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Friday, August 18, 2006


Wow. It is a pretty dry presentation (the typical deadly "dude talking about his Powerpoint slides") but the information is fascinating.

One interesting point that I noticed, this was late in the video when he cited opinion polls about the public's willingness to endorse reduction in gasoline consumption. He said that something like 87% or 89% of people polled said that they would not support a higher gasoline tax. Then he said that opposition dropped to only 37% for a "tax to reduce dependence on foreign oil". And he claims this means that people do care enough about the issue to support action. I don't know if that's a valid conclusion to draw, however, depending on exactly how the poll question was phrased. It's the classic polling issue of getting support for an idea without explaining the details.

Such as, "Do you think we should go after terrorists?" Probably a YES vote in the 98%+ range.

However, "Should we suspend the Bill of Rights to make it easier to go after terrorists?" The YES vote is going to drop substantially (I wonder, though, if it would drop under 50%? But that's another discussion entirely...)

So my point being, everybody may like the idea of reducing foreign dependence for oil. But how much are people willing to personally pay for that idea?

Fortunately it looks like the actual costs for ethanol are very competitive, and conversion costs are minimal, so fundamental cost isn't really an issue. But when you start talking about imposing a "price stabilization" tax on petroleum to maintain a $40/barrel price floor (however unlikely we are to need that), I think you'll start to lose people.

By far the biggest obstacle seems to be the inherent self-interest of the big oil companies (and their supporters in government) for keeping oil prices/profits high, which is in direct opposition to increased usage of ethanol.

Anyhow, it does look like promising technology, and the fact that a major economy (Brazil) is operating cost-effectively with a large proportion of ethanol is very encouraging.

I agree that the oil companies are the biggest obstacle. And since they own the fuel distribution systems literally, and congresspeople figuratively, they are a pretty big obstacle.

But the good news is that even this leverage will only take them so far. If ethanol can be made in volume for $.90/gal, and it can, then the disparity between that and gasoline can only last so long before someone decides there is too much money to be made and makes a paralell distribution path. I think it is inevitable at this point, and the oil companies know it, the plan on being a part of it, they just want to put it off as long as possible.

What if Wal-Mart decides that selling E85 at their gas pumps at their stores at $1.89/gal makes them a few cents a gallon, drives millions of people to their stores, and buys them a Public Relations value that is far, far greater than the cost it would take to set it up? Congresspeople will race to be involved because there will be a subsequent boom of new car sales that could save GM and Ford. Then all it takes is one oil company to decide that if it is going to happen soon no matter what, well then they might as well be the good guys that helped.

Even the worst case scenario, where the market is flooded with oil so that the price drops and ethanol is no longer competitive, well that wouldn't be quite as cool as growing our environmenatally friendly fuel on US farms, but at least the price of gas would come down.


I can maybe see Wal-Mart doing this (as was mentioned in the video) but precious few other parties have the resources to make it work.

And the natural response by the oil companies to such a development would be, as you say, drop the price of oil so that ethanol is a less economically advantageous option.

You've gotta figure that the folks at Wal-Mart who are looking at this expect that to be the natural response as well. So how do they justify the investment in their own infrastructure to produce and distribute ethanol when the petroleum interests can wipe out their advantage so easily?

There's a major risk involved for a private organization, so the only practical approach I think is the one that Khosla advocates, easing government requirements into the system to force the desired outcome. Don't give the oil companies the option of whether to play along, but also don't require them to cannibalize their own business either.

I'd absolutely love to see the "progressives" twist themselves in knots, though, trying to decide if Wal-Mart is still an evil empire for its business practices, or a Great Green Hope for pushing alternative fuels. :-D

By the way, to further confuse the issue I found this blog entry with an extensive argument against E85 specifically, and ethanol generally, as a way to solve our future automotive fuel needs.

I went and read several of the "Debunking Khosla" articles, including the linked one. The disparity in views seems to come from the difference in assumptions. Khosla is assuming what he claims are conservative, realistic improvements in cellulosic ethanol and the tons per acre and gallons per ton. His detractors pull numbers from existing corn ethanol production which is the most common kind now in the US, but doesn't seem to have nearly as much potential.

One of the things about Khosla's predictions, is that if the right people believe they are true, it can help make them true. Kind of the way that Gordan Moore's Law influenced the semiconductor industry. Khosla's assumptions seem realistic and reasonable to me.

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