Corned grief: biofuels may increase CO2

From the “damned if you do, damned if you don’t department”.

More Maize Ethanol May Boost Greenhouse Gas Emissions

From the American Institute of Biological Sciences

Read the full article (PDF)

In the March 2010 issue of BioScience, researchers present a sophisticated new analysis of the effects of boosting use of maize-derived ethanol on greenhouse gas emissions. The study, conducted by Thomas W. Hertel of Purdue University and five co-authors, focuses on how mandated increases in production of the biofuel in the United States will trigger land-use changes domestically and elsewhere. In response to the increased demand for maize, farmers convert additional land to crops, and this conversion can boost carbon dioxide emissions.

The analysis combines ecological data with a global economic commodity and trade model to project the effects of US maize ethanol production on carbon dioxide emissions resulting from land-use changes in 18 regions across the globe. The researchers’ main conclusion is stark: These indirect, market-mediated effects on greenhouse gas emissions “are enough to cancel out the benefits the corn ethanol has on global warming.”

The indirect effects of increasing production of maize ethanol were first addressed in 2008 by Timothy Searchinger and his coauthors, who presented a simpler calculation in Science. Searchinger concluded that burning maize ethanol led to greenhouse gas emissions twice as large as if gasoline had been burned instead. The question assumed global importance because the 2007 Energy Independence and Security Act mandates a steep increase in US production of biofuels over the next dozen years, and certifications about life-cycle greenhouse gas emissions are needed for some of this increase. In addition, the California Air Resources Board’s Low Carbon Fuel Standard requires including estimates of the effects of indirect land-use change on greenhouse gas emissions. The board’s approach is based on the work reported in BioScience.

Hertel and colleagues’ analysis incorporates some effects that could lessen the impact of land-use conversion, but their bottom line, though only one-quarter as large as the earlier estimate of Searchinger and his coauthors, still indicates that the maize ethanol now being produced in the United States will not significantly reduce total greenhouse gas emissions, compared with burning gasoline. The authors acknowledge that some game-changing technical or economic development could render their estimates moot, but sensitivity analyses undertaken in their study suggest that the findings are quite robust.

Effects of US Maize Ethanol on Global Land Use and Greenhouse Gas Emissions: Estimating Market-mediated Responses

Thomas W. Hertel, Alla A. Golub, Andrew D. Jones, Michael O’Hare, Richard J. Plevin, and Daniel M. Kammen

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Kum Dollison
March 17, 2010 12:12 pm

George,
When you process a bu (56 lbs) of corn you get approx. 3 gallons of ethanol, 17 lbs of CO2 (which is, sometimes, used in enhanced recover of oil) and about 17.5 lbs of DDGS. The DDGS are the protein, nutrients, etc that are left when the starch is removed.
It is, actually, a better cattle feed than the corn. A pound of DDGS will replace about 1.3 lbs of corn, plus some soybean meal.
A pound of distillers grains contains 8,400 btus. Approx 75,000 btus are required to process a bushel of corn into 3 gallons of ethanol.
So, you could burn approx half of your distillers grains and power your process. However, you would be paying more per btu than if you burned nat gas, and sold the DDGS for livestock feed.

Henry chance
March 17, 2010 12:13 pm

Sean Peake (11:45:43) :
FYI, the approx yield from a barrel of crude (42 gal) is 19 gallons of gasoline. So is the discussion about crude
Correct. ThaT IS THE AVERAGE. By changing processes,the refinery can increase and decrease that. They can increase % output of heating oil, light fuel oils etc. I can make a phone call and get the daily margin from a computor. The software calculates energy consumption, electricity and many other facts. Some cranked out more diesel for long stretches because it had better margins. Now refineries even have a couple of techs that run instrumentation and reports just for the EPA. All kinds of sensors and devices to tell exactly what is produced.
Just a single 200,000+ barrel per day refinery generats as much revenue as the total ethanol, industry.

Henry chance
March 17, 2010 12:58 pm

hotrod ( Larry L ) (11:38:49) :
DDSG is distillers dry grains and solubles. It is one of the co-products that is produced when ethanol is produced from corn. It “contains all the nutrition “that was originally contained in the corn plus added nutrients provided by the yeast that made the alcohol. The only part of the corn used for the ethanol production is the sugars and starches.

That is not true. That is like saying potatoe peels have as much nutrition as the whole potatoe before peeling. Any science student would learn that.
Actually you admit sugars and starches are removed and earlier say no nutrition is removed. Sugars and starches are nutrients.
I am sure there are some farmers that claim to fatten livestock on wheat straw and chaff. Maybe a couple scoops of bran thrown in.
No, distillers grains do not contain all the nutrition. Brush up on the chemistry.It works up to 30 percent of the feed mix. Obviously we will have cattle that generate more burps with yeast in their diets. CO2 output sky rockets.
If feeding WDGS, it should be no more than 17% of the diet. It is hard to handle wet, kinda like sticky molasses.

