Ethanol

[AFTiger 282]

Economics keep sticking its ugly nose into everything.

What effect will Ethanol and Corn have on Inflation?

by Tim McMahon

Unless you have been living under a rock you have probably noticed that the government has mandated that the gasoline you are pumping into your car these days has Ethanol in it now. You have probably also heard that it is good for farmers and the environment but lets look at all those factors and one more...

Is there a link between Ethanol and Inflation?

These days Ethanol is the hot topic in many different circles including conservation, farming, energy, and even in investment circles.

Ethanol is the latest additive to be used in gasoline. Throughout the years several different additives have been added to gasoline. Back in the 1940s tetraethyl lead was added to help boost the octane of gasoline creating the first “Ethyl” gasoline. But by the mid-1970's it was found that a thin coating of Lead dust was covering the earth from the exhaust fumes. And since lead was toxic to animals and especially to humans, lead was banned from gasoline in 1978. But refineries needed a new additive to boost octane. So, they began adding methyl tertiary-butyl ether (MTBE) instead. Which was the first “unleaded” gasoline.

Unfortunately, MTBE was found to cause cancer and as it leaked from underground gasoline storage tanks it found its way into local water supplies and so instead of dying of lead poisoning people began getting cancer. So once again the government mandated a change. The result of all this is that ethanol is now replacing MTBE in gasoline.

Talking about ethanol is good politics. Imagine a single topic where you can fight cancer, battle pollution, boost the economy, fight foreign oil dependence and help farmers all at once and you have Ethanol! And to top it all off Ethanol is renewable. So what’s the problem?

First of all, there is some debate as to whether leaking ethanol is any better than leaking lead or leaking MTBE. So ethanol might not be much of a solution to either cancer or pollution.

Secondly, there is a heated debate about the economics of producing ethanol i.e. whether it would be economically viable without government subsidies.

Thirdly, the energy content of ethanol is approximately two-thirds that of gasoline by volume. So it takes more ethanol to run your car than gasoline. Put another way, the more ethanol you burn the worse your mileage (mpg) will be. Ethanol is usually used in a blend known as E10, which is 10 percent ethanol and 90 percent gasoline. At levels higher than this your car needs to be readjusted to account for the lower energy content.

And since ethanol is made by turning starch or sugar from plants into alcohol it needs to be distilled and distillation requires heat. Heat requires energy, so there is a debate as to whether ethanol actually produces more energy than it requires to make it. So although it might reduce foreign oil needs it will increase the total number of gallons of gas burned and require more energy to produce.

Read more here

[JohnDeere 0]

Trade Truth

As Brazil Fills Up on Ethanol, It Weans Off Energy Imports

by: David Luhnow & Geraldo Samor, Staff Reporter for The Wall Street Journal

Rio de Janeiro, Brazil - After nearly three decades of work, Brazil has succeeded where much of the industrialized world has failed: It has developed a cost-effective alternative to gasoline. Along with new offshore oil discoveries, that's a big reason Brazil expects to become energy independent this year.

To see how, take a look at Gildo Ferreira, a 39-year-old real-estate executive, who pulled his VW Fox into a filling station one recent afternoon. Instead of reaching for the gasoline, he spent $29 to fill up his car on ethanol made from sugar cane, an option that's available at 29,000 gas stations from Rio to the Amazon. A comparable tank of gasoline would have cost him $36. "It's cheaper and it's made here in Brazil," Mr. Ferreira says of ethanol. If the price of oil stays at current levels, he can expect to save about $350 a year.

At current prices, Brazil can make ethanol for about $1 a gallon, according to the World Bank. That compares with the international price of gasoline of about $1.50 a gallon. Even though ethanol gets less mileage than gasoline, in Brazil it's still cheaper per mile driven. As a result, ethanol now accounts for as much as 20% of Brazil's transport fuel market. The country's use of gasoline has actually declined since the late 1970s. The use of alternative fuels in the rest of the world is a scant 1%.

Yet countries wanting to follow Brazil's example may be leery about following its methods. Military and civilian leaders laid the groundwork by mandating ethanol use and dictating production levels. They bankrolled technology projects costing billions of dollars, despite criticism they were wasting money. Brazil ended most government support for its sugar industry in the late 1990s, forcing sugar producers to become more efficient and helping lower the cost of ethanol's raw material. That's something Western countries are loath to do, preferring to support domestic farmers.

