Minnesota's Energy Future?©

Dell Erickson

Minneapolis, MN
October 20, 2003

Part III:  Conservation, Jevons’ Paradox and
Alternative Energies


Part III-B

                                 
Part III:  Conservation, Jevons’ Paradox and Alternative Energies

144

 Solar & Photovoltaics

217

         Concentrating (mirrors) Solar Power

219

       Light & Commuter Rail vs. the Bus

221

 

 

       Biomass: Agriculture, Ethanol & Biodiesel

223

            Ethanol & Corn

225

            Energy, Ethanol, Efficiency & Costs

226

            Methanol

229

            Biodiesel & Soybeans

230

               Subsidies

230

               It’s Expensive!

232

            Ethanol, Biodiesel & the Economy

233

            Wood

235

            Biomass: Energy, Footprint, Land, Food & Lifeboats

238

                Figure 32:  United States Per Capita Arable Land 1700 – 2100

240

       Sustainable Farms Transition

242

 

Solar & Photovoltaics

Solar energy is produced in a variety of designs —from mirror arrays to passive panels to those that produce space heating or electricity generation.  Photovoltaics absorb energy from the sun (photons) and convert them into electrical energy (electrons).  Solar power is ubiquitous —the sun shines everywhere and predictably.  However, to be effective electric generators, photovoltaics must be in large arrays.  Insufficient quantities of electricity to perform significant work (i.e., lighting) is the outcome of smaller projects.  Solar power must fight the movement of the planet: the sun is available half the day, less during the winter heating season, and as the location moves toward the poles.

Solar energy is considered a source of sustainable energy, but having sunshine and producing useable energy from it are different.  Because of its low temperature operation for example, solar energy is limited in application.  Typical fossil fuels burn at high temperatures and therefore have the ability to efficiently perform all sorts of work.  Although entirely feasible from an engineering viewpoint, large earth moving vehicles —in mining for example— cannot be powered by solar (or wind) generated electricity!

The high cost and inefficiencies of photovoltaics suggests that this form of solar power is generally a weak option at the present time.  An example of a current northern California installation highlights the dismal economics.  Because the example uses an area with substantially more sun-energy than the U.S. average, it significantly overstates the benefits and revenues in a Midwest installation.  Also the costs do not include shipping, sales taxes, maintenance, land or buildings, et al.  In this northern California example, the installed costs of a 3,600-watt rated output system with 4,200 watts peak DC current and batteries requires an investment of approximately $39,000.  Physically, the system would cover 400 square feet with 40 photovoltaic panels.  Although Xcel Energy purchases electricity from windturbines at 3¢ to 4¢ per kWh, this illustration will assume 10¢ as the per kWh price.  Revenues would therefore be approximately $360 per year (3,600 x 10¢).  This dollar amount equals a return on investment of 0.009% and would require about 108 years simply to return the investment.  If there were any dollar inflation over the period the implication would be that the actual real dollars invested would never be returned.

Comparing the life of the panels, 20 to 25 years, and revenues to their cost results in a minimum annual loss of $1,375 (($39,000 ÷ 22.5 years) -$360).

Producing up to 5,880 watts peak DC current with an approximate cost of more than $47,000, a 5,000-watt rated output system would be composed of 56 photovoltaic panels and require 600 square feet of area.  With the larger system, the revenue generated would be approximately $500 per year indicating a return of 0.01% and payback period of 94 years.  The annual loss would be in the $1,600 ballpark.109

The same story is told using the best available technology in another optimal California installation.  The installed cost in this location is typically $10 per watt with a 6 kWh system priced at $60,000.  The cost information of this system (Forbes magazine) is likely correct, however stating a 6-kWh system will “produce enough juice for a three-bedroom home” overstates the case.  The article, for example, forgot that on a daily basis much of the time the sun doesn’t shine and when operating, photovoltaics cannot provide sufficient energy to energize even a lightbulb, especially in the evening when most needed.  Thus, as discussed for other alternative energies, large and expensive storage facilities are required.  Payback and return on investment would be a philanthropic consideration.  Perhaps the correct conclusion was to say, “provide enough electricity to provide day-lighting”.110

Under optimal circumstances a system producing 10-watt hours per day requires more than 6 – 8 years to equal the energy invested.  “Optimum” implies that most of the country will have significantly fewer benefits.  Optimum also suggests that the panels are clean —cleaning performed once or twice a week and snow is removed immediately.  Because of the relatively long life of photovoltaic systems however, today’s solar power may be a viable option looking out 10 years in niche markets where the high upfront costs are less critical than securing an energy source.

Considering the quantity of energy used in manufacture, development, and installation, the net energy result would be a negative number.  An eMergy net energy study, for example, concluded that solar cells have an energy ratio of 0.48, consuming nearly twice the overall energy as they produce.111  To overcome the deficiencies would be cost prohibitive.  For example, since oil has an output ratio of approximately 20 – 30 : 1 and alternatives are in the 4 : 1 ballpark one can readily understand how the alternative energy cannot be an energy source of the same magnitude as baseline energies, oil, coal, and nuclear.

Claims of solar energy being a clean energy source and “environmentally friendly” are overstated.  As the eMergy study indicates due to the lack of efficiency their use actually requires increases in baseline energies and with it the environmental consequences of those energies.  In addition, the development of photovoltaic cells has toxic processes in mining and fabrication of the silicon wafer (or similar produced panel).

Because of generally greater winter wind speeds, it is reasonable to conceive of a combination of solar and wind energy in select locations that could provide a reasonable percentage of energy demands of residential, primarily rural, homes.  The two energy sources compliment one another in seasonal and weather circumstances.  Meteorologically, this is a practical concept —but not sufficient.  Traditional baseline energies are necessary for reliable daily and peak energy demands.  Thus, photovoltaics and solar systems become prohibitively expensive environmentally and financially, a three-tiered energy system with only the baseline system adequate and reliable.

Passive solar panels evidently perform well for home and small business space heating and can also generate relatively minor quantities of electricity.  Large mirror arrays focused on a boiler have been shown to be more efficient at commercially producing electricity than large-scale panel systems or photovoltaics.

The bottom line of widespread photovoltaic electricity generation is that it would gravely exacerbate energy dilemmas.  The development of photovoltaic energy illustrates a theme general to alternative energy: the substitution of inexpensive for expensive energy and large quantities of fossil and nuclear energy now in return for relatively small quantities of solar power a decade later.  In order for photovoltaics to substitute today’s energies in some meaningful proportion, the related costs must be halved and electricity production nearly doubled.

Much of the world's population and most of the developed Western nations lie between the northern latitudes of 20º and 50º.  This latitude could provide sufficient insolation for much of the solar provided space heating needs of its inhabitants.  During the summer periods, even in the northernmost latitudes, passive solar panels would provide some of the electrical needs and nearly all the hot water needs.  In order to achieve an energy objective as the location moves northward the number of required solar panels increases.  At the 20º latitude a two-panel array may be sufficient while at 45º six to eight panels will be necessary.  However, as the location moves north, the economics becomes increasingly disappointing.112


Concentrating Solar Power

The most efficient solar technology is concentrating solar power (CSP) technologies using an array of mirrors focused on a central receiving point high on a tower.  Although it can be classified as a renewable energy, its inefficiencies, high costs, and insolation requirements limit its practical application.  The Department of Energy conducted two demonstration projects to evaluate the effectiveness of CSP technology.

Operating for more than six years beginning in 1982, DOE’s “Solar One” project near Barstow, California was physically the world's largest power tower plant.  Converting water into steam used to drive a turbine, the heliostat field consisted of 1,800 heliostats (sun tracking mirrors) concentrating the sun's energy up to 1,500 times.  Energy storage was accomplished with a tank filled with rocks and sand using oil as the heat-transfer medium.  A CSP test, cutting its losses, the plant was shut down after generating only 10-MW over its life.  10 MW generates the electricity requirements of roughly 10,000 homes.

In 1996, a technologically improved version called Solar Two, began operating in another optimal location, the Mojave Desert near Barstow, California.  Similar to its predecessor, it was designed to generate 10 MW.  The heat array was larger, composed of 2,000 heliostats reflecting sunlight onto a receiver atop a 300-foot tower.  Mirrors heated three million pounds of a pumped salt mixture to temperatures as high as 565º C (1050º F) in producing steam to drive a steam turbine.  The still molten salt was cooled in the process to approximately 285º C (550º F) and the cycle repeated.  The salt mixture is composed of environmentally unsafe sodium and potassium nitrate.

To make comparisons with traditional energies as favorable as possible (and avoid discarding useable items) the core of the Solar One system was used in Solar Two.  This included the 300-foot tower, the steam turbine, and the heliostats.  Notwithstanding the savings, the $55 million additional costs were substantial relative to the electricity generated.  Technologically, the only significant difference was to replace the oil base storage transfer and collection media with the molten-salt system.  The primary reason for the modification was an attempt to lengthen the generating time of the turbine after sunset.  However much the improvement, the improved test version was unable to be economic to overcome the lack of efficiency.  The modest objective for the initial test was 10% efficiency and for the second version a level of 15%.  The low efficiency equal to approximately one-third of traditional baseline energies argues against further development of CSP energy technology.113

Although DOE “declared it a resounding success”, Solar Two was closed down in 1999 after operating only since early 1996.114  The development ended early, generating only 8.5 billion kWh over its demonstration life.  The plan was to produce electricity at a per kWh cost of approximately 6.5¢.115  The investment in plate rating suggested generating the electricity for 10,000 homes.  The actual quantity produced met the needs of less than 3,000 homes and at much higher cost.  Despite the favorable comments, DOE closed down Solar Two because the actual cost per kWh was 12¢ to 14¢ per kWh.  This compares unfavorably to other baseline energies of 2¢ to 4¢ per kWh.116  In addition, the serious environmental concerns surrounding the salt mixture was a concern.  Treatment and disposal of the mixture is a problem likely solved by further research and technology, nonetheless adds another layer of expense.