Henry chance
March 17, 2010 1:53 pm

hotrod ( Larry L ) (12:01:47) :
Some modern fuel ethanol plants are multi-fuel plants and can use several different types of material for producing process energy. Some plants are actually net energy producers selling steam heat and excess
methane
or electricity to other users.
In multi-fuel plants they can run the plant on natural gas from the local pipe, self generated methane from bio-gas digesters, burn directly crop waste from the corn producers, (ground corn cobs, spoiled grain, and crop trash from the field), and also excess DDSG when it is in surplus locally and it makes more economic sense to burn it for energy than to expend energy to dry it and ship it to another market.
Wet DDSG can be fed directly to live stock locally but spoils quickly if stored so if it is in excess it either must be dried (energy expensive) and shipped out to other markets or burned wet in a properly designed fluidized bed reactor. Plants can also use municipal waste like trash for fuel in a properly designed multi-fuel system.
Henry sees this is a dirty and high polution process.
Methane
CO2
Dirty smoke from burning stalks
All that natural gas gives off CO2.
These are bad farming practices. They destroy valuable cropland when they have the boldness to burn stalks and corn cobs instead of turning them under the soil for soil improvement.
sure are not stewards of the land and carefull with regard to taking care of the soil.
The ethanol industry is uneducated in prosperous farming methods and soil conservation. There is also a severe gap in chemistry understanding and science.
Great thread Anthony.
My favorite is Panda Energy. I guess all their plants are broke and never started production. They had this big scheme of using cow manoo. Obviously they didn’t get to the point of bringing it in and waiting for it to dry over a year or two and see if they could save on natural gas. Soil conservationists spread animal biomass in the field.

hotrod ( Larry L )
March 17, 2010 1:57 pm

Actually you admit sugars and starches are removed and earlier say no nutrition is removed. Sugars and starches are nutrients.

They are pure carbohydrate and have no nutritive value, ie protein, vitamines, trace minerals, vitamins etc.
Live on a pure sugar diet and let me know if you suffer any deficiency diseases.
Your a smart guy and know full well what I mean by that statement, and you are intentionally twisting it to make an absurd point.
Cattle (ruminants) get their energy primarily by digesting cellulose, (grass, hay etc.) Cattle are fed corn to fatten them up and improve the flavor of the meat. Food energy from cellulose (calories) is a lot cheaper than calories from sugar and starch when you buy hay by the truckload. Corn feed sugar and starches are effectively irrelevant to cattle growth when you have other readily available sources of food energy in the mixture.
http://agbiopubs.sdstate.edu/articles/ExEx2036.pdf

DDG
or DDGS can serve as the sole protein source for cattle.

Distiller’s grains are also an effective addition to feedlot
diets. Nebraska and Iowa research suggests that distiller’s
grains (wet or dry) at up to 40% of the diet dry matter can
replace corn for growing and finishing cattle.



Besides the nutritional benefits of distiller’s grains in feedlot
diets, the moisture contained in WDG helps to condition
dry rations.
In addition to protein, distiller’s grains contain highly
digestible fiber and fat, resulting in a similar to slightly
higher energy value than corn. By providing energy as
highly digestible fiber, we can avoid negative associative
effects (reduced forage intake and digestibility) associated
with feeding starchy (high starch) feeds. Furthermore, the
fiber contained in distiller’s grains may help prevent digestive
disturbances in feedlot cattle.
Here is a link to Purina’s web site that lists important components of their cattle feed.
Notice it does not mention, sugars, starches or cellulose content only the limiting “nutrients” they add to the feed to increase growth on finish feeding cattle.
http://cattle.purinamills.com/OurProducts/GrowFinishFeedlot/default.aspx
(note NPN is non-protein nitrogen)

No, distillers grains do not contain all the nutrition.

You are misquoting me, I said it retained all the nutrition in the original corn, plus the nutrition added by the brewing process (yeast), minus only the fermentable sugars and starches. I never said it would supply 100% of the nutrition. Any reasonable person reading my statement understands that.
You clearly understand the complexity of blending of animal feeds (some of which are discussed in that PDF and intentionally trying to obfuscate my obvious meaning, by taking statements out of context and trying to shift the discussion to things I did not say.
Larry

Kum Dollison
March 17, 2010 1:57 pm

The ethanol industry, today, is an 820,000 barrel/day industry. I don’t think your 200,000 barrel/day oil refinery tops that.

kadaka
March 17, 2010 3:22 pm

Kum Dollison (13:57:18) :
The ethanol industry, today, is an 820,000 barrel/day industry. I don’t think your 200,000 barrel/day oil refinery tops that.

