Articles tagged as: oil

May 20, 2013

U.S. Ethanol Policy Has Negative Consequences, Says Texas A&M Prof.

The Energy Independence and Security Act of 2007 (EISA), which mandated a steep rise in domestic ethanol production, is causing unforeseen negative consequences for food prices while failing to live up to the desired gasoline results and other expectations, concludes a Texas A&M University research team headed by an economics professor who studies energy issues.

James M. Griffin, director of the Mosbacher Institute for Trade, Economics & Public Policy, which is part of Texas A&M’s Bush School of Government and Public Service, and Mauricio Cifuentes Soto, a graduate student assisting him, say in their report that the goal of EISA was to cut greenhouse gas emissions and to ease dependency on imported oil. Policymakers also thought the new blend of ethanol and conventional gasoline would cost motorists less, they note.

James Griffin

James Griffin

“EISA mandated ethanol production to grow from 4.9 billion gallons in 2006, to 36 billion by 2022,” says Griffin, author of A Smart Energy Policy: An Economist’s Rx for Balancing Cheap, Clean, and Secure Energy. “Today, at 14 billion gallons, we’re not even halfway there and the unintended consequences of the policy, especially those influencing world food prices, are negative and far outweigh the positives.”

With the best of intentions, he observes, lawmakers believed the policy would have a positive effect by lowering prices at the pump. Moreover, since corn plants absorb CO2 from the atmosphere, greenhouse gas emissions would fall significantly, and the U.S. would build energy security as domestic ethanol replaced oil imports from the Middle East.

On the positive side, the researchers point out that after adjusting for ethanol BTU efficiency losses of 40 percent less compared to conventional gasoline, refining costs, taxes and subsidies, the net benefit of the ethanol policy is just about 2.2 cents per gallon or $24 per year for a typical household consuming 1100 gallons per year.

Additionally, using CO2 life-cycle estimates by the Argonne National Laboratory, the authors assert that, ethanol reduced U.S. and world greenhouse gas emission — 0.42 percent of U.S. and 0.08 percent of world emissions.

Nevertheless, these benefits are minuscule when put in perspective. “Corn-based ethanol has done little to reduce the nation’s carbon footprint,” Griffin adds. “In contrast, the policy’s unintended consequences for food prices raise grave economic and ethical issues.”

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Rising corn and grain prices have been attributed to ethanol production.

The Texas A&M researchers also traced an increase in corn and grain prices to ethanol production. They refer to the United Nations’ FAO Food Price Index which shows that between Jan. 2007 and Sept. 2011, after adjusting for inflation, corn prices increased by 68 percent, cereals by 69 percent and dairy products by 46 percent.

One study (Hayes et al, 2009) the researchers cite quantifies how a $1 per bushel increase in corn prices impacts a wide variety of food products. The study shows, for example, that between 2005 and 2011 corn prices rose by $5 per bushel, beef rose 18.5 percent, pork 16 percent, poultry 17.5 percent, eggs 27.5 percent, milk 10.5 percent, cheese 9 percent, sugar and sweets 3.5 percent.

The researchers claim that not all these price increases are due to U.S. ethanol policies. However, even “if only one-fourth of this additional expenditure is attributable to ethanol, this would imply a loss to American consumers of $40 billion over the last 4 years.”

Even though these increased food prices might not look so significant, the world’s poor disproportionately share the burden of these policies because a large portion of their income is devoted to food alone, they add. According to the U.N., rising food prices plunged nearly 70 million people into extreme poverty in 2010-2011.

Finally, in regards to energy security, the authors claim that the benefits of ethanol policy are largely elusory. The fact that in 2011 ethanol displaced 5.6 percent of imported petroleum is irrelevant because the world oil market and its effects are global. Even though the U.S. imports no oil from Iran, for example, a disruption of Iranian supplies would trigger world-wide increases in all oil prices — even domestically.

Griffin and Cifuentes conclude that, instead of marching blindly ahead to EISA’s 2022 mandated production target of 36 billion gallons, the ethanol policy should be reassessed.

“To be sure, we should continue to support R&D for advanced biofuels such as cellulosic ethanol,” Griffin says. “In the interim, we should dismantle the ethanol mandates and trust markets to sort out the proper mix of ethanol in gasoline.”

For more on the study, go here.

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About Research at Texas A&M University: As one of the world’s leading research institutions, Texas A&M is in the vanguard in making significant contributions to the storehouse of knowledge, including that of science and technology. Research conducted at Texas A&M represents an annual investment of more than $630 million, which ranks third nationally for universities without a medical school, and underwrites approximately 3,500 sponsored projects. That research creates new knowledge that provides basic, fundamental and applied contributions resulting in many cases in economic benefits to the state, nation and world.

