GoodFuels

Consumer Group Refutes Texas Claim

The Consumer Federation of America calls the argument by Texas Governor Rick Perry that cutting ethanol production will lower gasoline prices “strange.” I call that an understatement.

The CFA submitted comments to EPA today in advance of the decision coming down this afternoon on the request by Gov. Perry to cut the RFS by half.

The comments were filed in response to a study prepared for the state of Texas by Phillip K. Verleger and Darrel B. Chodorow who erroneously claim increasing demand for gasoline and crude oil would lower prices.

“The suggestion that increasing demand will lower oil and gasoline prices is not only contrary to Economics 101 and what independent analyses by Wall Street firms, government agencies, and academic institutions have concluded,” said Dr. Mark Cooper, CFA’s Director of Research, “but the study’s authors do not provide one shred of evidence to support their strange argument.”

In fact, CFA says cutting ethanol production as requested would increase gas prices by almost 50 cents a gallon.

“We looked at the movement of refinery output, imports, exports and inventories, as well as recent price changes and could find no evidence that the market is or would behave in the bizarre, counterintuitive way that the Texas theory predicts,” Cooper concluded. “It is critical that the EPA base its decision on the waiver request on a proper understanding of how current energy markets work in the real world.”

A New Argument for Cutting Ethanol Mandate Surfaces

Energy economist Philip Verleger has a new contention that U.S. refiners are producing less gasoline thus less diesel due to increased ethanol demand. “Demand for diesel is rising in the U.S. and Europe, and its price has been shooting up much faster than that of petrol [gasoline],” he said recently.  Here is his argument and why it doesn’t stand.

Verleger said refinery operators were responding to the rapid increase in diesel prices by bidding more and more for light, low-sulfur crude. The U.S. could increase the light-crude supply — thus reducing the quantum of the price hikes — by putting some of its reserves on the market.

“Most crude, when refined, produces diesel and petrol; the lighter the crude, the bigger the share of diesel. Refinery upgrades to get more diesel from heavier crudes could take two years to relieve the pinch,” Mr Verleger said.

“Until then, refiners don’t want to produce more diesel from cheaper heavier crude because that would mean producing more petrol — sales of which have dropped,” he added.

Here’s the good part.

“The U.S. could also ease the diesel squeeze by adjusting the federal requirement that 9 billion gallons of ethanol be blended with US petrol supplies this year.

“The ethanol mandate is reducing the amount of petrol used. And so are petrol prices in excess of $4 a gallon. The side effect of less petrol use is less production of diesel — and more pressure on crude oil prices.

“Easing the ethanol mandate would also slow the increase in food prices. Ethanol, a biofuel, is made mostly from corn, the cost of which has also been soaring,” Verleger contends.

His remarks about food prices will have to wait. There’s plenty of evidence that corn is not the primary driver of higher food costs. That has much more to do with oil prices.

Verleger’s obsession with diesel demand and production is rooted in a recent paper where he seeks to explain the real story behind soaring crude oil prices this year. The paper, titled “Explaining the 2008 Crude Oil Price Rise” can be found here. In it he predicts that crude oil prices could reach $200 per barrel, but does not offer a timeline.

The U.S. slate of crude oil is a mixture of light and heavy crudes, low and high sulfur grades. In fact many U.S. refineries are well equipped to process heavier crudes, and have been for years. Worldwide and domestically, all available “sweet” crudes are most likely sold out as they are produced. It is true that the U.S. and the IEA hold vast quantities of “sweet” or light crudes in reserve, but it is clear neither is willing to offer the barrels on the market.

Verleger’s contention that this is the primary reason, along with ethanol mandates in the U.S., for rising crude oil prices borders on the absurd. (more…)

Shoddy report by Canadian think tank debunked

A few weeks back, the C.D. Howe Institute (a think tank in Canada) released a report that generated a fair bit of news coverage. The report, ‘The Ethanol Trap: Why Policies to Promote Ethanol as Fuel Need Rethinking’, was riddled with errors and flawed assumptions.