820,000 b/day * 365 days/yr * 42gal/b = 12,570,600,000 gal/yr.
2009 US ethanol production, 10,750,000,000 gal/yr.
By the Renewable Fuels Association numbers, for 2009 that’s about only 701,240 b/day. Where did your big increase come from?

acementhead
March 17, 2010 3:47 pm

mathman (12:53:26) :
“But as the program is currently implemented, it is a SHAM.”

mathman it’s a transfer of wealth from taxpayers to Mid-west landowners (“farmers”).
“Major Major’s father was an outspoken champion of economy in government, provided it did not interfere with the sacred duty of government to pay farmers as much as they could get for all the alfalfa they produced that no one else wanted or for not producing any alfalfa at all. He was a proud and independent man who was opposed to unemployment insurance and never hesitated to whine, whimper, wheedle, and extort for as much as he could get from whomever he could. He was a devout man whose pulpit was everywhere.
“The Lord gave us good farmers two strong hands so that we could take as much as we could grab with both of them,” he preached with ardor on the courthouse steps or in front of the A & P as he waited for the bad-tempered gum-chewing young cashier he was after to step outside and give him a nasty look. “If the Lord didn’t want us to take as much as we could get,” he preached, “He wouldn’t have given us two good hands to take it with.” And the others murmured, “Amen.”
Joseph Heller

acementhead
March 17, 2010 3:51 pm

Kum Dollison (13:57:18) :
“The ethanol industry, today, is an 820,000 barrel/day industry. I don’t think your 200,000 barrel/day oil refinery tops that.”

The ethanol industry, today, exists solely due to the crimes of politicians. No politicians no ethanol(for transport fuel) industry.

Henry chance
March 17, 2010 4:00 pm

hotrod ( Larry L ) (13:57:18) :
Henry:
Actually you admit sugars and starches are removed and earlier say no nutrition is removed. Sugars and starches are nutrients.
Hotrod:
They are pure carbohydrate and have no nutritive value, ie protein, vitamines, trace minerals, vitamins etc.

Ruminants get their energy primarily from carbohydrates (sugar, … cannot be
digested by non-ruminants) into volatile fatty acids (VFAs), Starches => enzyme amylase=> sugar => maltose. Calves are nurished on the sugar or Lactose. Herbivores can absorb glucose, fructose, sucrose and with the use of the liver create glycogen store it in adipose tissue and that is what we call pork bellys.
Purina markets supplements. One of the issues is getting the proteins and minerals. The other issue is a concern about too much protein which can create excessive buildup of urea and trigger renal shutdown.
Microorganisms in the rumen combine the ammonia with products of carbohydrate metabolism to form amino acids and hence, proteins.
We are talking about ethanol. It seems you don’t know medicine if you have to impute it from a Purina label.
We had a lot of snow this year and cattle don’t convert carbs to protein but burn them to keep warm. Humans turn unmetabolised carbs into fat. I am told Kobe beef has beer and mash in their diet. Again, livestock create meat and amino acids more than humans do.

Rod E.
March 17, 2010 8:05 pm

George Smith:
You didn’t make the “silly” accusation, nor did you discuss the profit/loss situation. I did, at about 12:45, but Kum D. thought it was you, I guess.
I basically told her that her assumption that just because ethanol was being sold at 1.54 meant there was a profit at that price was “silly.” People sell products below cost in many situations, especially if they have sunk costs that can’t be recovered, e.g., many of the existing ethanol plants.
She “guaranteed” me that they were making money, though if that were universally true the stock prices of ethanol companies certainly don’t reflect it.
My main point in all this is that as long as the subsidy exists, and is fairly significant, it’s very difficult to tell whether the outputs exceed the inputs in the ethanol industry. The nice thing about the price mechanism (absent government interference via subsidies/tax credits) is that all the true costs and true revenues get factored in.
Also, when the government unwisely mandates a huge increase in ethanol consumption, the price mechanism is handy for observing the extraneous effects caused by such a mandate, e.g., the sharp rise in corn prices that made ethanol production uneconomic for at least a time.
This has been an interesting discussion. One poster insists that DDGS have more nutrition than the corn itself, implying that the bushel of corn has actually been increased, since no further explanation was forthcoming.
Then in a later post we learn that while a pound of DDGS does indeed have more energy than a pound of corn, there’s only 17.5 pounds of DDGS left of that original 56 pounds of corn. At a 1.3 improvement ratio, that gives the DDGS the value of 17.5×1.3=22.75 pounds of corn, or just over 40% of the original bushel of corn.
Again though, the price mechanism sorts through all this just wonderfully. If people make money making ethanol, they’ll keep doing it. If the subsidy is dropped eventually and they still keep making ethanol in the same or greater volume, then there is a true profit in the enterprise, regardless of all these arguments. My bet is that the industry would collapse, but I doubt we’ll find out anytime soon.