With capital investment more than twice other baseline energies, approximately $2,500 to $3,000 per kWh, CSP's are noncompetitive.  Moreover, CSP's potential, at best, is as a minor contributor to national energy needs because of the scarcity of suitable areas.  Only a few areas in the southwest U.S. have sufficient insolation to make CSP use minimally effective.  These areas are bordered by western Texas, most of Arizona, the southern borders of Colorado and Utah, and the southern half of Nevada, westward to southeastern California.  These areas are seldom near population centers, requiring the construction of a transmission and distribution system, with transmission line losses significantly adding to the costs.

It is also apparent that any government subsidy would be regionally selective, requiring other taxpayers to fund the projects.  A final issue is that many of these areas are held in the public trust by the Department of the Interior.  The Department of the Interior —whose goal is to protect these areas— is searching for a method to make selected parcels available for these energy projects.

Consistent with the uneconomic assessment, the President's FY 2003 budget, however, proposed to phase-out CSP power programs.  The DOE has in place a public and private 50% shared CSP energy project on the table.  The public's share would amount to almost $2.1 billion.  The question is whether the substantial expense for an expensive and inefficient energy source practical for a limited area is acceptable.117

Trusting in another 5% increase in efficiency, a third project in the demonstration series is now underway in Cordoba Spain, S-III, Solar Tres.  This project uses the same molten salt technology as Solar Two but has a larger mirror array (2,600 heliostats) and commensurate storage facilities.  The increase in efficiency is due to the larger components, and is now designed to permit 24-hour operation.  The World Bank expects capital costs in the $2,800 to $3,700 range for 15 MW capacity.  Total capital cost is estimated to be $70 million with operating costs just under $2 million.  Even in low costs Spain, the anticipated consumer costs are difficult, in the 12¢ to 14¢ per kWh.118

Evidently the solar design that is most effective and economic for residential and small business use is lower tech: the use of passive solar designs with small electric motors for circulation, hot water tanks, very well insulated homes, an east to west alignment with significant south facing windows, earthberms, and two to three foot roof overhangs (to shade the house).  Strategic placement of trees and hedges would also be a helpful component.


Light & Commuter Rail vs. the Bus

In an earlier era, many larger U.S. cities had electricity-based light commuter rail transportation systems.  Mirroring the earlier period, a number of cities recently built electricity powered light rail transportation systems (LRT).  BART, the Bay Area Transportation System in San Francisco is one illustration.  Today, the thinking is that LRT will simultaneously solve traffic congestion and reduce energy use.  The eastern seaboard is their model: LRT and commuter rail, long commutes, massive traffic jams, high density highrise living.

The experience has been that rail systems do not remedy transportation or energy related problems.  Indeed, cities worldwide with light and commuter rail also have the worst transportation gridlock.  European cities on average have three to four times the mass transit —often commuter rail— yet have traffic congestion at least as worse as any traffic clogged American city.  It is however, the current vision of Minnesota policymakers.  By duplicating east coast growth policies, Minnesota becomes less desirable with every additional resident.

A serious conflict will arise as energy concerns mount and the rail lines will be increasingly used for transport of food and manufactured goods.

LRT appears to be another costly means to accommodate the status quo —unending growth.  Encouraging growth, the Minnesota plan is to construct a major LRT and commuter rail project running through Minnesota's “growth corridor” from Rochester in the south through the Twin-Cities to St. Cloud in the north, a distance of approximately 200 miles.  Light rail in this corridor is a misnomer.  These distances require high population densities over a tremendous area and bigger, faster and much more expensive “heavy commuter rail” systems.  The 82-mile long Northstar Corridor Minneapolis to Rice (16 miles north of St. Cloud) heavy commuter rail $294 million proposal is such a system.  If the proposed line were not designed to run on an existing rail line the full costs would be evident.  The operating cost are not available, thus no comparison to other modes of transportation is possible.  The driving force behind the proposal is that the federal government would assume 50% of its construction costs with the state assuming only 40% ($108 million).  The state would be responsible for the ongoing operating and maintenance expenses.  The plan calls for 18 trains making 10 stops with a connecting train system reaching the Minneapolis airport and the Mall of America.

A bus rapid transit system is also proposed for the currently developed and rapidly developing first 22 miles of the heavy rail system from downtown Minneapolis through the northwest suburbs to Rogers, Minnesota.  A second proposal is to have a similar system serving the rapidly growing communities south of Minneapolis through Bloomington, Eagan, Apple Valley, and Burnsville to Lakeville.

Underlying the heavy rail proposal is the idea that it will relieve traffic gridlock in the northwest metro area.  This is wishful thinking: worldwide, all major cities with similar systems have incredible traffic congestion.  Interestingly, in a clever example of mandating growth the proposal uses ridership estimates 20 years into the future in an attempt to justify its utility today.  It should be noted that the state's promotion of a “growth corridor” is inconsistent with a program leading to a sustainable society, containing sprawl, or Minnesota's stated objective of reducing energy use.

LRT won't be inexpensive; LRT’s energy consequences and implementation follow in the same footpath as alternative energies previously discussed.  Conversion to commuter rail requires more than the same doubling of costs as other energy transitions: the conversion of the existing transportation infrastructure to another system.  LRT requires the simultaneous conversion (or abandonment) of existing facilities and construction of LRT.  In no small measure this is the underlying reason the proposed Minnesota LRT system requires state subsidies to construct and operate and the forceful relocation and re-directing of Minnesota's growing population along the rail lines.

Although Minnesota has not performed a net energy study to determine energy effectiveness —or perhaps because it has not been performed!, it is safe to conclude that LRT is a substantial energy sink —another energy loser.  It is an example of being “out-of-sight, out-of-mind” for the public.  LRT substitutes baseline energies —coal, natural gas, and nuclear power generated electricity— for petroleum.  Similar to the hybrid car discussed earlier, the substitution of electricity for oil requires another entire level of energy processing.  Pumping gasoline into their car's gas tank directly affects each individual while the burning of coal to produce electricity at some distant location disconnects the public from the resource and consequences of its use.  It is more energy efficient to burn high-energy gasoline in automobiles than to use other resources to generate electricity in order to run energy gulping electric motors.  It's also unclear why the state proposes to significantly increase electrical use while at the same time claiming the electric grid is becoming unreliable.

The Federal Transit Administration (FTA) has studied the mass transit issue and concluded that bus rapid transit (BRT) is more economical than heavy rail or LRT and more consistent with development plans.  The FTA states that “a BRT system combines intelligent transportation systems’ technology, priority for transit, cleaner and quieter vehicles, rapid and convenient fare collection, and integration with land use policy”.  For example, the LRT system would cost more than $500 million compared to $100 million for the bus system to traverse the distance from Mall of America south to Apple Valley —a span of less than 9 miles.  There is an enormous opportunity cost of the Hiawatha Light Rail line now under construction: for the same money spent on a single LRT line an efficient bus rapid system for the entire metropolitan area could have been designed and constructed.119

Bus systems appear to be the system of choice based on economic reasons.  A recent study released by the GAO found that the capital cost for bus systems was almost one-third that of light rail, $13.5 million vs. $34.79 million.  The GAO report found that operating cost per revenue hour of light rail greatly exceeded bus: Dallas, 109%, Denver, 60%, Los Angeles, 675% ($56 vs. $434!), Pittsburgh, 56%, San Jose, 82%.  In San Diego, an unusual LRT system edged bus by 12%.  The differences in LRT operating cost were striking: Dallas, 620% higher, Denver, 423%, Los Angeles, 247%, Pittsburgh, 83%, San Diego, 9%, and San Jose, 267% higher.

Bus rapid transit has other advantages over light rail.  In addition to being cost effective, its use is flexible and adaptable to changing conditions or developments.  Individual security is probably higher with bus systems and system security is vastly less secure with light rail —the entire LRT and commuter rail system can be shut down by accident or deliberately.  A bus system can also be phased in incrementally, according to the GAO “allowing for changes in regional employment, land use and community patterns.”

Unlike buses LRT is a one-way “street” that once begun, feeds on itself because it forces development changes to reflect this transportation mode; LRT compels people to move to and live near transportation hubs rather than freely choosing life and home styles.  Light rail diminishes freedom.120
 

Biomass:  Agriculture, Ethanol & Biodiesel

Numerous studies have concluded that ethanol production does not enhance energy security,
is not a renewable energy source, is not an economical fuel, does not insure clean air,
its production uses land suitable for crop production and causes environmental degradation.

