It’s becoming increasing clear the ethanol boondoggle is designed to do nothing more than to raise gasoline prices. In fact, before the report was removed, the CARB report on ethanol said that ethanol required about twice the CO2 to use a gallon of, than did gasoline — End to end costs. You didn’t think farming, clearing land, planting, fertilizing, and harvesting crops was energy free did you. Who is going to build all the farm machinery, and where is that energy going to come from?
People fall for the dumbest things …
The WSJ put the costs of a gallon of ethanol at the price of a bushel of corn, yes each gallon, consumes a bushel of corn to produce. So price parity is established, it’s the cost of a bushel of corn. There is nothing cost effective about that, unless high gasoline costs are your goal.
This from the Nation:
So now comes the paper industry, taking advantage of the ‘loophole, designed by Congress to encourage ethanol production’, being used to fatten their bottom line. Worked just like it was intended to do, it’s just that the Congress didn’t have the brains to know who the very laws they pass might work in practice. Eggheads know nothing category.
Thanks to an obscure tax provision, the United States government stands to pay out as much as $8 billion this year to the ten largest paper companies. And get this: even though the money comes from a transportation bill whose manifest intent was to reduce dependence on fossil fuel, paper mills are adding diesel fuel to a process that requires none in order to qualify for the tax credit. In other words, we are paying the industry–handsomely–to use more fossil fuel. “Which is,” as a Goldman Sachs report archly noted, the “opposite of what lawmakers likely had in mind when the tax credit was established.”
The massive tax subsidy has barely been reported in the press, but it’s caused a stir in the paper industry, which is struggling to stay profitable in the teeth of the recession. “Everybody’s talking about it,” paper industry analyst Brian McClay told me. “In the US and elsewhere in the world–in Canada and Brazil and Chile and Europe.”
On March 24 International Paper (IP) announced it had received its first check from the IRS for a one-month period this past fall. The total? A whopping $71.6 million. “It’s probably close to a billion a year of cash,” McClay said. “If you look at the economics of this business, to make that kind of money today you’d have to be on another planet.” IP’s stock rose 12 per- cent on the news.
So the payout to one company is equal to their entire loss for a year. Making ethanol in a paper mill is possible because of the makeup of wood.
It works like this — In a traditional paper mill, bark is peeled from logs, and wood is chipped to a uniform size. A chemical bath reduces chips to a pulp that can be spread, formed and dried into huge rolls of paper. To make pulp, the chemical bath strips out lignin — the sticky material that makes wood stiff — and hemicellulose sugars.
Simple enough so far …
Sugar is a primary building block in the production of ethanol. Stripping wood sugars for ethanol requires different chemicals than those used to make pulp. But once those sugars are isolated, the solution can be fermented and distilled into ethanol. That makes it possible to convert an entire paper plant to allow ethanol production while burning wood chips as fuel.
It’s then possible, at least in theory, to still use the wood chips for pulp. That means a single paper plant could make ethanol and paper. And get a big subsidy for your effort. But there is more …
Here is the trick that gets the subsidy …
By adding diesel fuel to the black liquor, paper companies produce a mixture that qualifies for the mixed-fuel tax credit, allowing them to burn “black liquor into gold,” as a JPMorgan report put it. It’s unclear who first came up with the idea–Wrobleski told me it was “outside consultants”–but at some point last fall IP and Verso, another paper company, formerly a part of IP, began adding diesel to its black liquor and applied to the IRS for the credit. (Verso nabbed $29.7 million at just one of its mills in the final quarter of 2008 for its use of mixed fuel.)
Despite the obvious contrivance of the procedure, Wrobleski is unapologetic: “The credit is supposed to encourage the use of green fuel.” Sure, I said, but isn’t it a bit weird you’re now adding diesel fuel to the process in order to take advantage of it? “It is what it is,” she said.
Others are less charitable. “You use the toilet every day,” said one hedge fund analyst who’s been closely following the issue. “Imagine if you could start pouring a little gasoline into the bowl and get fifty cents a gallon every time you flushed.”
No one in Congress seems to have anticipated this creative maneuver. They never do, do they. This is the fatal flaw with Obama’s command and control Soviet style economic plans. They always get thrown astray, by creative beings. People who are free to make choices, will always find a way, that is why the gulags and gas chambers are the envetibale result, as more and more free thinkers find their way around the plans.
You can build Volgas, but is the real question, can you sell Volgas. The Soviet Union answered that question, it was a resonding NO!!!