John Q. Galt
March 17, 2010 10:57 pm

Henry chance (11:29:44) :
These ethanol advocates take too much alcohol per os.
Ding. And it’s on. No, wait, it isn’t. Henry boy is just a CPA internet troll who doesn’t know agronomics, food science or even basic business theory.
Rod E. (20:05:57) :
Rod, you mention subsidies like most critics do. Have you ever compared the fuel tax ethanol users pay with the so-called subsidy? It’s volumetric rather than btu-based. Ethanol has a lower btu content, right? Ethanol users pay 50% more fuel taxes. But who collects the so-called subsidy? Do the oil companies pass that along? Small-scale ethanol producers also pay an effective tax with the BATF bonding cost which kicks in at 5000 gallons neat EtOH. Integrated distillers pay $20 gallon (!!!) on potable alcohol. All the other subsidies are income tax breaks that are only applied to taxable income ie profits.
For me the most insulting is the volumetric tax. Not just the spread between ethanol and gasoline but between ethanol and diesel. Ethanol users get screwd first with the tax then we get screwed with the lable welfare queen from the commentariat internet trolls.
DDGS does indeed have more feed value than the whole corn it comes from. Feed cattle 1 lb. DDGS instead of 3 lbs whole corn and the same (or more, but let me be conservative) amount of meat is produced, plus we get the ethanol. Hence the language “wasting starch.” Corn protein is a better “Zone Diet” block (most people should get the reference) than soybean meal due to it’s high rumen by-pass percentage. Google and Wikipedia confuse lay people with concepts like complete protein, which has little bearing on ruminant nutrition. Soybeans have more lysine yet little survives the rumen. Soybean meal is glorified fertilizer for the rumen microflora. Urea and ammonia are cheaper. Better to save the soybean meal (and non-fermented by-product starch) for pigs and chickens. Corn starch isn’t useless and is much better relative to other starch sources at 30% by-pass starch, but ruminants evolved to eat cellulose. Corn is fed because it is the agricultural gold standard – literal gold coins – of feedstuff commodities. The bottleneck is in the division of labor economy. The animal is another bottleneck but takes a back seat to the limitations of producing, storing, moving feedstuff. The ethanol process enables a closer approximation of what is best for the animal. 30% of even feedlot finisher’s diet is effective fiber – hay, straw and silage – which is fed not just for it’s cheap (and typically locally sourced) feed value but for it’s effect on animal health due to mechanical properties (cud chewing, salivation and rumen buffering). Less starch means more of this fiber is digested, with less acid, more neutral rumen results in more cellulitic activity.

Tim Clark
March 18, 2010 5:31 am

The study, conducted by Thomas W. Hertel of Purdue University and five co-authors, focuses on how mandated increases in production of the biofuel in the United States will trigger land-use changes domestically and elsewhere. In response to the increased demand for maize, farmers convert additional land to crops, and this conversion can boost carbon dioxide emissions.
This is the main tenet of their hypothesis, and it is severely flawed. Changing the specific crop grown on arable land does not cause significant land use changes resulting in increased CO2.
Converting pasture or forest to intensive cropping does.
However, corn takes significantly more water and fertilizers than most other field crops, so there is very little land worldwide to convert to the profitable production of corn. In fact, the amount of farmland in the USA is decreasing, as it is in most developed countries. Perhaps the deforestation of the Amazon basin is what they are referring to. But recent data indicates that very, very little of that land is used for intensive crop production (mostly pasture) or is even suitable for corn production.
Thomas W. Hertel (hertel@purdue.edu) and Alla A. Golub are with
the Center for Global Trade Analysis in the Department of Agricultural
Economics at Purdue University in West Lafayette, Indiana. Andrew D.
Jones, Michael O’Hare, Richard J. Plevin, and Daniel M. Kammen are
all with the Energy and Resources Group at the University of California,
Berkeley. O’Hare and Kammen are also with the Goldman School of
Public Policy.

Oh, I see. Another case of tunnel-vision publication by people without a broad knowledge of agriculture. Number crunchers only. If this publication was anti-CAGW or anti- “we’re ruining the planet” liberal garbage, the alarmists would be crying, “But they’re not agronomists!”

Henry chance
March 18, 2010 7:44 am

John Q. Galt (22:57:23) :
Please borrow a book and learn how animal feed turns into protein.
Then borrow a business book and explain how the billions of subsidies are left out when calculating the total production cost for the end consumer of ethanol.
Some of us work and pay taxes. You may be blind and not realize that if we divide the total outlay in the form of grants, per gallon sibsidies by the number of cars buirning ethanol, We are paying more than gasolene.
Can’t fool us John
51 cents a gallon subsidy tells us the fuel is very wastefull in terms of value.
If gasoline was low in performance, I am sure a rational person would be sympathetic and suggest the gubment subsidize it for 51 cents a gallon.
Looks like the ethanol is drunk on gubment handouts.
Good business plans succeed without mandates, intervention, handouts and kickbacks.

Henry chance
March 18, 2010 8:05 am

Ethhanol producers and gubmernt grants.
How to fake making a profit.