   
David Pimentel. 2001121


The coming together of the drive for sustainability and development of ethanol or biodiesel is a conflicting one.  Notwithstanding the opening quote, the benefits claimed for the rural economy come at the expense of non-rural communities, the environment, and resource base.  The use of biomass to manufacture ethanol or biodiesel is due to short term motives rather than to provide a sustainable source of energy.  Similar to the High Aswan Dam in Egypt, where the hope of a better life ended in net ecological and economic deficits, the development of ethanol and biodiesel are technological and welfare state attempts at a mending long term structural dilemmas.  The underlying intention of biomass development is another attempt to continue current unsustainable energy and consumption trends into the future.

After briefly discussing several issues embedded in biomass energy a more detailed examination of ethanol, methanol, and biodiesel follows.  Finally the use of “wood” as a possible generator of electricity is discussed.  This part concludes by mentioning the sustainable farms transition.

Loosely defined, biomass is any vegetation.  Ethanol is gasoline with alcohol (ethanol) derived from biomass, often corn.  Biodiesel is diesel fuel that includes an oily component made from biomass, often soybeans.

The statement is made that ethanol, methanol, biodiesel, and wood are renewable energies and environmentally friendly.  The fact that growing vegetation is used conveys the impression that its use is renewable and sustainable.  However, methods of converting plant biomass into energy share a number of negative characteristics ―high cost and inefficiencies among them.  This is the reason underlying the Bush Administration’s elimination of bioenergy (ethanol) in the 2004 Budget.  The energy/fuel costs of processing biomass is substantially higher than for natural gas or gasoline while diminishing food crop production in the process.  As the opening quote of Dr. Pimentel stated, researchers have found that crop biomass used for the production of energy, specifically ethanol or biodiesel fuels, cannot be an energy efficient or economical substitute for existing energies.  Biomass may technologically be an alternative method of producing energy, however a review of the processes indicates these alternatives are an expensive and temporary bridge at best.  Contrary to its proponents, Biomass development is expensive, nonrenewable and unsustainable.

The agriculture industry views ethanol as means of artificially increasing demand to raise corn, soybean, and sunflower prices to increase farm profits.  In no small measure, however, production directly competes with biodiesel and food crops, pitting corn, sunflower, soybean and other crop or livestock growers against one another and against the final food consumer.

Although ethanol is promoted as a method to benefit farmers and society it behaves economically as a welfare program.  Because ethanol or biodiesel requires subsidies to succeed it is highly probable that at some point (sooner than many anticipate) the subsidies will be removed due to the overwhelming economics (or at government whim).  Thus, farmers employed by the ethanol and biodiesel industry are literally betting the farm on endless government generosity.  Sadly, because individual farmers are basing farming decisions on false economic premises, it will be farmers who suffer most when the inevitable food and energy policies adjust to economic reality.

The current biomass “renewables” policy may also have unintended consequences.  Their development’s substandard economics will be made transparent when the price of oil, natural gas for fertilizer, and electricity for pumped water all begin their inexorable rise.  If ethanol or biodiesel development persists, energy consumption and production costs of crops will increase at ratcheting higher rates while diminishing the availability of biomass and other crops such as food.

On the one hand, an ethanol subsidy is a subsidy to corn producers.  On the other, (a less understood side) farm income deficiency (e.g., “welfare”) payments are offset by the ethanol subsidy.  The higher the cost of energy, the greater farm income is reduced.  Reduced farm income increases taxpayer funded farm deficiency payments. The offset is not $1 for $1, but a percentage of it.  In a trademark ethanol study, Montana agricultural economist Ronald Johnson states the reason: “continuing the subsidy for ethanol was important if agricultural program costs were to be kept in check.”122  Rather than the intended increase in farm income, ethanol subsidies reduced deficiency payments previously received.  Without the change in the program, the deficiency payments would escalate.  The larger and more profitable farms were not affected their ethanol subsidies required no offset.

Energy researchers and welfare economists would agree that redirecting welfare payments directly to the needy rather than continuing the current farm subsidy programs would be a more efficacious and socially responsive method.

There are also several other consequences of biomass incorporated fuels that are seldom mentioned.  Because the substitute fuel mixtures produce less energy than gasoline or diesel fuel, reduced gas mileage, cruising speeds, and reduced vehicle loads result.  Those big 18-wheelers transporting the products of industry and farms across the country notice the difference.  The trucking industry is well aware of the differences.  John Hausladen, president of the Minnesota Trucking Association testified in a House-Senate conference committee meeting February 27, 2002 that the fuel is less powerful and quoted studies indicating biodiesel would cost $0.44 per gallon more than standard diesel fuel (Rep. Tim Finseth, HF–1547; Senator Steve Murphy, SF–1495).  To overcome these deficiencies additional costly re-engineering of engines and higher fuel volumes are necessary.  The result would be another level of expense and higher capital and operating costs per gallon.  The apparent direct farmer benefit would be offset by increasing costs of transportation helping marginal transportation firms to go out of business.  It also suggests all goods shipped using biodiesel will have increased consumer prices.  Because of increased environmental demands the environment will also be further besieged.

Although Minnesota Rep. Torrey Westrom stated that biodiesel would be the state's “second oil well” after ethanol, biodiesel legislation exempts nuclear power plants, trains, and taconite and copper mines; reimburses processors 80% of their costs if the program becomes unworkable; and requires no less than 50% of the biomass be Minnesota grown.  Had Rep. Westrom understood that it requires approximately one barrel of U.S. oil to obtain another barrel, he probably would not have made the reference to oil wells.  The mining industries are marginal at best due to the low quality of ores; adding additional costs may tip the industry into economic history.  Likewise for the exemptions related to the power industry.  If a power source cannot economically be used to power the power industry, then it is clearly not renewable or sustainable.  The exemptions are transparent evidence that biodiesel is not economic and that the legislature fully understands its implications.

There are also two moral issues to be addressed.  Unwittingly, its development also squeezes out the production of other food stocks.  In a food short world and coming food deficient U.S., this should be a significant consideration.123  The repercussions may be more immediate than anticipated.  The unusual heat in Europe over the summer of 2003 significantly reduced grain crop yields the worst wheat crop in more than 30 years, for example.  Lester Brown, president of the Earth Policy Institute describes the situation in a single word: “catastrophic”.124  It is the fourth successive year yields have trailed demand; world foodstocks are now at the lowest level on record.  The ethical questions surrounding corn and soybeans, ethanol and biodiesel are likely to soon become more complex.  With the development of biomass using corn and soybeans, the capriciousness of weather now visiting farmers will be magnified and increasingly linked to the price of electricity and highway fuels.  The lean crop years will make the deficiencies of biomass energy clear.  To what level will crop reserves decline due to ethanol and biodiesel development?  In an inevitable year of drought or natural disaster will remaining crop reserves be used as food or in energy production?

It should be self-evident that careful evaluation is required to determine which biomass development if any, will have net positive benefits and strengthen rather than slow the economy and transition to a sustainable society.

Dr. David Pimentel of Cornell University is the leading authority on the ecological and economic effectiveness of ethanol, biodiesel, and biomass.  Accordingly, his work will be highlighted in the following discussion.  The discussion begins with ethanol and methanol, followed by biodiesel and wood.
 

Ethanol & Corn

You can't pour sunshine in your gas tank.
Jay Hanson, 1998.


The efficiencies and economics of corn based ethanol are discussed because more than 90% of the feedstock for ethanol production is corn based and a significantly longer data period is available for examination.

One significant role of the Green Revolution and hybrids or “genetic engineering” today is not so much to increase yields for food but to provide crops for energy production without noticeably impacting food production.  From the world's perspective, it is irrelevant if biomass is in the form of trees, corn, or dung, cropland is more than fully utilized.  The increase in fuel related biomass production merely re-allocates existing crop production.  Lacking genetically improved seeds and quantities of energy, the unfortunate trade-offs of large-scale biomass energy development would become evident sooner.  Evident with the Green Revolution diminishing returns overtime compel increasing use of energy in the form of intensive irrigation, seed production, and applications of fertilizers and pesticides.  However, the high crop and low cost expectations formed in the early bountiful period remains a fixture in the human mind even as the expectations fail to be realized.

Inferring the magnitude of U.S. energy use and potential of biomass to be a replacement, Dr. Pimentel states that the U.S. uses 87 quads (21.8 x 10^15 kcal) of fossil based fuels and “consumes 85% more fossil energy than the total energy captured by all its plant biomass each year.”124  From the year 1700 to 1910 the additional energy required to grow corn remained essentially flat.  However, after 1910 energy consumed grew from 1,000,000 kcal per hectare to 11,000,000 kcal per hectare in 1990, an increase of nearly 1,100%.126  Thus, using biomass or any alternative energy to substantially replace current energies is an impossible task.

Iowa State agricultural engineer Dr. Peter J. Reilly sums up ethanol production saying that “the only way to come out ahead on the energy balance sheet is to burn corn directly.”127  The effect of reducing fossil energy use will also be evident at the farm level.128  On the other hand, energy inputs have increased.

