Ethanol or Gas?

By Bill Siuru, JR.
Millions of clean-running alternative fuel vehicles are plying American roads, ready and waiting to fill their tanks with ethanol fuel. These are flexible-fuel vehicles, or FFVs, marketed by Ford, General Motors, DaimlerChrysler, Isuzu, Mazda, and Mercedes-Benz since the late 1990s. FFVs are so-named because they can operate seamlessly on any mixture of E85 (a blend of 85 percent ethanol and 15 percent unleaded gasoline) or straight unleaded gasoline from the same tank.

Ethanol, or ethyl alcohol, is a clean burning fuel typically produced from corn, although other grains like wheat or barley can also be used. These feedstocks are abundantly available in this country. Besides its advantages as a renewable and domestically available biofuel, ethanol combustion in engines also results in modest reductions of harmful hydrocarbon and benzene emissions, as well as reduced carbon dioxide, a greenhouse gas.

Hmmm… domestically produced by American farmers and producers, lower emissions, and a huge number of vehicles with tanks a-waiting. So why is there such a monumental disconnect that finds millions of FFVs on the highway and only about 175 stations nationwide where drivers can fill up on E85?

This dichotomy is good example of what can occur when technology outpaces society’s ability to apply its use, in this case primarily due to economics and, unfortunately, politics. It’s also an example of how government incentives and subsidies can have unintended consequences. Lessons learned from the FFV experience should be examined and applied as the nation embarks on a path that will find us potentially using a much more technically challenging and expensive alternative fuel: hydrogen.

The dilemma can be traced directly to the Alternative Motor Fuels Act (AMFA) passed by Congress in 1988, a law that gives automakers incentives to develop and market vehicles that use fuels other than gasoline. Manufacturers can receive a credit of up to 1.2 miles-per-gallon for each FFV produced that can be applied toward meeting their Corporate Average Fuel Economy (CAFE) requirements. Unfortunately, there is no corresponding incentive to encourage development of a refueling infrastructure, which brings us to the nearly nonexistent E85 refueling infrastructure today.

Establishing an E85 infrastructure presents a significantly larger challenge than getting engines to run well on E85. Since alcohol fuels like ethanol cannot be moved readily through existing petroleum distribution pipelines, it must be transported by barge, rail, or truck. Contrasting this, modifying an engine to run on E85 is not that difficult, requiring a fuel sensor for detecting the real-time ratio of ethanol to gasoline being supplied to the engine at any given point in time and optimizing engine and fuel settings for this mixture. Items like stainless steel fuel tanks, Teflon-lined fuel lines, and modified injectors must also be used to ensure compatibility with ethanol since it’s a much more corrosive fuel than gasoline.

From a vehicle standpoint, the AMFA incentive is a resounding success. Manufacturers driven by the additional CAFE credits made more than a million FFVs last year and expect to produce twice as many in 2004.

Chevrolet Silverado, 5.3-liter V-8
Chevrolet Avalanche, 5.3-liter V-6
Chevrolet Suburban, 5.3-liter V-8

Chevrolet Tahoe, 5.3-liter V-8
Chrysler Sebring, 2.7-liter V-6
Dodge Caravan and Grand Caravan, 3.3-liter V-6

Popular models that can run on gasoline or E85 range from the Ford Explorer and Chevrolet Silverado to the Dodge Stratus and Mercedes-Benz C320. These vehicles are available in many, but not all, states, so check with your local dealer or your dealer’s fleet department to confirm availability in your area.

Still, while the vehicle end is a success, all this has not accomplished the AMFA’s primary intended goal of reducing the nation’s dependence on imported oil, not to mention significantly decreasing C02 emissions. According to the National Highway Traffic Safety Administration (NHTSA), extending these credits without expanding the availability of E85 actually increases petroleum consumption and greenhouse gas emissions. That’s because FFVs operating almost entirely on gasoline effectively decrease the CAFE for this FFV fleet by about 1.2 mpg. The credits given for the unused ethanol equates to somewhere between 20 to 56 million additional barrels of oil used annually.

