Ethanol — A Spendy Mistake

Every now and then, advocates make extraordinarily stupid remarks while defending a position.   Yesterday I watched (FOX Business)  in stunned silence as an ethanol advocate argued that corn based ethanol was a good thing because  increased food costs were offset by reduced energy costs.   Ethanol was cheaper than gasoline, so blending it reduced costs.

Give that man 5 gold stars for arithmetic.

The Chicago Board of Trade provides the wholesale price of both Ethanol and Gasoline.  On July 31st. Ethanol was selling for $2.63 cents a gallon.  Unleaded gasoline was selling for $2.78 on the same day.

It sure looks like Ethanol blended with gasoline is reducing energy costs….until you study the details just a bit.

Import tariffs and subsidies for domestic ethanol producers expired at the end of 2011, but there still are incentives and tax credits available.  NBC estimated those credits at a bit over $1 per gallon.

The Oil Industry gets all sorts of special deals too.   I’m sure the amount is less than $1 per gallon, but it is not zero.   Let’s ignore the subsidies and just compare prices.

This is a 2 step process.

  1. Adjust for  energy content.  Gasoline averages around 114,000 british thermal units (btu) per gallon.  Ethanol averages 76,000.  One gallon of ethanol is 76/114 or .6667 gallons or  2/3 of a gallon.
  2. Adjust the ethanol price to match energy content.   If both fuels are equally efficient, and they are if the engine is properly tuned, then btu equivalence is the fair way to measure them.  If ethanol is priced at $2.63 then it takes ($2.63/.6667)  or $3.94 worth of ethanol to match a gallon of gasoline at $ 2.78.  Ethanol is a whopping 42% more expensive.

And all our food costs more too.

Thanks Uncle Sam.


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