Love it.

“The new reports from the OECD, FarmEcon.com and the Chesapeake Bay Commission really tell the rest of the story when it comes to the biofuel mandate and its negative consequences. The OECD, for example, asks the basic question, ‘is the cure worse than the disease,’ and then discusses the potential ‘food-versus-fuel debate.’”

WASHINGTON--(BUSINESS WIRE)--NPRA, the National Petrochemical and Refiners Association, Executive Vice President Charles T. Drevna today called attention to three new reports from the international Organisation for Economic Co-operation and Development (OECD), FarmEcon.com and the Chesapeake Bay Commission that confirm increasing doubt as to whether increasing the biofuel mandate established by the Energy Policy Act of 2005 is necessary much less wise given the impact on food prices and negligible environmental benefits resulting from ethanol’s production, distribution and use.

“A number of experts in a variety of fields have cautioned policymakers against relying heavily on biofuels to achieve the two goals of enhancing energy security and improving our environmental quality,” Drevna said. “The new reports from the OECD, FarmEcon.com and the Chesapeake Bay Commission really tell the rest of the story when it comes to the biofuel mandate and its negative consequences. The OECD, for example, asks the basic question, ‘is the cure worse than the disease,’ and then discusses the potential ‘food-versus-fuel debate.’ FarmEcon.com says the cost increases associated with ethanol subsidies are already showing up ‘in the prices of meat, poultry, dairy, bread, cereals and many other products made from grains and soybeans.’ Finally, the Chesapeake Bay Commission warns that ‘biofuels could lead to shifts in crop patterns and acreages that create an uncertain future for farmers and foresters and seriously worsen the overload of nutrients to our rivers and the Bay’ if handled incorrectly.

“We strongly urge policymakers to consider these consequences as they debate increasing the federal biofuels mandate in pending or future energy legislation.”

Report Excerpts

Organisation for Economic Co-operation and Development (OECD)

- “In theory there might be enough land available around the globe to feed an ever-increasing world population and produce sufficient biomass feedstock simultaneously, but it is more likely that land-use constraints will limit the amount of new land that can be brought into production leading to a ‘food-versus-fuel’ debate.” (Richard Doornbosch and Ronald Steenblik, Biofuels: Is The Cure Worse Than The Disease?, Organisation for Economic Co-operation and Development , September 2007, p. 4 [emphasis added])

-“When such impacts as soil acidification, fertilizer use, biodiversity loss and toxicity of agricultural pesticides are taken into account, the overall environmental impacts of ethanol and biodiesel can very easily exceed those of petrol and mineral diesel.” (p. 5 [emphasis added])

- “Neither should current biofuel support policies be championed for their supposed capacity to reduce GHGs or improve energy security. The cost of obtaining a unit of CO2-equivalent reduction through subsidies to biofuels is extremely high, well over $500 per tonne of CO2-equivalent avoided for corn-based ethanol in the United States, for example, with other researched countries not performing much better. The score is also not very favourable in terms of displacing fossil fuels. In most cases the use of biofuels roughly doubles the cost of transportation energy for consumers and taxpayers together.” (p. 6 [emphasis added])

FarmEcon.com

- “In total, the costs of ethanol paid by taxpayers, fuel purchasers and the food system is about $31 billion in 2007, or about $4.40 per gallon of ethanol produced. Corrected for the energy content of ethanol relative to gasoline, this is equivalent to a wholesale gasoline price of $6.67 per gallon. Ethanol is not a cheap source of energy, it is about 3 times as expensive as gasoline.” (Dr. Thomas Elam, Fuel Ethanol Subsidies: An Economic Perspective, FarmEcon.com, September 19, 2007, p. 17 [emphasis added])

-“The ethanol subsidy program is now increasing the cost of food production though side effects on major crop prices and plantings. The cost increases are already starting to show up in the prices of meat, poultry, dairy, bread, cereals and many other products made from grains and soybeans.” (p. 2 [emphasis added])

