Gasoline, ethanol and real savings

Carlos Alberto Montaner

In the 16th century, the Spanish Empire -- then the world's most powerful -- miscalculated the real cost of its exploitation of the American colonies and began to dig its own grave.

The crown was dazzled by the river of gold and silver that crossed the Atlantic, and afflicted by a chronic lack of liquidity. It never realized that the economic effort needed to arm the fleets, build monumental military fortifications, fill them with soldiers and create urban centers devoted to the exploitation of remote mines was a ruinous activity, where the investments were infinitely greater than the benefits .

3,500 American lives

The anecdote perfectly illustrates how wrong it is to make decisions on the issue of energy by taking into account only the price of crude oil, compared with the market value of ethanol and other forms of fuel.

What is the cost of maintaining tens of thousands of soldiers ready to intervene in the Middle East if the Saudi oil pipelines shut down? What was the cost of the First Gulf War (1990), unleashed by the Iraqi ambition to seize the Kuwaiti oil fields? Wasn't that ill-resolved conflict the preamble to the Second Gulf War (2003), which has already swallowed $500 billion and 3,500 American lives?

U.S. dependence on imported oil has an extremely high cost and places the nation's stability in the hands of unreliable countries such as Iraq, Venezuela, Nigeria, Russia or Saudi Arabia.

Have we forgotten the voracious destruction of capital on Wall Street, the inflation, the brutal rise in interest rates, and the recession provoked by the oil crisis in the early 1970s? Why expose ourselves to another, similar catastrophe?

Aside from that argument, which seems the most important, the massive consumption of ethanol, especially ethanol obtained from sugar cane, appears to be a much more reasonable option than gasoline. Ethanol is cleaner and renewable, the energy required to distill it is obtained primarily from burning cane residues, it generates byproducts that can be used as soil nutrients and provides employment for vast numbers of workers.

In Brazil alone, a million workers receive their wages directly from the sugar industry, while 1 ½ million others benefit indirectly. If the United States eliminated the tariffs, and if the sugar-producing countries of the Caribbean (in addition to Brazil) could freely access that market with their ethanol exports, U.S. consumers would benefit, and the producers in the region would see their living conditions improve substantially.

Of course, ethanol -- like everything else in life -- has some drawbacks. Nobody ignores that it is 30 percent less efficient than gasoline, that its growing use requires a modification of car engines and that large stretches of land are required for the cultivation of sugar cane. But the issue before us is how to shed a dangerous dependence that is plagued by hidden costs and potential risks of war.

In the the 16th century, when a fanatical subject of Felipe II, the powerful Castilian monarch, told German banker Fugger that the king of Spain was the most important figure in Christendom, the financier replied with a melancholy statement: ``It's a pity he can't count.''

Felipe not only drove Spain into bankruptcy twice; in so doing, he also liquidated the House of Fugger, at the time the world's wealthiest bankers.

Mayo 15, 2007

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