Redundant Ethanol Subsidies

The proposed farm bill just sent to President Bush (and expected to be vetoed) contains several ethanol provisions. One is to cut the corn ethanol subsidy from $0.51/gal to $0.45/gal. Forbes explains:

Ethanol For Everyone!

It also includes $1 billion for energy-related programs, including several provisions related to ethanol and other biofuels. Notably, it reduces the tax credit paid to ethanol producers from 51 cents to 45 cents per gallon. The bill also establishes a sugar-to-ethanol program and includes a temporary tax credit of up to $1.01 per gallon for production of cellulosic ethanol, made from non-edible products like wood chips.

"Now that the ethanol industry has matured, it is appropriate to curb the tax subsidy provided to ethanol," says a Senate Finance Committee report on the tax provisions of the bill.

A small reduction in the subsidy, for an industry that has "matured" completely misses the point, which is "Why is there a need for a subsidy?" Answers will vary, depending on who you ask, but every answer I have ever heard also misses the point: Ethanol is mandated. It seems that people don't understand what this means. It means that it is mandatory that a certain amount of ethanol is blended into our gasoline supply. For 2008, it is required that we blend 9 billion gallons of ethanol into the gasoline supply. The cost of the ethanol is not a consideration in the mandate, so why is the subsidy required?

In my opinion, the subsidy remains to hide the true cost of ethanol. If there wasn't an offsetting credit, then the economics of ethanol blending look a lot worse. So what? It's still mandatory. This means that if the economics look worse, the cost is now going to be passed on to consumers. Under the current system of a blender's credit, our taxes subsidize drivers. People who don't drive are subsidizing drivers. If you removed the subsidy, drivers would be forced to pay higher prices for fuel with less energy content - or start thinking about conserving.

Digressing for a moment, this is certainly not the only case in which our taxes subsidize drivers. While some have argued that certain wars are hidden oil company subsidies, in reality this is just another example where the government subsidizes driving (which theoretically is still beneficial to oil companies, by keeping prices lower and demand high).

The subsidy for cellulosic ethanol is a different matter. In the case where you want to influence a technology in a certain direction, those kinds of subsidies make more sense. It's the same question I have asked before: "Do subsidies to oil companies ever make sense?" Only in the case that you are trying to influence their behavior in a certain direction. In the case of cellulosic ethanol, you are trying to wean producers away from using food. (For the record, I am not a big fan of governments trying to pick technology winners; I would prefer to raise carbon taxes and then let the alternatives compete with each other on a level playing field).

But get rid of grain ethanol subsidies. They are redundant with a mandate in effect.

Nissan Enters the Electric Arena

I am feeling more and more optimistic that we are going to soon have a decent choice of viable plug-in hybrids (PHEVs). Nissan has now announced that they will have an offering in the U.S. and Japan by 2010:

Nissan plans electric car in U.S. and Japan by 2010

Nissan Motor plans to sell an electric car in the United States and Japan by 2010, raising the stakes in the race to develop environmentally friendly vehicles.

The commitment - announced Tuesday by Nissan's chief executive, Carlos Ghosn - will be the first by a major automaker to bring a zero-emission vehicle to the American market. Nissan also expects to sell a lineup of electric vehicles globally by 2012.

In an interview Monday, Ghosn said Nissan decided to accelerate development of battery-powered vehicles because of high gasoline prices and environmental concerns, not just because of the need to meet stricter fuel-economy standards.

"What we are seeing is that the shifts coming from the markets are more powerful than what regulators are doing," he said.

This marks a dramatic about-face for Ghosn, who had downplayed the idea just a few years ago:

In a 2005 speech to the National Automobile Dealers Association, he called gas-electric hybrids "niche products" useful only to meet strict fuel-economy and emission standards in states like California.

"It wasn't long ago that Carlos Ghosn was a big naysayer about the role of electric vehicles," said John O'Dell, senior editor at the auto Web site GreenCarAdvisor.com. "Obviously, something has opened his eyes."

They have their sights set high:

Nissan, which a decade ago was on the brink of bankruptcy, is the first manufacturer to say it will sell mass-market all-electric vehicles worldwide. The zero emissions refers to those from the car's tailpipe and not those from the production of electricity used to power the car.

Still, O'Dell said: "Nissan is upping the ante tremendously. They are the first to put it on the line and say we're going to have an all-electric vehicle for a certain market by a certain date."