The Mosbacher Institute was founded in 2009 to honor Robert A. Mosbacher, Secretary of Commerce from 1989-1992 and key architect of the North American Free Trade Agreement. Through three core programs for research and education – Integration of Global Markets, Energy in a Global Economy and Good Governance – the institute’s objective is to advance the design of policies for tomorrow’s challenges.

Media contact: Tura King, Division of Marketing & Communications, at (979) 845-4670

February 14, 2012

12 Impacts: The Energetic George P. Mitchell ’40

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George P. Mitchell graduated from Texas A&M in 1940 with a petroleum engineering degree.

From his contributions to the oil and gas industry to his visionary real estate ventures to his untiring support of scientific endeavors, George P. Mitchell ’40 personifies “energy” and illustrates the impact of Texas A&M University’s 12th Man.

Raised in an immigrant neighborhood in Galveston, Mitchell joined his brother, Johnny, in the Louisiana oilfields—a summer job that led him to study petroleum engineering, with an emphasis in geology at Texas A&M. After graduation, Mitchell worked as an engineering and geology consultant and later bought out the interests of some of his partners. That company evolved into Mitchell Energy & Development Corp. and was listed on the New York Stock Exchange with revenues of $1 billion. It was one of the nation’s largest independent oil and gas companies, and in 2002, it merged with Devon Energy Corporation.

Success as an oil executive would be enough for most people—but not for Mitchell. While managing his own company, he was also busy revolutionizing the energy industry. Two decades of work by Mitchell’s research team paid off in a huge way with the development of hydraulic fracturing—creating “escape routes” for oil and gas in shale beds. As a result, shale gas has increased from 1 percent to 30 percent of American natural gas supplies since 2000, providing the United States with an estimated 100-year supply of natural gas—the cleanest of the fossil fuels.

“George Mitchell’s vision and dedication achieved what was once thought impossible and produced the single most important energy innovation so far this century,” said energy historian Dr. Daniel Yergin, chairman of energy adviser and analyst IHS CERA. “As recently as 2007, it was thought that natural gas was in tight supply in the United States and that it would soon become a major importer of natural gas. Owing to the pioneering work of Mr. Mitchell and his team, that outlook has been turned upside down.”

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Mitchell and his late wife, Cynthia, stand outside the Cynthia Woods Mitchell Pavilion in The Woodlands, Texas.

The same kind of energy that drove Mitchell’s success in the oil and gas industry has been harnessed to achieve great things in other fields as well. In 1974, Mitchell unveiled a new 25,000-acre master-planned city north of downtown Houston called The Woodlands, which was praised as a hub of intellectual pursuits, scientific research and environmentally conscious design. He later founded the Houston Advanced Research Center—a collaboration of eight universities and related research groups dedicated to the principles of sustainable development.

Mitchell’s passion for physics and astronomy has played out in his tremendous support of those fields at Texas A&M. Several multi-million dollar gifts from Mitchell and his late wife, Cynthia Woods Mitchell—as well as from their foundation—ensured Texas A&M’s place as a founding member of the Giant Magellan Telescope Project. The Mitchells financed a fundamental physics and astronomy institute at the university, then gave $35 million toward the construction of two state-of-the-art physics buildings.

In all, the Mitchells and their foundation have given more than $75 million in support of Texas A&M, making them the largest donors in Texas A&M history.

“The impact of Mr. Mitchell’s generosity on science in general at Texas A&M is huge,” said Dr. H. Joseph Newton, dean of the College of Science. “The buildings he helped fund greatly enhance our ability to do world-class teaching, research and service. The Mitchell Institute and the Cambridge Collaboration bring top-notch scientists from all over the world to our campus.

MitchellProfessors

Several holders of the various endowed chairs and professorships established by or in part by George P. and Cynthia Mitchell were on hand for the Mitchell Physics Buildings dedication, held Dec. 4, 2009.

“The endowed chairs and professorships have allowed us to attract internationally renowned faculty,” continued Newton. “His unmatched support of the joint A&M-(University of Texas) partnership in the Giant Magellan Telescope project benefits both universities and is a model for the sort of collaboration we seek in the scientific enterprise.”

Texas A&M Foundation President Ed Davis ’67 said Mitchell’s reputation as a man of vision has played out time and time again not only with his gifts, but with his leadership.

“My first exposure to Mr. Mitchell was in 1983 when he chaired the Target 2000 study,” said Dr. Davis. “Among its recommendations was a major philanthropic campaign. Since then, we have completed two campaigns that have brought the total value of the long-term investment pool we manage to more than $1 billion. Looking back, Mr. Mitchell’s advice that we should embark on a campaign is further proof of his legendary vision.”

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About 12 Impacts for 2012: 12 Impacts for 2012 is an ongoing series throughout 2012 highlighting the significant contributions of Texas A&M University students,faculty, staff and former students on their community, state, nation and world.

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