As a relatively pragmatic person who generally chooses the imperfect-yet-achievable path rather than agonizing over the perfect-but-unattainable goal, this chart [from a fascinating Boston Consulting report, in PDF here]  frustrates me. I understand why Americans choose hybrid-electric cars as their most favored “green car” technology, but from their it gets fairly crazy. EVs are fantastic on paper, but in the real world they’re still far too expensive, their batteries degrade, they have limited range, oh and did I mention that they’re freaking expensive? Biofuels, America’s third-favorite “green” transportation technology can be fantastic in certain limited applications, but the ongoing ethanol boondoggle proves that it will never be a true “gasoline alternative.” Finally, at the bottom of the list, Americans grudgingly accept only relatively slight interest in the two most promising short-term technologies: diesel and CNG. Neither of these choices is radically more expensive than, say, a hybrid drivetrain and both are considerably less expensive and compromised than EVs at this point. So why are we so dismissive of them?

And here’s how deep the irony goes: America is, apparently, far more sensitive to lifetime costs, and is particularly concerned with upfront costs. So if 56% of Americans are not willing to pay any extra upfront for a “green car,” and only 38% are willing to pay more upfront if it pays off over time, why do 64% claim to be interested in EVs? After all, the battery-powered cars that are currently on the market cost considerably more upfront (on average) than comparable hybrids, diesels and CNG cars. Even the most hard-core EV fans admit that buying an electric car now makes no financial sense, and even hybrids must be driven a huge number of miles to pay off its upfront premium compared to a comparable gasoline or CNG car. American consumers had some of the highest “don’t understand” response rates across the board, but when you break down the data you can’t help wondering if there should have been a few more.

But don’t blame Americans. After all, we’re so well-protected from our energy externalities (a topic I covered recently when I called for a serious push to increase gas taxes), that we couldn’t possibly be expected to know or care about fuel-efficient technologies as our $8/gallon-paying bretheren across the pond and around the world. As this chart shows, the US government lags other developed nations and regions in its fuel economy standard… but even this isn’t the real story. After all, the current argument being made by automakers is that they will be forced to put more cost into future CAFE-compliant cars which consumers will not find worthwhile if gas prices don’t rise. Which brings us back to the real issue:

The problem, it seems, is that America still sees “fuel efficient” cars and “green” cars as being fundamentally different. Just look at the rise of high-priced cars that are green for the sake of being green, and offer no chance paying back their additional costs compared to comparable cars that are simply “fuel efficient.” Fisker’s Karma is “green,” while a 335d is “fuel efficient.” Chevy’s Volt is “green” but the Cruze Eco is merely “efficient.” Tesla’s Roadster is “green” but a Lotus Elise is amazingly efficient. I could go on, but the point should be fairly clear: because “green” has become such an aspirational marketing trope, and because we are still so insulated from the price motivation that drives nearly everyone else on earth to save fuel, we can’t even evaluate the “green car” options out there in a way that makes any sense. In my mind, this is a troubling sign of the market failure that comes from hidden externalities… and as a believer in market solutions, I hope American consumers can start looking at alternative drivetrains with more objectivity in the near future.

Cracks continued to in the ethanol industry’s once-impregnable political vanguard, as the San Francisco Chronicle reports that the Senate has voted to roll back the Volumetric Ethanol Excise Tax Credit (VEETC) as well as import tariffs on foreign-produced ethanol. This rollback of multi-billion-dollar ethanol credits failed earlier in the week, when the Detroit News reports automakers came out in opposition of a bill that would have required that 95% of all cars built in the US be capable of running 85% ethanol by 2017. The Senate did fail to pass a repeal of a government ethanol blending mandate that underpins the VEETC, however, and funding is moving forward for ethanol blending pumps. Still, the Senate’s repeal of VEETC alone means taxpayers could save over $5b per year on subsidies, and as one expert puts it

“Looks like we’re going to be relying on the biofuels mandates to make sure blenders use biofuels, rather than bribing them to use it with $6 billion,” [Bruce Babcock, professor of economics and the director of the Center for Agricultural and Rural Development at Iowa State University] said.