US: Government spending millions on biofuel plants
Thursday, October 16, 2008
Some of the proposed biofuel projects receiving grants from the Department of Energy:
_ Abengoa Bioenergy Corp. of Chesterfield, Mo., up to $76 million.
The plant in Hugoton, Kan., would produce 13 million to 15 million gallons of ethanol annually and enough energy to power the facility. It would use 700 tons per day of corn stover, wheat straw, milo stubble, switchgrass and other feedstocks.
_ Poet LLC of Sioux Falls, S.D., up to $80 million.
After expansion, the Emmetsburg, Iowa, plant would produce 125 million gallons of ethanol per year, of which roughly 25 percent would be cellulosic ethanol. The plant expects to use 842 tons per day of corn fiber, cobs and stalks.
_ Range Fuels of Broomfield, Colo., up to $76 million.
The proposed plant in Soperton, Ga., would produce about 40 million gallons of ethanol per year and 9 million gallons per year of methanol, using 1,200 tons per day of wood residues and wood based energy crops.
_ BlueFire Ethanol Inc. of Irvine, Calif., up to $40 million.
The proposed plant would be in Lancaster, Calif., on an existing landfill and produce about 19 million gallons of ethanol a year. The plant would use 700 tons per day of sorted green waste and wood waste from landfills.
_ Stora Enso North America, of Wisconsin Rapids, Wis., up to $30 million.
The proposed plant in Wisconsin Rapids would convert wood wastes to diesel fuel.
_ ICM Incorporated of Colwich, Kan., up to $30 million.
The proposed plant in St. Joseph, Mo., would use materials including corn fiber, corn stover, switchgrass and sorghum.
© 2008 The Associated Press.

Grants. Apparently banks won’t loan them money. Apparently the MBA’s say the return on investment is not there.
George Bush is a smart oil man and knew they were desparate and it would be popular to let the greenie weenies have a feel good renewable fuels industry so the oil business could sell them more petrol and lubricants. (I understand Sarah Palin is sponsored by Mystic. My favorite for the grease gun. It is now owned by
Petróleos de Venezuela S.A.”CITGO)
Good business plans do no ask for crutches.
KUM is bragging how much money is made by ethanol production. I am sure CHINA building free factories and free shipping to America helps keep their factory costs down also.
God Bless America. Washington stop sending hundreds of millions of ble$$ing$s to the Ethanol industry
America home of the brave and the free loaders.

Rod E.
March 18, 2010 9:47 am

John Galt wrote: ” DDGS does indeed have more feed value than the whole corn it comes from. Feed cattle 1 lb. DDGS instead of 3 lbs whole corn and the same (or more, but let me be conservative) amount of meat is produced, plus we get the ethanol. ” (Followed by a long discussion on taxes adversely impacting ethanol producers)
Amongst you, you cannot even seem to agree on the conversion value of DDGS to corn. You now say 3:1 whereas the previous poster said 1.3:1. I don’t care. Get that? I really don’t care.
Do you understand why I don’t care? Probably not, so I’ll tell you. If even “experts” in the industry argue over points like this, how am I to know? Plus, there are a million (billion?) other enterprises where similar arguments are always ongoing. It’s nonsense to expect the general public to be abreast of all this. Yet you lecture me as though I should care.
But again, my main point: As long as the government subsidizes ethanol (and a tax break to blenders IS a subsidy that finds its way all the way down through the chain of producers) then the casual observer (voters generally, and politicians in particular) can NEVER know whether the industry is able to stand on its own, i.e., make a profit. (“Never” is too strong, I realize–some ideas are too stupid to make it even with a subsidy.)
And yes, unfair taxation has its effects also. I’ll concede that obvious point. I’ll also admit that I have no idea how ethanol is taxed versus oil products. That’s why you hire lobbyists–to keep from getting screwed by politicians.
Incidentally, in addition to the per-gallon subsidy, Henry mentioned the many grants going into building ethanol plants. This is just another form of subsidy.
Summing up, I have no idea whether the ethanol industry will stand on its own if the grants and subsidies are removed. I DO know that if Congress keeps mandating massive usage in gasoline mixtures, the price will eventually rise enough so that those in the ethanol business get filthy rich. Of course, along the way we might be severely damaging the economy, causing rising food prices and putting land to absurd uses, but Congress is generally incapable of seeing things like that even after the fact, and is completely incapable of assuming the blame for their actions.
Or everything will be just fine and Congress will have been all-knowing, all-seeing and will have mandated exactly what is best for all of us, and will have spent all that money on grants and tax breaks in the most optimal manner possible. Right?
I’ll believe that ethanol production from corn makes sense when entrepreneurs can go it alone without the help of the taxpaying public, and not before then. Right now, if the price of some ethanol companies is any indication, that time has not arrived. By the way, what is the stock symbol for the best-performing ethanol producer in the country today?

hotrod ( Larry L )
March 18, 2010 10:15 am

Henry chance (08:05:42) :
Grants. Apparently banks won’t loan them money. Apparently the MBA’s say the return on investment is not there.
Good business plans do no ask for crutches.

So you are saying that Federal efforts to enhance national productivity are bad ideas? The Panama Canal, transcontinental rail roads, the interstate highway system, were bad investments for the U.S. consumer ?
How about the depleation allowance regulations that give special treatment to a whole host or industries?

Depletion allowance – A tax deduction authorized by federal law for the exhaustion of oil and gas wells, mines, timber, mineral deposits or reserves, and other natural deposits.