With understandable reason, agricultural giant Archer Daniels Midland Company (ADM) mirrors the industry position.  The oilseed and corn processing side of the business is critically important to its success.  Iowa headquartered —with a substantial Minnesota presence ADM is the world's largest producer of ethanol and is involved in other alternative fuel developments, for example, oxydiesel.  These operations involve $4.6 billion of the firm's total assets of $14.3 billion, generate $10.7 billion of the firm's total sales of $20.5 billion, and garner $502 million of operating profits.  The company plans to invest an additional $202.5 million of total 2001 additions of $302 million —2/3rds of its capital budget in alternative energy programs.129

Oilseed and corn processing produced more than 62% of ADM's total operating profit for the six months ending December 31, 2001 $225,378,000 to $351,119,000 an increase in segment profit of 55.7%.130

A 1995 CATO Institute analysis of corporate welfare by James Bovard found that “at least 43 percent of ADM's annual profits are from products heavily subsidized or protected by the American government.  Moreover, every $1 of profits … earned by ADM's ethanol operation costs taxpayers $30.”  The study goes on to state that “ethanol producers have received a de facto subsidy of nearly $10 billion since 1980.”131

In brief, the study states,

Federal policy is not designed to simply "level the playing field," or even to tilt the playing field in ethanol's favor. Instead, the program amounts to nothing less than buying the entire playing field and giving the title directly to ethanol producers. Ethanol, as far as it is used for gasoline, is a political concoction —a product that exists and is used solely because of the interference of politicians with the workings of the marketplace. Ethanol producers must heavily bankroll politicians because their product would otherwise vanish overnight from the nation's gas pumps.


Energy, Ethanol, Efficiency & Costs

Corn-based ethanol is the biggest case of corporate welfare in U.S. history.
Investors Business Daily. June 10, 2003132


If net benefits from additional layers of processing were possible, biomass conversion in the form of corn or soybeans would require dismantling the 2nd Law of Thermodynamics —there is no “free lunch”.  Is more, less, or the same energy available after processing ethanol as before?

The processing of corn or other crops into ethanol or methanol consumes energy, thus, farmers and the economy are disserved by legislation promoting ethanol production.  The economy benefits when utilizing a more efficient energy process.  A more efficient energy process is one that generates more output (or products) than current methods using the same amount of energy.  Increased efficiency is not the case in ethanol or biodiesel development.  Efficiency's next of kin is productivity.  Whereas efficiency deals with throughput (energy flows), productivity deals with increasing final consumer items at the same or less costs.  There is little application of this principle in the ethanol process.  A pervasive problem of biomass conversion is low conversion efficiencies producing high output costs.

A significant problem is due to a fundamental plant characteristic —plants are over 50% water.  Removing water is critical and expensive: removing water by natural gas or propane (frequent drying sources) is an expensive and energy consuming process.

Not only is water an unavoidable problem in growing and processing corn and other biomass, so are the tremendous volumes necessary for ethanol's manufacturing process.  Contrary to public perceptions, much of Minnesota has modest surface water quantities.  Increasing state growth and ethanol developments require the use of wells drilled into shallow and deep aquifers.  Wells are highly energy intensive sources of water and water concerns are already evident in a number of Minnesota cities: Marshall, Beaver Creek, Buffalo Lake, Preston, Lincoln-Pipestone, Burr, and even St. Paul.  Adjacent to Marshall, for example, the exquisitely beautiful prairie Sioux Nation Wildlife Management Area and its rare calcareous fen has been reduced by 20% due to wells drilled in the area to provide sufficient water for the large Marshall ethanol plant.

When alarms were sounded, the president of the Minnesota Corn Processors, Dan Thompson narrowed the issue to one of jobs and corn sales.  The same water source, the Prairie Coteau aquifer, extends from Minnesota across the South Dakota border to nearby Lake Cochrane.  Lake Cochrane has also been negatively impacted.  Keeping with the controlled focus, the solution proposed is the “Lewis & Clark” water project to build a water pipeline from the Missouri River into southwestern Minnesota.133

Mr. Christianson volunteered that agriculture is “reliant upon energy to convert grains to usable products and is a key component of our cost structure”.  This was stated in Testimony before the Senate Agriculture Committee in the soybean growers association's promotion of “The Renewable Fuels for Energy Security Act of 2001”, S.1006.  In addition to the soybean legislation in that testimony, and after acknowledging dependencies on high cost and diminishing resources; he nevertheless advocated the construction of a soybean crushing and “soy diesel” facility near Brewster in southwestern Minnesota.134

Rodney Christianson, Chief Executive Officer of the South Dakota Soybean Processors, states that energy cost doubled in the 1999 – 2000 season and that “natural gas accounts for the lion’s share of the increase”.  Due to the sharp increases in the price of natural gas in Spring of 2003 —to more than $10.00 per Mcf the impact on corn is expected to be a four-fold increase in consumer corn prices.135  The winter of 2003 – 2004 and subsequent years will experience elevated natural gas prices.  Indeed, systemic energy reliability will emerge as a central element limiting biomass development.  The Brewster, Minnesota plant will soon be seen by all traveling the adjacent highway as an example of misguided farm and energy policies.

The energy flows demonstrate that ethanol and biodiesel production will not provide for future fuel, food, or farms.  Dr. David Pimentel describes this cost relationship in a definitive study, stating that “ethanol production is wasteful of fossil energy resources and does not increase energy security.”  The reason is that more energy, much of it high-grade fossil fuels, is required to manufacture ethanol than available from the ethanol produced (negative net energy).

The production of one gallon of ethanol requires 129,600 Btu's of energy input but yields only 76,000 Btu's of useable energy.  “About 70% more energy is required to produce 1,000 liters of ethanol than the energy that actually is in the ethanol” states Dr. Pimentel [emphasis added].  The cost data for corn is considerably less sanguine.  Although corn oil produces the same kWh, it requires about 19% more corn to produce a gallon of oil.  The energy returned to the energy input ratio for ethanol processed from corn is more than 1 : 100 whereas gasoline from oil is much more efficient, about 6 : 1.136

The cost relationships for fuel use follow the kWh differences just mentioned.  Diesel fuel is more powerful at 138,690 Btu's per gallon (40.636 kWh) than gasoline or ethanol.  Diesel fuel contains more than 64% more energy than ethanol and nearly 11% more than gasoline per gallon.  Gasoline contains slightly more than 48% energy per gallon than ethanol.  Soy or corn oil yields about 7% less energy per gallon than diesel fuel but nearly 54% more energy than ethanol per gallon.137

Because the energy contained in a gallon of gasoline is approximately 48% greater than ethanol, the relative cost of ethanol reflects the difference, significantly higher priced.  As just the starting point, the base energy required for ethanol production results in twice the volume of ethanol to do the same work as an equal volume of gasoline.

Let's add the commodity cost of corn to its processing and compare the fuel price relative to gasoline.  With $2.25 per bushel corn, it requires $9.74 worth of corn to produce a gallon of ethanol.  However, because a gallon of gas is more powerful, to obtain equivalent energy using ethanol would cost the buyer $14.42.  Thus, the energy efficiency ratio of gas to ethanol is 9.6:1 rather than first indicated, 1.92:1 (1 ÷ .52).  That is to say ethanol is more than 9 times more energy expensive than gasoline.  Explaining the relative cost of ethanol and gasoline in terms of kWh shows that the cost of ethanol is 39.4¢ and that of gasoline 4.1¢ per kWh.138

To ethanol’s commodity and processing costs must be added all the other costs of providing consumer fuel.  The price of gasoline at the pump, e.g. $1.50, is the cost to the user including processing, transportation, administration and profit margin.  These additional upstream costs would very likely fall in the 50% to 100% range doubling the commodity cost to the end user.  It’s the reason Investors Business Daily in an editorial stated that companies that blend ethanol require 53¢ per gallon of subsidies.139

A similar accounting is brought to light regarding the use of sugar beets as the source of biomass.  Even if one assumes improved efficiencies and operations of scale reducing the costs, the cost of ethanol processing using sugar beets is more than double or between $1.50 and $2.25 per liter or roughly between $5 and $8 per gallon.  The opportunity cost described above for corn and soybeans of beets at $6 per bushel is in the same ballpark as corn or soybeans.  Thus, the use of sugar beets remains a multiple of the cost of gasoline.  As previously stated the energy used in sugar beet processing is a diminishing resource, natural gas.

The lack of renewability of biomass energy production becomes apparent if one assumes the energy input is derived from the energy output of the process.  That is to say, using sugar beet derived energy to manufacture sugar beet energy cannot be sustained.  The compounding of costs would be staggering.140

Because ethanol or biodiesel production consumes more energy than it delivers, the development is clearly not sustainable while yielding an expensive fuel product.  Indeed, the process is an extravagant use of energy resources.  The difference in energy efficiency is reflected at the gas pump, increasing food costs, and in tax payments to the government.  Lower mileage of biomass derived fuels helps to explain why environmental emphasis has evolved from mileage standards to air pollution.  As the price of fossil fuels increase, the rate of price increase in bio-energies will exceed that of the fossil fuel, a rate more than 50% in the Pimentel sunflower oil example.  Were it not for ethanol, methanol, and biodiesel legislation and large scale subsidies, these “sources” of alternative energy could not economically compete with gasoline or diesel fuels.  These subsidies mask the failure to facilitate an energy and resource wise society.


Methanol

Methanol is used as a fuel source and a carrier of energy in hydrogen fuel cells and blended in the production of the gasoline additive methyl tertiary butyl ether (MTBE), an oxygenate to clean gasoline emissions and to replace lead used to increase the octane rating.  (Seldom mentioned was that lead was becoming an increasingly scarce metal.)  Methanol is also used in processing biodiesel.  Methanol appears to be the best energy carrier for fuel cells.  The primary feedstock for methanol production is a fossil fuel such as coal or natural gas.  Thus, availability of natural energy resources will limit methanol (and biodiesel) production.

