This lecture discusses the economics of energy and bioethanol. It introduces bioethanol as an alternative fuel and covers its current regulation and costs. A key issue discussed is the interconnectedness of the food and fuel markets, as increased demand for crops from the bioethanol industry can raise food prices. The lecture presents arguments from both a supply side and demand side perspective on how this effect occurs and the resulting higher food and lower gas prices. It questions whether the social costs of pollution are offset by bioethanol and what other alternatives may exist.

1. Energy: Bioethanol
LECTURE ON THE ECONOMICS OF ENERGY

2. Why does Energy matter?
National Security Issues
Continued decline in energy reserves

3. What actions have been taken?
Incentive building for alternative fuels
Creation of alternative fuels
Model Redesign

4. What fuels are currently available?
Biodiesel
Ethanol
Electricity
Hydrogen
Natural Gas
Propane

5. Costs of Biodiesel

6. Costs of Ethanol

7. Costs of Electric Cars:

8. Costs of Hydrogen

9. Bioethanol
What is Bioethanol?

10. Current Ethanol Regulation
Clean Air Act
1977 Amendments
1990 Amendments
Fuel Additive and Fuel Registration
E15 Registration
E10 Regulation
E15 Regulation

11. Offsetting Costs
Net Gain in Consumer Welfare (Assumed)
Incentives (Federal Incentives)

12. Additional Costs: Agricultural Issue
Interconnectedness of Food Market and Fuel Market
Raises costs of crops
Commonly seen as a demand issue

13. My Question
Question: Is bioethanol a viable and good solution?
Viable: Sustainable
Good: Increases net social welfare
Terminology:
Hectare
Land Grabs

14. Supply Side Approach (My
Argument)
S’ S
Bioethanol is another industry and has
different costs.
The supply curve is also the marginal
cost curve of an industry
Incentives for Land Grabs by ethanol
corporations
Land Grabs reduce supply of land for
agricultural purposes D

15. Demand Side Approach (Consensus)
Bioethanol increases demands for S
certain crops
Agricultural food suppliers also supply
fuel industries with crops
No division in suppliers between
markets, entirely a demand issue.
D D’

16. What does this result in?
Higher Food Prices
Lower Gas Prices (My Argument)
Evidence?
Food Crisis of 2008
 GFRP

17. Is this worth it?
Do the social costs of pollution offset the resulting costs of bioethanol?
What are the alternatives?

18. Questions?