In fact, Babcock thinks killing the subsidy could help ethanol because it would come out from the stigma of being a subsidized industry. And removing the subsidy may strengthen support for the mandate, and the tariff on imports.

Over to you, House of Representatives…

TTAC has paid close attention to the fortunes of ethanol in the United States, where grossly wasteful subsidies have forced the corn-derived fuel into the fuel supply in growing percentages, drawing backlash from small but vocal portions of the population. But much of the ethanol ire is directed at higher blends like the recently-approved E15 and the increasingly-unpopular E85 mixtures. Meanwhile, most Americans regularly fill up their tanks with E10, which has become standard at pumps across the nation. But in Germany, where E10 was only just introduced, people are rejecting the low-ethanol blend that even the most vocal American ethanol opponents use every day. Initially, the biofuel industry in Germany blamed a lack of education for suspicion of E10, but according to Autobild, some 75 percent of German drivers now know whether their vehicle takes E10 (and most do)… but still, only 17 percent actually chose E10 for their last fill-up. And only 39 percent who know for a fact that their car can take E10 have ever used the ten-percent ethanol fuel. Why? Despite the high level of education, 52 percent of respondents still feared motor damage from the ethanol. Another 50 are opposed to “filling up with food.” Sometimes the more you know about something, the less you like it.

Yesterday evening I directed some ire at President Obama’s continued reliance on ethanol as a major plank of his do-nothing transportation/energy agenda, noting

That extra money for 10,000 E15-capable pumps? That’s because no gas station owner will pay to install a pump for a kind of fuel that only cars built since 2001 can use… and which the auto industry has tried to ban. And why E15 in the first place? Because blenders can’t sell enough E10 to blend the government-mandated amount of ethanol and collect their $6b this year in “blender’s credits” to do so. A subsidy to support a subsidy which in turn props up yet another subsidy (I may have missed a subsidy in there somewhere). You can’t make this stuff up.

The “cornerstone” subsidy that all other ethanol subsidies support is the Volumetric Ethanol Excise Tax Credit, or VEETC, or “blender’s credit,” a $6b per year subsidy that directs 45 cents to refiners for every gallon of ethanol they blend with gasoline. The VEETC nearly died in December’s lame duck session, only to be revived as a way to buy votes for the President’s tax policy. Now, however, The State Column reports that a bipartisan Senate bill has been introduced that would eliminate both the VEETC and import tariffs on foreign-made ethanol. And with a rash of bad news coming out about ethanol, this could just be the opportunity to kill this wasteful government subsidy with fire.

Where to start with the myriad reasons to end government support of a fuel that has done little besides replacing High Fructose Corn Syrup as the number one “stealth subsidy” for the agricultural business? Let’s begin with news that proves the futility of underwriting this failed fuel, namely the Detroit News‘s report that ethanol production actually dropped 1.5% last year, despite the billions in subsidies it receives. Just as the VEETC needs subsidies in order to stimulate market demand for the fuel blends it already subsidizes, this dispatch proves that no amount of government money is a substitute for organic market demand. If the government needed an excuse to cut bait, this should be enough.

Another sign that ethanol subsidies have reached the limits of their efficacy: a report from GreenCarCongress, showing that 75% of all hybrid and AFV (alternative fuel vehicles) in the US are E85 “flex fuel” vehicles. That’s a sign of success you say? Think again. E85 consumption in 2009 only hit 71,213 thousand gasoline-equivalent gallons, which means each “green” flex fuel vehicle uses about 1/10th of one gallon of E85 per year. So even if people (or governments) buy flex fuel cars, they still choose not to run E85… which is no surprise, given that E85 regularly returns worse fuel economy. Unfortunately, the government’s ethanol blending mandate will basically require a huge sift back to E85 in order to work, so once again the government is trying to subsidize through a brick wall.

