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Wednesday, January 31, 2007

George Bush is Wrong on Energy Policy

I have really been disappointed with the US Republicans; I had hoped they would support market solutions more than they seem to do. Here is some very good insight from John Lott, first on Ethanol:

Ethanol costs well over $100 per barrel. Oil costs about $50 per barrel. You are throwing out $50 for each barrel of ethanol you buy (actually it is even more than that since the energy produced by burning a barrel of ethanol is apparently less). Bush’s and the Democrat’s policy on this will just make us much poorer. I know the responses: that the price of ethanol is coming down. But that doesn’t justify a subsidy. Firms can take that into account just as they do with any other product. If they think that cost will come down enough that it will pay for them to produce the product, they will start producing the product.

Right. If ethanol is such a great product, why won't private enterprise bring it to market? And don't tell me about CO2 emissions -- they'll be at least as bad with ethanol, all things considered.

Next, here is John Lott on energy security:

If gas is risky because oil might get cut off in a war or if there is a boycott, that causes the current price to rise to reflex that future higher price. That higher price then will be taken into account to see whether because of that risk we should be relying on other energy sources. The only justification that I can make for this last claim is that the threat of price controls prevent gas companies from profiting from those higher future prices and thus eliminate their incentives to do things such as store more gas today. The problem here then is the threat of government intervention in the market that is then used to justify more government intervention. There is no reason to believe that the government is going to get anywhere near to picking the right levels of investments here.

If there is concern that we are using "too much" gasoline, as I have said before, let's just tax the snot out of it (and cut taxes somewhere else, keeping the tax revenue neutral).

Posted by EclectEcon on January 31, 2007 in Current Affairs | Permalink

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Comments

You may want to read this:

http://www.american.com/archive/2007/january-0107/the-secret-of-viable-ethanol/

Posted by: Winston | 2007-01-31 6:37:35 PM


Lott is right that using up a bunch of energy to produce ethanol is crappy economics, but his price comparison of oil to ethanol is pretty stupid. Cars burn high-priced refined gasoline - not cheap crude. Send in a new pitcher.

Posted by: Zog | 2007-01-31 6:50:20 PM


I have to say upfront, that I know nothing of ethanol production, efficiency in IC motors, etc. As such, I don't have an opinion directly on the subject.

However, I take an exception with the attitude

"Firms can take that into account just as they do with any other product. If they think that cost will come down enough that it will pay for them to produce the product, they will start producing the product"

This is *plain bullshit*.

I would like to see, which firm would have ventured into nuclear energy projects, if the government had not funded the first one (Manhattan) and had not subventioned ALL following projects, or who would have paid for the research of space technology (the basis for satellite TV, phone, etc.) if the government had not funded the basis through NASA.

*FACT* is, if humanity would rely on the "free market" in every aspect, we would scribble these posts on stone plates.

Posted by: Cato | 2007-01-31 7:59:24 PM


Ethanol is simply a farm subsidy. Like many kinds of welfare it does more harm than good and it's hard on the environment too. That's just obvious.

Posted by: Philanthropist | 2007-01-31 9:02:43 PM


Ethanol is a ploy to allow governments and quick-minded capitalists to placate the masses and make fast money respectively. Both the United States and Canada have federal and provincial/state governments that picked the 2 - 10% blends goal out of thin air, because A) It sounds like the government is serious on the environment, B) It will end our dependance on foreign oil and C) They had no concept of how to get it done. Every ariable acre of land in North America, put into ethanol or bio-fuel production would return less than half of the energy the populace consumes today. Not to mention the fact that this current plan requires us to use a food source as an energy source, which in turn means it costs more to feed ourselves.
Think about the long run folks. Until we as a people become less dependant on energy, or more willing to embrace a technology with a higher rate of return, ie. nuclear; sinking money into ethanol and bio-fuel production will cost as much or more than transfering money to Russia through Kyoto.

Thank-you

Posted by: Jerry Reed | 2007-02-01 9:22:48 AM


"Not to mention the fact that this current plan requires us to use a food source as an energy source, which in turn means it costs more to feed ourselves"

Here is the news: there is a constant excess on agricultural products in North America.