- “early all of the world’s current grain supply would be needed to fuel the U.S. gasoline powered vehicle fleet, leaving almost nothing for world food needs. Put another way, each 1% of the U.S. gasoline supply that is replaced by ethanol uses almost 1% of our current global grain production. Clearly, the global demand for food places a severe limit on the feasibility of using grain supplies for producing a large percentage of U.S. motor fuels.” (p. 5 [emphasis added])

Chesapeake Bay Commission

- “Handled incorrectly, biofuels could lead to shifts in crop patterns and acreages that create an uncertain future for farmers and foresters and seriously worsen the overload of nutrients to our rivers and the Bay.” (Chesapeake Bay Foundation, Biofuels And the Bay: Getting It Right To Benefit Farms, Forests and the Chesapeake, September 2007, p.3)

- “Brazil is often cited as a promising example of biofuel production and consumption. Ethanol, produced from the country’s vast acres of sugar cane, now comprises half of Brazil’s transportation fuel, and 77 percent of new cars in Brazil can run entirely on ethanol. However, Brazil may also serve as an example of how rapid growth of biofuels can lead to unintended environmental consequences. The demand for sugar cane-based biofuel may accelerate the conversion of other agricultural lands and push grazing farther toward rainforests. Given the role of these vast forests in mitigating global climate change and in providing other ecosystem services, this may represent a major drawback to the continued growth of the biofuels industry in tropical regions.” (p. 5 [emphasis added])

NPRA members include more than 450 companies, including virtually all US refiners and petrochemical manufacturers. Our members supply consumers with a wide variety of products and services used daily in their homes and businesses. These products include gasoline, diesel fuel, home heating oil, jet fuel, lubricants and the chemicals that serve as "building blocks" in making everything from plastics to clothing to medicine to computers.

 

BusinessWeek

October 1, 2007

By David Kiley 

Big Oil's Big Stall On Biofuels
Even as it pockets billions in subsidies, it's trying to keep BD & E85 out of drivers' tanks

For some industries, the prospect of $3.5 billion in federal subsidies now, and double that in three years, might be a powerful incentive. But not, apparently, for the oil industry, which is seeing crude oil prices soar to record highs. Despite collecting billions for blending small amounts of ethanol with gas, oil companies seem determined to fight the spread of E85, a fuel that is 85% ethanol and 15% gas. Congress has set a target of displacing 15% of projected annual gasoline use with alternative fuels by 2017. Right now, wider availability of E85 is the likeliest way to get there.

At the same time the industry is collecting a 51 cents-per-gallon federal subsidy for each gallon of ethanol it mixes with gas and sells as E10 (10% ethanol and 90% gas), it's working against the E85 blend with tactics both overt and stealthy. Efforts range from funding studies that bash the spread of ethanol for driving up the price of corn, and therefore some food, to not supporting E85 pumps at gas stations. The tactics infuriate a growing chorus of critics, from the usual suspects—pro-ethanol consumer groups—to the unexpected: the oil industry's oft-time ally, the auto industry.

Those who criticize the industry's stance see it as reminiscent of its attempts to discredit the theory that human use of fossil fuels has caused global warming. Mark N. Cooper, research director at the Consumer Federation of America, authored a recent paper characterizing the situation as "Big Oil's war on ethanol." The industry, he writes, "reacted aggressively against the expansion of ethanol production, suggesting that it perceives the growth of biofuels as an independent, competitive threat to its market power in refining and gasoline marketing."

The industry collects the subsidies, but didn't lobby for them—Congress created them to encourage a larger biofuel market. While oil reps say they aren't anti-biofuel, they are candid about disliking E85. Says Al Mannato of the American Petroleum Institute (API), the chief trade group for oil and natural-gas companies: "We think [ethanol] makes an effective additive to gasoline but that it doesn't work well as an alternative fuel. And we don't think the marketplace wants E85."

