Dallas Is Banking On Ethanol, But Is It The Fuel Of The Future Or A Barrel Of Pork?

Flex vehicles, it turns out, are sweet for U.S. automakers. They've manufactured more than 5 million of them since the late 1990s (6 million flex vehicles are currently rolling on U.S. roads, according to the National Ethanol Vehicle Coalition). The reason? Automakers collect fuel economy credits good toward calculating federal Corporate Average Fuel Economy (CAFE) fleet standards (27.5 mpg for cars, 21.6 mpg for light trucks). The flex fuel trucks are awarded a higher mileage rating so the automakers don't get penalized for heavily weighing their light truck fleet with large SUVs—the theory being that putting more ethanol vehicles on the road will be a good thing vis-à-vis oil consumption and the environment. (Automakers are penalized if the average fuel economy of vehicles they sell dips below the federal standards.) These credits roughly translate into a fuel economy rating 1 2/3 times the actual gasoline rating—a calculation based on the assumption a flex vehicle will run gasoline half the time with the remaining half run on E85. So, as Consumer Reports notes, a conventional Tahoe rated at 21 mpg is rated at 35 mpg for the flex vehicle, even though the vast majority of these vehicles will never burn a drop of E85. Essentially, automakers can manufacture a surplus of guzzling, high-profit SUVs and market them as fuel sippers.

Consumer Reports' findings were sobering. They discovered that while a vehicle fueled by E85 created fewer emissions than one running gasoline, it suffered dramatic losses in fuel economy: from 21 to 15 miles per gallon on the highway and from 9 to 7 miles per gallon in the city. The Tahoe's range dropped from 440 miles per tank of gasoline to 300 miles for E85.

While the flex fuel vehicle running on E85 didn't suffer significant losses in acceleration, it was more costly to operate because of the mileage losses. Consumer Reports calculated that the average August 2006 E85 pump price of $2.91 per gallon translated to $3.99 when compensating for the mileage loss—if you can find E85, that is. At the time of the report there were just 800 out of 176,000 gas stations nationwide selling the fuel (the National Ethanol Vehicle Coalition reports that number now exceeds 1,000) with most located in the upper Midwest close to where corn is grown and most ethanol is refined. According to the Renewable Fuels Association, there are 106 ethanol refineries with a total production capacity of 5.1 billion gallons, with another 45 plants and 3.5 billion gallons of capacity under construction. Plants like those being built by Panda Energy and White Energy could dramatically change the availability, but probably not the cost.

Corn-based ethanol is "pure boondoggle," says Sterling Burnett of the Dallas-based National Center for Policy Analysis.
Mark Graham
Corn-based ethanol is "pure boondoggle," says Sterling Burnett of the Dallas-based National Center for Policy Analysis.
Digging for coe pies: Panda Energy Vice President Kyle 
Woodruff, CEO Todd Carter and COO Darol Lindloff break 
ground on Panda's manure-powered ethanol plant.
Digging for coe pies: Panda Energy Vice President Kyle Woodruff, CEO Todd Carter and COO Darol Lindloff break ground on Panda's manure-powered ethanol plant.

Simply put, ethanol is an expensive fuel to produce and distribute. To offset these costs, taxpayers kick in a 51-cent-per-gallon tax credit that, along with various state tax incentive programs, runs up a national tab of more than $2 billion per year, according to The Wall Street Journal. That's on top of the $3.6 billion per year taxpayers cough up to subsidize corn growers, who in 2005 unloaded 14.4 percent of their crop to ethanol refiners.

But White Energy's Kuykendall insists that corn-farming subsidies are meaningless to the ethanol equation. "The farmer is getting the subsidies whether he sells his corn to an ethanol plant or he sells his corn to somebody who's making food with it," he says. "So I think that's an irrelevant discussion. It has nothing to do with the ethanol industry...From our perspective, if you can produce something here in the U.S. that eliminates a need for foreign is an advantage to the U.S."

But there are other costs. Last June, The Wall Street Journal reported the ethanol boom was exerting upward pressure on corn prices, adding costs to everything from foods flavored with corn sweeteners to cattle, hogs and chickens fattened with corn feed.

Then there are the logistical challenges. It can cost gas stations up to $200,000 to install pumps and tanks to handle E85, though that is somewhat offset by a 30 percent tax credit up to $30,000 tucked in the Energy Policy Act of 2005. And because of its corrosiveness and affinity to water, ethanol can't be shipped through existing fuel pipelines to terminals. It must be shipped via rail, barge or truck and stored in separate tanks before it is "splash" blended directly into gasoline trucks, generally in a mix of 90 percent gasoline and 10 percent ethanol, or E10.

Such logistical challenges caused severe supply disruptions earlier this year when there was a switch in gasoline "oxygenates," fuel additives that reduce carbon monoxide emissions. For years Congress has required the use of oxygenates such as ethanol and methyl tert-butyl ether (MTBE)—a substance blended into gasoline at low levels since 1979 as an octane booster to replace tetra-ethyl lead. But since 1992, MTBE has been sloshed into gasoline in higher concentrations in some areas to economically fulfill mandated oxygenate requirements. Being in the thick of the Corn Belt, the Midwest has long relied on ethanol to fulfill this role, but because ethanol is expensive to handle and ship, areas such as the East Coast and Texas relied on MTBE, as it can be easily blended into gasoline and shipped through existing pipelines.

Then in 1995, traces of MTBE were discovered in tens of thousands of water wells across the country. Though MTBE is not classified as an environmental hazard or a human carcinogen and its health risks are debatable, it ruins the taste of water in low concentrations. As part of the Energy Policy Act of 2005, Congress imposed a huge new ethanol mandate while denying liability protection for MTBE producers; hence most oil companies abandoned the additive last May.

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