Friday, February 2, 2007

Why Not Ethanol? Yet Another Reason

The case for ethanol, if not the funding, is wilting on the vine. Scientific American points out the problems in "Is Ethanol for the Long Haul?" in the January issue. And Consumer Reports looks at ethanol's real world shortcomings in "The Ethanol Myth."

An OpEd in today 's NY Times "Praying at the Pump," highlights yet another chink in the case for ethanol. Simply put, markets. Global markets. And I'm not just talking about the price of tortillas in Mexico City. (See my Tortillas and Ethanol post.)

Ronald E. Minsk argues that the economic problem of petroleum isn't so much dependency on foreign sources as vulnerability to price fluctuations. He points out that the market for liquid fuels for transportation is global, source doesn't determine price, and that any substitute liquid fuel will be priced in the context of petroleum.
the percentage of oil we import is relatively unimportant. Even the use of alternative liquid fuel instead of oil-derived gasoline will not allow us to escape this volatility, because as direct substitutes for each other, gasoline and alternative fuels will be similarly priced, just as gasoline sold by different oil companies or at different gas stations is similarly priced today.

Minsk mentions plug-in hybrids could help temper price volatility "in the short term... allow[ing] consumers to choose day to day whether to power their cars with oil or with the sources their utilities use." And notes that "if we cannot find a way to increase production and inoculate ourselves from oil-supply interruptions, we are either going to have to develop cars that need no oil, or learn to live with the risks of the global market."

As a lawyer for electric utilities, the solution to the market dilemma of liquid fuels is right under his nose. Think bigger. Plug-in cars aren't a stop-gap on the road to some prayed for price-stable liquid fuel.
There are many paths to take as we seek to improve our energy security, but all should be based on one principle: real security can come only through finding a way to keep prices stable.
Truly there is no better way than to use a fuel that comes with a different set of governing rules. Electricity markets have had their own issues, for sure. But the market is national and there's a hell of a lot more regulation. The electric utilities need to make the case for electricity in cars. The fact that electricity pricing is not connected to world liquid fuel prices is one more arrow in their quivver.