And as discouraging as these short-term signals are for the government’s attempts to create a sustainable ethanol industry (if, in fact that was the goal of ethanol subsidies), when stacked against the long-term costs one gets a real sense of the waste involved. According to a new book published by Stanford’s Hoover Institute,taxpayers will have spent “nearly half a trillion dollars” between 2008 and 2017 on a fuel that nobody wants to use. That’s right, Five Hundred Billion Dollars, or enough for more than ten auto bailouts (assuming zero payback). And while we spend $6b this year on the VEETC en route to that staggering price tag, the head of the Renewable Fuel Association still has the gall to whine that “the future of biofuels is tied to the price of oil.” Anyone else just throw up a little bit?

But despite all these signs that ethanol subsidies are accomplishing nothing at a huge cost, this new bill to eliminate the VEETC and ethanol import tariffs is no sure thing. Remember, far more than being about the environment or energy security, ethanol is about politics… namely the fact that Iowa is a key early presidential primary that no candidate wants to lose. Even the arch-Greenie Al Gore himself admits that he “regrets” his support for ethanol, but

One of the reasons I made that mistake is that I paid particular attention to the farmers in my home state of Tennessee, and I had a certain fondness for the farmers in the state of Iowa because I was about to run for president

With a presidential election looming in 2012, any efforts to kill ethanol subsidies will be met with stiff opposition from grandstanding presidential hopefuls, hoping to steal the Iowa primary. Here’s hoping that, for once, policy actually trumps politics.

President Obama devoted his weekly address to energy and transportation policy this week, speaking to the nation from an Allison hybrid bus transmission plant in Indiana. A White House blog post accompanying video of the President’s speech included a large infographic on “The Obama Energy Agenda And Gas Prices,” the transportation-oriented section I’ve excerpted above. This one section is actually a fairly good representation of Obama’s auto-related energy policy preferences, and illustrates why I often find myself criticizing the president here at TTAC.

One half of the graphic is devoted to electric vehicles, which it shows becoming rapidly cheaper without offering any sourcing for the numbers (Churlish cynicism, you say? Sadly, a little cynicism is called for when it comes to the White House and EVs). The numbers actually come from this DOE report [PDF], published last summer, which cites the DOE’s Vehicle Technology Program and assumes 100 mile range and 3 miles per kWh is a “typical battery.” Because the industry uses $/kWh, we’ll call this “typical” battery a 33 kWh unit… and find that the government assumes a 2021 price per kWh of about $150. The 2015 price breaks out to around$300/kWh. For some perspective,  a Boston Consulting Group study released early last year found that

Given current technology options, we see substantial challenges to achieving [the "holy grail" price of $250/kWh] by 2020.

Without a major breakthrough in battery technologies, fully electric vehicles that are as convenient as ICE-based cars—meaning that they can travel 500 kilometers (312 miles) on a single charge and can recharge in a matter of minutes—are unlikely to be available for the mass market by 2020.

Is Obama banking on Germany’s “miracle battery” or is there some other major battery breakthrough that has changed the game in the last year? Sure, Nissan claims to have beat down its Leaf battery costs to $375/kWh, but that was probably only possible due to its risky global tool-up to around 300k units worth of annual battery production scale, from Oppama to Sunderland to Smyrna. Will anyone else bet that big on EV batteries between anytime soon? At this point nobody seems anxious to bet bigger on EVs than Nissan has, making $150/kWh by 2020 seem highly unlikely.

But critics of Obama’s overemphasis on EVs can’t go much farther beyond dismissing his “1 million EVs by 2015″ goal as naive or unlikely to succeed… and ultimately such criticism will only inspire more EV subsidies. It’s the other half of Obama’s transportation “Energy Agenda” that’s the most fertile territory for serious attack. And no, not the “cleaner buses” point… it’s Obama’s reliance on biofuels as the second major plank of his energy strategy that rankles.