With government support, sugar companies and auto makers' local units delivered cost-saving breakthroughs. "Flexible fuel" cars running ethanol, gasoline or a mixture of both, have become a hit. Car buyers no longer have to worry about fluctuating prices for either fuel because flex-fuel cars allow them to hedge their bets at the pump. Seven out of every 10 new cars sold in Brazil are flex-fuel.

Brazil is also fortunate that sugar is the cheapest way to make ethanol and Brazil has the right conditions for growing the crop -- plenty of land, rain and cheap labor.

Despite these unique circumstances, Brazil's efforts are being closely followed by countries with big fuel bills. India and China have sent a parade of top officials to see Brazil's program. India, the world's second-biggest sugar producer behind Brazil, mandated in 2003 that nine of its states add a 5% ethanol mixture to gas. The Brazilian unit of Germany's Volkswagen AG, the first car maker to introduce a flex-fuel model in Brazil, has received 38 delegations from more than a dozen countries in the past year alone, VW officials say.

Brazil says its ethanol exports will likely double to $1.3 billion in 2010 from $600 million in 2005, largely to Japan and Sweden. These countries hope using ethanol -- which releases less carbon dioxide than fossil fuels -- will help them meet their obligations under the Kyoto Protocol to cut emissions.

The U.S., which currently imports 60% of its oil, is watching Brazil's progress, too. Three members of the Senate Energy Committee recently visited, and Sen. Hillary Clinton has cited Brazil as a role model in cutting dependence on imported oil. When President Bush made a recent stop-over in Brasilia, Brazilian leader Luiz Inacio Lula da Silva hosted a barbecue and described to Mr. Bush how the country has reduced its oil import bill, according to Brazilian officials at the meeting.

The most recent U.S. energy bill, signed into law in August, calls for more than doubling ethanol use by 2012. But U.S. ethanol, which is made from corn, costs at least 30% more than Brazil's product, in part because the starch in corn must be first turned into sugar before being distilled into alcohol. It may take the U.S. a few more decades to bring the cost of ethanol down to 80 cents a gallon -- equivalent to Brazil's most efficient producers -- according to the U.S. Department of Energy. U.S. trade barriers make Brazilian ethanol and its sugar expensive to buy.

Using carbohydrates instead of fossil-fuels to run cars is not a new idea. Henry Ford's first car was made to run on ethanol. So was the first spark-ignition car engine, developed by German Nicolas Otto in the second half of the 19th century. During World War II, the U.S., Brazil and other nations relied on ethanol to extend gasoline supplies. In the postwar period, however, gasoline was so plentiful and cheap that ethanol lost its allure.

'Strategic Challenge'

The first oil shock in 1973, sparked by an oil embargo amid war in the Middle East, rekindled interest. Months after Syrian and Egyptian tanks rolled into Israeli-held territory, the price of oil quadrupled. Few places were hit harder than Brazil, which imported 80% of its fuel at the time. Within months, Brazil's economy slid into recession. About 40% of its foreign-exchange income was used to import oil.

"We faced a clear strategic challenge: How would we develop without oil?" recalls Eduardo Pereira de Carvalho, a finance ministry official at the time who now heads the São Paulo state sugar-growers' federation.

In 1975, Brazil's military leader, Gen. Ernesto Geisel, ordered that the country's gasoline supply be mixed with 10% ethanol, a level Brazil steadily raised to 25% over the next five years. That meant the same amount of gasoline would last longer. It also allowed Brazil to pay for fuel with local currency, in the form of payments to farmers.

To help the nascent industry, the government gave sugar companies cut-rate loans to build ethanol plants and guaranteed prices for their product. Sugar companies were delighted with the new market, which helped when prices were low. The government also funded Urbano Ernesto Stumpf, an ethanol researcher at a Brazilian Air Force laboratory, who was developing a car that would run on ethanol alone.

