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Meet The New 'Tool' In Big Oil's Efforts To Scuttle Ethanol +VIDEO

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An open letter to George "David" Banks

By Marc J. Rauch
Exec. Vice President/Co-Publisher

Marc J. Rauch

Hi David -

I just finished reading your article "Renewable Fuel Standard Continues To Devastate," published in February on the High Plains Leader & Times website.

The first thing I did was to visit the American Council for Capital Formation (ACCF) website, the organization for which you are listed as Executive Vice President. I was curious to learn of your background and to try and determine where your information comes from. I noticed that Richard Rahn from Cato Institute is on your Board of Directors, so I presume you may have received some input from him. In fact, your article looks suspiciously like an article that Mr. Rahn published on in 2012 called “Biofuels Not Worth the Trouble or Cost.”

The other thing I looked at was your biography. It appears that you never actually worked in any industry in which you would have learned about business. I'm sure you took some "business" classes in school, but it doesn't look like you ever worked in a manufacturing company or sales company, and there is definitely no indication that you ever tried to start and run your own business that involved operating a cash register.

George "David" Banks

In reading press releases from ACCF, I also noticed that you only recently joined this group, just a few weeks prior to your High Plains Leader article. So my first questions are: Were you given the assignment to write this story as part of your initiation into ACCF? Were you told that petroleum oil groups are major contributors to ACCF and you had to show what you can do?

By the way, I'm not criticizing you or ACCF for taking money from the oil industry, after all you guys have families and need to provide for them. Certainly the oil industry has more money than they know what to do with, so what the heck. I only wish you would choose a way to support your families that isn't so harmful to our country.

The point of my contacting you is to make sure you know, if you don't already know, that you have no idea of what you are writing about. Your comments about ethanol are as ignorant as those written by Richard Rahn almost four years ago. Incidentally, on July 24, 2012, I wrote to Mr. Rahn and explained how he was wrong. He never replied; I guess he was embarrassed at being caught stupid. However, from a Google search of Mr. Rahn's work after that date it appears that he greatly shied away from discussing ethanol again, so maybe my note to him had some beneficial effect.

I hope you won't be so rude as to not respond to me. I'd at least like to see you give challenging the truth a try.

So let's get to it, shall we: You start with the ridiculous "ethanol production causes food price increases" argument. This argument was specious nearly 10 years ago when The World Bank was first putting together the paper that would blame increased ethanol production for food price increases. However, two years later, The World Bank retracted that claim and placed the blame where it was rightfully deserved, on petroleum oil price increases and commodity speculators. Two years after that, The World Bank reiterated that petroleum oil prices and speculators were to blame, not corn ethanol production.

I guess no one shared this information with you. And I guess no one told you that even if corn ethanol caused an increase in the price of corn that the increase would have virtually no affect. For example, in 2010 a $4 box of corn flakes had about a nickel's worth of corn. So if corn prices doubled, the corn content would only be 10 cents. The reason for a box of corn flakes to cost so much was because all of the distribution and marketing costs related to selling breakfast cereals.

Moreover, since 2010 corn prices have generally been low, therefore for you to write a current story about high corn prices causing food price increases is just plain silly. This is 2016; if there have been food price increases since 2010, it wasn't because of corn prices. There was a rise in corn prices from 2011 to 2013, but this increase coincided with crude oil prices rising to near record highs (3 times more than today), and 3 times higher than they were in 2009 (after oil prices fell from the record setting 2008 oil prices).

By the way, it was during the 2008 record setting oil prices that The World Bank issued the fallacious report that they later retracted.

David, you need to do a lot of homework on this...a lot of homework.

Then you say that America no longer depends on oil from foreign producers, however in all of 2015 and since January 1st of this year we have imported more crude per month from Canada than at any time since 2010. In case you don't know, Canada is a foreign country.
                               • SEE: Weekly U.S. Imports from Canada of Crude Oil

Crude oil imports from Saudi Arabia for 2015, and to-date in 2016, were approximately the same as the two years prior (2013-14). In addition, we continue to import oil from Iraq, Kuwait, Nigeria, Venezuela, Mexico, Columbia, Ecuador, and Angola. So when you say that America "no longer depends on oil from foreign producers," you're wrong. Yes, imports levels are the lowest they've been in a long time, but your statement is still grossly incorrect.

You write "There's no evidence that the use of ethanol actually lowers oil imports." This is one of those times when having some real business experience would have been helpful to you. You see, it's this simple: Say you had a grocery store and you normally sell 100 gallons of milk per day from distant Dairy A, but now because you are also selling milk from a local Dairy B you are only selling 60 gallons of Dairy A milk per day. Although you are still selling 100 gallons of milk every day, this means that by selling local Dairy B milk has you don't have to import as much milk from the distant Dairy A.

In other words, by simple arithmetic, if you use one gallon of ethanol in place of one gallon of gasoline then it means that you need less petroleum oil. So regardless of how much oil importation has changed, ethanol has played a role in reducing the need for foreign oil because if we had enough domestic oil we wouldn't have to import so much or any.

Additionally, you only attribute lower oil imports to "an explosion in shale exploration," but the truth is different. As the U.S. Energy Information Administration has pointed out:

"There is no single explanation for the decline in U.S. oil import dependence since 2005. Rather, the trend results from a variety of factors. Chief among those is a significant contraction in consumption...and reflects factors such as changes in efficiency and consumer behavior as well as patterns of economic growth...Shifts in supply patterns, including increases in domestic biofuels production, NGL output and refinery gain, also played an important role in moderating import dependence. U.S. ethanol net inputs...helping to displace traditional hydrocarbon fuels and so reducing petroleum import needs."

