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Name: Simon Quellen Field
Location: Los Gatos, California, United States

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Thursday, March 30, 2006

Those billionaires like their alcohol

Vinod Khosla came to talk to us about his latest venture -- solving the energy crisis and getting the U.S. off of our addiction to fossil fuels.

He was introduced by Eric Schmidt, and Larry Page, with Sergey Brin in the back of the room. He and Richard Branson are both investing large amounts of money in similar projects. What these five billionaires are getting excited about is ethanol.

Moonshine in the tank. Flex Fuel Vehicles running on E85 (gasohol) or straight hooch.

There is a long history in the U.S. of subsidizing ethanol production from corn for use in vehicles. But corn is not the most efficient base to start from -- it takes one unit of energy to get 1.5 units back in the form of ethanol. But science is coming to the rescue, and new technologies are making ethanol far more efficiently, and from non-food sources, such as fast-growing switchgrass and miscanthus prairie grasses. These new technologies produce 8 times the energy they use as input.

Some of his talking points were:
  • Many cars and trucks are already Flex Fuel powered, and will run on E85.
  • Five million U.S. vehicles are already Flex Fuel vehicles.
  • 70% of the vehicles in Brazil have ethanol in the tank.
  • Brazil is saving $50 billion annually in oil import costs.
  • Ethanol is already cheaper than gasoline, without subsidies, per mile driven.
  • It costs $40 to make a car into a Flex Fuel vehicle.
  • It would take between 55 million and 114 million acres to fuel America.
  • The state of South Dakota could produce enough ethanol to be the third largest energy exporter after Saudi Arabia and Iran.
  • Farmers can make more money growing ethanol feedstock biomass than corn and soybeans.
  • Biofuels are carbon neutral.
  • The technology in this area is developing rapidly.
So, why aren't all those 5 million Flex Fuel vehicles running on ethanol? Because the corner gas station doesn't have an E85 or ethanol pump. Khosla suggests that Walmart should set up such pumps at every store. After all, they want people to drive to Walmart, and the product is cheaper than gasoline, both per gallon and per mile. And it is environmentally friendly. And E85 gives cars more horsepower and longer range between fillups.

Khosla would like to see two main changes to legislation:
  • Require 70% of new cars to be Flex Fuel. GM may do this even without regulations.
  • Require E85 pumps at 10% of all gas stations.
A third legislative change is designed to thwart price manipulation by oil producing countries: if oil drops below $40 a barrel, the government should buy it and stockpile it for when the price goes up again. That would stabilize world prices, and prevent the oil producers from quashing ethanol economies by temporarily removing the incentives.

The economics say this will all happen in 30 years or less, all by itself. But Khosla thinks it can be done in 5 years by a concerted effort, and people will get rich doing it.

This is the cheapest way to get solar power into cars. We can get off the oil input habit, and become a net energy exporter. We have what it takes.


Anonymous Joe Decker said...

Ethanol is already cheaper than gasoline, without subsidies, per mile driven.

Is this actually true in the US? Do subsidies included in this analysis include the various subsidies provided to farmers in general?

I don't ask this rhetorically, I find quite a bit of political positioning in a lot of what I've read on the subject, and would seriously appreciate some straightfoward, well-thought out analysis.

March 30, 2006 8:07 PM  
Anonymous Anonymous said...

Yes. It is now selling for much less than gasoline. It is now traded as a commodity in Chicago.

See "".

March 30, 2006 10:13 PM  
Anonymous Joe Decker said...

Some anonymous poster writes:
Yes. It is now selling for much less than gasoline.

This doesn't prove anything. Ethanol prices on the commodity market by subidies recieved by, to list a single example, corn farmers.

The normally rational Cecil Adams comes down hard on the true economic benefit of ethanol here in a 2003 column, but that doesn't mean I accept his argument, that column feels a bit ranty.

March 31, 2006 9:22 AM  
Blogger Simon Quellen Field said...

There are no subsidies in Brazil on ethanol.
They make it from sugar cane, and get 8 times the energy out as they put in. That makes it a lot cheaper than ethanol from corn.

Someone writing in 2003 would have been seeing ethanol prices tracking gasoline prices. That stopped in 2005, and ethanol prices dropped a lot.

The subsidies on oil production are many times higher than ethanol production anyway, even without factoring in military expenses in the middle east.

Look at ethanol prices anywhere in the world. They are all cheaper than gasoline. We could import cheap Brazilian ethanol, but the U.S. government puts a large tariff on it. That makes ethanol more expensive in the U.S., but it is still cheaper than gasoline.

Brazil dramatically reduced oil imports by switching to ethanol. Adams claims that it takes more petroleum energy to make ethanol than you get in ethanol energy. If this were actually the case, Brazil would be importing more petroleum, not less.

But growing corn to make ethanol is not a very efficient way to get it. Cellulosic ethanol production gets the same 8x energy ratio as sugar cane ethanol, and it uses grass, which grows very quickly and uses much less fertilizer.

However, when corn is used, it is the starch in the corn that makes the ethanol. The rest of the corn is still used to make corn-syrup and high-grade animal feed, and is valuable. So charging the entire cost of growing the corn to ethanol production gives you bad numbers. Most corn is grown for animal feed, and if you remove the sugar and starch first, you are left with high-protein, high-cellulose, high-vitamin animal feed. And the animals can use that cellulose instead of the starch and sugar for calories, unlike people.

Read Khosla's PowerPoint presentation, it gives all the numbers.

March 31, 2006 10:10 AM  
Anonymous Anonymous said...

I am curious and interested, not skeptical. I just want to know where the "only costs $40 to convert an auto to flex fuel" statistic came from, and is that really accurate? If so, are there only certain vehicles that can be converted; how can one find out if ones vehicle can be converted, and where to get it done for that fabulously low price, etc. etc. etc.? Again, not skeptical, but very interested in finding a way to save our great greenblue planet and some money, to boot!

March 20, 2007 12:35 PM  
Anonymous Anonymous said...

That number is what GM says it costs them to make all of their vehicles flex-fuel at the factory. Converting a vehicle to flex-fuel after it leaves the factory costs more, as does every other change after it leaves the factory.

There isn't that much that has to change to take something that runs on 100% gasoline and make it run on 20% gasoline and 80% alcohol. They both burn very much the same.

March 20, 2007 1:11 PM  

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