Emissions Trading Blog Information Page

Apologies to Mr. Nick Grealy, the apparent author, for using this text.

I think his comments are very telling.


The Great Yellow Hope

Categories: Ethanol, Environment
I've been traveling in the American Corn Belt this past week, and wherever I go, people are talking about the promise of ethanol. Corn-distillation plants are popping up across the country like dandelions, and local ethanol boosters in Minnesota, Illinois, Iowa and even Washington State (where Bill Gates is jumping into the business) are giddy at the prospect of supplanting OPEC with a homegrown, America-first corn cartel. But as much as I'd like to have a greener fuel to power my car, I'm afraid corn-based ethanol is not that fuel.

In principle, making fuel from plants makes good sense. Instead of spewing fossilized carbon into the atmosphere, you're burning the same carbon that a plant removed from the air only a few months earlier - so, theoretically, you've added no additional carbon. Sounds pretty green - and would be, if the plant you proposed to make the ethanol from were grown in a green way.
But corn is not.

The way we grow corn in this country consumes tremendous quantities of fossil fuel. Corn receives more synthetic fertilizer than any other crop, and that fertilizer is made from fossil fuels - mostly natural gas. Corn also receives more pesticide than any other crop, and most of that pesticide is made from petroleum. To plow or disc the cornfields, plant the seed, spray the corn and harvest it takes large amounts of diesel fuel, and to dry the corn after harvest requires natural gas. So by the time your "green" raw material arrives at the ethanol plant, it is already drenched in fossil fuel. Every bushel of corn grown in America has consumed the equivalent of between a third and a half gallon of gasoline.

And that's before you distill the corn into ethanol, an energy-intensive process that requires still more fossil fuel. Estimates vary, but they range from two-thirds to nine-tenths of a gallon of oil to produce a single gallon of ethanol. (The more generous number does not count all the energy costs of growing the corn.) Some estimates are still more dismal, suggesting it may actually take more than a gallon of fossil fuel to produce a gallon of our putative alternative to fossil fuel.

Making ethanol from corn makes no more sense from an economic point of view.
The federal government offers a tax break of 54 cents for every gallon of ethanol produced, and this incentive is what has generated the enthusiasm for ethanol refining: the spigot of public money is open and the pigs are rushing to the trough. (At the same time, the government protects domestic ethanol producers by imposing a tariff of 54 cents a gallon on imported
ethanol.) According to the Wall Street Journal, it will cost U.S. taxpayers $120 for every barrel of oil saved by making ethanol. Some "savings." This is very good news indeed for Archer Daniels Midland, the agricultural processing company that controls about 30 percent of the ethanol market.
(And, it would seem, a comparable percentage of the U.S. Congress, which has been showering the company with ethanol subsidies since the days when Bob Dole of Kansas was known as the senator from A.D.M.)

Absurd as it is, the rush to turn our corn surplus into ethanol appears unstoppable, and the corn belt, laboring under the weight of falling corn prices for the past several years, is celebrating the great good fortune of $3-a-gallon gas prices. We're desperate for alternatives, and all that corn is waiting to be distilled. As corn prices rise (and the giddiness has already given them a bump), farmers will be tempted to produce yet more corn, which is not good news for the environment this whole deal is supposed to help. Why not? Because farmers will apply more nitrogen to boost yields (leading to more nitrogen pollution) and, since soy bean prices are down, they will be tempted to return to a "corn-on-corn" rotation. That is, rather than rotate their corn crops with soy beans (a legume that builds nitrogen in he soil), farmers will plant corn year after year, requiring still more synthetic nitrogen and doing long-term damage to the land.

It's not easy being green.

But just because making ethanol from corn is an environmentally and economically absurd proposition doesn't mean ethanol made from other plants is a bad idea. If you can make ethanol from a plant that doesn't take so much energy to grow in the first place, the economics and energetics begin look a lot better. The Brazilians make ethanol from sugar cane, a perennial crop that doesn't require nearly as much fossil fuel to grow. Switch grass, too, is a perennial crop that grows just about anywhere, requires little or no fertilizer and needs no plowing or annual replanting. And although the technology for making ethanol from grasses (cellulosic ethanol - distilled from plant cellulose rather than starch) is not quite there yet, it holds real potential.

So why the stampede to make ethanol from corn? Because we have so much of it, and such a powerful lobby promoting its consumption. Ethanol is just the latest chapter in a long, sorry history of clever and profitable schemes to dispose of surplus corn: there was corn liquor in the 19th century; feedlot meat starting in the 1950's and, since 1980, high fructose corn syrup. We grow more than 10 billion bushels of corn a year in this country, far more than we can possibly eat - though God knows we're doing our best, bingeing on corn-based fast food and high fructose corn syrup till we're fat and diabetic. We probably can't eat much more of the stuff without exploding, so the corn lobby is targeting the next unsuspecting beast that might help chomp through the surplus: your car.