"Until we as a people become less dependant on energy"

So much should be clear already even to the dimmest minds:

*there is no single solution out there*

(perhaps a nuclear war halving the population and rendering automobiles superfluous, but let's not count on that)

This means, that several, independent ways have to be devised, tried, adopted.

"or more willing to embrace a technology with a higher rate of return, ie. nuclear"

"Higher rate" than what? There is no reason concentrate on "higher rate". Anything higher than 100% can be good.

There are several virtually untested areas, like tidal energy, and most importantly the inexhaustable heat energy of the earth, which has never been even contemplated seriously. Isn't it a shame, that we could go to other planets already, but we can't use the energy only twenty miles from us?

Posted by: Cato | 2007-02-01 10:53:38 AM


Jerry,

Well said.

But have you ever considered how much energy could be harested, if all cars, instead of being painted, had solar pannels on their exterior?

And, have you ever considered how much energy could be harested, if every single building had solar pannels.

Seems to me that most of our day to day enery issues could be resolved, if all mechanisms for the production of energy, were combined, instead of this piece meal approach.

For example, there was a practice used in China, that turned Sewage (human poop if you will) into methane. We know that when sewage breaks down, there is a natural production of methane. Every single house could actually produce a significant quantity of methane. And every single business and so on and so forth, to the point where this methane could greatly reduce our dependancy on ME oil. When you combine that with all other technologies, solar, wind, tidal, ethanol, dams, you have a combination that is renewable, useable, affordable, and acheivable. None, on their own, does the trick. Then again, oil on its own, also does not do the trick.

Combine all these green technologies, plus using farm byproducts for generating energy, and you have a total system, that is everything we need.

Although the oil industry would probably get upset about this, it is very true that their lives, their futures, their existence, is also dependent on merging these changes, successfully. Instead of going whole hog and extracting all the oil from the ground, it could be said that oil as it is, is a resource that should be conserved, if at all possible.

Posted by: Lady | 2007-02-01 12:05:41 PM


Ethanol costs more than gasoline and one doesn't get quite as much mileage per gallon.

Nonetheless, ethanol has proven VERY profitable for tropical countries such as Brazil, where it is made from cane-sugar.

They began their programme back in the 70s, following the oil shocks, and as of 2006 the consumption of ethnaol( now some 54% of pump purchases) surpassed that of gasoline.

Brazil is a very large country of some 200,000,000 and has millions of automobiles, more than half of which have now been freed up from oil dependancy.

That's quite an achievment, but the real silver lining is this: has anyone heard of any jihadist activities taking place in Brazil, lately?

Does anyone know if there's been any calls for sharia in....say....Rio?

Have any Jewish schools or Jewish community centres been attacked or fire-bombed?

Any word on riots or beatings of life-guards at Copacabanna beach? Were you to pass a whole week there, would you even spot a single head-scarf?

What about the establishment of fundamentalist madrassas and koranic schools? Has anyone seen anything at all in the Brazilian news about that?

Lastly, is there a "Little Mosque on the Amazon" that anyone may have heard about or even watched?

To the extent we rely on mid-east oil, these problemes are part and parcel of the hidden cost of a gallon of gas.

I'm in favour of breaking that dependancy through any means possible.

Ethanol could be ONE of those means, among others.

Posted by: John Palubiski | 2007-02-01 5:25:00 PM


Ethanol and CO2

Ethanol combustion produces only slightly less CO2 per BTU than gasoline. If you only look at end use, you get the FALSE impression that it is a wash. the advantage is that ethanol production (ie growing corn) sucks up all that CO2.

Ethanol also diverts petro dollars away from terror sponsoring states.

Now, how do you price those benefits using market mechanisms?

Posted by: pete e | 2007-02-01 6:07:31 PM


pete e

I understand what you mean when you say "sucks up all that CO2", although, we don't grow enough corn in Canada for this, and guess where we're going to buy it from, those big bad Americans, so we'll eventually need more cornfields, and if making ethanol is about the enviroment, millions of rows of corn isn't a very good ecosystem, for all our happy little critters.

Posted by: Butcher | 2007-02-01 7:21:41 PM


This "sucking up all that CO2" is by far not so simple.

