PRICE IMPACT: An analysis from M.I.T. finds that blending corn-based ethanol into gasoline supplies is not reducing prices.
Image: USDA.gov
The renewable ethanol fuel blended into the United States' gasoline supply does not lower prices at the pump as advocates have claimed, according to a study released this week by the Massachusetts Institute of Technology.
The paper critiques earlier studies sponsored by the Renewable Fuels Association (RFA), which found that mixing ethanol with transportation fuel reduced gasoline prices by 89 cents in 2010 and $1.09 in 2011.
"The RFA and Secretary of Agriculture are relying on the [papers] for policy recommendations, and once I started seeing signs and billboards all around D.C. pop up with the same numbers, it became important for me to set the record straight," said Christopher Knittel, a professor of energy and economics at MIT and lead author of the report.
Today, ethanol made from corn makes up about 10 percent of all U.S. gasoline, up from 3 percent in 2003. Industry groups have maintained that increased ethanol production supports farmers, improves energy security, lowers greenhouse gas emissions and saves money at the pump.
But the MIT paper found that ethanol production has almost no impact on gasoline prices. According to Knittel, the RFA reports are flawed because the statistical models omitted important variables and made flawed correlations -- in this case that as ethanol production increased, the ratio of gasoline to oil prices fell.
"We just took their exact statistics model, and instead of using the ratio of oil prices to gasoline prices, we plugged in variables we know ethanol can't affect," he said. "We found that if you use their flawed statistics model, one would find that ethanol reduced natural gas prices, increased unemployment in the U.S. and Europe, and increased the age of our children."
Matt Hartwig, RFA's director of communications, pointed out, however, that the cost-savings were derived from the model used in a 2009 peer-reviewed study. It was accepted that introducing more ethanol expands fuels supplies, reduces the amount of imported oil and lowers the price of gas.
"It's the tone of the paper that belies more than anything perhaps a personal vendetta or grudge rather than intellectual process," Hartwig added. "It seems to be heavy on snark and light on substance."
Congress still pondering
Knittel's economic critique of ethanol comes as Congress continues to debate government policies on alternative vehicles and alternative fuels, including the renewable fuel standard ethanol blend mandate, or RFS. The updated RFS2 program requires that 36 billion gallons of renewable fuel be blended into transportation fuel by 2022.
At a House Energy and Commerce Subcommittee on Energy and Power hearing yesterday, subcommittee Chairman Ed Whitfield (R-Ky.) said that the RFS program "has worked well in several respects." But, he added, alternative energy technologies required greater congressional scrutiny in order to ensure an "all-of-the-above approach" rather than energy policies that favored one particular fuel over another.
Rep. Joe Barton (R-Texas) said that if the goal of the RFS is to reduce dependence on foreign oil imports and improve environmental quality, then natural gas and clean coal technology should be given greater consideration.
"Although clean coal and natural gas are not renewable in the classic sense, certainly they would reduce emissions. I'm puzzled," he said. He added that some studies have suggested that the low energy density of ethanol would perversely lead to greater amounts of greenhouse gas emissions.
Citing the recent record-breaking drought that has struck two-thirds of the country, Rep. Bobby Rush (D-Ill.) maintained that biofuels and the RFS are important parts of U.S. climate policy.
See what we're tweeting about
18 Comments
Add Comment"Our concern is that it could undermine the consumer pull for these fuels. ... What's the value of spending billions and billions equipping vehicles to handle high flex fuels if the consumer is not going to continue to use that fuel?"
Reply | Report Abuse | Link to thisIt seems to me that the consumers have little real choice but to use that fuel. When I go to the gas station, I do not see anything but gasoline with 10% ethanol available anyway. If it is available, I would like to know where to get it.
In addition, the current drought promises to raise fuel prices independently of oil prices because a lot of the ethanol comes from corn. So what is the real benefit?
I am shocked, shocked I tell you. EtOH from corn is a joke and we consumers are paying for it. Politics at its worst. Remove subsidies and corn as a source will disappear and this will help bring food prices under control.
Reply | Report Abuse | Link to thisYou really can't by gasoline without ethanol? I'm in the middle of Iowa and we always have one pump with and one without at every station. Often it's one with and two without.
Reply | Report Abuse | Link to this"He added that some studies have suggested that the low energy density of ethanol would perversely lead to greater amounts of greenhouse gas emissions."
Reply | Report Abuse | Link to thisMy understanding is that ethanol has higher energy density than gasoline. However, internal combustion engines designed for gasoline get maybe 85% of the energy out of ethanol when compared with gasoline. What you need is a higher compression engine - like a diesel. I have no idea if an unmodified diesel can burn ethanol. Apparently, they can burn cooking oil.