That also tells us that big oil has bad business plans or they would not have fought for the oil depletion allowance incentives that were instituted in 1913 and then upgraded in 1926, and remained in place until the presidency of Jimmy Carter. I guess we should ignore this special oil incentive that only lasted about 60 years.

http://www.spartacus.schoolnet.co.uk/JFKoildepletion.htm
As Robert Bryce pointed out in his book, Cronies: Oil, the Bushes, and the Rise of Texas, America’s Superstate: “Numerous studies showed that the oilmen were getting a tax break that was unprecedented in American business. While other businessmen had to pay taxes on their income regardless of what they sold, the oilmen got special treatment.”
Bryce gives an example in his book how the oil depreciation allowance works. “An oilman drills a well that costs $100,000. He finds a reservoir containing $10,000,000 worth of oil. The well produces $1 million worth of oil per year for ten years. In the very first year, thanks to the depletion allowance, the oilman could deduct 27.5 per cent, or $275,000, of that $1 million in income from his taxable income. Thus, in just one year, he’s deducted nearly three times his initial investment. But the depletion allowance continues to pay off. For each of the next nine years, he gets to continue taking the $275,000 depletion deduction. By the end of the tenth year, the oilman has deducted $2.75 million from his taxable income, even though his initial investment was only $100,000.”
How about other incentives the oil industry receives — are they also indications of bad business plans by the oil companies?

http://www.nytimes.com/2007/11/02/business/02royalties.html
By EDMUND L. ANDREWS
Published: November 2, 2007
WASHINGTON, Nov. 1 — A federal judge in Louisiana handed the oil industry a major legal victory this week, saying the government had no authority to suspend billions of dollars’ worth of drilling incentives when energy prices were high.
If upheld, the ruling could free companies from paying the government up to $60 billion in royalties for oil and gas produced in publicly owned waters of the Gulf of Mexico.

Oil companies won a similar suit in 2003 involving the same law, a decision that has already allowed oil companies to escape several billion dollars in royalties.

Royalties on oil and gas have become one of the government’s bigger sources of revenue after income and payroll taxes. Last year, such royalties totaled more than $10 billion, and high oil prices are likely to drive those numbers to a new peak this year.
The Government Accountability Office, the investigative arm of Congress, estimated last year that an industry victory in the case could cost the government $60 billion over the next 20 years. But with oil prices now approaching $100 a barrel, and companies investing billions to develop new gulf fields, the losses to taxpayers could be considerably higher.
At issue in the court battle is a 1995 law aimed at increasing oil and gas production in the Gulf of Mexico. Under that law, the Interior Department allows companies that drill in deep water to avoid paying a standard royalty on oil and gas from publicly owned waters — usually 12 percent to 16 percent of sales.
But the government has also insisted that companies are not entitled to the incentive, known as royalty relief, if the market price of oil climbs above about $34 a barrel.
Last year, when oil prices were hovering around $70 a barrel, Kerr-McGee sued the Interior Department, arguing that the law allowed companies to pump royalty-free oil and gas regardless of how high prices might climb.

Or incentives for oil to drill?

http://www.nytimes.com/1981/12/01/business/offshore-oil-incentives-set.html
Offshore Oil Incentives Set
UPI
Published: December 1, 1981
WASHINGTON, Nov. 30
The Government will discount its standard 16.7 percent production royalty for companies willing to bid cash bonuses to win certain oil and gas leases off the mid-Atlantic coast, the Interior Department said today.
The competitive offshore petroleum leasing sale, scheduled for New York City on Dec. 8, will cover 253 tracts totaling 1,440,376 acres.
It is the third sale involving waters off the states of New York, New Jersey, Delaware, Maryland and Virginia.
As an incentive for exploration in the deepest and least accessible waters, the Government will require only the minimum production royalty of 12.5 percent on some tracts, an Interior Department spokesman said. He added that leases would be offered for 10 years on the more difficult tracts.
The Government normally grants offshore leases for only five years and demands a 16.7 percent royalty on any future oil or gas production. The spokesman called the lower public royalty and longer lease term ”a very unusual action.”