In November 1976, three ethanol-powered cars created by Mr. Stumpf -- a Beetle, a Dodge and a Brazilian car called a Gurgel -- embarked on a 5,000 mile trip from the air force's research lab in the southeastern state of São Paulo to the northern city of Manaus in the heart of the Amazon. The trip, christened "The National Integration Rally," aimed to demonstrate to Brazilians that ethanol really worked. When the government ordered state-owned companies to test ethanol engines in their fleet, the São Paulo state telephone company converted 400 gasoline cars into ethanol ones. They displayed the logo: "Powered by Alcohol."

After the 1979 Iranian revolution caused the world's second oil-price shock, Brazil sped up its efforts, initiating what became known as the Proalcool program. In Brazil, ethanol is called "alcool" (pronounced OWL-coal).

Brazil's new leader, Gen. Joao Baptista Figueiredo, ordered sugar companies to ramp up production. He also required state-run oil giant Petrobras to make the fuel available at filling stations. Car companies received tax breaks to get ethanol-powered vehicles into showrooms. By the end of the year, Italian car maker Fiat SpA was offering an ethanol-only car for sale. Within a year, every foreign and domestic auto company in Brazil had followed suit.

Big Hit With Consumers

The cars were hard to start on cold mornings because ethanol burns at a higher temperature than gasoline. Creating a fuel with 10% ethanol makes little difference to a car's performance, but anything above that, researchers have found, can cause problems. The mixture can corrode metal engine parts because of its high water content, for example.

Nonetheless, the cars were big hits with consumers, largely because government price supports made the fuel 35% cheaper than gasoline at the pump. Ethanol also helps acceleration, an advantage in a country where Formula One racing is a national passion. By 1983, nine out of every 10 new cars sold in Brazil ran on ethanol alone.

While motorists grew fond of the made-in-Brazil fuel, there was a cost in the form of hefty government subsidies. Consulting firm Datagro, which counts Brazil's biggest sugar companies as its clients, estimates that Brazil spent at least $16 billion in 2005 dollars from 1979 to the mid-1990s on loans to sugar companies and price supports. The Datagro estimate doesn't include foregone revenue from tax breaks as well as other costs to consumers.

In 1986, after civilians replaced generals in Brazilian politics, the world price of oil plunged, endangering the government's pledge to keep the price of ethanol below that of gasoline. In the following years, the country was battered by hyperinflation, prompting the International Monetary Fund and other creditors to urge Brasilia to rein in spending. In 1989, President Jose Sarney started cutting ethanol price supports. Sales of ethanol cars plummeted and some Brazilians felt the entire experiment had been a waste.

But the ethanol market never dried up entirely, thanks largely to the decades of groundwork. Sugar companies continued to make the fuel and learned how to cut costs, encouraged by a state requirement that all gasoline be mixed with ethanol. Gas stations still offered the fuel, which is taxed at just nine cents a liter compared with about 42 cents a liter for gasoline, according to World Bank estimates.

While other countries were busy mapping the human genome, Brazilian scientists at the Centro de Tecnologia Canavieira, a research lab funded by sugar growers, were decoding the DNA of sugar cane. That helped them select varieties that were more resistant to drought and pests and yielded more sugar content.

The center is located in the heart of Brazil's sugar country, about two hours drive from São Paulo. Giant satellite images of sugar fields help researchers identify which variety will grow best in which part of the country, where to locate new fields and the best time to harvest. Over the past 20 years, the center has developed some 140 varieties of sugar, which has helped lower growing costs by more than 1% a year, according to Jaime Finguerut, the center's director of ethanol research.

Other improvements include using remains of processed cane to power sugar and ethanol plants, and using industrial waste from ethanol production to fertilize sugar fields. As a result, the productivity of Brazil's ethanol producers has steadily increased. In 1975, Brazil squeezed 2,000 liters, or about 520 gallons, of ethanol from a hectare, or nearly 2.5 acres, of sugar cane. Today, it's nearly 6,000 liters.

As gasoline prices soared in recent years, ethanol rebounded. By 2002, its price was again competitive with gasoline and old ethanol-only cars started recovering their prestige. Last year, thieves stole an ethanol-only, 1994 Ford Royale, owned by Francisco Baccaro Nigro, one of the engineers who helped develop ethanol-only cars. "I'm sure it's because ethanol is cheaper," Mr. Nigro says. "Thieves know this."

