Biofuels: Don’t Let This Alternative Energy “Greendoggle” Fool You

by Dave Fessler, Energy and Infrastructure Expert
Friday, March 5, 2010: Issue #1210

As the old sixteenth-century saying goes, “You can’t make a silk purse from a sow’s ear.”

Translation: Sometimes, you can dress something up as much as you want, but it doesn’t change what it really is.

Or in the case of biofuel, what it isn’t.

And to coin a more recent adage, “putting lipstick on a pig” is exactly what biofuel advocates continue to do.

I’m interested in all forms of energy – fossil fuels, renewables, nuclear, etc. And like most Americans, it’s my wish to see us weaned off Middle Eastern oil in my lifetime. For example, in the following ways…

  • By moving towards renewable energy resources like wind, solar and geothermal.
  • Nuclear fuel is also a viable way to gain greater energy independence – despite the issue of how to store the spent fuel.
  • The United States is blessed with a 100-year supply of natural gas – the second-largest reserves in the world.

But biofuels aren’t viable. Here’s why…

The Biofuel Brainwash

A “Greendoggle.”

That’s how I’d describe the misrepresentation of the biofuel industry.

Even with its high greenhouse gas emissions, burning coal represents a better solution than biofuels. Especially when you consider biofuels’ detrimental factors.

Right off the bat, it doesn’t make much sense to take the world’s main food staples – corn, wheat and rice – and turn them into fuel.

But just five years ago, bio-ethanol, bio-diesel and bio-gasoline were billed as America’s solution to imported oil. And all it took to drive prices skyward was dwindling crude oil supplies, rising prices, increasing global demand – and a healthy dose of biofuel hype.

On the surface, biofuels seem like a great renewable energy idea. The argument is that carbon produced from biofuels is “better” than carbon from fossil fuels. Why? Because when the plants (i.e. fuel) are grown, it offsets the carbon production.

Congress bought the hype, passing a law, mandating 35 billion gallons of ethanol production a year by 2017. And to grease the wheels, lawmakers tossed a $0.51 per-gallon subsidy at ethanol producers. Bio-diesel producers received even more – $1 for every gallon produced.

Farmers jumped for joy at the prospect of making some serious dough. Crop rotation plans were dumped in favor of one thing: Corn. And lots of it.

Ethanol production plants popped up across the Midwest. Between 2000 and 2008, the number vaulted from 50 to 140. Sixty more were under construction.

Who knew that America’s solution to imported oil was in U.S. soil all along?

But back the corn truck up…

Biofuel Reality Check

In the quest for energy independence, politicians overlooked a few key details…

  • As farmers piled all their resources into growing corn for ethanol, just about every food made with corn rose in price.
  • Food producers then found themselves paying three to four times what they paid for corn just a few years before. And they did what any business does: passed the costs along to consumers.
  • Aid organizations cut food donations by 50% (more in some cases).

A Wall Street Journal editorial said: Cornell’s David Pimental and Berkeley’s Ted Patzek found that it takes more than a gallon of fossil fuel to make one gallon of ethanol – 29% more. That’s because it takes enormous amounts of fossil fuel energy to grow corn (using fertilizer and irrigation), to transport the crops, and then turn that corn into ethanol.”

A University of Minnesota study in 2008 was even more sobering: “Converting forests, peat lands, savannas, or grasslands to produce food-based biofuels in Brazil, Southeast Asia, and the United States creates a huge biofuel carbon debt. When land-use changes are taken into account, 17 to 420 times more CO2 is released than the reductions gained when these biofuels displace fossil fuels.”

As demand for corn and other biofuel stocks soared, farmers just started planting corn, ignoring a century’s worth of data on the benefits of crop rotation.

And due to the glut of corn, soybeans, wheat and rice were all in short supply, causing their prices to rise, too.

For example, soybeans had to be grown elsewhere. That turned out to be Brazil. But large-scale deforestation in the Amazon Basin (to increase the available land for soybean production) just adds to the insanity of biofuels.

Speaking of insanity…

The Backwards Way to Boost Biofuel

In Sumatra and Borneo, nearly 10 million acres of forest have been burned to create fields for palm oil plantations for biofuel. In Malaysia and Indonesia, they’re about to erase 25 million acres of prime forest.

There are two things wrong with this…

  1. Burning the forest produces 93 times the greenhouse gases that burning the fuel produced on them would.
  2. The trees are nearly twice as efficient absorbers of CO2 than the palm plants grown for fuel stock.

The expiration of the $1 per gallon federal biofuel tax credit in January means many biodiesel companies are no longer commercially viable – and might signal the end for this biofuel “Greendoggle” in the United States.

However, some members of Congress are trying to reinstate it. One can only hope that saner heads will prevail.

Good investing,

Dave Fessler

Editor’s Note: Forget biofuels and ethanol plants… there’s a new “green power plant” that is the real deal. It’s known as the Fredonia Reactor, which is 62 times more powerful than a traditional nuclear reactor and runs on what the International Energy Agency calls “the most advanced of the ‘new’ renewable energy technologies.”

Not only that, the Department of Energy states that this resource “could supply one-fifth of all electricity in the country.”

For more details, check out this report – and see for yourself why the independent Hulbert Financial Digest has ranked The Oxford Club’s Communiqué fifth in the United States for risk-adjusted returns over the past 10 years.