WSJ on Ethanol

[jensend]

just anecdotal information.

we have company here from germany from a farm. they say biofuels are on the wane over there becaue they are more expensive and their benefit is being debated.

[cottonpicken]

Fundamentally and in a perfect world ethanol and bio-diesel from our grains and oilseeds is a poor idea when you apply simple physics and business models.

But its far from a perfect world.

I'm repeating myself when i say oil is "strategic".The number #1 user of oil is........you guessed it,the us military.

Economies are based on it,with out it were dead,the powers that be are going to make sure of our energy security.

I wouldnt want to take a guess on the margins and profits.

The only area i'll be putting my money into is some cutting edge stuff.I'll see if i can find the link.

[cottonpicken]

Found it:

http://www.liveleak.com/view?i=40d_1190936653

I was talking about this before but somebody pissed me off so i didnt post it.Shouldn't be like that so here it is.

I thought this was EXTREMELY interesting.

[Fransisco]

Okay just_wondering, here are my answers to your questions which I have in bold for reference here.

<b>Brazilian Sugar might be more efficient but how does that keep jobs in rural Canada? </b>

It doesn’t. However, Jobs is not and should not be the primary goal of a nation’s economy. Just as is the case for an individual, the primary goal in a countries economy is to get the greatest result with the least amount of effort. Production is the end, and jobs are the means to the end, not the other way around. And one has to remember in all this that we can’t have the fullest production without full employment but that we can very easily have full employment without full production. Just get rid of all the dirt moving equipment in the country and give everyone a shovel.

The question is not how many jobs there will be in say ten years but how much will we produce, and as a result, what will be our standard of living.

<b>Is it more efficient because environmental laws are less stringent south of the equator? </b>

Possibly, but it has more to do with cheap labor and the fact that you can pretty much get twice the ethanol per acre from sugarcane than you can from corn. Compared to sugarcane American corn is a ‘low yielding’ crop. There is also the fact that they use the bio mass from the sugarcane as an energy source while corn based ethanol needs an outside source such as natural gas. There are some Brazilian distillers today that actually sell off excess power from the generators fuelled by the sugarcane bio mass.

By the way wheat is even worse than corn in the efficiency department because of its average yield.

There is also the issue of how much water is needed but I'll leave that one alone for now.

<b>What is the number that import tariffs should be to keep imports out, what if those imports were subsidized in the first place?</b>

I would argue zero, if another country wants to give us a present from their taxpayers I say let them. Remember the ‘get the greatest result with the least amount of effort strategy’ I just talked about.

There are no subsidies on Brazilian ethanol today other than a 20% mandate at the pumps. More about this later.

<b>Should there be a sunset clause on plants getting taxpayer dollars, or a revenue cap ala equalization?</b>

Sure, at some point these things have to stand on their own 2 feet and the sooner the better. The problem is that most industries built on handouts can’t, that’s why they argue for the handout in the first place. And it becomes even harder to cut them off once they are up and running, the argument then changes to ‘if government created this in the first place then they supposedly have the responsibility to keep it going’.

<b>Name me an industry in Canada that receives no favorable gov’t policy I'll show you an industry in decline.</b>

The most fundamental rule in economics is that there is no such thing as a free lunch. At some point somebody has to pay the difference. And for the government to give anyone a dollar always costs way more than a dollar. The only way this works is by taking the money from successful businesses and transferring it to unsuccessful ones, after the bureaucrats take their cut of course. As long as there are enough successful businesses around and they don’t get bled too much, to the point where they are no longer viable or decide enough is enough and leave, an economy can take a certain amount of this. But at the end of the day it’s simple mathematics really, you can’t spend more than you have. And you can’t build a successful economy by constantly bleeding your most productive activities to subsidize the unproductive ones.

[Fransisco]

Now a few words on the “Brazilian” experience.

<blockquote>
Brazilian ethanol from sugarcane is arguably the first renewable fuel to be cost-competitive with petroleum fuel. The productivity and efficiency of Brazilian sugarcane ethanol production are virtually unmatched by any other country. These efficiency gains were achieved over a three-decade learning curve, which combined with factors unique to the country, allow Brazil to sell ethanol close to or below the market price of gasoline.

However, Brazil’s ethanol infrastructure model did not arise from free market competition: It required huge taxpayer subsidies over decades before it could become viable. An official evaluation of the total amount of investments in both the agricultural and industrial sectors for the production of ethanol for automotive use found that during 1975-1989 the government had spent a total of $12.3 billion in the National Alcohol Program. Even today, during a period of high oil prices, volatile ethanol prices have not freed Brazilians from losing money on the E20 blend mandated by their government.</blockquote>

So if the most efficient bio fuel in existence today, which needed massive support to get going in the first place, and still needs support even at record high oil prices what makes you think that the stuff we make here out of wheat will ever have a chance at being economically viable?

