The purpose of any economic exchange is to better one's position, whether a person buys or sells something for money or barters for something else. This is the essence of free market capitalism, where all economic transactions are voluntary because they are of mutual benefit. They are all “win-win” situations in the minds of the participants.
By contrast, when a government compels an economic transaction, it is always “win-lose” because one side gains when a loss is inflicted on the other, as evidenced by the fact it wouldn't voluntarily agree to it. This is the essence of a planned economy, where an elite in government is believed better able to decide what is best for everybody than allowing people to determine that for themselves. It is assumed that some losses are inevitable—and are usually blamed on capitalism—and that government must ameliorate this by managing (distributing) the losses, and benefits, for the greater overall benefit of society. This may include benefiting the environment.
The idea that an aggregation of win-lose transactions can somehow produce an economy superior to one of win-win transactions is ludicrous. It is all the more so when one realizes that initial losses produce secondary ones in the same way that benefits of free markets produce secondary benefits for society. And this includes benefiting the environment.
Take ethanol, for example. Initially it was supported because it was widely claimed the world was running out of oil—now shown to be untrue because technology has proven there will be no shortage for thousands of years, if ever. So now it is being argued that ethanol is important because it reduces air pollution and global warming and promotes jobs in the ethanol industry. It is even said to be competitive with gasoline.
Farmers raising corn and manufacturers producing ethanol benefit from federal and state subsidies. The losers are the taxpayers, who pay not only through direct taxes for the subsidies but through higher costs for fuel and electricity (due not only to ethanol but to the government's effort to eliminate coal in the production of electricity.) As a result, people have correspondingly less money to spend on other things. Those would-be benefits are foregone, lost without being seen. The beneficiaries of ethanol (and wind and solar) subsidies spend their subsidy money, but much of it goes for farm machinery and labor to raise more corn for ethanol and build more solar panels and wind farms, rather than things that are more useful in society. Thus losses of mandated energy inefficiency beget secondary losses in inefficient industries, just as the efficiencies of free markets beget secondary benefits in more useful and efficient industries that would come about if the money for them were not preempted by the requirement for inefficient fuels.
Another class of losers from ethanol is the consumers of corn as food, primarily poor people in Latin American countries. The use of corn in ethanol tripled in three years, and the World Bank report noted that biofuels forced global food prices up by 75% — far more than previously estimated. More U.S. corn now goes for ethanol than is consumed as food. The World Food Program, the United Nations' Food and Agriculture Organization, and the Organization for Economic Cooperation and Development have formally called for all G20 nations to drop their biofuels subsidies and mandates because of the adverse impact on food prices around the world.
How inefficient is ethanol? First we must recognize two unbreakable laws of the universe. The first law of thermodynamics (conservation) states that energy is neither created nor destroyed, but only changes form. The second law (entropy) distinguishes between useful energy that can perform work and useless energy that cannot, and “some fraction of useful energy irreversibly becomes useless every time energy is converted from one form to another,” explains T.A. Kiefer. “Together, these two laws declare that the amount of useful energy that can be recovered from a system is always less than the energy that was put into the system. Every transaction, process, or conversion pays an energy tax, which is why it is impossible to construct a perpetual motion machine. The ratio of energy-out to energy-in is a critical parameter in evaluating energy sources.”
A key measure, then, is the energy return on investment (EROI), a ratio of energy from a new fuel to the energy consumed in producing it. An EROI of 1:1 would mean that the useful energy produced by the new fuel would exactly equal the energy needed to produce it. Kiefer writes:
“A civilization is itself a high-order physical and biological organism that has tremendous overhead costs and can spare only a fraction of its energy to assimilate new energy. A study of historical US economic performance over the last century has found that economic recessions are linked to primary energy EROIs dipping below a critical threshold of 6:1. This value represents the minimum energy quality an industrial civilization must have to sustain a modern, energy-intensive quality of life. Another macroanalysis found that an EROI of 3:1 is the bare minimum quality a raw energy feed-stock must have to overcome all the production costs and conversion losses and still deliver positive net energy to modern civilization. A 3:1 EROI thus also represents a critical tipping point. To put these values in biological terms, a modern industrial civilization is very energy-hungry, and if undernourished on a diet of foods with lean EROIs below 6:1, it becomes catabolic, eating into the fat of its savings and the muscle tissue of its infrastructure to replace the missing calories. As long as EROI remains below 6:1, industrial civilization is locked into a death spiral where an ever increasing fraction of its economic output (GDP) is spent on energy at the cost of eroding standard of living. At EROIs below 3:1, the food is so poor that digesting it into fuel takes more energy than it returns, and full starvation sets in. The only way out of this hunger trap is either to find higher-EROI energy or to decay into a preindustrial civilization with lower energy needs. The bottom line is that a healthy modern economy must be fed by hearty primary energy sources with a collective EROI above 6:1. [Incidentally, the EROI for coal is 30:1]
“After decades of study and experimentation and continuously refined commercial production, the scientific literature consensus for corn ethanol EROI is a lowly value of 1.25:1. Even worse, there is no net gain in liquid fuel energy—the ethanol produced contains energy barely equal to the input fossil fuel energy. The small energy profit is contained in byproducts, principally high-protein biorefinery leftovers called distillers’ dry grains and solubles (DDGS) that can be used as cattle feed. More than $6 billion a year in direct federal assistance to corn growers and ethanol refiners since 2005 has served only to reduce a nonexistent foreign dependence on animal feed protein supplements. It should be pointed out that the corn ethanol EROIs published in the literature and discussed above are not for a pure corn ethanol life-cycle, but for a hybrid lifecycle involving both fossil fuel and corn ethanol where fossil fuel provides much of the input energy. A proper corn ethanol EROI would be calculated using corn ethanol as the exclusive energy source to make more corn ethanol, but no example is available today. This is telling. It will be shown...by lifecycle analysis that making corn ethanol is a negative energy-balance process that consumes more than five-sixths of the energy invested. Civilization would get six times more output energy from the fossil fuel diverted to make corn ethanol if it were instead used directly as fuel.”
