Beer Prices and Ethanol

Recalling all the problems with ethanol that was discussed earlier in my post "The Ethanol Scam", including the increase of world-wide cost of food which is a life and death matter in the Third World countries, is --- an increase in beer prices. From "Biofuel Brews Up Higher German Beer Prices":

Like most Germans, brewer Helmut Erdmann is all for the fight against global warming. Unless, that is, it drives up the price of his beer.

And that is exactly what is happening to Erdmann and other German brewers as farmers abandon barley — the raw material for the national beverage — to plant other, subsidized crops for sale as environmentally friendly biofuels.

"Beer prices are a very emotional issue in Germany — people expect it to be as inexpensive as other basic staples like eggs, bread and milk," said Erdmann, director of the family-owned Ayinger brewery in Aying, an idyllic village nestled between Bavaria's rolling hills and dark forests with the towering Alps on the far horizon....

Already, at the annual brewery festival in Aying this week, prices for Erdmann's Ayinger beer were up at $8.60, or 6.40 euros, from last year's 6.10 euros for a 34-ounce mug. That's no small matter for Bavarians, who are among the world's heaviest beer drinkers. They put away about 42 gallons of beer a year _ well above the already high German average of 30.38 gallons per person.

And organizers of the world-famous Oktoberfest in Munich have announced a 5.5 percent price increase: A one-liter mug will cost up to $10.70 at this year's autumn beer festival _ the highest price ever.

...[I]in its first major report on bioenergy, the United Nations tried to temper enthusiasm over biofuels last week, warning that the diversion of land to grow crops for fuel will increase prices for basic food commodities.

That is what happened in Mexico, when increased demand for corn to make ethanol in the United States pushed up the price of tortillas.

...Germany leads in the consumption of bioenergy in Europe with an annual usage of 4.3 percent of overall fuel consumption, according to figures by the Agency of Renewable Energies. Germany also is among the leaders in producing wind energy and recycling garbage.

Beer prices are serious business in Bavaria, which has some 615 breweries and gave Germany its famed beer purity law, which dates back to 1516 and in its current form permits only four ingredients: malted grain, hops, yeast and water.

This does, in a somewhat lighthearted way (even though beer is a serious matter,) point out that all government actions do have unintended consequences. I am of the opinion that the best approach to restraining the use of oil in the West for environmental reasons and national security reasons (which for me the latter reason is an even stronger argument) is imposing a gasoline tax (maybe a carbon tax) with some method (perhaps like the fair tax ideas) to make the tax less regressive (both to the poor and to rural consumers) and to devote a good portion of those taxes to dedicated spending on mass transportation and energy efficient infrastructure modernization. The tax is probably the best method to reduce all the unintended consequences and, directly and clearly, accomplish the desired goal of decreased fossil fuel dependence. Also note most serious economists endorse the tax opposed to other methods, particularly the slippery carbon offset fads, as well as the boondoggle subsidies addressed before.

The Ethanol Scam

From a post by Larry Kudlow over at The Corner comes this article from Rolling Stone, clearly not one of my regular sources, but a fascinating article that proves what some of us have all been thinking for some time. Some snippets from "Ethanol Scam: Ethanol Hurts the Environment And Is One of America's Biggest Political Boondoggles":

...Ethanol doesn't burn cleaner than gasoline, nor is it cheaper. Our current ethanol production represents only 3.5 percent of our gasoline consumption -- yet it consumes twenty percent of the entire U.S. corn crop, causing the price of corn to double in the last two years and raising the threat of hunger in the Third World. And the increasing acreage devoted to corn for ethanol means less land for other staple crops, giving farmers in South America an incentive to carve fields out of tropical forests that help to cool the planet and stave off global warming.

So why bother? Because the whole point of corn ethanol is not to solve America's energy crisis, but to generate one of the great political boondoggles of our time. Corn is already the most subsidized crop in America, raking in a total of $51 billion in federal handouts between 1995 and 2005 -- twice as much as wheat subsidies and four times as much as soybeans. Ethanol itself is propped up by hefty subsidies, including a fifty-one-cent-per-gallon tax allowance for refiners. And a study by the International Institute for Sustainable Development found that ethanol subsidies amount to as much as $1.38 per gallon -- about half of ethanol's wholesale market price.

Three factors are driving the ethanol hype. The first is panic: Many energy experts believe that the world's oil supplies have already peaked or will peak within the next decade. The second is election-year politics. With the first vote to be held in Iowa, the largest corn-producing state in the nation, former skeptics like Sens. Hillary Clinton and John McCain now pay tribute to the wonders of ethanol. Earlier this year, Sen. Barack Obama pleased his agricultural backers in Illinois by co-authoring legislation to raise production of biofuels to 60 billion gallons by 2030. A few weeks later, rival Democrat John Edwards, who is staking his campaign on a victory in the Iowa caucus, upped the ante to 65 billion gallons by 2025.