Dodge Ram, 4.7-liter V-8
Dodge Stratus, 2.7-liter V-6
Ford Explorer, 4.0-liter V-6

Ford Exlporer Sport Trac, 4.0-liter V-6
Ford Taurus, 3.0-liter V-6
GMC Yukon, 5.3-liter V-8

Several solutions to this so-called CAFE loophole have been proposed. One calls for Congress to amend the existing AMFA law to only allow CAFE credits when automakers can certify that their AFVs actually use the alternative fuel. In effect, though, this would penalize the auto industry unfairly since automakers have done their part in developing and marketing FFVs. This strategy could potentially sour automakers’ interest in all AFVs and drastically reduce future investment in other fuel alternatives including hydrogen.

Additionally, if automakers no longer have incremental CAFE credits as an incentive for producing FFVs, they will most certainly stop making them since the incremental cost of making FFVs is now being absorbed in return for the CAFE credits. A more viable solution may be incentives for fuel providers to ensure that adequate fueling facilities are readily available anywhere AFVs are sold. Potentially, this could be federal income tax investment credits for each new alternative fueling site, which would cover most of the cost and thus make establishing these fueling sites attractive.

The infrastructure problem is com-pounded because ethanol is not a petroleum-based product, thus the petroleum industry has shown little interest in offering it. Indeed, ethanol is viewed as a competitor. In the U.S., three producers dominate the ethanol market and the largest, Archer Daniels Midland, controls nearly 40 percent of that market. Because there are so few producers, some fear the potential that supplies could be artificially limited and prices potentially manipulated upward. Additionally, an unintended consequence is that food prices could increase if it turns out that it’s more profitable to convert farm products to fuel rather than food.

GMC Yukon XL , 5.3-liter V-8
GMC Sierra, 5.3-liter V-8
Mercedes-Benz C240 Sedan and Wagon, 2.6-liter V-6



Mercedes-Benz C320 Sedan and Coupe, 3.2-liter V-6
Mercury Mountaineer, 4.0-liter V-6
Mercury Sable, 3.0-liter V-6

The ethanol lobby carries substantial clout in Washington and so has been able to obtain subsidies that distort the true market price of this alternative fuel. Since 1996, crop subsidies alone have been worth nearly $30 billion to the ethanol industry. Ethanol opponents make the case that these subsidies are taking money from taxpayers and giving it to the few ethanol producers, and thousands of corn farmers, without replacing any petroleum or even providing a cleaner fuel. Since ethanol receives a tax subsidy, a gallon of ethanol is taxed 5.3 cents less than a gallon of gasoline, which means that less tax revenue is funneled into the Highway Trust Fund for repairing and replacing roads and bridges. On the other hand, ethanol proponents suggest that with military assets protecting the flow of imported oil, the true price of gasoline is significantly distorted as well.

In use, most people will not be able to discern the difference between driving on E85 and regular gasoline. While ethanol does produce fewer BTUs (less energy) than gasoline, it has a significantly higher octane rating than un-leaded gasoline (100-105 octane versus 85-90). Testing of Ford FFV engines show about a 5 percent increase in horsepower when operating on E85. However, offsetting this is that drivers will notice a 5 to 15 percent decrease in fuel economy, depending on ambient temperatures and driving conditions.

This disparity could be improved if FFVs were optimized for E85, which is presently not the case – another consequence of the absence of E85 availability. Because of lower miles-per-gallon and the now higher per-gallon cost for E85, vehicle operating costs will go up. Currently, ethanol demands higher pump prices because this alcohol fuel is more difficult for refiners to blend with gasoline and also more expensive to ship into areas where corn is not grown.

What could make E85 the fuel of choice for motorists in the absence of government mandates? The best answer is the economics of the marketplace. If the price of gasoline climbs to a point where it equals or exceeds E85, drivers will soon be demanding E85 for their FFVs and traditional fuel suppliers will see a profit in meeting the demand. Such interest could be accelerated by an oil shortage such as a disruption of oil from the Mideast, something this country has seen before.

In a sense, you might even say the millions of FFVs on American roads today are as much an emergency energy resource as the millions of barrels of oil in the nation’s Strategic Petroleum Reserve. That’s food…or rather, fuel…for thought.