Ammonia, which is made from natural gas, is second only to plastic in consumption of industrial energy in the U.S., and 80 percent of ammonia is used in making fertilizer. Use of fertilizer is the main reason for the six-fold increase in corn production in recent decades, without which ethanol would be more easily recognized as uneconomic. Kiefer writes, “Modern intensively farmed corn, with its huge appetite for fossil fuel-based ammonia and agrichemicals, is making a large, net negative contribution to the nation’s energy budget ….Biofuels can never be cheaper than nor replace fossil fuels while fossil fuels comprise the bulk of the energy invested to make them....Applying ammonia fertilizer to any crop intended for biofuel is an indefensible waste of energy.”
Hosein Shapouri, an employee of the U.S. Department of Agriculture, has produced a study of ethanol showing a small net benefit from ethanol. But Howard Hayden, a Professor Emeritus of Physics from the University of Connecticut and Adjunct Professor at the University of Southern Colorado, notes that Shapouri et al “use the most optimistic figures: the best corn yield, the least energy used for fertilizer, the least energy required for farming, the most efficient distillation techniques, the most residual energy (in the form of mash); and in general the most favorable (but still credible) values for any and all aspects of [ethanol] production.” Even so, Hayden says that, using Shapouri's numbers, the net average power available from the ethanol of one acre of corn would be enough only to keep one 60-watt light bulb burning continuously for one month. To keep that bulb burning for a year would require 12 acres of corn—an area larger than nine football fields.
Puny though that energy gain from ethanol would be, even that is controversial. A thorough study done by Cornell University Professor David Pimmentel, who also chaired a U.S. Department of Energy panel to investigate the energetics of ethanol production, found Shapouri had left out many energy inputs. These include farm labor, farm machinery, repair of farm machinery, energy to produce the hybrid corn, and irrigation. Pimmentel also says Shapouri gives an extravagant credit for distillers dry grains (DDGS), which are used for animal feed as a substitute for soybean meal. Pimmentel says, “We went back to the soybean meal, and examined how it’s produced, and the energy that is required to produce it. Instead of giving [distillers grains] a 40 to 60 percent credit as the pro-ethanol people do, we found that the credit should be more like 9 percent. They [pro-ethanol researchers] are manipulating the data again.” Incidentally, soybean meal has 49 percent protein content compared to 27 percent for DDGS.
Cellulosic ethanol, produced from wood, switch grass, and harvest wastes is even more uneconomic than corn ethanol. Cellulose can be broken into fermentable sugars using concentrated acid and explosive steam, but this one step consumes as much energy as exists in the final ethanol. Thermodynamic analysis shows cellulosic ethanol is at least three times more difficult to produce than corn ethanol and has an EROI far below 1:1.
Biodiesel and other liquid biofuels have shortcomings that require “hydrotreating” to change the hydrogen-carbon ratio, remove all oxygen, and change the molecular structure to make them compatible with high performance engines and existing fuel infrastructure. Hydrotreatment greatly increases the cost and releases 11 tons of carbon dioxide for every ton of hydrogen added.
Algae is even worse. According to the Argonne National Laboratory, it takes 12 times as much energy and 2.6 times as much fossil fuel energy to put a gallon of algae diesel in a gas station pump as a gallon of petroleum diesel—and that's without counting hydrotreatment.
Kiefer's research is based on “an extensive literature survey of recent and reputable sources emphasizing U.S. government agency data published in official reports and university studies published in peer-reviewed scientific journals. Since 2008, a new generation of more rigorous studies has dramatically undermined the naïve assumption that biofuels are inherently clean and green.”
He writes: “Compared to the petroleum fuel lifecycle, the corn ethanol fuel lifecycle consumes 3.5 times more fossil fuel, more than triples Greenhouse Gas emissions, increases water use by three orders of magnitude, adds environmental costs from agrichemical runoff while still suffering those associated with crude oil, and competes with food cultivation for cropland acreage and associated agricultural production capital and resources.”
Finally, Kiefer provides here an extensive list of studies for his assertion, “New, more thorough studies that consider the full fuel creation and combustion lifecycles are now showing cultivated liquid biofuels to be more damaging to the environment and causing the release of more CO2 and other greenhouse gases and pollutants per unit of energy delivered than fossil fuels.”