Good stuff. Keep 'em coming. For my next calculation, I need to see how much power I could generate by putting a solar panel on the roof of my electric car and letting it recharge all day...

Replacing Gasoline with Solar Power

Executive Summary

If you don't want to run through the calculations, here is the summary. I attempted a thought experiment in which I calculated whether it would be feasible to use solar power to generate enough energy to offset all U.S. gasoline consumption. My conclusion is that it will take about 444,000 megawatts of electrical generating capacity. Current U.S. generating capacity is over 900,000 megawatts, but there isn't a whole lot of spare capacity in that number.

To generate 444,000 megawatts with solar PV would require just under 1,300 square miles (a 36 mile by 36 mile square) of just PV surface area. To generate that much power with solar thermal - including supporting infrastructure - would require 4,719 square miles (a 69 mile by 69 mile square). A large area, but not impossible to envision us eventually achieving this.

--------------------

Introduction

Having made an attempt to calculate the number of square miles to replace current U.S. electricity consumption via solar PV or solar thermal, I have been challenged to do the same exercise for replacing our gasoline usage. (In fact, I was told by someone that they had never seen this kind of calculation done, so I told them I would do it). I have no idea how this calculation is going to turn out, but I suspect it is going to be similar to the previous calculation for replacing electrical consumption. My guess is less than 100 miles by 100 miles. Note that this is a thought experiment, in which I try to get an idea of what it would take to achieve this.

First, some caveats. There are still technical obstacles that prevent this scenario from being realized. Those are, 1). Battery range is still too low (The plug-in Prius is only going to be able to go 7 miles on battery power).; and 2). Solar power can’t be adequately stored. However, that’s not the purpose of the exercise. The purpose is to satisfy my curiosity: If we were going to try to replace gasoline with solar power, are the land requirements prohibitive?

I am only going to do this calculation for gasoline, as I think it is unlikely that electricity will ever power long-haul trucks or airplanes.

How Much Do We Need?

The U.S. currently consumes 389 million gallons of gasoline per day. (Source: EIA). A gallon of gasoline contains about 115,000 BTUs. (Source: EPA). The energy content of this is equivalent to 45 trillion BTUs per day. The average efficiency of an internal combustion engine (ICE) - that is the percentage of those BTUs that actually go into moving the vehicle down the road - is about 15%. (Source: DOE). Therefore, the energy that goes toward actually moving the vehicles is 6.7 trillion BTUs per day.

The efficiency of electric infrastructure can be broken down into several steps. According to this source, the respective efficiencies for the transmission lines, charging, and the vehicle efficiency are 95%, 88%, and 88%, for an overall efficiency (after the electricity is produced) of 74%. To replace the gasoline BTUs that go toward moving the vehicle with electricity is going to require 6.7 trillion/0.74, or 9.1 trillion BTUs. To convert to electricity, we use 3,413 BTUs/kilowatt-hour (kWh). Thus, 9.1 trillion BTUs/day is equal to 2.7 billion kWh/day. That's how much energy we need. To convert this to power, we need to multiply by 1 day/24 hours, and that gives us 111 million kilowatts, or 111,000 megawatts (MW) of power generation required.

Looking back at my Solar Thought Experiment, I calculated 2,531 square miles to replace our peak electrical demand of 746,470 MW (746 GW). However, the current calculation is a different sort of calculation than what I did previously. The previous calculation attempted to have enough installed solar PV to meet peak demand. In the case of replacing our transportation fuel, I need enough panels to produce the required transportation energy in 8 hours or so while the sun is shining. To be conservative, we can assume 6 hours, which means we will actually need four times the 111,000 MW, or 444,000 MW.

Using Solar PV

From the previous essay, I used a conservative value of 12.5 watts per square foot as the generating capacity of an actual GE PV panel. To get 444,000 MW is going to take an area of 35.5 billion square feet, which is 1274 square miles. This is an area of just under 36 miles by 36 miles. However, this is just the surface area required to generate the electricity. It does not include area required for supporting infrastructure.

Using Solar Thermal

Doing the same calculation based on the solar thermal output from Running the U.S. on Solar Power, the expectation was that 0.147 megawatts could be produced per acre. This did include all of the land associated with infrastructure. If we use that number, we find that to generate 444,000 MW is going to take a little over 3 million acres, or 4,719 square miles. This is a square of just under 69 miles by 69 miles.

The reality is that we would use a combination of the solar PV and solar thermal. We have a lot of available rooftops that can create electricity with solar PV, and there are large tracts of land in sunny Arizona and Nevada that can create electricity with solar thermal.

