Heavy Lifting - thoughts and web finds by an economist
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Monday, February 05, 2007

A useful primer on ethanol

I am convinced that most of the country, which supports the move to ethanol if for no other reason than it seems to reduce our dependence on foreign oil, has litte understanding of how the market works and, specifically, how dramatically different ethanol is from our normal gasoline in its characteristics (some are good, like burning cleaner, and some are bad, like not being conducive to pipeline transfers).

I am constantly amazed by the willingness of people to support or not support an issue all the while not knowing much about whatever the issue happens to be.

I am trying to learn a bit about the ethanol market and the political, economic, and environmental sustainability of the ethanol alternative. I tend to lean against government mandates in the area of private production but not universally. Those who come across these posts at HL might learn something or, at the very least, learn that the ethanol issue is a bit more complicated than "plant corn and replace OPEC."

I came across this useful primer on ethanol from the Kansas City Fed. I highly recommend it as a minimum introduction to what ethanol is, what it can and cannot do, and how volatile the price of ethanol is. The profitability of ethanol at this point is far from certain and the 51 cent per gallon tax credit is unlikely to go away any time soon.

More to come...

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