One prong in the oil industry's strategy is an anti-ethanol information campaign. In June the API released a study it commissioned from research firm Global Insight Inc. The report concludes that consumers will be "losers" in the runup to Congress' target of 35 billion gallons of biofuel by 2017 because, it forecasts, they'll pay $12 billion-plus a year more for food as corn prices rise to meet ethanol demand. The conclusions are far from universally accepted, but they have been picked up and promoted by anti-ethanol groups like the Coalition for Balanced Food & Fuel Policy, made up of the major beef, dairy, and poultry lobbies. Global Insight spokesman Jim Dorsey says the funding didn't influence the findings: "We don't have a dog in this hunt."

Academia plays a role as well. There is perhaps no one more hostile to ethanol than Tad W. Patzek, a geo-engineering professor at the University of California at Berkeley. A former Shell petroleum engineer, Patzek co-founded the UC Oil Consortium, which studies engineering methods for getting oil out of the ground. It counts BP (BP), Chevron USA, (CVX ) Mobil USA, and Shell (RDS) among its funders. A widely cited 2005 paper by Patzek and Cornell University professor David Pimentel concluded that ethanol takes 29% more energy to produce than it supplies—the most severe indictment of the biofuel. Michael Wang, vehicle and fuel-systems analyst at the Energy Dept.'s Argonne National Laboratory, says among several flaws in the study is the use of old data and the overestimation of corn farm energy use by 34%. Pimentel defends the study. In a recent update, he and Patzek hiked the estimate of ethanol's energy deficit to 43%.

A more moderate conclusion comes from a recent study by the University of California at Davis, which last year received a $25 million grant from Chevron to study biofuels. It said the energy used to produce ethanol is about even with what it generates and that cleaner emissions would be offset by the loss of pasture and rainforest to corn-growing. Only a small part of the research backed by the grant will involve ethanol, says Billy Sanders, UC Davis' research director. The primary focus will be developing alternative processes and feedstocks for biofuel that is not ethanol.

Infrastructure problems are behind much of the oil companies' resistance to E85. It adds "too much complexity and cost," says Shell spokesperson Anne Bryan Peebles, since it requires separate pumps, trucks, and storage tanks. Any mix with more than 10% ethanol may cause corrosion and other problems in existing pipelines.

That inconvenient truth is one reason oil companies aren't rushing to install E85 pumps. Of the 179,000 pumps at U.S. gas stations, only about 1,000 pump E85. Almost none are at oil-company-owned stations. And if an independent station that operates under, say, the Exxon (XOM) or Shell brand wants one, it can cost around $200,000 to install a separate pump when all the gas suppliers' restrictions are met. Exxon Mobil Corp. bars branded independents from buying fuel from anyone but Exxon, though it let a handful install E85 pumps for test marketing—as separate machines on separate islands nowhere near Exxon or Mobil signs. ConocoPhillips (COP) has a similar policy. But switching existing tanks and pumps to E85 is the cheapest way to offer it, with more than 50% of costs often offset by various subsidies. Mannato says companies want to prevent consumers who don't have flex-fuel vehicles, which run on either gas or E85, from gassing up with E85. Also, they "don't want their brand associated with someone else's product."

A FACE-OFF WITH DETROIT
The industry's stance angers carmakers, which have more than 5 million flex-fuel vehicles on the road. General Motors (GM), Ford (F), and Chrysler all pledge that half of new-vehicle sales should be flex fuel by 2012 but are waiting for bigger commitments to E85 pumps. "Big Oil is at the top of the list for blocking the spread of ethanol acceptance by consumers and the marketplace," says Loren Beard, senior manager for energy planning and policy at Chrysler, referring to the struggle to get E85 pumps installed.

The API says its pilot programs show that many consumers fill up once, and not again, after they experience the 25% loss in fuel economy that comes with E85. Some states near ethanol plants, like Indiana, sell E85 as much as 33% cheaper than gas; in others, like New York, E85 costs more than gas.

As tension grows between Big Oil and its critics, biofuel production will keep rising. That may pressure oil companies to accept E85. The industry can absorb almost all the 15 billion gallons projected for production by 2012 in the form of E10. After that, without more E85 pumps, there'll be a lot more ethanol on the market than drivers can find to put in their tanks.