http://www.rfeoilgas.com/domestic-oil-and-natural-gas-tax-incentives.htm
With the goal of encouraging more privately funded, domestic production of oil and natural gas, the United States Congress allows for tax incentives which benefit the participants of oil and natural gas drilling ventures. In effort to reduce the United States’ dependence on foreign sources of energy and to establish oil and gas as one of the most advantageous investments from a tax standpoint, Congress has incorporated several economic advantages and benefits for domestic investments into the Tax Code. Such tax advantages affect companies such as Chevron and Western Pipeline Corporation as well as private investors.
One substantial tax incentive for oil and gas drilling in the United States is known as the Intangible Drilling Cost Tax Deduction. The Intangible Drilling Cost Tax Deduction (IDC) allows for the intangible expenses associated with drilling to be one hundred percent deductible in the first year of operation. Such intangible expenditures of drilling include the wages of laborers, necessary chemicals, grease and mud, to name a few. These types of intangible expenses make up a majority of the expenses associated with privately funded drilling, making this a valuable tax incentive for investors. For instance, for a one million dollar investment, assuming that seventy five percent of the expenditures are intangible drilling costs, $750,000 would be deductible in the first year.
Affecting privately funded domestic oil and gas investments, a deduction has also been established by Congress for tangible drilling costs, called the Tangible Drilling Cost Tax Deduction (TDC). This deduction allows for a one hundred percent tax deduction for the costs of equipment. In the example above, where $750,000 is deducted for intangible drilling cost, the remaining cost of $250,000 could be deducted over the next five to seven years as depreciation. Additionally, the cost of leases and lease operating costs, legal expenditures, sales costs and administrative accounting are one hundred percent deductible by cost depletion.
The 1992 Tax Act gives additional tax benefits for domestic natural gas and oil drilling by exempting Intangible Drilling Cost as a Tax Preference Item. Tax Preference Items are incorporated into the Tax Code and aim to either decrease or eradicate income taxation altogether. Before the 1992 Tax Act, contributors to oil and gas drilling ventures were accountable for the standard Alternative Minimum Tax in the amount that such tax surpassed their regular taxes.
The tax advantages described in are not intended to be loop holes in the Tax Code, but rather to provide incentives for domestic oil and gas production.

Over the last 50 years or so, the Federal Government has paid out more than $700 billion in federal energy incentives been the oil and natural gas industries. Together they got about 60 percent of these federal incentives between 1950 and 2006, with 46 percent of the roughly $725 billion in federal support going to the oil sector. The oil industry has benefited from approximately $335 billion in combined incentives, with natural gas getting about $100 billion.
Oil has received billions of dollars in incentives, subsidies, and special accounting considerations over the last 100 years. Right now the total in special incentives and tax breaks to the oil industry is about $4/year from intangible drilling costs, existing domestic manufacturing income deductions, and mineral rights owners depleation allowance deductions. This is not including indirect subsidies such as defending off shore oil availability etc.
That must mean they by your standards they have awful business plans. After all they are really struggling as they are only some of the most profitable businesses in the world.
Larry

hotrod ( Larry L )
March 18, 2010 10:19 am

Correction —
Right now the total in special incentives and tax breaks to the oil industry is about $4/year from
should read
Right now the total in special incentives and tax breaks to the oil industry is about $4billion/year from
Larry

Henry chance
March 18, 2010 11:03 am

By the way, what is the stock symbol for the best-performing ethanol producer in the country today?
Rod E. (09:47:35)
VLO
Valero refines 2 million barrels of crude per day. The ethonol industry does a little over 700 thousand bpd.
Verasun is belly up.
VLO has bought seven of Verasun’s facilities, for a price of $477 million:
The purchase gives Valero ethanol plants capable of producing a total of 780 million gallons of biofuel per year. The acquisition will satisfy about one-third of Valero’s EPA biofuel requirements.

Rod E.
March 18, 2010 12:29 pm

Thanks Henry,
I wonder what that $477 million price would have been absent “Valaro’s EPA biofuel requirements”?
I also wonder what the original book value of the 7 plants was. I’m guessing it was well north of $477 million, with the taxpaying public funding at least a portion of it.
And Larry,
It sounds like you don’t favor oil company “subsidies”. Guess what? I don’t either. Two wrongs don’t make a right.

Rod E.
March 18, 2010 12:36 pm

Larry wrote: “That must mean they by your standards they have awful business plans. After all they are really struggling as they are only some of the most profitable businesses in the world.”
I think oil companies would have done just fine without government subsidies over the years. The fact that they got them means that they had just as much political muscle at one time as the ethanol industry complex does today.
I’m not so sure that the ethanol industry would ever survive without its subsidies, however. The subsidies could be obscuring a net loss situation overall, with the entire “profit” in the industry (assuming there is one somewhere) coming on behalf of the taxpayers.

Don Shaw
March 18, 2010 4:07 pm

Hotrod,
You really know how to find sources suchas the NYT to distort the facts on oil subsidies.
During the Clinton Adminstration when the price of oil was low and many drillers were going out of business, The Clinton Administration sold leases for offshore drilling at reduced royalities to give incentives for exploration of oil. That was a contract that the courts have found legal. It was probably a good deal for the country since it reduced the amount of imported oil by encouraging production in costly regions.
The Democrats have wanted to change the terms of the contract retroactively and illeagly according to the courts. Of course the socialist NYT do not like the decision. That was not a subsidy but a lower royality rate to incentivize drilling in deep water. The contract did not include a clause to change the royality if the price of crude went up and the courts have held up the agreement. Pelosi wants to illegaly break the contract and is threatening companies who do not voluntarily increase royalities.
The companies still pay royalities but only according to the contract agreement.
This is nothing like the direct subsidies that you ethanol advocates garnish from the taxpayers while forcing us to use your products if we buy gasoline.
The oil companies pay huge taxes and royalities unlike the ethanol crowd. You might want to check how much they contribute to the treasury and compare with that paid by the ethanol crowd. Don’t kill the goose that lays the golden egg.
Nobody forces the public to buy from the oil companies like the government forces me to buy Ethanol and I resent that because it causes problems with my equipment and sucks up my taxes.
This is America and the Government should not force me to buy ethanol just because I want to run my car or boat.
As I said before anytime the government forces me or others to buy a product without good reason there is a restment, I strongly dislike the lobbies that force this down my throat. Ethanol producers and the farmers are quickly loosing favor with the public as they realize its many problems. What would you think if I forced you to buy tomatoes from New Jersey

