Audacious Ethanol Hopes?

On April 3, 2006, Illinois Senator and presidential candidate Barack Obama delivered a speech in Chicago titled “Energy Independence and the Safety of Our Planet.”  In it he said:

Obama: Already, some cars on the road have the flexible-fuel tanks necessary for them to run on E85, a cheaper, cleaner blend of 85 percent ethanol and 15 percent gasoline. But millions upon millions of cars still don’t have these tanks. It’s time for them to install those tanks in every single car they make, and it’s time for the government to cover this small cost, which currently runs at just $100 per car.

John Edwards made a similar promise in a speech on May 31, 2007, posting the following on his campaign Web site:

Edwards Campaign Web site: [John Edwards] will create new markets for ethanol by requiring all new cars to run on both gasoline and E85 ethanol, requiring 25 percent of chain gas stations to carry E85, supporting E20 and E30 fuels, and working with U.S. automakers to make efficient and alternative-fuel cars.

It is true that, as of November 2004, there were as many as 6 million vehicles in the U.S. capable of running on E85, compared with approximately 230 million capable of running on gasoline and diesel. Also, Obama’s estimate that it would cost $100 per car to transition them to E85-capable tanks originated with Daniel Kammen, a professor at the University of California Berkeley and director of the Renewable and Appropriate Energy Laboratory. We take no issue there.

But Obama and Edwards leave out the fact that E85 produces significantly fewer miles-per-gallon than gasoline, by about 20 percent to 30 percent. Technology is slowly whittling away at that difference, but pure gasoline and E85 are not equally efficient yet — at least not in cars we can buy. Here’s what the Environmental Protection Agency had to say in October 2006:

EPA: In general, E85 reduces fuel economy and range by about 20-30 percent, meaning [a flex fuel vehicle] will travel fewer miles on a tank of E85 than on a tank of gasoline. This is because ethanol contains less energy than gasoline. Vehicles can be designed to be optimized for E85

E85 vs. Gasoline: Which One Is Cheaper?

Obama claims E85 is cheaper. We ask: Cheaper than what? The latest Clean Cities Alternative Fuels Price Report, which was issued in March and is sponsored by the U.S. Department of Energy, shows the average retail price per gallon of E85 was approximately 20 cents less than that of gasoline, but ethanol was 66 cents more expensive when measured as a per-gallon gasoline equivalent. This is because, as we explained earlier, E85 gets fewer miles to the gallon than gasoline. So when drivers run their cars on E85 they spend more to get where they’re going. 

Clean Cities Report, March 2007: Note that prices for the alternative fuels in terms of cost per gallon equivalent are higher than their cost per gallon because of their lower energy content per gallon. It has been seen, however, that consumer interest in alternative fuels increases as the price differential per gallon increases, even if that differential does not translate to savings on an energy-equivalent basis.

So as gasoline prices rise, ethanol does become the cheaper alternative. But it still isn’t cheaper than gasoline when fuel efficiency is taken into account. The report also stated, however, that owners of some flex fuel vehicles could experience greater fuel efficiency, and cash savings, depending on the type of car they have.

The argument has been made that one of ethanol’s hidden savings to consumers is increased energy security. A March 16 Congressional Research Service report cuts this theory off at the pass:

CRS: Despite the fact that ethanol displaces gasoline, the benefits to energy security from corn-based ethanol are not certain…. Further, as long as ethanol remains dependent on the U.S. corn supply, any threats to this supply (such as drought), or increases in corn prices, would negatively affect the supply and/or cost of ethanol. In fact, that happened when high corn prices caused by strong export demand in 1995 contributed to an 18% decline in ethanol production between 1995 and 1996. Further, expanding corn-based ethanol production to levels needed to significantly promote U.S. energy security is likely to be infeasible.

At this point it would be impossible to increase ethanol production to the levels necessary to significantly impact gasoline imports and increase the nation’s energy security. Other renewable fuels would need to be tapped and inventions introduced to bring about significant change in the amount of gasoline imported by the U.S.

E85, Where Art Thou?

Even if every car could be equipped with flex-fuel tanks, is there enough E85 to go around? Sen. Clinton, who has gone from opposing corn-based ethanol tax incentives to supporting them over the last five years, had the following to say on May 23, 2006:

Clinton: We have an underused resource, American farmland, and rural communities across our country eager to try something new and do their part to help solve our energy problems. Today we have 97 biorefineries located in 19 different states with the capacity to make nearly 4.5 billion gallons of ethanol. Now, over the next 12 to 18 months, we will increase that capacity by 50 percent. And we’re seeing it in New York as we’re seeing it around the country. But think about that: We have the capacity to make nearly 4.5 billion gallons of ethanol, but that is a long way from helping us deal with our gas problems.