There are vastly different estimations for the efficiency of the entire cycle, which has to include the production of fertilizer, energy used on the fields, transportation, conversion, etc.

I saw an estimation stating, that only 25% of the produced CO2 will be recycled; this may be vastly exaggerated. Another estimation promises 38% net energy gain from the cycle, which sounds good, but this too may be exaggerated.

Anyway, regarded that the corn-ethanol cycle is based on solar energy and heat in the atmosphere, it is questionable if it pays to go this complex way, instead of covering the fields with solar panels.

Posted by: Cato | 2007-02-01 9:37:10 PM


Has nobody pointed out that ethanol at US$100/bbl is in competition not with crude, but with reg gas at US$64/bbl? I agree with the analysis but the comparison should be apples-to-apples.

Posted by: Jim Whyte | 2007-02-02 10:37:16 AM


Butcher,

Crop rotation solves the problem.

Our farmers have been dependent on wheat farming. Some years though, the international price of wheat drops, and they suffer immensly. By rotating the crops, we can cash in on local economy for ethanol producyion, to off-set losses in the international wheat market, when other nations have bumper crops.

Besides, the chaf that is left over, can be fed to cattle. It makes the meat taste better than wheat left-over products.

Posted by: Lady | 2007-02-02 11:39:51 AM


Cato,

Go back to school.

You clearly do not comprehend what is meant by "sucking up CO2".

Heat, like Zen, happens no matter what the crop is.

Posted by: Lady | 2007-02-02 11:41:48 AM


The End Use figure on CO2 is still a wash because the CO2 being consumed by the growing corn is currently being consumed by what is growing in those fields anyway. We're not tearing up asphalt or concrete to put more land back into agricultural production on this continent. Although if we continue on this organic trend; based on the same faulty logic as ethanol and biofuels, we're going to need a lot more cultivated land just to feed ourselves, let alone the rest of the world population that survives on North American food production.
I reiterate my initial point; On paper the conversion to and production of ethanol and biofuels can work. However in reality, without changes in our overall energy requirements(desires) and a move to accept new (green or otherwise) and previously scary (nuclear) energy production, the entire exercise is a wash.
Investing in biofuel production at this point, without a commitment to alter our energy consumption/production is simply another example of governments flushing our money down a drain so they can tell the David Suzuki's of the world they tried.
Personally I believe that a goal or idea conceived without looking at the big picture or ramifications is more dangerous than not having an idea at all.
This whole exercise is one more example of the human creature in all of it's lazy glory, trying for the easy way out. A solution that requires no change of behaviour or commitment to improve through sacrifice. History has taught us many times over, that such an approach ALWAYS leads to failure.

Posted by: Jerry Reed | 2007-02-02 11:55:34 AM


OK Jerry, why is it no one has produced a car that runs mainly off of solar energy?

Posted by: Lady | 2007-02-02 12:54:53 PM


"The End Use figure on CO2 is still a wash because the CO2 being consumed by the growing corn is currently being consumed by what is growing in those fields anyway"

This is not so simple. Different plants have different dry mass on the same field, and corn is among those with the highest dry mass.

On the other hand, only part of that can be used in ethanol production; the question is, what happens with the rest.

Anyway, ethanol from corn may not be a viable way in Canada, though it may be a good solution elsewhere.

"This whole exercise is one more example of the human creature in all of it's lazy glory, trying for the easy way out. A solution that requires no change of behaviour or commitment to improve through sacrifice"

That's right, unfortunately. Hysterical reactions by politicians are the norm, for they will be honoured by the simple-minded voters.

However, the ethanol or not ethanol issue has nothing to do with the overall concept of reducing the energy dependency. Finding alternative ways of providing energy is necessary, independently of other aspects.

I disagree with the idea, that one should not do anything before the "grand final design" is presented and accepted.

Posted by: Cato | 2007-02-02 1:37:12 PM


Solar powered cars do exist. They are not widely available or accepted by consumers. They and most electric or hybrid cars, do not produce the power of the conventional internal combustion engine. That's where the reference to people having to change their wants/needs/desires comes in.
Cato - I never used the phrase 'grand final design'. I simply said that a good decision is made with more forethought than the next sound bite.

Posted by: Jerry Reed | 2007-02-02 1:48:42 PM



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