use either petrol or ethanol. It accounted for only about 3.5% of American fuel consumption last year, but production is growing by 25% a year. That’s because the US government subsidises domestic production and penalises imports. As a result refineries are popping up like mushrooms all over the American mid-west, which now sees itself as the Texas of green fuel.

Why is the government so generous? Because ethanol is about the only alternative-energy initiative that has broad political support. Farmers love it because it provides a new source of subsidy. Hawks love it because it offers the possibility that America may wean itself off Middle-Eastern oil. The automotive industry loves it because it reckons that switching to a green fuel will take the global warming heat off cars. The oil industry loves it because the use of ethanol as an additive means that it is business as usual, at least for the time being. Politicians love it because by subsidising it they can please all those constituencies. Taxpayers seem not to have noticed that they are footing the bill.

But maize-based ethanol, the sort produced in America, is neither cheap nor green. It requires almost as much energy to produce (some say more) as it releases when it is burned. And the subsidies on it cost taxpayers somewhere between $3.5 and $7.3 billion a year.

Ethanol made from sugar cane, by contrast, is good. It produces far more energy than is needed to grow it, and Brazil, the main producer of sugar-ethanol - has plenty of land available on which to grow sugar cane without necessarily reducing food production or encroaching on rainforests. Other developing countries with tropical climates, such as India, the Philippines and even Cuba could prosper by producing sugar ethanol and selling it to rich Americans to fuel their cars.

There is a brighter prospect still out there: cellulosic ethanol. It is made from feedstocks rich in cellulose, such as wood, various grasses and shrubs, and agricultural wastes. Turning it into ethanol requires expensive enzymes, but much research is under way to make the process cheaper. Cellulosic ethanol would be even more energy efficient to produce than sugar ethanol and would not impinge at all upon food production. Eventually, it might even allow countries with lots of trees and relatively few people, such as Sweden and New Zealand to grow their own fuel rather than import oil.

Meantime, if America stopped taxing good ethanol and subsidising bad ethanol, the former would flourish, the latter would wither, the world would be greener and the American taxpayer would be richer.

Ethanol is not going to solve the world’s energy problems on its own, but its proponents do not claim that it will. Ethanol is just one of a portfolio of new energy technologies that will be needed over the coming years; good ethanol that is - not the bad stuff America is so keen on.

The Economist

[Dave A]

The automotive industry loves it because it reckons that switching to a green fuel will take the global warming heat off cars.

Surely ethanol still produces greenhouse gases?

Great article though. The argument against converting maize into fuel seems to be popping up everywhere.

[duncan drennan]

Great article though. The argument against converting maize into fuel seems to be popping up everywhere.

A little while ago I came across the R-Squared Energy Blog, which mainly covers topics around oil related energy issues. There is a post, "Cellulosic Ethanol Reality Check" if you are interested.

[Graeme]

Fascinating - clearly this is a biiiiig subject. Know of any SA blogs about ethanol? They are going ahead with at least one maize-ethanol plant near Bothaville that I am aware of.

[duncan drennan]

I don't know of any South African blogs on this (and couldn't find any with a quick search), but you can try searching around on Technorati

EDIT: Found this post

[Dave A]

Trader Vic on Fin24 has been scathing on the financial viability of biofuel production in South Africa. For a start, there are rather severe challenges in respect of available quantities and the price of the raw materials.

I'll see if I can scratch out past issues, but the term "white elephant" seems to apply so far.

[Yvonne]

There is an article about bio-diesel in Noseweek - 12th April.
Please also search the internet on Monsanto and Eastern Cape.
Yvonne

[Dave A]

Here's Trader Vic's latest contribution on the subject. If you follow the link, he also has something to say on financial criminals and interest rates.

AFTER LAST MONTH'S FOUR-DAY bio-fuels conference, investigative journalism from Naboomspruit to Bothaville - and several admissions and denials by role players in the industry - there's now at least certainty for investors who risked their money on this new green wonder opportunity over the past year.
Bio-fuels - whether in the form of ethanol from maize or bio-diesel from one or other plant oil - can't currently be produced profitably in South Africa.

As long as the price of crude oil is at around $70/barrel, ethanol can only be produced profitably from maize in SA if the latter's price is around R700/t. That won't happen soon, at least not in 2007 or 2008.

Bothaville's Ethanol Africa's initial investment of around R24m, which they obtained from trustful farmers, has almost all been used up. The group is now seeking a new investor ready to lay R500m of venture capital on the table and a banker who'll advance another R500m.

Until that happens building work at the Bothaville site will be rather quiet - as quiet as Ethanol Africa is about who the investor and banker will be.

De Beers Fuels of Naboomspruit now says that they're actually a bio-fuel research organisation or laboratory. They admit that plant oils produced in SA, such as sunflower and soya, are far too expensive and scarce to use as input for the manufacture of bio-diesel. SA can't even import plant oil cheaply enough to produce bio-diesel.

Investors in De Beers Fuels' shares, as well as the franchises they sold so merrily, will now have to wait patiently for the new miracle brewing up in their laboratory.

Apparently the new wonder plant - algae, which is being developed by them - will be so successful that all the buyers of plants to produce bio-diesel themselves will be able to buy enough cheap algae oil from De Beer Fuels in two years' time to produce and sell diesel easily and profitably.

Trader Vic takes his hat off to De Beers Fuels founder Frik de Beer. If they manage to do that they'll deserve not only the Nobel Prize for Science, Economics and Peace, but even a town named after Frik de Beer.
full story from Fin24 here

[Yvonne]

Anyone "googled" on Monsanto and East London (South Africa) yet?http://www.environment.co.za/topic.asp?TOPIC_ID=503

[Graeme]

About when the production of ethanol was last discused here, the point was made that it takes more energy to produce a litre of ethanol than the litre contains.

The other afternoon, in a fascinating programme on TV it was mentioned that the same applies to petrol - it takes more energy at the refinery to produce a litre of petrol or dieselene than the litre contains.