Huge swaths of the American business community have joined up with environmental groups to protest the continuing subsidization of ethanol, most recently when the EPA announced the E15 approval Obama trumpets in his infographic. That extra money for 10,000 E15-capable pumps? That’s because no gas station owner will pay to install a pump for a kind of fuel that only cars built since 2001 can use… and which the auto industry has tried to ban. And why E15 in the first place? Because blenders can’t sell enough E10 to blend the government-mandated amount of ethanol and collect their $6b this year in “blender’s credits” to do so. A subsidy to support a subsidy which in turn props up yet another subsidy (I may have missed a subsidy in there somewhere). You can’t make this stuff up.

Finally, we have the “commercialization of cellulosic ethanol,” a red herring that’s been touted by ethanol backers for at least three years now. The latest on that front? A case study posted at energybulletin.net notes

Based upon information provided by the corporation proposing the biorefinery, Frontier Renewable Resources LLC, owned by Mascoma Corporation and J.M. Longyear, I would not consider cellulosic ethanol to be efficient from an energy perspective.

The facility would have 6 boilers rated at 90 million BTU/hour that will operate 24/7 for 347 days per year according to information provided in the U.S. Department of Energy’s (DOE) Environmental Assessment. Converting the BTUs to megajoules, the boilers would generate 4.7 billion megajoules per year of energy that will be used to make ethanol.

The plant is projected to produce 40 million gallons of ethanol/year according to the DOE’s Environmental Assessment and Frontier’s air pollution permit application, which has an energy content of 3.3 billion megajoules of energy. The boiler energy consumed in making ethanol would be 1.43 times more than the energy content of the ethanol that they plan to produce. According to the DOE’s Environmental Assessment, timber harvesting, wood processing and wood transportation would require approximately 3.75 million gallons of diesel fuel per year. When diesel fuel energy use is included in the energy required for the production of the ethanol, the ratio of energy consumed/energy produced increases to 1.59.

Sound good? It had better, because the goal is to build four more or cellulosic”or “advanced” (read: made from anything other than corn) ethanol plants  in order to meet the (recently reduced) cellulosic ethanol blending mandates. Or, not. Remember, by law we have to use 36b gallons of this stuff by 2022, whether it makes any sense or not.

Ultimately, Obama’s transportation “Energy Agenda” is severely lacking in substance in terms of both long-term strategy and short-term policy. Half of the agenda seems to be waiting for EVs to cheapen up, while the other half seems to be not escaping the endless trap of ethanol subsidies (at a time when it such an escape seems most likely). Without trotting out the familiar campaign slogans (as I’m hoping to start a conversation on policy rather than politics), this is hardly the bold, new direction that Obama’s fans and detractors alike seem to expect from him (oh shoot, there’s a political lesson there… please ignore it).  Between natural gas, battery swap infrastructure and (gasp) a gas tax, there are plenty of options in Obama’s toolbox for charting a more daring, effective course for US energy and transportation policy… we’re just waiting to hear something, anything new.

A massive study by the Government Accountability Office into “Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue” has turned up an interesting finding. It seems that the government’s desire to buy more “alternative fuel vehicles” (AFVs) may actually increase the amount of gasoline used by government fleets. Why? Because agencies largely buy E85 ethanol-powered vehicles to fulfill their AFV requirements, and there aren’t enough E85 pumps to actually fuel the fleet, forcing agencies to obtain waivers to buy regular gasoline. Hit the jump for the report’s full findings on this, the latest unintended consequence of America’s ongoing ethanol-subsidy boondoggle.