So this report sheds light on a few things. I was wondering why with Oil prices down in the $80's why the cheapest regular is still averaging $3.25+. Just several years ago when oil prices were down in the $80's; Gasoline was in the high $2.75+ range. So is the ethanol now costing us consumers an additionl tax of 50 cents. I guess this hike isn't counted in the Price Consumer index either for inflation reasons...
Reply | Report Abuse | Link to thisIt never makes sense to burn perfectly good food.
Reply | Report Abuse | Link to thisEspecially when the fuel produced via industrial corn consumption appears to have no positive effect on fuel prices, no net effect on emissions when production of corn and conversion to ethanol is taken into account, and is an inferior fuel as compared to liquid fuels produced from fossil fuels.
The guys producing and selling corn do benefit. That explains the support of the corn growing states’ politicians. Unfortunately, the rest of the world pays for that benefit by having less food available, and by paying more for the food that remains.
Drug dealers have cut cocaine with various cheap powdery substances for decades, but this has never reduced the price for the so called product. It just brings in more income for the dealer or in this case the oil company. I guess at least ethanol at least burns so its not a complete loss.
Reply | Report Abuse | Link to thisAs for the price of gas. After the prolonged high oil prices in the late 2000's Americans have adjusted to $3 per gallon oil prices. Even though the price of oil itself has dropped, indicating adequate supply, consumers have proven their is still plenty of "demand" for gas at $3 per gallon so there is no rush for the oil companies to reduce the price.
BV, Noted and I believe that is true also. However this is after the"media" led us to believe for 40 years that the price of gasoline is tied to the price of oil. And yet no one now argues or disputes that claim. So as we all believed the price of something IS related to the demand (and supply) of that commodity (not to a few dollars swing in Oil Prices). Hmmm, could the "media" and politicians be misleading us on other things as well?
Reply | Report Abuse | Link to thisThe same as always. As long as the corporations can price things according to their greed and the public have no alternatives and government continues a policy of "The U.S. exists only as an engine for the obscenely rich to get obscenely richer", prices will never go down. Likely, there were many at the time warning that this was a pipe dream being foisted to sell the project, and they were attacked by shills for the corporations behind the scam. With so much farmland likely stolen from owners by corporations under "eminent domain" to produce corn for ethanol, and massive pipelines set up for its transport, it may be "too late to turn back". And it was a supposedly environmentally aware agency that supported the lie. Many if not most even left leaning sources are craven greed machines. And, as is so often the case, the scam is busted after the hoirse has bolted.
Reply | Report Abuse | Link to thisLet's face a few uncomfortable facts. Ethanol as an additive to gasoline acts as a diluent to stretch the supply. Ethanol absorbs H2O resulting in the inability for it to stay thoroughly mixed with the gasoline (gasoline wants to float on water). Assuming that the fuel delivered to your gas station is 10% ethanol, you stand to get 10% ethanol if you fill up on the same day it was delivered. Unless the gas station has a tank homogenizer (most do not), the ethanol to gasoline ratio will change drastically over time as the ethanol and gasoline separate. Since most tanks use a floating surface suction for their pumps, the delivered fuel ratio will be richer in gasoline, until the tank is down to its bottom 25%, then the pump will deliver ever increasing amounts of ethanol.
Reply | Report Abuse | Link to thisEthanol has less available energy than gasoline and burns at a lower temperature (still lower as more water is absorbed). It takes 1.5 gallons of ethanol to produce the same amount of energy as 1 gallon of gasoline. Roughly it takes 1.02 gallons of E10 fuel to provide the same amount of energy of 1 gallon of pure gasoline. In some vehicles this means that over a set distance of travel, the vehicle may use more gasoline (causing more pollution) using E10 than using pure gasoline. For instance my Flex Fuel vehicle gets 19 miles per gallon using pure gasoline (it's still available in this State) and 16 mpg using E10. Given a travel distance of 1000 miles, my vehicle will use 52.6 gallons of gasoline or 62.5 gallons of E10. Considering that 90% of E10 is gasoline, then using E10 for 1000 miles, my vehicle will burn 56.25 gallons of gasoline (7% more). This revelation may cause some concern and skepticism amongst the tree huggers reading this comment, but it is easy enough to verify, if you have a source of pure gasoline in your area and basic mathematical skills. Bottom line ethanol fuels cause more polution than pure gasoline.
Who ever thought of making fuel from food is a pure idiot.
The EROEI (Energy Return on Energy Invested) of Corn Ethanol is nothing short of pathetic, it is nowhere close to being a substitute for gasoline. Anyone advocating Ethanol is either just plain stupid, or more likely a crook. The EROEI of ethanol in the USA:
Reply | Report Abuse | Link to thisnetenergy.theoildrum.com/pdf/theoildrum_6760.pdf
"..Analysis showed EROEI, including coproducts is avg 1.07 with a low of .36. Best case scenario of 1.18, it would take 7.5 liters of ethanol produced to get ONE LITER OF NET ENERGY. And anything less than a 3.0 EROEI is a NET DRAIN on the transportation sector requiring energy inputs from other sources.."
