Thursday, August 6, 2009

Don't count out ethanol yet

Mark Thoma points us to a nice article concisely summarizing how "reality pricked ethanol's bubble."

I'm not a big fan of ethanol policy. But don't count out ethanol when oil is trading at $75 and corn and natural gas (which is key for fertilizer prices) remain cheap. If world demand recovers as markets are now speculating, we'll be seeing more ethanol, even without additional government mandates.
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2 comments:

  1. RAugust 7, 2009 at 5:06 PM

    Good point Michael, but even if there is a wide gap between cost of production and price, where that rent is captured in the value chain matters. If ethanol is the marginal use of corn, and corn is priced at its fuel value (as it was for most of 2008), producing additional ethanol isn't very attractive because margins are effectively breakeven (and certainly not enough to remunerate investments in new supply capacity).

    http://peopleandresources.blogspot.com/2009/08/corn-ethanol-profitability-scenarios.html

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  2. Phillip HugganAugust 26, 2009 at 10:39 PM

    Research yesterday estimating the number of extreme heat days in 2099 USA estimates a 82% reduction in USA corn output, just from this single effect. To me this devastating even assuming some radical future tech advances. It is a broad assault on global industrial output akin to regressing before plastics (will plastics be around in 2099?!):

    http://www.treehugger.com/files/2009/08/us-corn-cotton-soybean-yields-could-decline-82-from-climate-change.php

    IDK if advanced GMO (the "cheap" solution) will be powerful enough to fix this...

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