Friday, August 28, 2009

Easy Way to Make a Small Fortune

How do you make a small fortune?

Invest a large one in biofuels.

Biofuels only make sense marginally because of large government subsidies and mandated use. At best they only make a small dent in demand. If all the vegetable oil and animal fats were thrown into biofuel production, it would satisfy less than ten percent of demand. At worst biofuels drive up the cost of food and fertilizers, increase water scarcity, and cause huge tracts of forests and marginal farm lands to be put into crop production.

Although they studiously ignore biofuels enormous negatives, all the problems created by biofuel production – scarcity and rising food costs, wasting water, vast additions of CO2 to the atmosphere from clearing land – are the things that environmentalists have pledged to prevent.

“They have met the enemy, and it is them.”

The Achilles heel of biofuels won’t go away. Whenever the subsidies end, or the price of oil reflects its abundant global supply versus sluggish demand growth, biofuels are a horrible investment. Biofuels are not like oil. Oil is already there. You find it, extract it, process it, and use in a mature infrastructure. Oil production is not labor intensive.

Biofuels don’t exist until they are planted, grown, and harvested, all at great expense and consumption of resources – labor, water, land, fuel – and then are processed in enormous physical plants. When oil prices are at their normal levels, all biofuel production is uneconomical: each gallon is produced at a loss. If taxpayers absorb that loss, the plant stays in production. If not, its investors get their just desserts.

Fools and their monies are soon parted.

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