Ethanol:

Marshall Institute's O'Keefe calls U.S. promotion of flex-fuels a 'gimmick'

With Brazil being considered an example of how the U.S. can achieve energy independence, a discussion is surfacing on just how Brazil was able to achieve its goals. During today's OnPoint William O'Keefe, CEO of the George Marshall Institute, discusses his new paper, "Considering Brazil's Energy Independence." O'Keefe talks about the co-existence of large-scale domestic oil production along with ethanol production in Brazil. He stresses that Brazil's energy independence has come as a result of an increase in domestic oil production. O'Keefe uses Brazil as an example of how the United States can gain its own energy independence. He also talks about the George Marshall Institute's relationship with Exxon Mobil Corp.

Transcript

Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is William O'Keefe, CEO of the George Marshall Institute. Bill, thanks for joining me.

William O'Keefe: Thank you for having me here.

Monica Trauzzi: Bill, you recently contributed to a piece for the Marshall Institute Policy Outlook and its entitled "Considering Brazil's Energy Independence." You emphasize the coexistence of ethanol, but also domestic oil production. Talk about that relationship.

William O'Keefe: Well, first let me give you some background. The institute put that paper together because, as you know, with rising gasoline prices politicians and others have advocated that we move off oil into ethanol. And they cite Brazil as an example. And they leave the impression that Brazil has moved away from oil to a total reliance on ethanol and has become "energy independent." We wanted to look at the facts that either supported or denied that conclusion. And what we found was that after almost 30 years of subsidies and investment in ethanol, Brazil only gets 14 percent of its transportation fuel from ethanol. It achieved, or it is achieving, energy independence by producing oil. We have that same option in this country, which we've chosen not to follow.

Monica Trauzzi: But if you're increasing ethanol production wouldn't the logic behind that say that domestic oil production would go down?

William O'Keefe: No. And the reason is that in a growing economy with a growing population, particularly a population that is not very dense, where we rely on mobility, that over the next couple of decades we're going to need all the energy sources we can find and produce. The Department of Energy has estimated by 2025 or 2030, as the country, we're going to need 50 percent more energy than we consume today. Crude oil and gasoline are the sources of transportation worldwide. They're abundant, they're versatile, and they are economical. Ethanol has a place if it can compete, but we have spent, since 1979, subsidizing the production all the ethanol in this country and it only represents about 3 to 4 percent of the transportation fuel that we use today. The estimates by the Department of Agriculture are that if we were successful in developing new technology for cellulosic ethanol, by the middle of the century we might get to 25 percent. The Corn Growers Association, which are advocates for ethanol, estimate that by 2015 we might be able to produce 11 billion gallons, I'm sorry, 16 billion gallons of ethanol. But since ethanol has less energy than gasoline it's the equivalent of 11 billion gallons or 7 percent of what we will be needing. So we simply cannot move away rapidly or practically from gasoline to ethanol and have a robust economy and support the standard of living that Americans want.

Monica Trauzzi: But based on widespread reporting by the mainstream media people have sort of been led to believe that Brazilians are using a whole lot of ethanol. In your paper though you say, "While ethanol production remains a priority for the Brazilian government, oil production-exploration accounts for the majority of Brazil's progress towards energy independence." And you were just discussing that. So did the mainstream media get it wrong? Because a lot of people are using Brazil as an example of what the U.S. can do.

William O'Keefe: Well, I don't want to comment too much on the mainstream media, but sometimes people get press releases and they don't look behind those. I mean it was Mark Twain who said he wasn't bothered by all the things that people didn't know, he was just bothered by all the things they knew that weren't true. And there's a lot in the media that doesn't withstand close scrutiny. And that's one of the things that the Marshall Institute does, it tries to make sure that there are facts to support the positions we take. And the fact it is that 86 percent of Brazil's transportation fuel comes from crude oil and only 14 percent from ethanol.

Monica Trauzzi: But also, between 70 and 80 percent of new vehicles are flex fuel vehicles, so the market is going in that direction. People are tending to buy vehicles that will allow them to use ethanol as fuel.

William O'Keefe: As the price of crude oil and gasoline went up the demand for flexible fuel vehicles also went up, when the price of gasoline goes down its shifts the other way. Now one of the things that's important to understand is that since ethanol has less energy per unit than gasoline it takes more ethanol to go the same distance. Earlier this year, when there was a gasoline price spike, it was because of a congressional mandate that led refiners to shift to using more ethanol. The price of ethanol went up to over $3 a gallon, which on an energy equivalent basis was almost $5 per gallon. So price sensitivity has a big impact on the demand for vehicles. The promotion of flexible fuel vehicles in this country is a gimmick because the fuel isn't going to be there. It's unlikely that it's going to be around in the next several decades for E85, but because of a quirk in the law a flexible fuel vehicle, for example a Chevy Tahoe, that gets 14 miles per gallon actual on the road, gets credited for 30 miles per gallon if we're calculating CAFE credits. That's what's behind the big push for flexible fuel vehicles.

Monica Trauzzi: Many people who push ethanol however are pushing it on the environmental front, because when you use a cleaner fuel it will help deter the effects of global warming. So how do you reconcile that?