Now remember my concern about what happens when a government created demand suddenly goes away and how you can’t spend more than you earn? Well both of those problems hit Brazil…

<blockquote>During the second half of the 1980s, Brazil’s ethanol program began to experience problems. Huge fiscal deficits and high inflation led Brazil to start economic reforms that included a cutback on ethanol production subsidies. At the same time, world oil prices dropped sharply during 1985-1986, obviating the consumer benefit of replacing oil with ethanol.

The economics became even more unfavorable in 1988 when the world sugar price rose considerably, and, at the same time, the government liberalized the sugar export market. The economics got so bad that in 1989 Brazil had to import ethanol. Drivers stopped buying ethanol-fueled cars, and car manufacturers stopped producing them. By the mid-1990s, only taxis and rental cars were being produced to run on ethanol.

During the late 1990s, the Brazilian economy experienced profound transformation. Economic policy emphasized stabilization, privatization, and liberalization. There was little political support for continued taxpayer-funded subsidies for sugar growers or distillers. The government gradually rescinded incentives and subsidies and freed alcohol prices to fluctuate with the market.

The dramatic increase in the availability of flex-fuel vehicles since then has helped fuel the Brazilian sugarcane industry’s recent expansion.</blockquote>


I think that in the long run we all save ourselves a whole lot of time, grief, and money by just letting the marketplace take care of these things instead of begging the government “central planners” to call the shots. Because the marketplace will actually work towards getting the greatest result with the least amount of effort, with government it’s always the opposite.

[Fransisco]

Then there is this that I just read today.

<blockquote>The biodiesel industry in Germany is near collapse because of the elimination of tax benefits. Production is currently estimated at about 20% of capacity, and another tax takes effect Jan. 1. Tax concessions on biofuels were removed a year ago because of the revenue loss. Biodiesel production had expanded rapidly after 2002 to over 1.4 billion gallons annually. Now some plants are being dismantled for export to other countries. Winter ****seed area in Germany for 2008 harvest is down 8.5%. </blockquote>

[just_wondering]

thanks for all the replies I will digest and get back to you.
I was at a funeral today for an old friend and am half drunk.
So I'll get back to y'all
Anybody going to the save my CWB rally tomorrow?

[just_wondering]

sorry about the Last post ,Bad Form.
Sorry

[TOM4CWB]

Fransisco,

What is the market Place?

Oil is as much a outcome of gov. policy and non-"free market" influence and Biofuels!

The "Level" playing field does not exist...

So if "popular opinion" is the policy framework... then organisation/development of policy... is as much a media/Communications public relations sell job as anything to do with economics theory... at the same time the "perception is reality" principal drives both the public opinion and economy!

Decision makers get power... WHERE?

Planet earth is Fantasy Island... if public opinion gets tired of you... TOAST... FINISHED.

P.R. Tricks WORK. THe CWB BuLL is proof!

Most farmers don't have a clue, or care... about perception and powers/spheres of influence.

Governance is the reaction of the few in the position of power... to maintain/obtain "public" confidence to retain/create the institutional power to govern.

This is an artform, to be in sync with future events... which are determined by what we do/actions now!

I think I am getting dizzy!

There must be a black hole distorting the space time continium!


Its OK to think outside the box... isn't it?

[Fransisco]

You're about as clear as mud here Tom. Maybe you should give it another try.

[TOM4CWB]

Fransisco,

Exactly where we are at on Ethanol.

I believe the 'Bio-Economy' will be the future... High Tech will drive where we go... using the "Environmentally correct" method of public opinion... to drive major policy initiatives...

EU and GMO's are a perfect example!

The public drives the agenda... eventually fighting this is proven as futility!

[Fransisco]

Tom, nobody knows what the next big thing will be. Nobody.

You mentioned Bill Gates in your other posting on this subject. Bill Gates changed the world and he made it a better place but it was Bill Gates, not the government, not an opinion poll.

He didn't need anyone's permission, he didn't need a boat load of government bills, he didn't need some stupid PR campaign to get him the dough. When he started I don't think even he knew how big he was going to get.

History is full of these kinds of people. Einstein worked in a patent office for heaven's sake.

You remember the days before computers Tom before the internet. I think all of us here do. Think back to those days its not that long ago. If back then someone told you that in ten years you won't be able to function without one you'd have thought they were crazy.

Politically correct public opinion and government eggheads trying to choose winners has an incredibly poor track record.

Nikita Khrushchev was right when he said," Politicians are the same everywhere. They promise to build bridges even where there are no rivers."

At some point we will have some kind of cheap alternative energy to oil. It's not a question of if but when. But no one knows what its going to be. Trying to force it into existence doesn't help. More than likely its counter productive.