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Biofuels Photovoltaics More Efficient and Economical than Ethanol

Published on October 15th, 2013 | by James Ayre

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Ethanol Doesn’t Lower Gas Prices — Gas Prices Not Substantially Affected By Inclusion Of Ethanol, Research Finds

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October 15th, 2013 by  

The widespread use of ethanol hasn’t substantially reduced the wholesale cost of gasoline, according to new research from MIT. The new findings contradict earlier research that attributed an observed reduction in the wholesale cost of gasoline during certain years to the increased use of ethanol as a gasoline additive during those years. Earlier research, which according to the researchers behind this new work, is problematic for a number of different reasons — and was essentially just a case of “a correlation being interpreted as a causal relationship.”

The findings of the previous research — that widespread use of ethanol has reduced the wholesale cost of gasoline by $0.89-$1.09 per gallon — have been repeatedly referenced over the past couple of years, and have been cited by a number of important policymakers during debates and public conversations. And yet, as this new work shows, the findings appear to have been merely the result of a trick of the eye.

Photovoltaics More Efficient and Economical than Ethanol


The press release from MIT explains:

That prior work involves what energy economists call the “crack ratio,” which is effectively the price of gasoline divided by the price of oil. The crack ratio is something energy analysts can use to understand the relative value of gasoline compared to oil: The higher the crack ratio, the more expensive gasoline is in relative terms. If ethanol were a notably cheap component of gasoline production, its increasing presence in the fuel mix might reveal itself in the form of a decreasing crack ratio.

So while gasoline is made primarily from oil, there are other elements that figure into the cost of refining gasoline. Thus if oil prices double, Knittel points out, gasoline prices do not necessarily double. But in general, when oil prices — as the denominator of this fraction — go up, the crack ratio itself falls.

The previous work evaluated time periods when oil prices rose, and the percentage of ethanol in gasoline also rose. But researchers Christopher Knittel and Aaron Smith assert that the increased proportion of ethanol in gasoline merely correlated with the declining crack ratio, and did not contribute to it in any causal sense. Instead, they think that changing oil prices drove the change in the crack ratio, and that when those prices are accounted for, the apparent effect of ethanol “simply goes away.”

To make the point even more clear, Knittel and Smith conducted “anti-tests” of that study’s models — essentially just inserting unconnected dependent variables into the model to see if there are any “false” correlations. What they found was that the model also produced a strong correlation between ethanol content in gasoline and a number of other figures that were most certainly not causally related to such a large degree, such as US employment figures.

To be clear, though, the researchers aren’t saying that ethanol doesn’t have a place in the market, just that the figures used in discussions should be more accurate: “Making claims about the benefits of ethanol that are overblown is only going to set up policymakers for disappointment,” says Christopher Knittel, the William Barton Rogers Professor of Energy and a professor of applied economics at the MIT Sloan School of Management.

Currently, corn ethanol constitutes around 10% of US gasoline, up from about 3% in 2003.

The new findings will be published in the peer-reviewed The Energy Journal.

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About the Author

's background is predominantly in geopolitics and history, but he has an obsessive interest in pretty much everything. After an early life spent in the Imperial Free City of Dortmund, James followed the river Ruhr to Cofbuokheim, where he attended the University of Astnide. And where he also briefly considered entering the coal mining business. He currently writes for a living, on a broad variety of subjects, ranging from science, to politics, to military history, to renewable energy. You can follow his work on Google+.



  • Bill_USA

    Ethanol, by providing additional supply of a substitutable commodity, has lowered the price of gasoline. This is a basic principle of market economics.

    In 2008 Merrill Lynch in a report to their account holders said:

    “On a global scale, biofuels are now the single largest contributor to world oil supply growth. We estimate that retail gasoline prices would be $21/bbl higher, on average, without the incremental biofuel supply.”

    http://ethanolrfa.org/page/-/rfa-association-site/studies/MerrilLynchJune2008.pdf?nocdn=1

    Since Oil was trading at around $110.00 in April of 2008 (rising from $103 at the beginning of April to $114 in the third week of April) (allowing at least six weeks of lead time to write and print the World Energy Weekly) that would mean Merrill Lynch was estimating that Ethanol was lowering the price of oil, on average, about 19%. In the Midwest that percentage would be 29% while on the East Coast it would be about 22% by Merrill Lynch’s estimate.