The GAO report finds to basic contradictions in the government’s AFV-boosting fleet strategy, to wit:

• Increase the use of alternative fuels vs. the unavailability of alternative fuels.Agencies are required to increase alternative fuel use, although most alternative fuels are not yet widely available. Thus, agencies have been purchasing primarily flex-fueled AFVs, those that can operate on E85—a blend of up to 85 percent ethanol and petroleum—or petroleum. However, since E85 was only available at 1 percent of U.S. fueling stations in 2009, agencies are requesting waivers from the requirement to use alternative fuels. According to DOE, in 2010, approximately 55 percent of flex-fueled AFVs received a waiver. Further, some fleet operators indicated they use petroleum without a waiver when alternative fuels are available because it is either more convenient, less expensive, or both.
• Acquire AFVs vs. reduce petroleum consumption. Agencies are required to purchase AFVs, but this requirement may, in some cases, undermine the requirement to reduce petroleum consumption. Virtually every agency has succeeded in acquiring more AFVs, but there have been only modest reductions in petroleum use and modest increases in alternative fuel use, due to the lack of available alternative fuels. As previously stated, the lack of available alternative fuels results in agencies using petroleum to fuel AFVs. In areas where alternative fuels are not available, purchasing more fuel efficient non-AFVs could reduce petroleum consumption more than purchasing AFVs.

Meanwhile, until we hear of specific plans to fix these fundamental issues, expect the waste and non-fulfillment of gasoline use reduction goals to continue, as President Obama recently pledged that every new government fleet vehicle purchase would be an AFV by  2015. E85 is widely considered to be the most common type of government AFV purchase, as they are relatively cheap and more robust for certain government tasks than hybrids and plug-ins. And, as Automotive News [sub] reports, the baseline ain’t great either:

In 2009, Obama’s first year in office, the U.S. government increased gasoline use in vehicles 3 percent from the previous year even as he boosted hybrid purchases to about 10 percent of the federal fleet from 1 percent in 2008, according to data from GSA and the U.S. Energy Information Administration.

Overall government energy use fell about nine-tenths of 1 percent in 2009, the data showed. Figures for 2010 are scheduled to come out later this year.

And if the government is struggling to actually reduce its gasoline use with E85 vehicles, imagine how the rest of the US is doing. After all,

Vehicles that can run on E85 accounted for 37,590 of the 43,750 alternative-fuel fleet vehicles sold last year, according to the Energy Information Administration

Meanwhile, on the other end of the ethanol subsidy complex, the US Comptroller General used his testimony [PDF] to identify domestic ethanol subsidies as an “Opportunity to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue” saying

Congress supported domestic ethanol production through a $5.4 billion tax credit program in 2010 and through a renewable fuel standard that applies to transportation fuels used in the United States. The ethanol tax credit and the renewable fuel standard can be duplicative in stimulating domestic production and use of ethanol, and can result in substantial loss of revenue to the Treasury. The ethanol tax credit was recently extended at 45 cents per gallon through December 31, 2011. The tax credit will cost $5.7 billion in forgone revenues in 2011. Because the fuel standard allows increasing annual amounts of conventional biofuels through 2015, which ensures a market for a conventional corn starch ethanol industry that is already mature, Congress may wish to consider whether revisions to the ethanol tax credit are needed, such as reducing, modifying, or phasing out the tax credit.

Instead, it seems the government is heading in the opposite direction, sinking yet more money into ethanol infrastructure. AN [sub] reports:

A U.S. Agriculture Department program that started in the last two weeks is pushing for 10,000 pumps in the next five years, he said. The U.S. has about 162,000 fueling stations, according to the association.

How things change in a few years! Just a few short orbits of the sun ago, automakers like GM were some of the biggest boosters of ethanol subsidies. Now, the Detroit News reports

The Alliance of Automobile Manufacturers – the trade association representing General Motors Co., Ford Motor Co., Chrysler Group LLC, Toyota Motor Corp. and eight others – opposes a bill sponsored by Sen. Tom Harkin, D-Iowa, that would require 90 percent of all vehicles to run on E85 – a blend of 85 percent ethanol – by the 2016 model year.

Shane Karr, vice president for government affairs, said the mandate “would cost consumers more than $2 billion per year” for flex fuel vehicles if automakers passed on the full cost “even though consumers will have little or no access to alternative fuels. Therefore, such a mandate is essentially a tax with little consumer benefit.”