In order to demonstrate beyond a shadow of doubt the faulty methodology and false conclusions, the CRFA commissioned an independent, arms-length analysis by (S&T)2 Consultants. It demonstrated that our concerns were very well founded. The critique highlights indisputable contradictions in logic and methodology that suggest the report was drafted to support a conclusion rather than to explore the facts in full.

This week, the CRFA has released the full report to the media and public. We have also shared the results with the C.D. Howe Institute and asked that they withdraw the work, given its many obvious errors. Key stakeholders, policymakers, and elected officials have also been provided with the report to ensure that their own impressions are balanced by rigour and fact.

With oil and gas at record prices, we have an economic and environmental imperative to grow beyond oil. That is the indisputable benefit of biofuels. The CRFA will continue to advocate for policies that meet the needs of consumers and that ensure Canada maintains and grows its position of international leadership in developing clean and green fuels for the future.

(To this end, but on a different note, give our new radio ad a quick listen. Enjoy!)

The Eye of the Beholder

Like beauty, statistics are in the eye of the beholder.

The Organization for Economic Cooperation and Development (OECD) report on biofuels policies is the perfect example. According to the report summary on the OECD website, they found that biofuel production “has a limited impact on reducing greenhouse gases and improving energy security, and has a significant impact on world crop prices.”

First, define “limited impact.” According to the report:

Ethanol from sugar cane - the main feedstock used in Brazil – reduces greenhouse gas emissions by at least 80 percent compared to fossil fuels. But emission reductions are much smaller from biofuels based on feedstocks used in Europe and North America.

Biofuels produced from wheat, sugar beet or vegetable oil rarely provide emission savings of more than 30 to 60 percent while savings from corn (maize) based ethanol are generally less than 30 percent. Overall, the continuation of current biofuel support policies would reduce greenhouse gas emissions from transport fuel by no more than 0.8 percent by 2015.

Why is it that any reduction in greenhouse gases provided by biofuels would be considered limited? The only reason the overall estimate is so low is because they are considering total global emissions reductions. If you take it country by country, the figures would be much higher. Estimates are that in 2006, the use of ethanol in the U.S. reduced greenhouse gas emissions, equal to removing the annual emissions of 1.8 million cars. Sounds significant to me.

Now, define “significant impact on world crop prices.”

At the very bottom of the OECD release it says:

The impact of current biofuel policies on world crop prices, largely through increased demand for cereals and vegetable oils, is significant but should not be overestimated. Current biofuel support measures alone are estimated to increase average wheat prices by about 5 percent, maize by around 7 percent and vegetable oil by about 19 percent over the next 10 years.

In fact, according to the OECD model as reviewed by the Renewable Fuels Association:

Another interesting finding of the OECD model is that a 28% decrease in world oil prices would lead to a 12% decrease in coarse grains prices. This implies there is a strong link between oil prices and grain prices and that the effect of reduced oil prices would be to lower grain prices by about $30 ton, or 75 cents per bushel (using corn as an example). This finding, coupled with the models results on biofuels policy impacts, also supports the finding that oil prices have a more pronounced impact on grain prices than do biofuel policy measures.

As someone once said, statistics can be made to prove anything - even the truth. Facts are stubborn things, but statistics are much more pliable.

When Polls Are Designed to Deceive

I’ve always maintained that opinion polls can produce desired results simply by the way in which the questions are worded. Yet the results, regardless of how misleading, can have a powerful impact. This is why it is important to look hard at the methodology.

In a recent poll, conducted by the National Center for Public Policy, which in itself makes me skeptical, the headline stated that “Poll Finds Farm Belt Voters Oppose Ethanol Policy.”

I was more than curious because fading support for ethanol in the farm belt would be serious. The press release stated that “Farm-belt Voters Favor Eliminating or Reducing Corn Ethanol Mandate; New Poll Finds 76% of Americans Want Ethanol Law Changed; 41% Want Mandate Repealed Entirely.”

The American public at large is generally not aware, or not interested in the many details that surround a particular issue. I would bet that 85% of Americans have no idea that the mandate is being challenged right now. In fact, I would also bet that more than 50% are not even aware that a mandate exists. So how did the National Center for Public Policy, a conservative Washington think-tank with ties to major oil, achieve these results?

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