Biomass in the form of cellulose is used as a feedstock for methanol manufacture.  The environmental tradeoff is that the biomass is already fully utilized.  Because forests in the main are composed of cellulose, it has also been thought that forests have the potential for conversion into ethanol.  Ethanol (Methanol) can also be converted into gasoline using the Mobil M-gasoline process.  In an expensive synthesis process it can be further converted into diesel fuel.  Corn, sunflower, safflower, soybean oils, etc. can be made into a good quality diesel fuel.  However, these processes are energy intensive requiring more energy inputs than consumer useable energy.  Pimentel found that 65% more energy from fossil fuels is needed to produce vegetable oil than energy in the useable oil.  Even at today's low commodity prices, raw material costs of $14 – $15 per gallon make further processing prohibitively expensive.  Thus, because of its low net energy methanol is likely to be economically productive in specific niche applications.

It is possible for cellulose to be processed into methanol but not ethanol without an additional level of processing, hydrolysis a chemical change to a sugar and adding much greater cost to the final fuel product. The difference is that methanol is corrosive in automobile systems and a poisonous wood derived alcohol while ethanol has medical and fuel uses.

Although methanol is not MTBE its use is essentially equivalent.  MTBE has been shown to be a serious source of underground water pollution even in trace amounts.  Because MTBE acts as a wetting agent facilitating fluid movement MTBE pollution spreads widely and rapidly.  Once ground water is polluted by MTBE the pollution is irreversible.  Because of the nature and seriousness of MTBE pollution, California has called for a total ban on MTBE by 2002.  Minnesota legislation has limited its content, but not at a level sufficient to safeguard water resources.141


Biodiesel & Soybeans

Biodiesel production is expensive ...
Dan Lemke, farmer, Grand Meadow, Minnesota. October 2000.142


Subsidies

This is Big Business.  The biodiesel and ethanol energy marketing programs are insurance policies intended to protect specific agricultural sectors from the vagaries of the energy marketplace.  According to research by the Minnesota Department of Agriculture, soybeans are clearly the #1 agricultural crop in Minnesota, generating $1.5 billion and 18% of Minnesota's total farm income.  Minnesota ranks #3 in soybean production in the United States and contributes more than 10% of total soybean production.  Due to government programs promoted by Archer Daniels Midland and the industry, the percentage and importance to Minnesota's farm economy is rapidly increasing.  Soybean production accounted for nearly one-quarter of Minnesota's total farmland in 1998.  With over one-third of production exported, soybeans bring in nearly $1 billion a year in farm industry revenues.

A research study financed by the Minnesota Soybean Growers Association concluded that biodiesel will “generate $185 to $460 million in total economic impact, 983 to 2,439 jobs, and $64 to $159 million of value-added in various economic sectors” depending on whether the 2% or the 5% plan is implemented.143

The catalyst driving biodiesel is patterned after similar industry and government programs promoting the use of ethanol.  Indeed, 12% of the processing inputs for manufacturing biodiesel is alcohol.144  A government marketing program was passed by the Senate Agriculture Committee as part of the Federal Farm Bill on November 6, 2001.  The purpose of new Minnesota Senator Mark Dayton's Amendment was to increase funding “on biodiesel education”.  The measure included $25 million in a five-year program to educate the public on the “benefits” of biodiesel fuel.  The legislation explains why the public observes large numbers of advertisements on TV and radio promoting the apparent benefits of biodiesel.  It is apparent that an marketing script has been employed: the advertisements are virtually carbon copies of those seen earlier for ethanol.

There are four primary areas of subsidy in the legislation.  According to Senator Dayton, the legislation would provide farmers a safety net by establishing in effect, price floors.  The policy is complicated but essentially it sets a commodity “loan” rate and if the commodity price falls below the “loan” rate the farmer can sell the crop back to the government at the higher “loan” rate.  In other words, it sets a floor price essentially guaranteeing farmers cost recovery and, likely, some profit in weak markets.  Because the subsidy applies to each bushel, the larger and most productive farms receive greater benefits than small family farms.  It should also be understood that in providing funding by the government, the legislation removes many of the business risks associated with farming and lowers the bar to profitability.145

The nature of the subsidy is clearly evident in the current price of soybeans.  The legislation proposes a soybean “loan” rate increase of $0.10 to $5.36.  If the November 2002 soybean future market priced soybeans at about $4.50, it would indicate a “loan” subsidy of $0.86 per bushel (actual futures price, February 15, 2002).

The second important part is what is euphemistically termed “Cost Containment Through Conservation”.  In the language of government, conservation means to increase by one-half the percentage of the land set-aside, the established “loan” rate as a percentage of cropland.  That is to say if a farmer sets aside 5% of farmland then the “loan” rate will increase by 2.5%.  If the “loan” rate were $6 per bushel the increase would be $0.15 per bushel, to $6.15, a substantial increase.  The maximum allowed is 20%, $1.20 per bushel or $48 per acre in this example, a tremendous subsidy.

In this regard a rational farmer would set aside less productive and marginal land, reducing cost more than yield, thwarting the intention of the program and more than make up reduced crop sales in government subsidies.

In reality the program pays farmers to do what most farmers throughout history routinely practiced in order to husband the land and environment and provide for future crops.  If an intention of the legislation is to help provide and conserve habitat for wildlife and other environmental purposes then the language requires rethinking.  Because the program is temporary any hoped for wildlife or environmental benefits would be of minor consequence.

Wildlife and environmental balances require permanent habitats.

The third item under the “Farm Income Recovery Act” is called the “Farmer-Owned Production Loss Reserve”.   The language pays farmers to store their crops until stronger markets prevail.  A special subset program is the “Renewable Energy Reserve” in which the government purchases and pays farmers to store commodities such as corn and soybeans used to produce “renewable” fuels like ethanol and biodiesel.146

Restrictions written into the program are said to focus the benefits of the program on the small family farm.  However, the income cut-off is set at $2 million when the average Minnesota farmer averages less than $20,000 in annual income (using farm accounting).  A similar situation prevails in production limits.  The production cut-off for corn growers is 225,000 bushels and 100,000 bushels for soybeans.  Using an average of 125 bushels per acre corn yield implies the cut-off farm is 1,800 acres and for soybeans a 40-bushel per acre average implies the cut-off farm is about 2,500 acres.  According to data from the Minnesota Department of Agriculture in the year 2000 the average Minnesota farm was 362 acres and the average selling price of farmland in Minnesota in 2000, $1,762.  Thus, the farm-size cut-off for corn growers is farmland worth over $3.1 million, and for soybeans, more than $4.4 million.

Government subsidies, as the Dayton legislation exemplifies, are actually costs borne by taxpayers.  These subsidies take the form of increased taxes and prices and reallocate costs from farmers and their products to the general public.

A seldom noted effect of the subsidy is the unequal distribution of subsidy dollars among the states.  Depending on the state, the general public is compelled to pay the subsidy in higher taxes (and higher prices) while receiving proportionately less benefit.  The state ranking of agricultural exports is a good proxy for both state farm production and targets of the legislation.  The Minnesota Agricultural export data shows that other than California, Texas, and Washington, the top 10 leading exporting states primarily due to corn and soybeans, are in the U.S. heartland; Minnesota ranks seventh.  The implication is for substantial redistribution of income from states with less agriculture to those with more.  It also implies that the lower the state's agricultural production the relatively greater the dollar transfer even between states known for agriculture.  For example, under the legislation Iowa should receive nearly half-again the benefit Minnesota receives and Wisconsin just over half that of Minnesota.  It is not difficult to understand how agricultural states would appreciate this type of legislation.147

Acknowledging the program’s deficiencies, proponents argue that the legislation will save taxpayers $33 billion in emergency assistance to farmers.  However, the Agricultural Policy Analysis Center at the University of Tennessee estimated the cost as approximately $50 billion above the $33 billion already spent, a total of $83 billion in taxpayer funding over the next 10 years.148

Minnesota legislation introduced January 25, 2001 and again January, 2002, according to Don Louwagie, President, National Biodiesel Board, said the bill “would boost the state economy in several ways, including increased employment, economic activity, tax revenue and sales of soybean oil.”  Indicating its industry backing, the National Biodiesel Board states soybeans provide 90% of the biomass for biodiesel processing.  Although already the chief source of biomass for biodiesel, the legislation requires that all diesel fuel sold in Minnesota contain a 2% mixture with at least a 5% biodiesel blend the current legislative target (abbreviated as “B2”, “B5”).  The House bill is sponsored by Representative Torrey Westrom and in the Senate, Senator Jim Vickerman (See, HF-0362).

Mr. Louwagie estimates at least 16 and up to 25 million or more gallons of soy oil will be produced in Minnesota each year.  The “B2” and “B5” correspond to the 16 and 25 million gallons of the legislation.  Representative Westrom believes this “bill has bipartisan appeal because Greater Minnesota stands to gain from this”.  (Note: the use of the word “greater” is used to refer to rural areas of Minnesota.)  Environmentally it is said to be clean because it reduces greenhouse emissions for example, by reducing “ozone forming hydrocarbon emissions by almost 91 thousand pounds” each year.  Its greater lubricity will also add the lubrication needed when sulfur is removed from diesel fuel.  Finally, it is argued that it is evidence of Minnesota's leadership in producing renewable energy.149


It’s Expensive!