Phil
March 18, 2010 5:58 pm

“John Q. Galt (22:57:23)”
“DDGS does indeed have more feed value than the whole corn it comes from. Feed cattle 1 lb. DDGS instead of 3 lbs whole corn and the same (or more, but let me be conservative) amount of meat is produced, plus we get the ethanol. Hence the language “wasting starch.” Corn protein is a better “Zone Diet” block (most people should get the reference) than soybean meal due to it’s high rumen by-pass percentage. Google and Wikipedia confuse lay people with concepts like complete protein, which has little bearing on ruminant nutrition. Soybeans have more lysine yet little survives the rumen. Soybean meal is glorified fertilizer for the rumen microflora. Urea and ammonia are cheaper. Better to save the soybean meal (and non-fermented by-product starch) for pigs and chickens. Corn starch isn’t useless and is much better relative to other starch sources at 30% by-pass starch, but ruminants evolved to eat cellulose. Corn is fed because it is the agricultural gold standard – literal gold coins – of feedstuff commodities. The bottleneck is in the division of labor economy. The animal is another bottleneck but takes a back seat to the limitations of producing, storing, moving feedstuff. The ethanol process enables a closer approximation of what is best for the animal. 30% of even feedlot finisher’s diet is effective fiber – hay, straw and silage – which is fed not just for it’s cheap (and typically locally sourced) feed value but for it’s effect on animal health due to mechanical properties (cud chewing, salivation and rumen buffering). Less starch means more of this fiber is digested, with less acid, more neutral rumen results in more cellulitic activity.”
Well said John- I balanced dairy rations for a period of time and managed a sizable feed depatment. We imported trucked in distillers grains from another state prior to local ethanol production being around our area- why? We did this because for our dairymen we could make the ration less costly since the distillers replaced a minumim of 1/3 of the soybean meal, some of the corn, and especially some of the high cost high by-pass proteins such as roasted beans, blood meal, meat and bone, or even corn gluten meal (another ethanol by-product). Too much corn in the ruminant diet will create an acidosis situation which is a severe set-back to the rumen microflora. In a high producing dairy cow one must get some of the energy and quite a bit of the protein past the rumen and into the last stomach and small intestine to be effective– distillers grain is a very useful tool to indeed pass thru the rumen w/o killing off the microflora. The rumen was indeed built to digest cellulose- not things like corn, In fact the rumen bugs can very effectively utilize feed grade urea and haylage to support growth, baseline milk production, maintenance of body weight, etc– but to really pour out the milk the rest of the work has to occur further back in the GI tract. These tools are much of why milk production is no longer down around 12,000 lbs per cow – a well fed cow herd with good management and genetics now is expected to be 24,000-30,000 lbs per cow.

Phil
March 18, 2010 6:09 pm

btw- why some of you are so confused with how much corn or beanmeal is replaced in a diet is because every ration is different. The cow can be on a haylage diet or corn silage diet- this alone shifts the corn/soy replacement factor. Another reason is that in a beef cow the distillers can be used in a higher ratio of corn replacement. Does not matter much- John was shooting straight- and farming is more complex than you can get out of a book or off the internet folks.
I was a Purdue Grad- and I fully respect the ag school folks but have little use for studies done by the ag economics department- but fully respect the economics dept outside of the school of ag. Just my 2 cents.

Henry chance
March 18, 2010 7:24 pm

Phil (18:09:38) :
I was a Purdue Grad- and I fully respect the ag school folks but have little use for studies done by the ag economics department- but fully respect the economics dept outside of the school of ag. Just my 2 cents.

Many curriculums are now migrating toward the use of economists to do social engineering like Monsanto does with grains. I published some research in The Economist in the 70’s and now find it is a left wing talking piece. Most Washington economists are tools to back an agenda.
I am pleased to see several post and know the animal science. A few know the chemistry and engineering but several make up for lack of technical education with emotional zeal for ethanol.
Fortunately we don’t have the stuff in avgas. I know some states want to demand it but i suspect the aircraft folks have the final word. If there is engine failure, they are on their own.
I wouldn’t fly in a plane that had ever used ethanol. These little moon shine operators don’t put out clean enough product.
I can run bio diesel in my boat but have an extra investment of a grand in extra Racor filtration system. I also have the right treatments to prevent algae growth in the fuel.