Nick Grealy
Category Specialist
Utilities/Telecoms
NHS Purchasing and Supply Agency
60 Caversham Road
Reading
RG1 7EB
+44 (0)118 980 8779

Just so its clear to anyone and everyone: I am not into Emissions Trading because I am a religious convert to the Global Warming argument.

I am into emissions trading because I believe in trading and... I figure that the efforts to create a cleaner environment because of Global Warming, will have the net effect of creating a cleaner environment. Not because I believe that it will stop the temperature of the planet from going higher.

In fact, I quite agree with many things Michael Crichton has to say on the topic. Here are two quotes from two separate writings on the subject.

• And for that matter, who believes that the complex system of our atmosphere behaves in such a simple and predictable way that if we reduce one component, carbon dioxide, we will therefore reliably reduce temperature? CO2 is not like an accelerator on a car. It’s not linear (and by the way, neither is a car accelerator.) And furthermore, who believes that the climate can be stabilized when it has never been stable throughout the earth’s history? We can only entertain such an idea if we don’t really understand what a complex system is. From "Fear, Complexity, & Environmental Management in the 21st Century", a speech given by Michael Crichton at November 6, 2005 at the Lisner Auditorium in Washington, D.C. Link to the speech found on this page.

• Leading scientific journals have taken strong editorial positions of the side of global warming, which, I argue, they have no business doing. Under the circumstances, any scientist who has doubts understands clearly that they will be wise to mute their expression. One proof of this suppression is the fact that so many of the outspoken critics of global warming are retired professors. These individuals are not longer seeking grants, and no longer have to face colleagues whose grant applications and career advancement may be jeopardized by their criticisms. From "Why Politicized Science is Dangerous", an Excerpt from "State of Fear", by Michael Crichton
  

.

Okay, you want to know what this is all about?

I am a trader in the EU, trying to make a go of this new market. I have been involved in one company's efforts to begin trading, broking, punting the European Union Emissions Allowances. (EUA's).

I am not a professional journalist (and it shows!). I am just a guy that has been involved in a plethora of markets and thinks he understands the way the real markets work. The egos, the zest of greedy brokers, the false good will espoused by financial markets types. I am a guy who thinks it is good to be a cynic when describing the market place.

Being blunt about the survival expectancy of exchanges is a favorite pet peeve. Laughing at the fight between OTC brokers and exchanges. Marvelling at the lengthy and cumbersome contracts (IETA, ISDA, EFET) used to make simple trades. Amused by the arrogance of the pseudo 'green financiers' are really in it for the huge fees and spreads in the early days.

Come on, if you are surprised by the truth, then you shouldn't be in the market. If you are a trader, you know exactly what I mean.

So, for the novice, just keep in mind that the Kyoto Protocol dogma that all these big banks, brokers and green funds are preaching, is just going to cost you big bucks unless you educate yourself ; but the education you need is more of the street smarts variety, than it is in any environmental technical skills.

The blog will be focusing on stories in the market, conferences, new ideas and all the burgeoning problems to be encountered as the market becomes more sophisticated.

And my big DISCLAIMER is : I am certanly not a brilliant analyst, so my views are my views.

You are certainly allowed to give comments (as long as they are pleasant and preferably, humourous).

Regards,
Sox

Please bear with me as I enter the information for the Emissions Trading Blog.

Soon to be the page for various reports (well, my view at least)
on the following subjects:

Exchanges the wish to trade European Union Emissions Allowances (EUAs)

Broker Review
GFI
I-Cap
TFS
CO2E
Platts
Spectron

I am seeking comments from readers regarding the overall content and/or the postings.

What do you want to see? What do you think of my take on the stories I post about?

Please either comment to me directly here : soxnoxrox@fastmail.co.uk or hit the comments box at the bottom of the posts.

Regards,
Sox

29 Jun 2005 17:40 GMT UK's Blair: Not Possible To Persuade US To Implement Kyoto

LONDON (AP)--U.K. Prime Minister Tony Blair said Wednesday that it is not possible to persuade the U.S. to implement the Kyoto Protocol on climate change.

"There is no point in setting a task that is not achievable," Blair said in an exclusive interview with The Associated Press. "Obviously there is a disagreement over the Kyoto treaty and you are not going to resolve that disagreement."

Blair added, however, that there were key points on which both sides agreed.

"The important thing is that we at least agree that we move over time toward a low-carbon economy, that curbing greenhouse gas emissions is an important part of that and that it's important that we act with some sense of immediacy."

Blair is making the battle against climate change a key part of the G8 summit to be held July 6-8 in Gleneagles, Scotland.

The Bush administration has rejected the Kyoto Protocol, which aims to limit greenhouse gas emissions, saying it will damage the U.S. economy. The White House also disputes widespread scientific claims that manmade pollutants are causing the Earth's temperature to rise.