01 February, 2007

Biofuels not to Blame

Register Wrong

It isn't biofuels that drove the price spike it was the switch from MTBE to ethanol as the additive to reduce smog.

That switch is also the primary reason for the gasoline price spike last summer. All US refineries had to adjust to a different mix in a short period of time resulting in a relative reduction in gasoline stock. Supply goes down price goes up. Imagine that.

By the way that switch to ethanol was a good thing and worth the price. MTBE was mandated as an additive by many States in the US even though it is a pretty nasty carcinogen. It is the chemical that Erin Brokovich made famous when suing companies that were required by law to use it. Hhhmmm...

On the other side of the coin MTBE was responsible for significantly reducing the smog levels in urban areas across the country. Everyone thinks that the environment is worse now than ever but forgets that there were days were you couldn't breath in LA or NY in the '70's.

We found a mix using ethanol that was less dangerous and the government decided to switch (for good reason) everyone freaked at the 3.50USD a gallon gas which was still a third of the price in Europe. Things balanced out but now corn costs more.

It just goes to show that decisions involving environmental requirements sometimes have unforeseen consequences.

Oh yea

Biofuels are not to blame and if we are smart we can use them to turn the bread basket into one of the next global energy sources and a huge cash cow for the US as a whole again if we are smart. That will have an impact in unforeseen ways on other prices. No matter how hard governments try they cannot repeal the law of supply and demand. Just ask the USSR.


Update:

From the author in the Comments

I wouldn't say we are wrong, though.

We wrote: "Demand for eco-friendly bio-fuels in the US is being blamed for a massive rise in the price of corn in Mexico."

Ah I see, so we shouldn't take the title to be the meaning of the article.

1 comment:

Lucy Sherriff said...

Interesting.

I wouldn't say we are wrong, though.

We wrote: "Demand for eco-friendly bio-fuels in the US is being blamed for a massive rise in the price of corn in Mexico."

So, we reported that an increase in demand for biofuel is driving an increase in the price of corn.

You are saying that an increase in demand for ethanol made from corn is driving the price up.

Seems very similar to me. The only difference is that you suggest a reason for the increase in demand for the biofuel ethanol, but that doesn't make our story wrong.

Cheers for reading,

Lucy Sherriff