Thursday, October 06, 2005

Why am I mysteriously confident in ethanol?

It's not the technology - there has been no breakthrough in the burning of ethanol in an internal combustion engine.

It's not the economics. Even if the current high oil prices are prolonged, the economics of bio-ethanol is still marginal.(Although the future is hard to predict in this regard)

It's not the environment - I would be happy if we exclusively used fossil fuels until we had to mine Mars (Earth first! We'll strip mine the other planets later)

My reasoning is entirely "evolutionary". There is clearly going to be fragmentation of the fuel market as fossil-based fuels becomes less and less convenient over time. Which fuels become somewhat successful will depend on how we get from "here" to "there" - "Here" being little or no economies of scale to "There" being generally available at service stations. This is where ethanol is advantageous - Due to the economies of scale developed by Brazil (a huge loss making venture by its government so far) there is good availability of flex-fuel engines and ethanol producing capacity. Add in the fact that blends can be adapted to take advantage of price differentials between oil, ethanol and sugar, and ethanol blends can be increased when the price of oil is high, decreased again if need be, self regulated by the market, temporary shocks in oil price changes can be spread out to a few other commodities at the very least, and if oil becomes scarce permanently the market will allow for 100% ethanol to overtake fossil fuels.

3 comments:

Dr. Clam said...

Ethanol does have that property of making people mysteriously confident... I have often noticed it myself.

Marco said...

I'm not talking about beer here:-)

Blogger wrecked my original post except for the heading and I had to remember it again....

Dr. Clam said...

Onr reflection, I quite like your idea of ethanol production capacity as an elastic buffer to cushion shocks in oil and/or sugar/wheat prices. You have my vote as a rural and regional citizen...

BTW, When are you going to post some new stuff? :)