Sunday, March 1, 2009

Unintended Consequences - Ethanol is Up/Ethanol is Down

News came this week that USEPA Administrator Lisa Jackson won't decide for several months the tricky issue of how much ethanol should be blended into gasoline. EPA is in discussions with the Department of Agriculture and the Department of Transportation, who are coordinating on the possible raising of the amount of ethanol blended in the US supply, all while trying to agree on a policy for regulating vehicle emissions.

Why is this important? Well, the current US standard is that ethanol can be 10% of the gasoline mixture (whereas in Brazil the mandate is 25% ethanol, mostly from sugar cane). Current law in the US requires that 11.1 billion gallons of biofuels (mostly corn-based ethanol) must be used this year in accordance with the Renewable Fuels Standard. But ethanol demand has fallen because the high prices of gasoline made people drive less, which in turn helped to decrease the price of gas. Add in the large subsidies given to ethanol producers to ramp up production a year or two ago and the now the worldwide recession, and ethanol producers are suddenly operating at about 85% capacity and struggling to pay the bills. One company, VeraSun Energy Corp., the second largest US ethanol maker, actually filed for bankruptcy protection late last year. Raising the ethanol standard would help keep ethanol use high even as fuel consumption drops.

Meanwhile, other issues have been raised as to whether corn-ethanol is a good fuel option or not. The increased use of corn for fuel rather than food had wide-ranging impacts not only on direct costs of eating corn, but also on the costs of beef, milk and other foods that rely on corn as feed. Given that ethanol actually reduces fuel-economy, and the technological difficulties of fuel delivery systems (e.g., corrosion of iron parts, internal wear, and spark generation), some have argued that it is not a viable alternative to gasoline. Yet others point to its advantages as a renewable resource and note that non-food vegetation (i.e., cellulosic) ethanol is being developed, as will innovations to automobile and other fuel delivery systems. All innovations necessitate further downstream innovations (and subsequently, jobs), they say.

What this means, of course, is that we need to be aware of the interconnectedness of our technologies. Changes to one can impact others. So merely switching from one fuel source to another isn't enough - we need to be aware of all the other impacts that such a switch might necessitate.

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