The third factor stoking the ethanol frenzy is the war in Iraq, which has made energy independence a universal political slogan. Unlike coal, another heavily subsidized energy source, ethanol has the added political benefit of elevating the American farmer to national hero. As former CIA director James Woolsey, an outspoken ethanol evangelist, puts it, "American farmers, by making the commitment to grow more corn for ethanol, are at the top of the spear on the war against terrorism." If you love America, how can you not love ethanol?

Ethanol is nothing more than 180-proof grain alcohol....

But as a gasoline substitute, ethanol has big problems: Its energy density is one-third less than gasoline, which means you have to burn more of it to get the same amount of power. It also has a nasty tendency to absorb water, so it can't be transported in existing pipelines and must be distributed by truck or rail, which is tremendously inefficient.

Nor is all ethanol created equal. In Brazil, ethanol made from sugar cane has an energy balance of 8-to-1 -- that is, when you add up the fossil fuels used to irrigate, fertilize, grow, transport and refine sugar cane into ethanol, the energy output is eight times higher than the energy inputs. That's a better deal than gasoline, which has an energy balance of 5-to-1. In contrast, the energy balance of corn ethanol is only 1.3-to-1 - making it practically worthless as an energy source. "Corn ethanol is essentially a way of recycling natural gas," says Robert Rapier, an oil-industry engineer who runs the R-Squared Energy Blog.

The ethanol boondoggle is largely a tribute to the political muscle of a single company: agribusiness giant Archer Daniels Midland....

Today, ADM is the leading producer of ethanol, supplying more than 1 billion gallons of the fuel additive last year. Ethanol is propped up by more than 200 tax breaks and subsidies worth at least $5.5 billion a year. And ADM continues to give back: Since 2000, the company has contributed $3.7 million to state and federal politicians.

The Iraq War has also been a boon for ADM and other ethanol producers. The Energy Policy Act of 2005, which was pushed by Corn Belt politicians, mandated the consumption of 7.5 billion gallons of biofuels by 2012. After Democrats took over Congress last year, they too vowed to "do something" about America's addiction to foreign oil. By the time Sen. Jeff Bingaman, chair of the Committee on Energy and Natural Resources, proposed new energy legislation this spring, the only real question was how big the ethanol mandate would be. According to one lobbyist, 36 billion gallons became "the Goldilocks number -- not too big to be impractical, not too small to satisfy corn growers."

Under the Senate bill, only 15 billion gallons of ethanol will come from corn, in part because even corn growers admit that turning more grain into fuel would disrupt global food supplies. The remaining 21 billion gallons will have to come from advanced biofuels, most of which are currently brewed only in small-scale lab experiments. "It's like trying to solve a traffic problem by mandating hovercraft," says Dave Juday, an independent commodities consultant. "Except we don't have hovercraft."

The most seductive myth about ethanol is that it will free us from our dependence on foreign oil. But even if ethanol producers manage to hit the mandate of 36 billion gallons of ethanol by 2022, that will replace a paltry 1.5 million barrels of oil per day -- only seven percent of current oil needs. Even if the entire U.S. corn crop were used to make ethanol, the fuel would replace only twelve percent of current gasoline use.

Another misconception is that ethanol is green. In fact, corn production depends on huge amounts of fossil fuel -- not just the diesel needed to plow fields and transport crops, but also the vast quantities of natural gas used to produce fertilizers. Runoff from industrial-scale cornfields also silts up the Mississippi River and creates a vast dead zone in the Gulf of Mexico every summer. What's more, when corn ethanol is burned in vehicles, it is as dirty as conventional gasoline and does little to solve global warming: E85 reduces carbon dioxide emissions by a modest fifteen percent at best, while fueling the destruction of tropical forests.

But the biggest problem with ethanol is that it steals vast swaths of land that might be better used for growing food. In a recent article in Foreign Affairs titled "How Biofuels Could Starve the Poor," University of Minnesota economists C. Ford Runge and Benjamin Senauer point out that filling the gas tank of an SUV with pure ethanol requires more than 450 pounds of corn -- roughly enough calories to feed one person for a year.

Thanks in large part to the ethanol craze, the price of beef, poultry and pork in the United States rose more than three percent during the first five months of this year. In some parts of the country, hog farmers now find it cheaper to fatten their animals on trail mix, french fries and chocolate bars. And since America provides two-thirds of all global corn exports, the impact is being felt around the world. In Mexico, tortilla prices have jumped sixty percent, leading to food riots. In Europe, butter prices have spiked forty percent, and pork prices in China are up twenty percent. By 2025, according to Runge and Senauer, rising food prices caused by the demand for ethanol and other biofuels could cause as many as 600 million more people to go hungry worldwide.