Conclusions

Clearly, a lot of area is required, but it isn't impossibly large. Of course to achieve this, a couple of big problems need to be resolved. First, battery life needs to improve somewhat before people are going to embrace electric transport. According to this ABC News story, the average commute is 16 miles one-way, but the range of the plug-in Prius is only expected to be 7 miles. The Aptera, on the other hand, claims a range of 120 miles. Maybe we just need to change the way we think about what we drive. (On the other hand, not a lot of commuters are going to climb into an Aptera if they have to share the road with large SUVs).

Second, and the bigger issue, is that we still don't have a good way to store excess solar power. We need to have a good storage mechanism so electric cars can be charged at night from solar electricity produced during the day. One idea for this that I have seen floated is to use peak solar energy to electrolyze water, and then store the hydrogen in centralized locations. The hydrogen would then be burned at night to run centralized electrical generators. Not the most efficient method for storing solar energy, but technically workable.

Finally, the current electrical grid couldn't handle such a large increase, but the model I envision would generate and consume the electricity locally.

Note

I had delayed posting this for almost a week, because I was sure there was an error in the calculations. I finally found one (I had turned a kilowatt into a watt), but let me know if you find other errors or incorrect assumptions.

News on a Lazy Sunday

First up, Vinod Khosla:

On the Record: Vinod Khosla

On biofuels:

I have no question that in 10 years, there's no way oil will be able to compete with biofuels. Even in five years. Now it will take a long time to scale biofuels, but I'm the only one in the world forecasting oil dropping in price to $35 a barrel by 2030. I'll put it on the record: Oil will not be able to compete with cellulosic biofuels. If you do it from food, the food will get so expensive you can't make fuel out of it.

Let's focus our energy on the research and development and innovation that allows us to produce a $1-a-gallon fuel. There's no question about it, we can produce it for $1 a gallon and retail it at Wal-Mart for $1.99 a gallon and create a competitor for oil. Oil is a monopoly. It leads to an energy crisis, it leads to a terrorism crisis and it leads to an environmental crisis. So we have to replace it.

And on electric cars and solar power:

Others talk about things like electric cars. Nice cars. In fact, we can make money on them and are investing in electric hybrid batteries and things like that. But they will not make a dent in either worldwide oil consumption or carbon reduction in the next 20 years. And that's why we have to be clear about nice, (patchwork) solutions that make people feel good.

People say, "Priuses are selling a lot, people want them." Yeah, but so are Gucci bags. You know, they make people feel good, they're great fashion statements. Do they reduce carbon emissions enough? If you do a critical analysis, a hybrid reduces carbon emissions about the same as corn ethanol, and costs 100 times more. So what's the point?

I drive a hybrid, and I can afford it. But in the next 15 years, we're going to ship a billion cars. Unless a technology can reduce carbon emissions dramatically for 50 to 80 percent of those cars, we haven't made a dent in the climate change problem. And too many politicians are focused on silly ideas like that, because politically it sounds good.

Take San Francisco, for instance. Putting solar cells on anybody's roof is absolutely silly, in a foggy city like San Francisco. If somebody wants to do it with their own money, that' s great. Do it. But don't do it with other people's money.

Somehow, not-so-sunny Germany has developed a large solar industry.


Next, Barack Obama shows that he can pander like everyone else:

Obama: Solving energy crisisis going to take time

It isn't right that oil companies are making record profits at a time when ordinary Americans are going into debt just to fill up their tanks. That's why we'll put a windfall profits tax on oil companies and use it to help Oregon families reduce energy costs.

We'll also take steps to reduce the price of oil and increase transparency in how prices are set so we can ensure that energy companies aren't bending the rules. And to help Oregon families meet the rising cost of gas, we'll put a middle-class tax cut in their pockets that will save them $1,000 a year, and we'll eliminate income taxes altogether for seniors making less than $50,000.

But the truth is, there is no easy answer to our energy crisis — and we need a president who's going to be straight with us about that; a president who's going to tell the American people not just what they want to hear, but what they need to know.

So, in addition to telling them what they want to hear, you will also tell them they need to hear. Funny, I didn't read the "need to hear" bit in that article.

SUV for Sale: Cheap!

