Monday, April 28, 2008

A special kind of math...

The corn growers' favorite hired data cruncher points out yet again what a good deal ethanol mandates are in states like Missouri:
The use of a 10 percent ethanol blend saved Missouri drivers 7.7 cents per gallon at the retail pump in 2007 for a total savings of $158.2 million, or $40 for each of Missouri’s 3.9 million licensed drivers. Reflecting current gasoline and ethanol price movements the savings are expected to average 9.8 cents per gallon or $72.80 per driver this year as 10 percent ethanol is used statewide in 2008.
Increased use of ethanol will continue to save money for Missouri drivers over the next decade
although the size of the savings will depend on pattern of gasoline and ethanol prices. Using price projections for motor gasoline and wholesale ethanol through 2017, we estimate that the use of E-10 will save Missouri drivers an average of 7.2 cents per gallon at retail over the next decade. This amounts to annual savings of $214 million or $54 per driver. The details of this projection are shown in Table 1. [More]
If you take the time to read the analysis, you'll note he includes in the 51-cent blender's subsidy in the ethanol price. So the taxpayer spends 51 cents to save the consumer 8 cents, according to my cyphering. Sorta like crop insurance. And with $4 gas, it looks like a whopping 2% off.

This is a federal income redistribution system, not a fuel strategy.

For another view, the AAA has numbers of its own.
The anger over high gasoline prices was the main impetus behind the 2005 and 2007 energy bills and their successively higher ethanol mandates. The public may have mistakenly assumed that ethanol is cheaper than gasoline, but reality is beginning to hit home. When everything is taken into account, including the lower fuel economy from ethanol-blended fuel, the mandate is adding to the cost of driving—which is precisely why ethanol had to be mandated in the first place. The AAA calculates that ethanol has recently cost 20 to 30 cents per gallon more than regular gasoline.[1] And that does not take into account the heavy taxpayer subsidies, including a 51-cent-per-gallon tax credit, without which ethanol would be even costlier. [More]
I'm not sure the "savings" numbers will guide public sentiment for very long. As oil prices and corn prices climb, the debatable economics of ethanol become harder to demonstrate, and the crowd of grumblers is growing. And some of the grumblers are other biofuel producers.

Just as farmers for years had linked food price to commodity price, consumers are choosing the obvious connection as well. A few more months of household budgets dominated by food and energy costs could throw a real wild card into the politics of biofuels.


Anonymous said...

I know you were just repeating what AAA had in their article; however it is interesting to note that was not mandated because it cost more. What was mandated was an oxygenate to reduce emissions. Oil companies, in response, came out with MBTE which was found to cause cancer and absolutely did not want to use a product they did not develop, ethanol, but did not have a replacment for MBTE thus forcing the use of corn alchol.
So this whole thing can be laid at the door of the enviromentalists. LOL

O in MN said...

The 51 cents covers a 10% rate so in reality the cost is 5.1 cents I've been saying for awile now that E85 has done more harm then good (also the main reason I no longer belong to the Corn Growers) as we would never be able to supply that amount of fuel nationwide. It was a great promotional tool and a novelty but now its time to move on to the real and competative world and sell this as what it is, a fuel additive to reduce emmisions.

John Phipps said...


Thanks for the correction. I probably shouldn't post anything arithmetic during planting. Still, a 3 cent gain may not be the solution.