Thursday, July 3rd, 2008
The concept of unintended consequences is one that we look at frequently on this blog, with ethanol, of course, being one of our biggest discussion topics. Sen. McCain throughout his career and on the campaign trail has claimed that he is opposed to government mandating specific solutions, opting instead for market based answers. He has directed much of this criticism towards Sen. Obama for his support for ethanol subsidies. However, it is not clear that McCain is completely consistent in this approach, since he has recently been advocating subsidies for cleaner coal and nuclear power.
Of course the most obvious criticism of McCain here is for hypocrisy. However, the more interesting question is what role should our government play in promoting alternative energy and clean technology? We generally believe that market based solutions like the proposed cap-and-trade system are most likely to produce the best result. However, tax breaks and subsidies may also play an important role, as they have with solar and wind energy development. The problem is when the government’s directives result in a “solution” that may not be the most efficient or practical (as may be the case with ethanol), and we then are faced with a series of undesirable and unintended consequences. Of course it is easy to judge, in retrospect, which solution was good and which was bad. The hard, if not impossible, part is to do this prospectively, which probably cuts in favor of market based, instead of government mandated, solutions.
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Monday, June 30th, 2008
The largest operator of a civilian vehicle fleet in the country, the US Postal Service is really feeling the effects of increased gasoline prices. According to the Deputy Postmaster General, the USPS spent $1.7 billion on gasoline and diesel last year, and predicts that number to increase by $600 million this year. As a result, the USPS, which uses 200,000 trucks has been forced to look for alternative means of reducing fuel consumption–some of which have been successful, some of which, not so much.
One strategy, which has not proven very effective, was the purchase of 30,000 alternative fuel vehicles, including flex-fuel (E85), CNG and biodiesel trucks. In particular, the flex-fuel trucks saw a decrease in fuel efficiency by 29% and ended up consuming 1.5 million more gallons of gasoline than before.
Some more effective solutions have included realigning routes so drivers don’t have to make left turns (which require more idling), adding GPS systems to plot more efficient delivery routes and, the most effective solution: having employees deliver more of their route by foot.
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Thursday, June 26th, 2008
Despite record high gas prices, it has previously been theorized that without the increase in biofuel use the past few years, gasoline might actually cost 15% more than before the adoption of these alternative fuels. This has led us to wonder whether we have become addicted to corn?
However, now, with the recent floods in the Midwest, another twist with respect to our increased reliance on ethanol has developed. The flooding that has inflicted widespread damage on the ethanol industry–ranging from the destruction of some corn crops, factory closures and transportation line disruptions, may now be responsible for a new spike in the cost of gasoline. This is because the decreased production of ethanol will increase the cost of the supplies that are available to be added to our fuel supplies. Currently, gasoline in the U.S. contains about 7% ethanol.
We may now face a situation where not only are the net environmental benefits of ethanol questioned, but our current reliance on it may also be increasing gasoline prices. If these two assumptions are correct, we may have created a situation that is a net negative. Of course, we are still in the early stages of biofuel adoption and all of its impacts are not fully understood. Nonetheless, this further illustrates the dangers of rapid policy shifts that can result in unintended consequences such as these.
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Tuesday, June 10th, 2008
Having written extensively about the potential downsides of biofuels, we wanted to highlight an announcement by U.S. Agriculture Secretary Ed Schafer, asserting that ethanol is not having a “major” impact on the rapid increase in world food prices. According to the USDA, policies encouraging biofuel use account for only 3% of the more than 40% increase in world food prices last year. The rest of the increase in prices was attributed to things such as widespread drought, an increase in global food demand from booming populations, and high energy costs.
Whether the USDA’s numbers are accurate or not, apparently their analysis was limited to the price of food and did not address the claim that biofuel production and use may actually release more greenhouse gasses than gasoline. Nonetheless, if their analysis is accurate, it does seem to lessen one major argument against increased biofuel development.
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Wednesday, May 14th, 2008
Looking at this comparison by Reuters of the presidential candidates’ energy and oil policies, it is clear that Senators Obama and Clinton are proposing more aggressive legislation than McCain. Nonetheless, the good news is that all three candidates have significantly more pro-environmental policies than the current administration. So at least we know some change is on the way. Whether it will be enough to make a difference, we shall see.
Some of the highlights of the comparison:
On gas prices:
McCain and Clinton want to suspend the federal gas tax this summer.
Obama wants to temporarily stop filling the Strategic Petroleum Reserve.
On fuel economy:
Clinton wants to increase average efficiency standards to 55 miles per gallon by 2030.
Obama wants to double the current standards by 2026.
McCain has not yet released a specific target but indicates he wants to decrease our dependence on foreign oil.
On biofuels:
All three candidates support dramatic increases in biofuel production and distribution.
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Posted in Energy, General, Greenhouse Gas Emissions, Politics | 1 Comment »
Tuesday, May 6th, 2008
Last week GM announced that they were investing in a second company that develops technology for ethanol production. Apparently this is an attempt by GM to hedge its bets on how to most efficiently produce non-grain based ethanol. This type of biofuel, known as cellulose, requires a complicated final process to convert the material’s sugar into alcohol, which can be burned by engines. The company that GM invested in uses a process different than that which GM has previously pursued. This alternative process requires no use of chemicals, and instead relies on heat and mechanical action to convert the material to alcohol.
It is unclear to us whether this process releases fewer greenhouse gasses during the manufacturing process, an issue which has been of great concern lately. While it is encouraging to see GM invest in a technology that is forward thinking, it is unclear whether this process will ultimately help the environment, or if it is instead, an attempt to fulfill the mandates of the federal government on biofuel usage. [Note, this link is to an organization that “speaks for the petrochemical and refining industries on issues important to their business.”]
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