Thursday, June 30, 2011

Cornflakes, ethanol, an ex-CIA boss & terrorists = innovation through a tube

Who knew that a box of cornflakes, an icon of the perfect American home, could become such an controversial symbol of misguided policymaking?

The Senate's vote earlier this month on stopping ethanol subsidies marked a rare moment of bispartisan consensus in Washington. The amendment will end three decades of subsidies to the corn ethanol industry, save taxpayers $6bn this year and end ethanol import tariffs.

Former investment banker turned policy adviser, Steven Rattner wrote a brilliant piece in the New York Times last weekend that brought home just how iniquitous ethanol subsidies had become. As a former journalist it's no surprise his piece is suffused with nuggets about the fool's gold farmers and some in government have been passing off as something useful to society and the environment:

Thanks to Washington, 4 of every 10 ears of corn grown in America — the source of 40 percent of the world’s production — are shunted into ethanol, a gasoline substitute that imperceptibly nicks our energy problem. Larded onto that are $11 billion a year of government subsidies to the corn complex.
Forty per cent of corn in the US is diverted to ethanol with "disagreeable consequences for food" such as a 24% increase in the price of bacon, he writes.

But that's not the worst of it. Ethanol packs less punch than gasoline and uses considerable energy in its production process. "All told, each gallon of gasoline that is displaced costs the Treasury $1.78 in subsidies and lost tax revenue."

To ease the pain, Congress threw in a 45-cents-a-gallon subsidy ($6 billion a year); to add another layer of protection, it imposed a tariff on imported ethanol of 54 cents a gallon. That successfully shut off cheap imports, produced more efficiently from sugar cane, principally from Brazil. 

That tariff has now been dropped - welcome news for the Brazilian Sugarcane Industry Association which can now introduce its less energy intensive and less environmentally controversial ethanol on to the American market.

Brazil's ethanol industry and the impact it has had on its motor fuel infrastructure was the subject of the keynote speech at last month's Ceres conference in Oakland. 

Jim Woolsey, former CIA chief turned venture capital investor, made the simple point that the reason why Brazilians had greater choice for fuels at the filling station was because of the type of plastic used in the fuel lines by Detroit manufacturers. Changing the fuel line in engines could be done simply and inexpensively he insisted, after all if Brazil can do it why can't the richest world in the country do it? 
It’s not we who are addicted to oil it’s our cars. Because of the type of plastic fuel line they cannot use anything other than gasoline – or with flex fuels they could use 85% ethanol.

But what if cars could pull into a gas station and pump either gasoline or methanol or ethanol. Methanol can be made out of biomass if you hate ethanol use methanol. Brazilians have a choice of fuels at filling stations. Why Brazilians so much smarter, shrewder and decisive than we? All that you need is the right kind of plastic in the fuel line so the cars can use alcohol fuels as well as gasoline. The alcohol fuels are readily made from green alcohol or wood alcohol for hundreds of years we have had a large methanol production capacity in the US, larger probably than natural gas.

We don’t have to have mandates, we don’t have to have mandates, we don’t have to have duties, we can get rid of all of the subsidies for oil, ethanol and the tariff barriers for ethanol and let them compete. It’s the worst thing that could possibly happen to oil because it depends on that lock in mandate which insisted upon buying cars with the wrong kind of plastic in the fuel line. 

He likened the shift in attitude towards transport fuels to that of salt as a strategic commodity, his implication being that oil could go the same way…
For 1,000s of years, salt strategic commodity – people had to have it to preserve meat and other food. When Ghandi went on his salt march in 1930 he was protesting about British taxes on salt. The reason why they were so burdensome was because everybody had to have salt. It wasn’t Ghandi that did it, it was electricity but electricity made salt boring because of refridgeration.

In relatively few years, salt was destroyed as a strategic commodity.
Energy, particularly transport fuels, is a matter of national security. And the only people at fault for funding terrorist in the Middle East were ourselves. This is how he reasoned this:
Between 1-2% of the world’s Muslims the Saudis control something of the order of 90% of the world’s Islamic institutions.

If you’re driving around and running out of gas, you need to stop at a gas station and you just happen to ask yourself as you’re listening to the radio why are these 8 year old boys in Pakistan or on the West Bank have their objective of becoming a suicide bomber? What’s going on? Who’s paying to teach them that?

Before you get out of your car to pump your gas, stop just for a minute and turn the rearview mirror just a couple of inches. So you’re looking into your own damned eyes - now you know who is paying well over $1bn for imported oil to teach those little boys to want to be suicide bombers. Moving off oil is a very high priority.
Innovation doesn't have to be bold, gamechanging or highly technical … although all those things are good too. Sometimes it comes down to innovating the way we look at things, finding new ways to apply old tools.

Innovation through a plastic tube that could also bring peace to the Middle East… now that's something I would like to see.

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