"Tangled in the Branches" (11-7-06)

By Rick Tolman
NCGA CEO

One fine summer day some years ago, I asked my teenage sons to put their muscles to use in removing a large shrub from our front-yard flower bed. The shrub had many branches, but also large, deep roots. When I came home from work that evening, they were tired and sweaty and proud to show me that the shrub was gone. It was gone, all except for the roots. They had trimmed and cut the branches down to the ground level. But, I could see that the large roots were still there. I knew that the shrub would just grow back up from the roots and that the real job was digging the roots out. So, the next day, pick and shovel in hand, I directed them back to the job, which with newly gained wisdom and experience, they got done.

I think the current national media views on ethanol provide a good parallel with the roots and branches story above. Like my sons, the media are focusing on the periphery of the issue and not the central root issues. Some media criticize and point out perceived weaknesses without suggesting solutions.

Roots

Why are we working to build a domestic biofuels industry? The root issues seem very clear:

• Make ourselves less dependent on imported oil, thus addressing significant national security vulnerability. Key words: volatility, shortage, terrorism, price manipulation.
• Address the growing negative environmental issues associated with our use of fossil fuels. Key words: global climate change, air pollution, carbon dioxide.

Is ethanol the only solution to these issues? Certainly not, but ethanol can be a significant part of the solution.

Dr. Bruce Dale of the Chemical Engineering Department at Michigan State University recently calculated that ethanol had a liquid petroleum replacement value of 20:1, meaning that every unit of liquid petroleum energy invested in producing ethanol returned 20 units of energy in the form of ethanol.

Keith Collins, chief economist at USDA, recently said, “Since 2000, ethanol has met over 30 percent of the increase in gasoline demand. So I ask you to imagine, if 30 percent of the marginal gasoline demand over the past five years did not come from biofuels, what might crude oil refining margins and gasoline imports look like?”

Clearly ethanol is doing a significant part in addressing fuel concerns.

There is little controversy among environmentalists, policy-makers and regulators that ethanol is significantly more environmentally friendly than petroleum. E85, in particular, is championed by environmentalists as a fuel of choice for its environmental footprint and favorable attributes. Argonne Laboratories estimated greenhouse gas reductions resulting from ethanol used in the United States last year had the impact of taking 1.18 million vehicles off of the road.

Branches

E85 has come under recent focus and criticism from the oil industry, Consumer Reports and others as not delivering or not being sustainable in the marketplace. In the context of the “root” issues above, it clearly delivers and can and will be sustained. But, let’s take a look at the “branches” critics have gotten tangled in:

• Not enough pumps and stations sell E85 to conveniently fill up. A true statement. We could easily solve this one by doing like Brazil did and mandate that every station sell ethanol and the job would be done. Meanwhile, as marketplace demands and incentives drive expansion of the number of pumps and stations, hopefully critics will remember the reason vehicles that operate on E85 are called “flex fuel” is that the they have the “flexibility” to use E85 or gasoline or any combination of the two, thus no penalty to the driver and no downside, from a fuels perspective, to operating one. If E85 is available, use it. If not, you have the “flexibility” to fill up on gasoline. This is not an issue.

• E85 is too expensive. In June, I reported on an experience of filling up on E85 at a number of different locations during one week. The price I paid ranged from a high of $3.22 to a low of $2.30. At the time, $3.22 for E85 was considered expensive and $2.30 was considered “cheap.” Yesterday I filled up with E85 in St. Charles, Mo., for $1.99 a gallon. Is $1.99 “expensive” or “cheap”? The answer is relative: how does it compare to the price of gasoline? Is this how we should be measuring?

Look again at the two “root” issues. From January 2005 until today, the national average retail price of gasoline has ranged from $1.82 a gallon to $3.12 a gallon – a $1.30 range. Is there a cost to volatility? What will the price of gasoline be a year from now? Vinod Khosla, a large investor in the ethanol industry, has said publicly that he will contract to sell E85 at $1.99 a gallon and commit to a multiyear contract. Is there value in price stability? At what price is E85 “cheap” or “expensive”?

• Mileage penalty. Yes, a gallon of ethanol has less energy content than a gallon of gasoline. However, ethanol has higher octane and generates more horsepower than a gallon of gasoline. Current engines can be “tuned” to take advantage of ethanol attributes and offset some of the “mileage penalty.” New engines can be optimized at the factory level for ethanol and the mileage penalty can be turned upside down, working in ethanol’s favor. The Saab 9-5 BioPower, for instance, is a vehicle designed to burn E85 that gets great mileage and superb performance. In addition, newer biofuels like biobutanol are being tested that have a higher energy density than gasoline and provide better mileage. See the “roots” again. Just how much of a constraint should we let the “mileage penalty” be?

The reality is the United States is addicted to oil and more than 60 percent--and climbing--of our oil is imported. We spend more than $20 billion per month importing oil. Many of those petroleum dollars are turned around and fired right back at us by financing terrorism. Jim Woolsey, former CIA director, has said the war on terrorism is the first war since the Civil War where the United States is financing both sides.

Ethanol and E85 are partial and potentially significant solutions to the large and real issues we face in the United States with respect to oil addiction. Let’s focus our discussion on the “root” of the problem rather than letting ourselves get “tangled in the branches.”