William O'Keefe: Well, first I want to be clear, I'm not anti-ethanol. As I said at the outset, given the energy needs of this country looking to the future we're going to need all the energy we can produce. Ethanol will have a role ...

Monica Trauzzi: But you're saying oil will too.

William O'Keefe: Oil will continue to have the dominant role. In terms of tailpipe emissions from vehicles, those have been going down steadily. So emissions that people equate with pollution have been going down significantly since the 70s. In terms of global warming and CO2 emissions, the United States is doing as well as any other country in reducing the intensity of carbon dioxide from its economic activities. To the extent that you can burn more ethanol you will have fewer emissions coming out the tailpipe, but remember ethanol you have to drive more. So you have to do that calculation. The other thing is that to produce ethanol you need to use other fuels and those fuels emit CO2 as well. The mainstream media also says there's a consensus and the debate over the science is over. And they're just as wrong on that as they are on Brazil's independence. The debate is not over. There is not a consensus. The science is still in a state of flux. And, frankly, no one can tell you what will happen to the climate system or global temperatures 10 years from now or 20 years from now.

Monica Trauzzi: So is global warming happening and is it man-made, in your opinion?

William O'Keefe: They're two separate questions. Global warming is real and it's good that it is real because it keeps the earth's temperature at about 59 degrees. Without the global warming affect, the so-called greenhouse effect, the temperature would be close to zero. It makes it habitable for us. In terms of human influence, humans do have an influence on the climate system. The question is, how much? And to that, our National Academy of Sciences said we simply don't know, because we don't understand natural variability. That is not a reason for not taking precautionary actions, to develop new technology, to improve the fuel efficiency of cars, to look for alternatives for the use of coal and electric power generation. All those things make a contribution, but the growth in emissions for the future is coming from developing countries. So if we really want to have a big impact on CO2 emissions we need to get our technology in place in places like China and India, where it would have the biggest impact.

Monica Trauzzi: What's your relationship with the Exxon Mobil Co.?

William O'Keefe: Exxon Mobil and some other companies make contributions to Marshall, but most of the funds for Marshall come from foundations. And as a condition of receiving grants we ask for general support and we don't take support to do specific studies or to produce specific outcomes.

Monica Trauzzi: So are you looking out for the interests of big oil, particularly Exxon Mobil since they did contribute money to the George Marshall Institute?

William O'Keefe: No, the Marshall Institute has a prestigious board. One of its founders is a former president of the National Academy of Sciences and president of Rockefeller University. The goal of the Marshall Institute is to promote the use of science to achieve better public policy and to correct the misuse of science. It is not to benefit any one sector. The facts determine the outcome. And Marshall's credibility is tied to the fact that the work we put out withstands scrutiny.

Monica Trauzzi: Are the big oil companies reluctant to allow for the implementation of ethanol because it might negatively affect their industry? We're only seeing a few hundred ethanol fueling stations around the country. Why aren't there more?

William O'Keefe: Well, you would have to ask individual oil companies to explain decisions they've made or not made. I would make the explanation in general that it's because the so-called E85 is not as economical or cost effective as gasoline. If it was refiners and manufacturers would make it. There's several problems. One is the technology for large volume production. As I mentioned earlier, the corn growers estimate that by 2015 maximum production of ethanol would be about 16 billion gallons, which on a gasoline basis is 10 billion or 11 billion. We consume 145 billion gallons a year, so it's less than 10 percent. The Department of Agriculture, looking at the potential for using biomass for what is called cellulosic ethanol, estimates that in the middle of the century, if the economics work out, if the technologies develop we might get to 25 percent. So the driving force is cost and the inability to produce the volume needed by the American consumer.

Monica Trauzzi: In the paper you say, "Those concerned about U.S. energy policy as well as advocates of ethanol and other biofuels, must realize the realities of Brazil's energy program before insisting on altering of our own." What do you mean by that? And how can the U.S. look at what Brazil's done and apply it, as an example?

William O'Keefe: Well, the bottom line of what we meant is that 86 percent of Brazilian's transportation fuel comes from crude oil, only 14 percent from ethanol. Secondly, Brazil produces their ethanol from sugarcane. It's much more cost effective than using corn. The other part is we need to look at the way our economy is structured and the size of our country. We're the world's richest nation. We produce about over 25 percent of the world's gross domestic product. We're a very mobile society. We use energy to produce wealth and increase standard of living for our people. Policies that would say we need to move rapidly off of oil to ethanol are policies that would ration energy and make us poorer, not wealthier. For the people that already have theirs, you know, I've got mine, Jack, it is regressive for people that are trying to improve their way of life. When I drove up here today, there are houses being built down in Stafford County and as far as Fredericksburg. People work up here. They need a car. Often they have a family, they need an SUV. That is their way of having real wealth and being able to support their families. They couldn't afford to live in the city and ride a bicycle or a metro. So those factors need to be taken into account.

Monica Trauzzi: OK. We're going to have to end it on that note. We're out of time unfortunately. Thanks for being here.

William O'Keefe: We need more time.

Monica Trauzzi: We do. This is OnPoint. I'm Monica Trauzzi. Thanks for watching.

[End of Audio]

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