David, you then write that between 2008 and 2014 "Domestic production increased by more than 3.5 million barrels a day. Meanwhile, ethanol production increased by a negligible 328,500 barrels daily over that same period -- comparatively, a drop in the bucket." In writing this, you intimate that ethanol only increased by such a small number because of low demand and consumer interest. This is another gross misstatement of truth. Ethanol, because it's confined by government restriction to 10% in regular gasoline options, has had a strict limitation on its growth. If E15, E20, E30 and other ethanol-gasoline blends weren't restricted from sale at filling stations then ethanol production and use would have had equal "explosive" growth.

But, what I find peculiar - almost funny - is that you fail to realize that if you take into account the decline in automobile fuel consumption due to driving habits as well as the increase in engine efficiency in late model vehicles, that there has still been an increase in ethanol production. Consequently, this means there has been considerable growth in ethanol acceptance. And while the increase may be small in proportion to the shift in where crude comes from, it is rather enormous compared to the drop in gasoline and diesel fuel used by passenger vehicles. In neglecting to understand and take all this into account you are proving yourself to be just a "tool" used by the oil industry, and by "tool" I mean the street definition of the term.

You then write, "To meet the growing demand for ethanol, farmers have chosen to produce corn over pork, beef, poultry, and other agricultural products. That's costing families and businesses. In 2012 alone, the average family spent an extra $2,000 on groceries thanks to the RFS. And, the RFS has cost chain restaurants an additional $3.2 billion annually -- about $18,000 per restaurant."

Wow, David, it sounds like you also know nothing about the farming, ranching, and restaurant industries. I guess you weren't aware that prior to the new ethanol market for corn many of these farmers struggled to survive, and that by growing corn they now have a profitable product that has a growing demand. I guess you don't understand that if crop farmers shifted to raising beef cattle and other agricultural products that there might be a glut on the market for those products, which would drive down prices and cause the farmers and ranchers to suffer. This in turn would put in jeopardy all farm crops and livestock meats. Having a vigorous external market that can absorb corn crops without destroying the meat and vegetable markets is a good thing, not a bad thing. You probably took some classes in school that covered supply and demand, but no one actually taught you what it means or how it works in the real world.

And when you write the part about the RFS costing chain restaurants $3.2 billion annually, you of course didn't consider that most of the higher costs they have been subjected to relates to the cost of petroleum oil used in transportation, marketing, and packaging.

You write that ethanol "also hurts drivers...ethanol is less efficient than regular gasoline." This is untrue. Ethanol is more efficient than gasoline. Determining "efficiency" is not just a matter of how many miles a gallon of fuel will provide, you must factor in the cost per gallon in order to arrive at a cost per mile. Generally speaking, over the last decade the lower cost per gallon of E85 made up for, or equalized, any reduction in MPG. If by using E85 a consumer got 8%-10% fewer miles per gallon, the 10%-20% lower cost per gallon gave the use of E85 a net gain.

Likewise, the higher cost per gallon of ethanol-free gasoline (E0) more than eats up any increase in mileage compared to using E10. You didn't know this, did you? When you received the talking points memo from the oil industry they didn't cover any of this, did they?

And now let me put the final nail in the efficiency/economy coffin for you: the reason that a gasoline engine will get fewer miles per gallon when it uses ethanol (or ethanol-gasoline blends) is because the engine is optimized to run on gasoline. A comparable engine optimized to run on ethanol will deliver the same or higher miles per gallon, and the ethanol fuel is less expensive.

You basically close out your article by writing "Some argue these costs are worth it for ethanol's environmental advantages. But research shows there's hardly anything "green" about it...To get a full sense of environmental effects of ethanol production, it's necessary to take into account all emissions associated with growing corn for fuel. That includes those from farm equipment used to clear land, plant seeds, irrigate, and harvest crops. Don't forget the pollution emitted hauling ethanol from factories to refineries to gas stations...In short, ethanol isn't nearly as clean as its proponents suggest. Indeed, the greenhouse gases produced during a fuel cycle for ethanol are roughly the same as that produced by petroleum-based fuels... These emissions add up."

This information is so ignorant and so naive that it's hard to believe you took the time to use it. To begin with, if you want to see the difference in emissions advantage of ethanol versus gasoline, just watch either or both of these short YouTube videos:

David, you say that in order to get the full sense of environmental effects that you have to calculate in all the ancillary aspects of ethanol production. Did you not know and understand that gasoline and diesel fuel production also have ancillary aspects that affect the environment? Do you think that gasoline just comes straight out of the ground and goes right into the fuel pumps at filling stations all around America and the world? Didn't you know that crude oil, gasoline and diesel fuel also has to be hauled from point to point to point to point?

And didn't you know that America has engaged in several wars to defend the oil industry around the world, and that these wars have cost us hundreds of thousands of lives in addition to untold environmental damage? Talk about emissions that really add up!

You may feel I have been nasty in how I have communicated this information to you. However, all I did was to match your tone. In order for you to have gone out of your way to put together so many conspicuous lies and exaggerated statements is a terribly nasty deed. All things considered, I think I've actually been very kind to you.

Please respond. Please offer additional nonsense that you know nothing about. And please do share this letter with Richard Rahn and all your contacts in the petroleum oil industry. I would challenge you and your friends to a public debate, but I know you don't have the guts to accept.

Have a great week and Easter holiday.