That fact that energy conversion technologies are generally not new and that substantial government subsidies and legislation are required for development, suggests that further analysis may discover the optimism is overstated.  The potential decline in revenue from exports will be discussed first, followed by an elaboration of the inefficiencies involved and resulting higher cost, and finally the negative economic impacts centered on unemployment.

The industry overlooks the enormous opportunity cost of ethanol and biodiesel.  With one-third of total soybean yields now exported, the potential loss of a substantial portion (perhaps complete loss) of export revenues is an important factor.  It is unrealistic simply to assume no change in exports.  Assuming food crop reductions first apply to export rather than domestic food consumption, the potential export loss with the 2% legislation is $224 million and $350 million at the 5% target assuming $5 per bushel soybeans.  With $7 soybeans the loss would be as much as $313.6 million and $490 million respectively. (16,000,000 gal x 2.8 bu/gal x $5 = $224,000,000; 25mm gal = $350,000,000).

The Damoclesian Sword is clearly hanging over biomass.  With strengthening commodity prices, (soybeans in this case) soyoil processing costs will increase significantly and consequently reduce local alternative energy demand.  The loss of export revenues will be sharply reduced because of higher prices and reduced availability of soybeans.  Further processing into energy would also be an important concern.

Proponents should heed the statement by Minnesota farmer Dan Lemke opening this section: producing biodiesel is expensive.  Its development is expensive from the viewpoint of a generator of electricity and as a fuel source.

Theoretically, a bushel of soybeans could produce approximately 128 kWh of electricity.  If processing were not considered the cost per kWh would be an unremarkable $0.04.  However, processing requires about 2.8 bushels of soybeans to produce a gallon of soyoil and a gallon of soyoil yields only 38 kWh of electricity.  The inefficiencies involved in processing reduce the potential kWh from 358 (128 x 2.8) to 38, a ratio of 9.4:1.  Doing the arithmetic, 2.8 bushels priced at $5 per bushel indicates a commodity cost of $14 to produce 38 kWh of electricity, a commodity cost of $0.36 per kWh.   The gasoline price equivalent is $13.18 per gallon, or approximately 10 times the price of gasoline. (36.62 kWh/gal of gasoline x $0.36 per kWh = $13.18).  Moreover, the cost per kWh ratchets upward with increasing prices at the farm level, $0.44 at $6 soybeans, $0.51 at $7, and $0.59/kWh at $8.  With a commodity cost of $4.50 the kWh cost would be $0.33.  Under Senator Dayton's subsidy legislation, there would an additional $0.06 or more per kWh increase, to more than $0.39 per kWh gasoline equivalent.

A Minnesota study last year concluded that a proposed federal tax exemption for biodiesel under the 2% ratio would “raise the price of soybeans 5 to 9 cents per bushel across the nation” and under the 5% soybean plan soybean prices would rise 12¢ to 18¢ a bushel.  In other words, each 1% increase in the proportion of biodiesel results in an approximately 3¢ to 4¢ per bushel increase in soybean prices.  Recalling that 2.8 bushels are necessary to produce 38 kWh of electricity, each 1¢ increase in soybean cost raises the commodity cost by 2.8¢ and fuel cost of fuel by 0.07¢ per kWh (2.8¢ ÷ 38).  In other words, each 5¢ per bushel increase in soybeans results in approximately a 3.6¢ rise in fuel price per kWh.150

As seen in windcommerce and now ethanol and soybean processing, the commodity and other costs must be summed to determine the actual cost to the end user.  The result is a probable doubling of the commodity costs.

It should be evident why a 2% soyoil mixture is the starting point and 5% the final targeted biodiesel objective.  It is equally understandable why ethanol is limited to a 10% mixture.  Even if profiting some farms, at approximately $15 per gallon the full cost of these alternative fuels would be an economic and consumer hardship and an oppressive burden to the state's or nation’s economy.  More than diluting the fuel mixture, these percentages dilute the cost increases to the consumer to acceptable and industry manageable levels.  The process also coaches the public to accept what is not in their best economic or environmental interests.  Nevertheless, at some point significant increases in commodity cost may generate consumer resistance.


Ethanol, Biodiesel & the Economy

The Arkansas Soybean Promotion Board announced a soybean study saying soy-based “… Fuels Can Lower Cost”.  The title suggested the use of biodiesel would reduce fuel costs while the body of the text discussed the amount of cost increases.  Apparently, the authors believed researchers and the media would not read beyond the title.  Similarly, they apparently believe increasing prices received at the farm level is not an increase in the price of the commodity sold by the farmer.  In Minnesota, the millions of bushels involved suggest the hoped-for dollar impact on Minnesota's agricultural economy.  It also suggests the extent of the subsidy paid by the non-farming public, here equal to the fuel tax.  Although the study did not state it, the federal tax exemption subsidy would be bundled on top of the “soybean checkoff”.

Suggesting higher prices is a consumer benefit is quite a surprise!  Most (perhaps all) economists and certainly consumers would disagree.  Higher prices generate reduced employment and reduced economic activity.  One notes that even with the artful use of language the study acknowledges that petroleum is one-third less expensive and much more efficient than biodiesel.151

It appears the state of Minnesota is attempting to relive its former days.  In 1988, the Minnesota Department of Energy and Economic Development also plugged the apparent job-creating potential of biomass with nearly identical cost relationships.  Strangely, it found that energy production using petroleum provided one-third the additional economic activity than for biomass, i.e., oil is one-third the cost of biomass.  Strangely, the state's study also reported that biomass generated $1.50 for every $1 invested.  One would expect that if a 50% return were readily available, investors, the public, and government would be clamoring over opportunities to develop biomass!

As the discussion of kWh and comparative gasoline costs indicated, examining these relationships from another perspective explains why the uncommon economic effect should be more carefully considered.

The claim is made that under current legislative proposals soybean based energy will generate up to almost $700 million in annual state revenues and create up to additional 2,439 jobs.  The initial question to answer is how can additional and less efficient processing of an existing economic resource and subsequent higher prices create net positive economic developments?  The reality was explained in more detail in discussing windpower (Table 14, p199): the impact on job creation is a net economic negative.   The economic impacts are primarily of reallocation of existing jobs.  The revenues in many respects are, likewise, reallocations from existing economic niches and due to inefficiencies and higher cost, an overall net economic negative.

If it is assumed that each new position (2,439) is valued at $50,000 in wages and benefits, the total cost (activity) would be $121,950,000 (2,439 x $50,000).  The agriculture industry and state describes these dollars as increases in economic activity or benefits.  From an economic perspective this is an increase in “economic activity” at an identical offsetting cost of $122 million to end-users.  The end energy customer is required to reallocate the same energy dollars from current spending patterns and from existing economic niches.

Existing areas of economic activity where they are subject to competitive forces are successful competitors and more efficient at producing goods and services than the government mandated energy niches derived from energy legislation.  From an economic perspective the net result of government interference is fewer competitively priced items, higher costs, reduced economic efficiency, and rising unemployment.

Moreover, as in the windpower illustration, to fill the “newly created” positions, employees in the soybean energy field could only be enticed from existing positions by offering higher wages.  Presumably a significant percentage of the workers would be currently employed in comparable labor, energy or professional fields.  Reducing economic activity and wages in occupations losing workers would also tend to raise fixed production costs and if not filled, costs would be spread over reduced output, raising selling prices.  If jobs are created it is due to upward mobility filling vacancies but, as noted in this section and in others, the costs outweigh any potential benefits.

Presumably the needed expansion of existing baseline energies would create jobs but because of greater efficiencies fewer additional jobs would be created.  The resulting lower costs would also be passed onto the energy user.  Consumers and society are more efficient and will achieve a more effective allocation of resources with existing energies.  Because of the differences in energy efficiencies and productivity in established industrial sectors, the same increases in energy may create 500 positions at a cost of $25 million instead of 2,439 jobs at a cost of $122 million.

The jobs said to be created by alternative fuel development are in the main, unnecessary and counter productive to economic development.  In brief, the best that can be said is that jobs are reallocated from non-rural economic niches to rural niches —“Greater Minnesota”— with much of the costs inappropriately displaced.

These costs should become clearer using a kWh rather than employment illustration.  The Minnesota and industry goal is to produce 1 billion kWh from alternative energies using about 25 million gallons of soyoil.152  At a selling price of $0.07 per kWh this volume of soyoil would generate $66.5 million in revenue.  With a soybean price of $5 per bushel the commodity cost would be $103.9 million, with $6 soybeans, $124.7 million, and at $7, $145.5 million (950 million ÷ 128 x 2.8 x $5).

The commodity cost of production ($104 million at a minimum) must be included with the increased labor cost ($122 million) and compared with the revenues generated ($67 million).  Thus, before the addition of upstream cost other than additional labor, the net is a loss to the state of $156 million.  The greater the trend toward these energies, the greater the annual economic and energy losses to the state.  There is also an economic multiplier effect that multiplies any of the effects, positive or negative.

With gasoline selling for $1.50 per gallon, a gallon of $7.50 per gallon sunflower or soyoil producing $2.85 in electricity makes little rational sense.  It is clear why Dr. Pimentel reached the conclusion that, “there is no way that vegetable oil will be an economic alternative to liquid fuels in the future.”153
 

Wood

The Superior National Forest in northern Minnesota is a tempting source of wood for generating electricity (this applies to all forests).  Common sense suggests that in terms of energy efficiency a lump of coal has much greater energy potential that the same size chunk of woodConverting forests into energy is esthetically and economically unwise.