If gasoline or oil products were anywhere near that low an EROEI our economy would collapse. The Net Energy Cliff:
http://upload.wikimedia.org/wikipedia/en/9/9b/Net_energy_cliff.gif
The cheapest & best of the Biofuels, Brazilian Sugarcane Ethanol can produce at best net 70.1GJ/ha-yr. USA Transportation Energy Consumption is 30 billion GJ/yr. Total Arable Land in the entire USA is 1,650,062 sq.km. So that means even the best Biofuel on the best land in the World would require an area 2.5X the TOTAL ARABLE Land in the USA, just to supply the current USA transportation fuel. Ridiculous. This is not a serious Energy Solution.
In the Sandia Labs report on Water Usage, an avg 980 gals of irrigation fresh water per gal of ethanol produced:
"...They found that bioethanol's water requirements... a gallon of ethanol may require up to over 2,100 gallons of water from farm to fuel pump..."
An average electric vehicle running on Nuclear Power uses 1.7 liters of water per km. A corn ethanol fueled avg vehicle consumes 150 liters of water per km. A biodiesel fueled vehicle 600 liters of water per km, using Merson's numbers:
fuelsandenergy.com/presentations/Merson_Energy_Water.pdf
Meanwhile China makes Methanol from Coal for 40 cents per gallon. And the DOE built an IGCC Coal power plant that could co-produce Methanol for 50 cents per gal. Methanol plants being cheap to build. And you can produce Methanol from flared gas/stranded gas for 20 cents per gal. 100 million cubic meters of NG are flared every year, that can produce 130 million tonnes of Methanol per yr. Big Oil & Big Agro considers Methanol to be its arch-enemy and will buy anyone and everyone to blockade its use.
Biofuels, the false fire brigade:
theoildrum.com/pdf/theoildrum_6641.pdf
World Bank Secret Report Confirms Biofuel Cause of World Food Crisis:
www.guardian.co.uk/environment/2008/jul/03/biofuels.renewableenergy
First I don't have a dog in this fight. I drive electric at 25% of the price of fueled cars.
Reply | Report Abuse | Link to thisGenerally these studies ignore the large amount of other products ethanol makes from a higher qualitity animal feed from the mash, corn oil plus stalks/cobs. If the value of these are included the EROI is far better now include new ethanol plants take less energy as does the corn it's made from. If the price recieved for these almost pays for the corn itself.
This BTW is field corn, only good for animals, not humans. After making ethanol the leftover mash is a far better human food than it raw with higher protien, etc means little real food value is lost making ethanol that big oil just doesn't want you to know about sadly.
If you use a similar EROI on gasoline you'll see ethanol's is as good using best practice.
Facts are ethanol prevents 20% of US oil imports and makes a lot of US jobs and likely keeps gasoline here 10-20% cheaper.
Modern fuel systems are sealed by law and don't get water mixed in anymore plus filters needed to protect FI from everything solves that problem.
For National and economic security reasons we need ethanol as the price of oil will double once the world economy recovers.
Thus I drive light EV's that get 250 and 600mpg equivalent and watch all you others get ripped off by big energy.
No... ethanol sucks for all of the various reasons presented in the article and comments, but it's not responsible for the prices at the pump. You have 'oil futures' trading to thank for that.
Reply | Report Abuse | Link to thisEven a high school student can find the flaw in ethanol's use. Simply reference www.fueleconomy.gov and identify any vehicle that uses both gasoline and E85. After comparing the fuel economy of flex fuels compared to gasoline--shown in gallons used per 100 miles driven--and even teenagers plainly see that flex fuel vehicles travel significantly less on ethanol blends. After challenging them to calculate the cost needed to drive a set distance using local pump prices, they immediately recoil at the thought that our government is foisting bad science and bad math on everyone.
Reply | Report Abuse | Link to thisYes, ethanol burns cleaner and is renewable, but those benefits are offset after considering its lower energy density and the fact that nearly a billion people are malnourished.
The Federal Government recently approved E15 for use in the United States, compared to the E10 widely found. This choice only benefits farmers, who comprise the smallest percentage of the population, yet receive billions in crop supports for the production of corn.
It's time to let science guide policy instead of legislators looking to buy votes in their farming districts.
More disinformation from Jerry. Maybe in the Florida backwoods swamps, where Jerry resides, they make ethanol out of grain with no fossil fuel inputs, and sell it at considerable profit, but for the vast bulk of ethanol manufacture the energy inputs are about equal to the energy outputs - INCLUDING COPRODUCTS. And the study I quoted specifically DID include coproducts, contrary to what Jerry's moonshiner buddies tell him.