If you can, the entire thing is worth reading to get the passion the author puts into his opinion. Again, this isn't surprising to me but is good to see my suspicions in print. Corporate subsidies remain a huge problem in this country and so often violate my rules about how free trade is a good thing. And besides "Big Corn" my other favorite egregious example is "Big Sugar" and the subsidies for that industry that have caused many of our candy manufacturers to move offshore, particularly Canada, to escape the ridiculous sugar prices in America due to propping up "Big Sugar" to the detriment of industry and the consumer.

Wind Farms in WNC

The saga on the wind farm situation continues. To catch up just read below here. Here's part of the latest story:

An Ashe County man trying to build a commercial wind farm in Creston said yesterday that he doesn’t have the money to continue to do studies requested by the N.C. Utilities Commission.

Richard Calhoun of Northwest Wind Developers is asking for conditional permission to move forward with the project, but he said that his application could be dismissed before an Aug. 8 hearing.

The public staff of the utilities commission is recommending that the project be denied because Calhoun hasn’t submitted the requested information and because it believes that wind turbines violate the state’s Ridge Law, which prohibits tall buildings or structures on protected ridges.

“I thought early on that an individual could make a difference, but to do all the studies before you can get the certificate granted, you have to have such deep pockets,” Calhoun said. “You’d have to be a Duke Power or a Progress Energy.… it’s unfortunate.”

...Calhoun said yesterday that a wind study, site assessment, engineering studies, endangered-species studies and other work would require much more than $100,000.

“For a private individual to fund that and still be denied the ability to do a project, it’s throwing good money away,” he said. “I’m not willing to take that risk.”

Calhoun, a farmer, physician and former Ashe County commissioner, applied a year ago to build 25 to 28 wind turbines on land he owns in Creston. The project is being closely watched because it would be the state’s first commercial wind farm.

The issue has sparked passionate debate in the mountains. Supporters have said the wind turbines provide clean energy that could help solve the nation’s energy problems. Opponents say that the turbines, which can be 300 or more feet tall, would ruin the scenery and harm tourism and housing markets.

Although wind power in Western North Carolina figures prominently in the state’s goals to develop alternate sources of energy, it’s still unclear whether the Ridge Law would allow wind turbines in the mountains. Calhoun said he thinks that it does.

His family has lived in the mountains since the 1840s, and grows Christmas trees and hay, and he raises cattle. Property values have risen dramatically because Ashe County’s beauty has made it a desirable destination for tourists and second-home owners.

Some mountain families struggle now to pay taxes on land that has been in the families for generations. Calhoun said that his proposal is the right thing to do to create clean energy and to give farmers a way to make money and preserve family land.

He said he knew from the beginning that his application faced long odds. Even if the utilities commission would grant permission, he expected a challenge from the N.C. Attorney General’s Office about the Ridge Law.“I understood it from the start that this was a David vs. Goliath issue, but somebody has to make some noise somewhere to make people start thinking,” Calhoun said.

His biggest disappointment has been with people who have said they want clean energy but don’t want it in their backyards. “One of these days the lights will go dark, and we will wonder what happened,” he said.

I will keep up this story as it has broader implications than one wind farm.

Life Span of Oil

James Petholoukis in his Capital Commerce blog reviews the varying opinions on the life span of oil as a energy resource and offers his opinion that is will become an important political and economic debate in "Are the Democrats the Peak-Oil Party?" Some excerpts follow:

"We have to understand how weak [Iran] is," explained Sen. Joe Biden last month at the Democratic presidential debate in Nashua, N.H. "They import almost all of their refined oil. By 2014, they are going to be importing their crude oil." If Biden really meant to say what he said, that places him firmly in the camp of those analysts who believe in "peak oil" and predict that global oil production will soon decline even as demand continues to rise, with the results being ever higher oil prices and shortages.

Peak oilers contend that the Middle East oil reserves are vastly overstated. Some, the minority to be sure, even think that global oil production will fall so far, so fast, that western civilization will have to return to some sort of pre-industrial way of life. Here are some choice predictions from one well-known proponent of the theory, James Howard Kunstler:

"One huge implication of the oil peak is that industrial societies will never again enjoy the 2 to 7 percent annual economic growth that has been considered healthy for over 100 years. This amounts to the industrialized nations of the world finding themselves in a permanent depression...The future is therefore telling us very loudly that we will have to change the way we live in this country. The implications are clear: We will have to downscale and rescale virtually everything we do...All indications are that American life will have to be reconstituted along the lines of traditional towns, villages, and cities much reduced in their current scale. These will be the most successful places once we are gripped by the profound challenge of a permanent reduced
energy supply."