    That was in 2008. We currently are producing quite a bit more ethanol than we did in 2008. It’s not surprising that Philip Verleger, economist and consultant to firms, governments, and individuals on energy and commodity markets ( http://www.pkverlegerllc.com/about/philip-k.-verleger/ ) has more recently estimated:

    “the US renewable fuels program has cut annual consumer expenditures in 2013 between $700 billion and $2.6 trillion. This translates to consumers paying between $0.50 and $1.50 per gallon less for gasoline.”

    http://www.ethanolrfa.org/page/-/rfa-association-site/studies/Commentary-Renew%20Fuels%20Legislation%20Cuts%20Crude%20Ps_Verleger_2013.09.23.pdf?nocdn=1

  • xclvet

    And the moral of the ‘story’ is fossil fuel bad, anything else good – no matter the relative price. The cost of using fossil fuel is too high for all involved.

  • http://jbsnews.com/ John Brian Shannon

    I would say the primary reason to blend ethanol into gasoline is not an economic one, rather, adding 10% or 15% ethanol to gasoline results in lower CO2 emissions.

    Not only that, it adds badly-needed profit to U.S. farmers and lower grade maize can be used.

    The corn/ethanol subsidy ended on Jan 1, 2102.

    Some big problems and misconceptions surround biofuels.

    1) Corn is about the worst crop to use for biofuel, as it requres huge inputs of water, fertilizer and pesticides. Not only that, it requires lots of land management (tractor work). It is very costly to produce ethanol from corn.

    2) Corn stover is a different matter. Using enzymes to break down the stover (the stalks, roots, and leaves of the corn plant) is showing great promise. And, if a farmer is going to grow corn or maize to feed his livestock — getting some extra cash for the stover is a great idea! Even the stover from corn grown for food can be easily utilized, as the whole plant is removed during harvesting by the combine.

    3) Seperate from corn/maize stover equation. Corn is a terrible crop to use for biofuel production as it requires too many inputs. Which is why corn is referred to as a 1st generation biofuel crop just like sugar cane.

    4) 2nd generation biofuel crops like Millettia grain or Jatropha trees have dramatically lower input costs and can be planted on marginal land, (read; non-food growing land) unlike corn or other food crops. Jatropha and Millettia are grown and used around the world for biofuel use. China has set aside a barren area the size of England for biofuel plantations. India has set aside 60 million hectares. Some of these areas are now barren land, which will become green land, with carefully tended millettia or camelina (grains) or Jatropha trees which live up to 50 years, sucking CO2 out of the air every day, just like any other tree.

    5) 3rd generation biofuels such as algae and enzyme-assisted methanol look promising with some up-and-running plants already showing great results.

    6) Just to reiterate. Corn is a terrible choice for biofuels. Corn could only work if given subsidies — although nowadays, being able to process the stover could help defray the heavy input costs. But corn requires waay too much water compared to Jatropha or algae and that is becoming an increasing problem.

    In Brazil, 52% of the cars on the road run pure ethanol, which burns very clean and is easier on engines. Some engines run on diesel or biodiesel, while gasoline with up to 20% ethanol is used in older gasoline-engined cars.

    Some links for you:

    http://www.reuters.com/article/2013/10/11/us-usa-ethanol-reaction-idUSBRE99A0RS20131011

    http://www.reuters.com/article/2013/10/11/us-epa-rfs-brazil-idUSBRE99A10M20131011

    http://arabiangazette.com/generation-biofuels-making-solid-progress/

    http://www.huffingtonpost.ca/john-brian-shannon/biofuel-oil_b_1214854.html

    http://www.emerging-markets.com/biodiesel/

    http://www.safug.org/assets/docs/biofuel-testing-summary.pdf

    http://www.boeing.com/aboutus/environment/environment_report_10/3_biofuels_pg_2.html

    http://www.corebiofuel.com/biorefinery.html

    • http://jbsnews.com/ John Brian Shannon

      This plant is in operation in Ontario, Canada and versions of it are now being built in the U.S.

      It produces pure methanol (drop in replacement, or feedstock, for gasoline) pure water and pure CO2 for the sodapop industry.

      Oh, and the heat it generates is captured and it produces 10 MW of power, 5 days per week.

      http://www.corebiofuel.com/biorefinery.html

      Cheers, JBS

      • xclvet

        More good news. Thanks.

    • xclvet

      Wow! Impressive details. (NOT sarcasm.)

  • Wayne Williamson

    So the basic take away from this article is that ethanol has reduced our gas usage(what it would have been) by 3 percent in 2003 to 10 percent now.
    Two thoughts….
    One, that’s 10 percent we don’t have to import.
    Second is that it must be very expensive and I believe high subsidized to not have affected the price of gas as the article states.

    • xclvet

      All forms of energy are subsidized in the US , yes.

  • Steeple

    This is one of the biggest corporate welfare programs, and it should be eliminated. No net energy gain; just a windfall for corn farmers and the ethanol producers. Good riddance.

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