Dr. Pimentel examined the energy flows of using biomass in this manner and found that 18 times more labor is required than the quantity of labor needed to produce an equivalent quantity of energy in a volume of gasoline and up to 30 times greater than that for coal.  The demand for labor extends to plant construction where two to five times more workers are required and three to seven times more workers are needed to maintain the facilities after construction.  Perhaps state reports would suggest these substantial labor demands are increases in economic activity and thus a selling point for development!  If there were net economic and environmental benefits it would pay to construct new generating plants up to the limits of the forests.

The substantial labor demands would be reflected in much higher generating cost and prices paid by end-users.  The alternative would be for substantially lower wage scales.  As discussed previously, higher costs imply reduced employment in other economic areas and slower economic growth.154  The outcome to Minnesota of using wood to generate electricity would be increased unemployment and reduced economic activity.  The potential environmental consequences to forests can be summed up in one word: devastating.

In addition to the high labor costs, another significant problem is that U.S. forests are already over harvested.  In order to be sustainable the harvest rate cannot exceed the replacement rate (and the estimates should exclude forests held to provide for other life forms).  Outside of Alaska, the U.S. logging rate exceeds natural regeneration.  Canada fortunately has surplus forest products which are shipped south to supplant the lack of sustainable domestic supply.

As that famous baseball player Yogi Bera might say “it's the same all over again”.  At a time when coal-fired generating plants were one-fourth the cost per kWh of wood-fired plants, a 1994 Minnesota study found that the cost of electricity from wood power plants was 6.5 to more than 9.0 cents per kWh.  The state study also said generating efficiencies were in the 20% range.  Suggesting the necessity for substantial government subsidies, the author, David Morris, Vice President Institute for Local Self-Reliance said that wood is competitive “only inasmuch as they can receive feedstock at very low prices.”  Underpricing logging and public funding of the construction of logging roads in public forests is U.S. Forest Service policy.  The USFS in western states prices stumps at below market rates.  The identical uncompetitive and artificially low prices may prevail in Minnesota.155

Another method to view the cost of wood energy is to examine the opportunity cost of chips from forests that could be used for export.  Conversion of forests into energy entails significant reductions in potential revenues from sales of chipped wood.  An Australian study found that this cost was $164 per ton or in terms of electrical generation, approximately $8.3 per gigajoule, 16 times the cost of coal.156

The land requirements are difficult to grasp.  Drs. David Pimentel and Marcia Pimentel of Cornell University researched the electrical generation capacity of forest biomass and found that 330,000 hectares (nearly 1,300 square miles) are required to produce electricity for a city of 100,000, one-billion kWh (see Table 14, p199).  To meet the electricity demands for a period of one year of a single Minnesota city approximately the size of St. Cloud or Rochester would require twice the combined forested land area of approximately two Hennepin and Ramsey Counties.157  The Superior and Chippewa National Forests won't last long at that rate!

Mr. Bera may have better understood science and its implications for society than many of his fans sitting in the stands.  Many areas of the planet are suffering from forests logged in excess of replacement.  The process of over-logging often terminates in an ecological area unable to support humans nor other plants or animals.  The process is one of desertification.  Recall that from the eastern U.S. seaboard to the middle of the country, about the level of the Missouri River (roughly 95º Longitude) the U.S. originally was largely forested in among the prairies.  As those flying over the region witness today much of these forests have been removed, replaced by cities and farms.  In Minnesota, less than 5% of the “Big Woods” of central and southern Minnesota remain.  Much of our present forestlands are literally being mined.  Contributing to the process is monoculture, plantation planting, and clear cutting.  These widely used agricultural practices do not allow the soils to regenerate.  To suggest that may also contribute to a sustainable energy policy is unrealistic.

In Minnesota and most regions of the U.S. (and Europe) the well-established trend of overlogging and logging in inappropriate areas is under review.  Wiser ecological based forest and wildlife management is beginning to be established.  In Minnesota it implies the remaining Multi Age Forests (old growth) will be preserved and steps taken to reverse the short-term management policies previously practiced.  Perhaps the USFS will reconsider its practice of underpricing stumps.  Ecological based forest management implies a more biologically than economically balanced forest management.

Public TV aired a “Nova” program on Easter Island in 2001 noting the island originally was forested.  Historians also understand that Afghanistan's mountains were forested and the semi-arid portions covered with vegetation not too dissimilar from areas in southwestern U.S. today —juniper-mesquite, and chaparral.  The process of desertification is characteristic of many areas of the Mideast and is now occurring in Brazil's rainforests and in many other South American forests.  Due to the exhaustion of its only economic resource, phosphates, the African continent has been undergoing an epic transition.  The island state of Nauru, located northeast of Australia near the Solomon Islands, is undergoing the process of deforestation induced collapse as this is written.  According to the Economist, the “bad news is that the hazy reports of parliamentary paralysis, riots and fires that emerged during the breakdown all seem to be true.”158  Iceland, too, was forested when the Vikings began their settlements and was denuded even as the Vikings were aware they could not sustain their numbers.

The central theme is overlogging, cutting in inappropriate areas, and overgrazing in many instances.  In addition, contributing to desertification in parts of the U.S. is the making of charcoal, another overuse of biomass.  Unless soon reversed, the production of charcoal in the areas south of Utah to the southwestern U.S. border could produce an irreversible trend toward desertification of now already semi-arid regions.  If climate change is underway, a guarded policy toward Minnesota forests is mandatory.  Unless carefully monitored, the remaining logged areas of the country including Minnesota, will continue the present trend toward semi-arid climate vegetation with increasing demands for water resources.  Whole forests types will move generally northward along with expanding northward the vegetation of drier prairies of the southern Midwest and Central States' prairies.  Reduced forestation of the Chippewa and Superior National Forests and other forested areas is a possibility if some current management practices are continued.  Once set in motion, desertification can be a process requiring geologic time spans to reverse.

It would be unwise to propose a program using Minnesota forests for large-scale energy production.
 

Biomass Energy: Footprint, Land, Food & Lifeboats

The presumption underlying development of ethanol or biodiesel is that there is idle agricultural land.  However, all agricultural and cropland is in production at this time; indeed it's overused.

The Green Revolution’s modern farming methods are generally responsible that worldwide, farming and ranching are the single most environmental damaging of all soil related human activities.  Ethanol or biodiesel production exacerbates the negative environmental consequences.  The overuse of agricultural land increases chemical pollution, erosion, loss of soil quality, and loss or reduction of plant and animal species.  Due to increased electrical demands required to process, ethanol and biodiesels' contribution to U.S. greenhouse emissions and global pollution is proportionately increased.

Dr. Paul Hofseth of the Renewable Resources Institute sums the effects as follows:159

If we look at an optimistic median prognosis for population growth in the industrialized countries, it is immediately obvious that if population grows very quickly, we have to make enormous efforts to supply the needs of people and make sure that the environment is not destroyed. Population growth is not just a problem in poor countries. In the U.S., population has grown, so all emissions of sulfur and nitrogen have increased tremendously, even though per capita emissions have not increased that much.

Both the increasing manufacture of ethanol, biodiesel development, and of biodigesters in energy production would exacerbate soil problems of modern farming, including the increase use of artificial fertilizers and other chemicals.  Although some undigested organic matter (primarily cellulose and “woody” parts) is capable of being returned to the field after processing, a further reduction in the friability of the soil structure is probable.  Deteriorating soil quality implies declines in future food production.

A similar story is told by farm manure and its use as an energy source.  Although digestion techniques may have some application at the individual farm level, the general use of manure is a disputable energy source.  Farmers husbanding the soil have always recycled manure into the fields used to produce crops, feed for humans or livestock.  A sustainable and natural process organic matter rebuilds the soil structure and adds nutrients for soil organisms for the following crop cycle.  Whether it’s ethanol, biodiesel, or digestion the reduction in nutrient recycling further depletes the soil structure and increases the use of artificial energy inputs.

In terms of energy production, Pimentel's research found that if as much as half the potential manure was used in energy production, it would provide less than 0.0076 kWh per person, about 0.0008% of energy use.  This helps explain why the conversion of biomass in digestion must be considered an insignificant source of energy of interest only at the local farmstead.160

Growing corn does not tread lightly on the soil.  Land and water pollution from application of chemicals is a serious environmental concern in Western style agricultural communities.  For example in the year 2000 growing season Minnesota corn growers applied nitrogen to 97% of cropland in about two applications using 59 pounds of chemicals per acre, 118 pounds per corn acre.

Minnesota farmers also applied phosphate to 91% of corn land and potash to 76%.  Herbicides were applied to 99% and insecticides to 88% of corn land.  Being a legume, soybeans do not increase growth with supplemental nitrogen.  However, 24% of soybean farmers applied 68 pounds of potash per acre and 95% used herbicides.  Most farmers understand that because of the ability to fix nitrogen in the soil, legumes such as alfalfa and clover, and beans at a much less extent, were used in crop rotation cycles prior to modern day repeating crop cycles and heavy reliance on chemicals.161

A typical residential homeowner by way of contrast will use, relatively, maybe a tenth of the fertilizer of a farmer.  Perhaps, the legislation removing phosphorous from fertilizers applied in the Twin Cities area should be expanded and made less restrictive.  A serious and widespread problem in Minnesota, the large commercial feedlots or corn or soybean fields flow their excess chemicals onto the land into streams and lakes where water becomes unsuitable for a variety of uses.