Some of the consequences of very high oil prices are pretty predictable. Homes way out in the suburbs are likely to lose value. Prices will rise across the board for goods and services. Airlines will struggle. And gas guzzlers will be much less attractive:

Gas costs deflate prices on used SUVs

High fuel prices are causing the value of used SUVs to plummet, often below what's listed in the buying guides many shoppers use to negotiate with dealers. "The dealer is going to offer a price, and the customer is going to be ticked off," says Tom Webb, chief economist for Manheim, operators of auctions where car dealers buy their used-vehicle inventories. "The guidebooks have not caught up to the market," he says.

Webb's figures show wholesale prices on big SUVs such as Chevrolet Tahoes, Ford Expeditions and Toyota Sequoias are down 17% from a year ago. Full-size pickups have fallen as much as 15%, Webb says.

Even though plunging values should make used SUVs bargains for buyers less concerned about fuel prices, that doesn't seem to be happening. Used SUVs languished unsold an average 66.4 days last month, up from 48.6 days the year before, says CNW Marketing Research. "There are far more truck-based SUVs being traded in than customers to buy them," says Mike Jackson, CEO of AutoNation, the largest new-car dealer chain.

Your Prius or Jetta TDI on the other hand? I may start buying up some of those as speculative investments. If people are trading in their SUVs, there is going to be a run on more fuel efficient cars - and they should hold their value, if not trade at a premium.

People have asked me for several years what I thought was going to happen with gas prices. I always tell them that the long-term trend is much higher, and you should plan accordingly. I have warned friends and family to embrace fuel efficiency, and I have tried to preach that message here. Now that gas prices are really hitting people in the pocketbook, looks like they are finally getting the message. But like many caught in the housing bubble, they waited a little too long and lost a lot of money. The lesson here? Pay attention to what I am telling you. Do you hear that, Mom? :-)

Stop Filling the SPR?

To me, some of the most humorous ideas for relieving high oil prices are the perpetual calls to release oil from the Strategic Petroleum Reserve (SPR). Note what the SPR is actually for:

The Strategic Petroleum Reserve (SPR) is the world's largest supply of emergency crude oil. The federally-owned oil stocks are stored in huge underground salt caverns along the coastline of the Gulf of Mexico.

Decisions to withdraw crude oil from the SPR are made by the President under the authorities of the Energy Policy and Conservation Act. In the event of an energy emergency, SPR oil would be distributed by competitive sale. The SPR has been used under these circumstances only twice (during Operation Desert Storm in 1991 and after Hurricane Katrina in 2005). Its formidable size (700-plus million barrels) makes it a significant deterrent to oil import cutoffs and a key tool of foreign policy.

So, it is supposed to protect us from oil import cutoffs, and yet every time oil prices rise, politicians want to tap it for political purposes. They wanted to do it when oil "sky-rocketed" to $20, and there have been calls to tap it every time oil climbs a few dollars. Imagine that we had tapped it when oil hit $20, and today found ourselves with a depleted SPR and oil at $120. We might as well not have a strategic reserve.

Maybe the politicians have finally figured out that there isn't going to be a release, so they are trying a new strategy:

Suspend deliveries to U.S. oil reserve, lawmakers say

With fuel costs becoming a crucial election-year issue, members of both parties -- separately -- pitched their ideas Wednesday for bringing down prices.

Democrats called for a windfall profits tax on oil companies, rolling back tax breaks for the industry and new protections against price-gouging, while Republicans urged increased exploration for new domestic oil sources. About the only proposal their plans had in common was to stop the delivery of 70,000 barrels of oil a day for the emergency stockpile.

First thing, let's fact check. I have heard this 70,000 barrel a day number repeated again and again, so I decided to check:

U.S. Weekly Crude Oil Ending Stocks SPR (Thousand Barrels)

Turns out that the rate isn't correct. In the past 5 weeks, the SPR has been filled at the rate of 45,171 barrels a day. In the past 2 weeks, the rate of fill has been 14,214 barrels a day. So I am not sure where people have come up with the 70,000 barrel number. Even if we look over the past 12 months, the rate of fill is only 33,000 barrels a day. So, first thing, the rate of fill has been overstated.

Second, the capacity is 727 million barrels. How much is in there now? Over 701 million barrels. So, it is already over 96% full. But at the average rate of fill over the past year, it is going to finally be full in just a little over 2 years.