It’s true that the U.S. has produced 4.5 billion gallons of ethanol, according to a July 2006 Department of Energy report. But, according to the CRS, total ethanol production accounts for “2.4 percent of gasoline consumption on an energy equivalent basis” even as ethanol production uses 20 percent of the nation’s corn supply. In addition, E85 represents only 1 percent of all ethanol consumption (the other 99 percent, according to a 2006 CRS report, goes toward fuel blends consisting of up to 10 percent ethanol, also called “gasohol”).  With this in mind, a 50 percent increase in biorefinery capacity is merely a drop in the bucket when it comes to replacing the overwhelming amount of gasoline we consume. The CRS report outlines some of the existing barriers to expanded ethanol use:

CRS: [B]arring a drastic realignment of U.S. field crop production patterns, corn-based ethanol’s potential as a petroleum import substitute appears to be limited by crop area constraints, among other factors.

Those “other factors” include limits on ethanol distribution. Gasoline is currently distributed via pipeline. But ethanol, which is more corrosive than gasoline, would eat through the existing pipes, so ethanol is transported by truck or rail-car, an expensive alternative. The fuel pipes can be coated with epoxy or other materials to prevent corrosion, but that would merely be one of many fixes needed. Another problem with ethanol distribution is that the fuel would have to travel from the Midwest to the coastlines for refinement and distribution, whereas gasoline tends to go in the opposite direction. It is possible to fix this problem, but the solution would require additional investments in infrastructure. According to the CRS, modifications to remedy these problems “will likely be expensive, and could further increase ethanol transportation costs.”

But this only addresses ethanol production. What about getting ethanol into our cars? John Edwards had the following to say on his Web site:

Edwards’ Campaign Web site: [A]lthough millions of ethanol-ready cars are on the roads, only about 600 of the 169,000 gas stations have pumps for E85, a blend of ethanol and gasoline. Edwards will require oil companies to install ethanol pumps at 25 percent of their gas stations and require all new cars sold after 2010 to be “flex fuel” cars running on either gasoline or biofuel. The New Economy Energy Fund will develop new methods of producing and using ethanol, including cellulosic ethanol, and offer loan guarantees to new refineries.

The Department of Energy provides a map of the fueling stations currently offering E85. According to that map, there are more than 900 stations offering the alternative fuel and the number is rising. Among the states that have no stations whatsoever are Maine, Rhode Island, New Jersey, New Hampshire and Vermont. States offering less than 10 E85 stations are California, Massachusetts and Sen. Clinton’s home state of New York. It’s worth noting that in New York, the functioning E85 stations are either private, government-only service stations or stations that are in the planning stages and not yet operational. The overwhelming concentration of E85 fueling stations are in Minnesota, which sits in the heart of the nation’s Corn Belt and houses between 300 and 400 E85 fueling stations.

So What About the Oil Companies?

In the same 2006 speech, Obama referred to the role oil companies could play in bringing about increased consumption of renewable fuels:

Obama: Every American should have the choice to fill up their car with E85 at any fueling station. And oil companies should stop standing in the way and join us in making this happen. If the big oil companies would devote just 1 percent of their first quarter profits this year to install E85 pumps, more than 7,000 service stations would be able to serve E85 to hungry motorists.

The CRS reported in March that a new ethanol pump could cost $100,000 to $200,000 dollars. The Senator, however, was considering three different ranges of costs for refurbishing existing pumps, as opposed to building new ones. The first figure, cited by the National Ethanol Vehicle Coalition, put the cost at $5,000 per pump. The second came from the Illinois Corn Growers Association, which gave a range of $2,000 to $8,000. The final figure came from the Renewable Fuels Association: It cited a price range of $15,000 to $30,000. It should be noted, however, that each of these organizations represent groups and individuals with a vested interest in increased ethanol production.

But Obama claims oil companies are “standing in the way” of increased ethanol production. The Senator appears to be referring to oil companies’ plans last year to increase gasoline refinery capacity in the U.S. a move that had the potential to help lower gas prices. But, according to the New York Times, the plans were all but scrapped when the president proposed significantly increasing renewable fuels production in his 2007 State of the Union address. The New York Times quotes John D. Hofmeister, the president of Shell Oil Company, explaining the reason for this change:

Hofmeister: If the national policy of the country is to push for dramatic increase in the biofuels industry, this is a disincentive for those making investment decisions on expanding capacity in oil products and refining…. Industrywide, this will have an impact.

These developments lead many to believe that the oil companies are intentionally delaying investments in extra refining capacity to keep gas prices high, though we could find no conclusive evidence that intentional market manipulation is taking place.

Still, even if the oil companies immediately began giving 1 percent of their profits toward the installation of E85 pumps, other obstacles are significant.

We do not dispute that ethanol along with other renewable fuels such as methanol and biodiesel have the potential to play a significant role in moving the U.S. away from foreign oil consumption and lessening greenhouse gas emissions. But ethanol has a long way to go before the campaign promises made by Clinton, Edwards and Obama can be fulfilled.