Starting from a hypothetical zero farmland use point, Pimentel states that “growing ethanol” implies that the land used for ethanol (or biodiesel) production must be increased by over 70% to produce corn for the manufacturing process.  Translating the energy requirements for production into land use at a conservative 500 gallons of gasoline use per year (1,900 liters), indicates that approximately 11 acres of farmland is required to supply ethanol per vehicle (a less conservative and more realistic gasoline to cornfield use estimate would be acres in the upper teens).  Using the Minnesota E-85 Standard implies that approximately two acres are required per vehicle or about the same land requirements to feed one average world individual for an entire year.

Stated otherwise, the reduction in acreage devoted to food production is a multiple of the acres assigned to energy production.  This implies that the ethanol (and similarly, biodiesel) trade-off for food is equal to food for seven Americans (or Canadians or Australians, etc.), conservatively and up to nearly twice that number under more realistic assumptions.  The identical loss in other croplands would equally apply to animal feed for cows to livestock.

Accentuating the land requirements and economics of ethanol, Dr. Pimentel states that if all U.S. cars used ethanol it would require approximately two-billion acres of U.S. farmland.  “This amount of acreage is more than 5 times all the cropland that is actually and potentially available for all crops in the future in the United States”, writes Pimentel.162

Figure 32 suggest the difficulties further production of ethanol (and other biomass) entails.  The population trendline does not reflect the 2000 census (much higher population growth rates), thus the arable land per capita using more recent population data will shift the downward slopping (green or gray left trendline) to the left bringing forward in time the low figures near the bottom rightside.  The 0.6 a/c per capita figure will likely be reached in the early 2020s.

Figure 32:  United States Per Capita Arable Land 1700 – 2100


Food, Land, Population and the U.S. Economy”, David Pimentel, Cornell University, and Mario Giampietro,
Istituto of Nazionale della Nutrizione, Rome. Carrying Capacity Network November 21, 1994.
See at < http://www.carryingcapacity.org/pubs.html >.


There are significant opportunity costs of ethanol development in terms of food exported to the hungry world.  Agricultural biomass are the same crops used to satisfy human nutrition needs, to make cooking oils, and other products from pet food to tallow.  Pimentel states that about 1.5 acres are required per American for food, thus more than seven times as much land per capita is required for energy production than for food (11 acres for ethanol energy/1.5 acres for food).  Dr. Walter Youngquist's analysis is consistent with that of Dr. Pimentel.  He estimates that it requires about six hectares (14.8 acres) of cropland to produce the volume of ethanol needed to fuel a vehicle for one year.  Of more interest, he also found that six-tenths of one hectare (1.5 acres) of cropland is necessary to produce sufficient yields for one average world person.162

The loss in food crops approximates two or three times the number of people with a Western style diet.  It also implies that beginning around the year 2020, U.S. farmers will begin to forgo approximately $40 billion annually in food export sales.  The higher prices required for ethanol and biodiesel production so embraced by the agriculture industry also raises prices on world markets; increasingly, the world's disadvantaged will be disserved.  (1 hectare = 2.47 acres; 1 gallon = 3.785 liters.)163

Professors Mathis Wackernagel and William Rees of the Centre for Sustainability Studies, calculated the relationship between biomass, national living standards and sustainability.  An oversimplification but their examination compared resource use and renewable energy, sunlight and energy production from biomass in all its forms.  The now famous term denoting this relationship is the nation's “Footprint”.  The conclusion of their remarkable studies was that the total output of the earth's biomass was insufficient to sustain the world's population.165

Indeed, in a study based on Wackernagel and Rees’s Footprint work the author found that at half the 1998 world average standard of living, the maximum sustainable world population is less than one-half of today's actual population.  Also interesting to note is that if the U.S. living standard were reduced by half the U.S. would, nevertheless, remain in an unsustainable biomass position.  Lest one garner a false impression from the previous statement, Wackernagel and Rees found that all European nations are unsustainable and in troublesome ecological deficit positions.  However, if one compares the American “Footprint” with other comparably developed and populated countries the data presents a more instructive viewpoint.  For example, the EMU countries (European Monetary Unit –“Euro”) are comparable to the U.S. in population and development.  The sum of the EMU state’s Footprints is 19.2, virtually equal to that of the American footprint at 19.6.166

Mexico even with its developing status is in a serious and deteriorating ecological Footprint deficit.  Other than Canada and Australia, temporarily and then only slightly, all nations studied were in unsustainable biomass deficit positions and the prognosis was for further deterioration.167

Although subtly invoked, the biomass to energy conversion process and its effects on the world's disadvantaged is an extension of Garrett Hardin's lifeboat metaphor.  Assume a ship sinks, the lifeboat is full, and can hold only 10 individuals without sinking.  However, there are other individuals floundering in the seas.  The dilemma is that by adding another person to the lifeboat results in the lifeboat sinking.

The analogy is that biomass conversion will assist those in the lifeboat by fashioning a better oar but cannot help those not in the boat.  Perhaps by holding onto the gunwales, lowered expectations or unexpected technologies, a few more could be saved.  A less perfect application would imply that those in the water are encouraged to contribute to the welfare of those already safely in the lifeboat —indirectly or directly contributing biomass resources.  The Green Revolution or modern genetic engineering schemes temporarily postpone the inevitable.  If not carefully reviewed, in the final phase the lifeboat becomes overloaded.  Although done with good intentions, this approach is frequently seen in famine relief and evident in energy and conservation programs.168

A more common understanding of the dilemma is evident in the adage, “give a person a fish and he'll eat for the day; teach him to fish, and he'll eat for life.”  The difference is in having one assume responsibility for their condition and subtly implies that the quantity of fish or corn or soybeans as biomass can sustain a limited quantity of life.  Paying tribute to Professor Hardin, Dr. Joseph Fletcher expands and clarifies the metaphor,169

it is characteristic of too many of the proponents of famine relief that they use numbers only at most to count the people who are starving. They do not measure the capacity of arable land, the rate of population increase, the morbidity and mortality figures over a long run, the balance of wetland and arid areas, or try to calculate the weight of population growth in relation to reproductivity and a standard of living. For the most part they lack numeracy, …

Characteristic of all biomass energies, its development implies increasing use of energy intensive irrigation (fossil water) and increased dependence on genetically manipulated seeds, pesticides, and fertilizers.  Hybrid and genetically engineered seeds create further farmer reliance on seed companies and the chemical industry.
 

Sustainable Farms Transition

If biomass energy developments are increased, farms concentrating on food and feed production will be reduced in turn.  However, coming price increases and relative shortage of fertilizer, fuel, and electricity suggests farmers will continue their now evolving transition to a more efficient less energy intensive pre “Green Revolution” era.  Resembling farmers throughout much of history, modern farmers will begin to substantially reduce energy use for crop production and naturally recycle crop residues (biomass) into the soil.

Farm stewardship and recycling crop residues directly into the soil implies that wildlife habitat, reduced pollution, and other environmental benefits will be realized.  It also suggests that using farm biomass as livestock feed and silage, the numbers of livestock of all kinds (cows and steers and pigs to chickens) may also achieve sustainable levels.  Hauling corn, soybeans or other biomass to an ethanol, biodiesel, or similar manufacturing plant or electric generating facility is an ill-advised practice.

Biomass subsidies discourage farm husbandry.  If policy is not changed, farmers will require continually escalating government subsidies, and require additional farm and other biologically active land to be converted to energy production in an endless treadmill attempt to accommodate growth in the face of declining energy resources.  The practice is expensive and neither renewable nor sustainable.

This section opened and now closes with a quote from the leading biomass researcher, Dr. David Pimentel, 1998.171

Ethanol does not provide energy security for the future. It is not a renewable energy source, is costly in terms of production and subsidies, and its production causes serious environmental degradation.

Virtually, the same can be said of almost all forms of biomass energy conversion.

In summary, conservation and alternative energies are metaphorically equal to the Holland lad with his finger in the dike believing the solution is at hand.  Although temporarily helpful and necessary, conservation is a small answer to an immense question.  Alternative energies require traditional baseline energies to manufacture and maintain, are often prohibitively expensive, lacking in resources, impractical in many situations, and can be environmentally disruptive.  Alternative energies can only be a minor contributor to growing national energy requirements.  The development of alternative energies should be considered a temporary bridge on the road to sustainability; if not, their high energy requirements will make worse the energy dilemmas they intend to correct.  Coal will play a significant ongoing role but with the realization that its price will be higher than currently, and pollution substantially reduced.  Finally, for nuclear power there is neither the ore resources to make a substantial contribution over time nor moral justification for its use.

In Part IV several applications of resource constraints are discussed.  The first example describes how diminishing availability of water, land, and fuel resources contributes to questionable future U.S. farm production and the second example considers the California's growing water impasse.  Using California and Minnesota as illustrations, the following part discusses how the presentation of information can be an obstacle to understanding and determining appropriate remedies.  The final item discusses the “conserving” or consumption approach from a different perspective than Jevons’.
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Used with permission of Dell Erickson
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