Moonshine Energy Policy

Via Random10, an article on what a bad investment ethanol is -- both for private investors and socially.

But of course, if you can persuade the government dragoon customers for you, it might seem to work.

Nov. 19 (Bloomberg) -- Ethanol, the centerpiece of President George W. Bush’s plan to wean the U.S. from oil, is 2007’s worst energy investment.

The corn-based fuel tumbled 57 percent from last year’s record of $4.33 a gallon and drove crop prices to a 10-year high. Production in the U.S. tripled after Morgan Stanley, hedge fund firm D.E. Shaw & Co. and venture capitalist Vinod Khosla helped finance a building boom.

Even worse for investors and the Bush administration, energy experts contend ethanol isn’t reducing oil demand. Scientists at Cornell University say making the fuel uses more energy than it creates, while the National Research Council warns ethanol production threatens scarce water supplies.

As oil nears $100 a barrel, ethanol markets are so depressed that distilleries are shutting from Iowa to Germany. An investor who put $10 million into ethanol on Dec. 31 now has $7.5 million, a loss of 25 percent. Florida and Georgia have banned sales during the summer, when the fuel may evaporate and create smog.

“I don’t anticipate any sort of immediate rebound,” says Barry Frazier, the 50-year-old president of Center Ethanol LLC in suburban St. Louis. “It’s going to take 12 to 24 months before the market is able to absorb the large amount of new capacity.”

The federal government has 20 separate laws and incentives to boost ethanol use, and 49 states offer additional subsidies and supports, according to the Energy Department in Washington.

Scientists question the wisdom of using ethanol. Stanford University researchers say ethanol, originally added to gasoline in the 1970s to reduce tailpipe emissions, does nothing to improve the environment.

“It takes more energy to produce ethanol than it actually gives off,” says David Pimentel, a Cornell University professor who has studied production of the fuel for two decades.

Ethanol is a form of alcohol indistinguishable from moonshine that’s created by fermenting and distilling the starches from corn, sugar, wheat and other crops. Harvesting, crushing, fermenting and distilling corn requires 29 percent more energy than ethanol produces, says Pimentel, a professor of ecology and agriculture.

But if the moonshine fuel can’t hack it in the market, there is always politics.

U.S. distillers’ best hope for a recovery rests with attempts by farm-state lawmakers to increase the amount of ethanol in gasoline, Berg says.

Democratic leaders in the House of Representatives and Senate are negotiating on whether a final energy bill should include a Senate plan to increase the so-called renewable fuels mandate to 36 billion gallons a year, more than five times the amount produced now by all 131 U.S. mills.

“Long-term prospects for the industry depend very much on whether a new energy bill requires higher blending targets,” Berg says. “Any increase in the mandate would give a psychological lift to the ethanol market.”

Almost one-quarter of the $33.8 billion corn crop is devoted to ethanol, causing food companies to raise prices for tortillas, meat and soda-pop made from corn-based ingredients. Land prices climbed 13 percent in the central U.S. during the second quarter, the biggest increase in at least 27 years, according to the Federal Reserve Bank of Kansas City.

Translation: windfall profits for farmers, while consumers -- and especially poor consumers -- get hit hard.