Reply | Report Abuse | Link to this"...Facts are ethanol prevents 20% of US oil imports.."
Bull, add the Oil products used to produce the ethanol and it doesn't replace ZIP for Oil imports. Notice Jerry can't give a citation on anything he claims. With Jerry its "because I say so".
For dirty truth on Biofuels:
http://www.chicofoodnetwork.org/why-cellulosic-ethanol-biofuels-are-unsustainable-and-a-threat-to-america/
"..one pooping rabbit. The excrement is known as byproduct or coproduct in the ethanol industry..Studies that show a positive energy gain for ethanol would have a negative return if the byproduct were left out (Farrell 2006).."
"..the byproduct should be treated as a “serious waste disposal problem and … an energy cost”, because if we supplied 10% of our energy from biomass, we’d generate 37 times more livestock feed than is used (Giampetro 1997).."
"..most of this "livestock feed" can't be fed to livestock because it's too energy and monetarily expensive to deliver – especially heavy wet distillers byproduct, which is short-lived, succumbing to mold and fungi after 4 to 10 days. Also, byproduct is a subset of what animals eat. Cattle are fed byproduct in 20% of their diet at most. Iowa's a big hog state, but commercial swine operations feed pigs a maximum of 5 to 10% byproduct (Trenkle 2006; Shurson 2003).
Worst of all, the EROEI of ethanol is 1.2:1 or 1.2 units of energy out for every unit of energy in, a gain of ".2". The "1" in "1.2" represents the liquid ethanol. What is the ".2" then? It's the rabbit feces – the byproduct.."
"..Patzek and Pimentel believe you shouldn't include the energy contained in the byproduct, because you need to return it to the soil to improve nutrition and soil structure (Patzek June 2006).."
The Dirty Truth on Biofuels:
http://www.oilcrash.com/articles/pf_bio.htm
It brings down the COST of gasoline per unit of energy, NOT the 'price' of gasoline. It does this by reducing the cost of refining as the base stock can be longer chain, and improves efficiency (oxygenator) of combustion, while also ensuring engines STAY cleaner longer (less degradation of highly refined control systems due to gunk and carbon buildup)
Reply | Report Abuse | Link to thisBut the PRICE of gasoline is set by the oil companies by restricting the number of refineries it operates (lower supply = higher price) which has nothing to do with E85 gasoline.
The same can be done much more cheaply, and with FAR LESS environmentally damage, by using Methanol instead of Ethanol, as China is doing. China is producing Methanol from Coal for 40 cents per gallon. And you can produce it from flared gas for 20 cents per gallon. And unlike Ethanol, Methanol is easily scalable to levels sufficient to replace all transportation fuels. The Nuclear/Methanol Economy is entirely capable of replacing the Fossil Fuel Economy, we have now, and the cost of energy & EROEI will be lower than the Fossil Fuel economy.
Reply | Report Abuse | Link to thisThe only reason that there are not more refineries is due to regulation, and in many cases overregulation, and not the evil pool companies desire to make a profit. BTW, as a side note, oil companies have historically made a 6-8% profit margin while other companies, which do not actually provide a tangible product such as google or yahoo, make 20+ percent.
Reply | Report Abuse | Link to thisNow on to the cost of gasoline: it is directly related to the cost of the oil at the time it is purchased to be refined. As of today the average cost of gasoline is $3.471 per gallon. When the crude was purchased (around 90 days ago) to make that gasoline it cost around $105 per barrel (42 gallons) or about $2.50 per gallon. That leaves a gross margin of around $0.97 per gallon. Now take out the $0.46 tax per gallon (http://www.gaspricewatch.com/web_gas_taxes.php) we have a gross margin to the refiners transport and sales of $0.51 per gallon. According to the EIA the average profit, per gallon, for the refiner, is $0.07 per gallon (http://www.eia.gov/petroleum/gasdiesel/gaspump_hist.cfm) which works out to be about 2% of the cost to the consumer.
Now here is an interesting observation: the price of WTI crude is trading at a discount to Brent and WTI is better quality crude. The cost difference means that it is most costly for refineries to purchase and refine Brent so they preferentially buy and refine WTI to reduce their costs. This causes an increase in the cost that we (Americans) pay for gasoline as it is cheaper for other countries to buy refined products from US refineries for a lower cost.
So ultimately there is no conspiracy by the 'evil oil companies' to jack the price that you pay for gasoline. What you are posting is just more uniformed and unfounded rhetoric that does nothing to help the problem.
I agree with dwbd that we should be working on methanol as we have plenty of cheap methane as feedstock in this country. There are still the problems with storage and distribution but at least we will not have people driving around with high pressure bombs in their vehicles.