Monday, April 28, 2008

Don't Try This At Home

It's tremendously encouraging to witness the explosion of energy innovations being unleashed by sustained high oil prices and environmental concerns. Our supply of ingenuity seems more inexhaustible than the supply of fossil fuels. However, that does not mean that every new energy idea will be a good one. Some, in fact, may turn out to be distinctly bad, and yesterday's New York Times provides us with a prime example. At a time when the unintended consequences of our strategy of turning food into fuel have become alarmingly evident on a global scale, it's hard to imagine a worse notion--or worse timing--than a new device for producing automotive ethanol in your back yard.

I don't question that the MicroFueler designed by the founders of E-Fuel Corporation is a very clever machine. For ten grand, you will be able to purchase an appliance that turns sugar and water into 200-proof ethanol, at a cost somewhere between $1.00 and $7.00 per gallon, depending on how cheaply you can source the sugar. That doesn't include the cost of converting your automobile to run on pure ethanol, if it's not already a Flexible Fuel Vehicle (FFV). Now, who could fail to see the appeal of this: saving money, gaining freedom from oil and its emissions, becoming self-sufficient, and reducing one's impact on the planet? Unfortunately, on further inspection most of these attributes turn out to be illusory, or at least severely compromised.

Start with the implied energy independence angle, which has been a key driver of the entire biofuel movement since its inception. The problem in this case is that the US is already the second-largest importer of sugar in the world, despite sugar imports being restricted by the federal government, in order to maintain a high price for domestic producers. As a result, bulk duty-paid sugar prices hover around 20 cents per pound, and the retail price is over 50 cents. But while our national sweet tooth seems insatiable, our fuel consumption is even more so: turning 100% of current US sugar imports into ethanol would only yield as much fuel as a couple of commercial-scale ethanol plants, a few hundred million gallons per year in a fuel market of 142 billion gallons. Turning sugar into gas might free an individual from the weekly trip to the gas station, but it wouldn't do a thing for the US trade balance or energy deficit.

Next, consider the economics. Using the article's low-end estimate of 10 pounds of sugar for each gallon of ethanol produced, even bulk-price raw sugar would yield an ethanol cost of $2.00/gal. And although it's possible to design an internal combustion engine that is optimized to get the most out of ethanol's unique fuel properties, including its very high octane rating, such engines are not under the hoods of our cars, whether they are FFVs or not. That leaves pure ethanol with a 30% energy content and fuel economy disadvantage relative to gasoline, boosting the gas-equivalent cost of the MicroFueler's home-brewed output to $2.87/gal. That might look pretty good compared to last week's national average retail price of $3.51/gal., but even at $4.00/gal. it would take the average motorist 17 years to pay out a $10,000 investment in home fueling, ignoring the financing costs and the time value of money. If gas prices fell back just to last year's average of $2.84/gal., the return on this investment would be negative.

The environmental benefits don't look compelling, either. While ethanol sourced from sugar cane produces significantly fewer lifecycle greenhouse gas emissions than ethanol derived from corn and other grains, recent studies suggest that much of that benefit is offset, when virgin land is cultivated to expand output. And although the inventors claim to have produced a device with higher efficiency than some bulk ethanol production plants, it's not obvious that this efficiency edge would hold up, when the emissions and energy consumption of sugar refining and transportation are added to the equation.

I hate to pick on a couple of entrepreneurs who probably see themselves addressing a critical need, and hope to make an honest buck in the process. This impulse is in the best tradition of American capitalism. But good intentions don't necessarily equate to sound decisions and wise policy. Prominent environmentalists are now calling for an urgent reevaluation of our entire national strategy of crop-based biofuel, and of the Renewable Fuel Standard, in particular. And while food vs. fuel competition is hardly the sole culprit in recent global and US food price inflation, it is clearly an important contributor. Changing the scale of the means of converting carbohydrates into fuel doesn't alter the underlying pitfalls of the basic idea of putting food in our gas tanks. In this context, home production of fuel ethanol is a good example of an option better left unexercised: something we could do, but shouldn't.

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