So, what's my point? Given that the SPR is already almost full, yet the rate of fill is so slow, it really isn't going to make much difference if they stop filling it. The daily rate of fill over the past year is less than 0.2% of the average daily oil usage in the U.S. - and only about 0.05% of the total daily usage of the world. That's like noise in the system; there would be no discernable effect if we stopped filling the SPR. It's a pretty meaningless political gesture, which has a chance to backfire if 1). Oil prices continue to rise; or 2). We have a national emergency. What are the odds of that, you might ask? Well, the SPR has only been tapped twice for national emergencies:

The Desert Storm Drawdown

On January 16, 1991, coinciding with the international effort to counter the Iraqi invasion of Kuwait, President George H.W. Bush ordered the first-ever emergency drawdown of the SPR. The Department of Energy immediately implemented a drawdown plan to sell 33.75 million barrels of crude oil, the United States' portion agreed to by the International Energy Agency.

The drawdown proceeded on schedule and without major complications. Between the initial authorization and the final sale, however, world oil supplies and prices stabilized, and the United States reduced the sales amount to 17.3 million barrels which were sold to 13 companies.

And, who can forget:

Hurricane Katrina Drawdown

The SPR's second emergency drawdown occurred after Hurricane Katrina caused massive damage to the oil production facilities, terminals, pipelines, and refineries along the Gulf regions of Mississippi and Louisiana in late August 2005. All Gulf of Mexico production was shut in initially, which equated to about 25% of domestic production. Gasoline prices spiked nationwide in reaction to the disruptions, and the supply levels of gasoline and other refined products were impacted.

On September 2, 2005, in a coordinated action with the International Energy Agency, President George W. Bush issued a Finding of a Severe Energy Supply Interruption and directed the Secretary of Energy to draw down and sell crude oil from the SPR. Secretary Samuel W. Bodman immediately authorized a Notice of Sale for 30 million barrels of crude oil to the U.S. markets. The on-line sale was held from September 6-9, 2005. DOE evaluated each bid and determined that five companies had submitted acceptable offers for 11 million barrels.

To conclude, I am not strongly against the idea, I just don't think it will have any impact. (On the other hand, I am very strongly opposed to tapping the reserve just to bring down oil prices for political purposes). I also think we could save more oil by maintaining the air pressure of our tires on every car that stops by. In fact, from a recent essay I wrote, it is estimated that we waste 1.2 billion gallons a year due to low tire pressure. This is is three times what we put in the SPR in the past year - but have you heard one government official talking about an intiative to air up our tires?

My Next Car?

I was talking to my wife on the phone yesterday, and she asked what I knew about the 2009 Prius. I asked what she was talking about, and she started telling me about some of the features. She said that Toyota has been keeping the details pretty quiet, but details are available. Actually, I think it has come up here a couple of times, but here's a picture:



There have been some pretty big claims about fuel efficiency:

2009 Prius May Reach 94 MPG

Auto Observer reports that the next generation of Toyota's wildly successful Prius hybrid "is coming soon and will launch at the Detroit auto show in January 2009." The car will be "a touch bigger so offering more space. It will come with stronger 1.8-liter hybrid performance yet at the same time boast even better economy and class leading emissions, if early word is correct." The Prius will feature "a bigger 1797 cc four cylinder gas engine to cope with the bigger body and counter criticism in some quarters of the weedy performance of the current 1.5," boosting the total output of the car to 160 horsepower (up from the current 110). Sources say Toyota rates the new configuration for 94 mpg.

The New York Times also had some recent coverage:

2009 Prius: Not So Fast

A third generation of the Toyota Prius gas-electric hybrid car has been eagerly anticipated. Though Toyota has not officially announced when the redesigned Prius would appear, unofficially, automotive journalists had been tipped to expect it sometime in 2008, as a 2009 model.

However, news reports from Japan last week said the car has been delayed by at least six months, to early 2009.

Whether the delay is real or not, it appears that the battery problems are plenty real. Previously, Toyota set a goal of reducing the size of the battery pack in the next Prius by 50 percent, while also increasing its efficiency.

The delay is apparently to give Toyota engineers time to retro-fit the new Prius design with the old-style nickel metal hydride batteries they’d hoped to be rid of. At least initially, the new Prius will still have nickel metal hydride batteries, Nikkan Kogyo reported. Lithium ion power is not ready for prime time (remember all the exploding laptop batteries made of the same substance?). Lithium ion gets unstable under extreme pressure - apparently too unstable for automotive use at this stage of its development.

I am going to try to hold out until the 2009s come out before I get another car. I think I can manage that, and I am really intent on getting one of these new, ultra-high mileage vehicles.