Clearly, the members of the National Petroleum Council, a federal advisory group representing the oil industry, are not believers in peak oil. "Fortunately, the world is not running out of energy resources," concludes a new report. "Coal, oil, and natural gas will remain indispensable to meeting total projected energy demand growth. "But the report does advocate that the United States [make many clean and green changes.]

My [Pethokoukis] take: Between fears of global warming and higher energy prices, energy looks certain to be a major issue for the first time in a presidential election since 1980. Democrats already seem to have realized and are formulating specific plans, like Hillary Clinton's idea of a $50 billion
energy research fund, or a similar $10 billion "New Energy Economy" fund that John Edwards is proposing.

The GOP isn't quite there yet as far as addressing this as an issue with specifics. Rudy Giuliani, as part of his website's "12 commitments," merely says, "I will lead America towards energy independence." Mitt Romney advocates spending "more research dollars in power generation, fuel technology, and materials science. It is in new technologies that we will find solutions to our environmental and energy needs."

I strongly agree this will become a much larger issue. I know that Giuliani has promised to flush out in detail each of his "12 Commitments" over the course of the campaign as I suppose they will all. I also know that most energy stock analyst are on the "non-peak" side and watch the energy estimates of the oil companies very carefully, and that watchfulness lead to a shake-up in BP's management not too long ago.

Green Energy Contentious in NC Mountains

Does anyone remember the "windmills" (high profile, neat-looking, slender blade contraptions) going into Boone years ago? I thought they looked good and the wave of the future. They are gone now but I hope they come back. I personally would rather see clean wind power and solar panels rather than substations and supplemental generators in my view.

News on green energy disputes in the Winston-Salem Journal in a couple of recent stories. First, here's a bit of "Mountain Counties Show Resistance to Green Energy":

The mountain counties of Northwest North Carolina would probably generate a large part of the state’s renewable energy.

But residents in Ashe and Wilkes counties have already shown this year that reaching the proposed green-energy goals won’t come easily.

A proposal to build a wind farm on a ridge in Ashe County set off a storm of protest this year, with opponents saying that the giant turbines would ruin sweeping mountain vistas, killing tourism and housing markets. And a proposal to build a poultry-litter plant in a northwest county - Wilkes, Surry or Alexander - faces opposition.

It has the support of farmers, who want an alternative to spreading manure and bedding on fields, but environmentalists say that burning the litter would produce too much air pollution.

...Public outrage over Sugar Top, an Avery County resort on top of a mountain, led to the 1983 passage of North Carolina’s Ridge Law, which protects certain ridges from tall structures.

Among other issues, the Utilities Commission is looking at whether the ridge law bans large-scale wind turbines. Last month, Blowing Rock became the first local government to ban windmills. Town leaders said they support renewable energy but want to protect views and the town’s tourist-based economy.

Worth reading the article and also a partial update on the status is here in "Ashe Commissioners Adopt Wind-Energy Ordinance":

The Ashe County Board of Commissioners adopted a wind-energy ordinance yesterday that limits wind-turbine heights to 199 feet as measured to the tip of the turbine’s blade.

The new rules replace those that commissioners adopted in February as they hurried to get county-wide regulations in place before the first N.C. Utilities Commission hearing on a proposed commercial wind farm of 25 to 28 turbines in Creston.

The utilities commission’s hearings are scheduled in August, and the commissioners have been reviewing the ordinance.

The regulations are effective immediately because the commissioners voted unanimously on the matter. Their 5-0 vote followed a short public hearing.

The other major change reduces setback requirements for large wind-turbine systems from 1,700 feet to 1,000 feet from a property line. The change was made on the advice of an attorney hired by the county.He told commissioners that it was important to make the regulations consistent with
other county rules in case the issue is challenged in court.

Despite the reduced setback, about twelve members of a citizens group fighting the wind farm applauded commissioners when the rules were adopted.

Maria Whaley, a spokeswoman for Friends of Ashe County, said she was a little disappointed in the setback change, but she appreciates the process that commissioners have been through. Commissioners visited wind farms in West Virginia and Pennsylvania.She said she is pleased with the new height limits. “That was significant,” she said. “It went from basically unlimited to 199 feet.”

The 199-foot limit means that the turbines will not require aviation warning lights, as they would if a turbine were 200 feet or higher. Opponents of the project had objected to having flashing beacons in the night sky on ridge tops.

I think the height restrictions are reasonable and I hope to see non-obtrusive, fast turning, wind farms providing energy in our mountains. I lived in Wilkes and Ashe counties for some time and sitting here in Mitchell County I wish we had those initiatives and innovations under development here.

[Personal note: I have been away for many days traveling and getting needed things done but am happily back.]