One last step remained. Some consumers were leery of buying ethanol cars because they weren't convinced the fuel would remain cheaper than gasoline.

A Cheaper Device

Fernando Damasceno, chief engineer at the Brazilian unit of Italian car parts company Magneti Marelli, thought the solution was to create cars that ran on either fuel equally well. Ford Motor Co. had offered flex-fuel cars in the U.S. since 1991 but the Brazilians thought its flex-fuel device expensive and cumbersome.

Mr. Damasceno created a cheaper device by programming a standard car computer to constantly calculate the mixture of ethanol versus gasoline in the tank and adjust the engine accordingly. In 2002, the team sold the device to Volkswagen, which introduced its flex-fuel Gol the next year. Mr. Damasceno's black box is now sold by five major car makers in Brazil. Even Ford's Brazil unit uses the Damasceno device.

In Ford's newest ad in Brazil, an indecisive young boy can't decide between a pair of brown and red shoes. As a teenager, he can't pick between a blonde and a brunette at a party. The ad ends with the young man pulling up to a gas station in his Ford Ecosport. The attendant asks: "Alcohol or gasoline?" The man, happy he doesn't have to choose, raises two fingers, signifying

[AFTiger 282]

Because it is made from sugar cane, we can't import it without import duties. The US sugar industry is protected.

[CCTAU 3,346]

Because it is made from sugar cane, we can't import it without import duties. The US sugar industry is protected.

I think if its imported for non-sugar use, there might be an exception. Ethanol will never work. It's a great idea, but there's no way to supply enough of it. Short of a revolutionary new fuel source, we are stuck with what we got. I like the sound of biodiesel, but they want more for it than regular diesel. And its currently made from soybeans. We still don't have enough land to grow corn and soybeans to create fuel and have enough left over for food. I sure as heck don't want to import all of our food so we can "grow" fuel.

[JohnDeere 0]

30 years ago, I bet some guys in Brazil said it was impossible.

Well, I've been to the CENTCOM AOR and I didn't see any freakin Brazilian soldiers. I wonder why?

[CCTAU 3,346]

30 years ago, I bet some guys in Brazil said it was impossible.

Well, I've been to the CENTCOM AOR and I didn't see any freakin Brazilian soldiers. I wonder why?

One thing they failed to mention was the lack of environmental controls put on the autos and manufacturing plants in Brazil. You go to Sao Paulo and can barely breath for all the fumes in the air. The cars are small and for the most part would not pass our safety standards. Yes 30 years ago some guy in Brazil may have said it, but even he did not have the tree huggers against him when it comes to all of the enviro issues faced with producing this fuel. And don't even forget that Brazil has a lot more farm land to use with a better climate for producing the plant needed for this.

So my statement still stands. Unless we come up with some super technologies, we cannot do what Brazil has done. And just because they did it does not mean we can. We have too many restictions in our way to even begin.

Go to Brazil and see how well this is working. Don't go the Rio, go to the other parts. Not even close to the country we have. Yes, its a great feat to do what they have done, but its apples and oranges.

[AURaptor 1,126]

Burning corn for fuel isn't the answer.

[Tiger Al 0]

Burning corn for fuel isn't the answer.

What is?

[channonc 466]

Burning corn for fuel isn't the answer.

What is?

Why middle east oil of course! Oh wait, we invaded Iraq to "stop" the terrorists, it had nothing to do with oil!

[Tiger Al 0]

Burning corn for fuel isn't the answer.

What is?

Why middle east oil of course! Oh wait, we invaded Iraq to "stop" the terrorists, it had nothing to do with oil!

Hold on, now! He may say something really original like ANWR!

[AURaptor 1,126]

Hold on, now! He may say something really original like ANWR!

Absolutely is part of the answer. So is exploration for oil in the Gulf of Mexico.

But why are you so cynical w/ your remark about anwr ? That IS exactly what that patch of land was set aside for. If the world is fine w/ allowing Iran to take over Iraq, then we should do everything we can to flood the market and lower the prices.

[AFTiger 282]

Arctic National Wildlife Refuge

Click on the link for a map.