In the face of this new opposition, the Renewable Fuels Association has even taken to employing the rhetoric of market economics to justify market-manipulating ethanol subsidies. And it doesn’t seem to be convincing anyone. If anything, Harkin’s bill may just hasten the death of existing subsidies, which are under pressure as both Democrats and Republicans seek to trim the federal budget.

The EPA’s decision to allow E15 ethanol in public pumps has been something of a lesson in the way politics can trump common sense. The decision was motivated by intense pressure brought to bear by the ethanol industry, which is facing a serious problem in the form of a “blend wall.” The industry first tried to get the EPA to approve the 15-percent ethanol blend before research was complete, and the agency’s approvals came first for 2007 model-year and later vehicles, and was expanded shortly thereafter to 2001 and later models. In the meantime, a number of industries have come out against E15, suing the EPA to stop the approval and calling for congressional hearings. Now, with few reasons left to support E15 outside of propping up the staggering farm-state ethanol industry and huge portions of the economy coming out against it, the House has voted “overwhelmingly” to ban E15 from America’s gas pumps.

The Detroit News reports that two separate amendments concerning ethanol were approved and attached to the House version of an ongoing funding resolution required to keep government funded. The first would deny funding to any EPA efforts to implement its E15 approval, the second would end a tax subsidy so fuel stations could install pumps that can dispense varying amounts of gasoline and ethanol. Bill sponsor Rep John Sullivan explains

The EPA has completely ignored calls from lawmakers, industry, environmental and consumer groups to address important safety issues raised by the 50 percent increase in the ethanol mandate issued over the past year. Putting E15 into our general fuel supply could adversely impact up to 60 percent of cars on the road today leading to consumer confusion at the pump and possible engine failure in the cars they drive,

Between these bills and the pending lawsuits against the EPA’s approval of E15, the rollout of the fuel blend could well be dead on arrival. Of course, the Senate still must approve similar measures, and farm-state senators could well scuttle the House’s legislative efforts to stop E15. Still, the biofuel lobby is becoming increasingly marginalized by the widening attacks on the legislative and legal fronts. And since the subsidies underlying the whole “blend wall” problem were only barely approved for one more year, we could be moving into the end of times for America’s wasteful experiment with corn-powered cars.

Nothing makes this bloggers day like finding a story that highlights how the world of cars interacts with every facet of our national life… and few stories illustrate the universal impact of cars and fuels like the Atlantic’s recent piece on one man’s attempt to turn Afghanistan’s opium poppy crop into biodiesel. The plan was to help Afghanistan’s poorest farmers use poppy seeds to create biodiesel, but along the way the plan ran into the challenges of diplomacy, bureaucracy, foreign occupation, environmental issues and cultural conflict. In fact, all of the complexity and struggle involved with the military occupation of a foreign country come out in this fascinating piece, which begins:

Back in the fall of 2008, Michael Bester and a business partner, both Army veterans doing contract work in Afghanistan, hit on the equivalent of the counterinsurgency’s trifecta: a way to improve the lives of ordinary Afghans, eliminate the illegal opium trade, and take the Taliban’s money. “We had been in villages where children were dying because they didn’t have proper medicine, because they didn’t have refrigerators,” Bester told me. Light up the villages, and perhaps you could empower Afghans to resist the Taliban. And the fuel? Most any feedstock would work, but one compelling option was the ubiquitous poppies that stoke the Taliban’s lucrative drug trade. Why not turn them into biodiesel instead?

Make diesel, not drugs! Read the whole thing here.

The EPA has followed up its ruling allowing E15 ethanol blends (15% ethanol, 85% gasoline) to be pumped to vehicles built for the 2007 model-year and later, now allowing the corn juice-enhanced gasoline to be distributed to any vehicle built after 2001. EPA Administrator Lisa Jackson announced the decision to Bloomberg arguing

Wherever sound science and the law support steps to allow more home-grown fuels in America’s vehicles, this administration takes those steps

But, as is the case with most ethanol-related decisions, this has more to do with politics than science. After nearly ending the boondoggle known as the “Blender’s Credit,” which pays blenders for every gallon of ethanol they mix into America’s fuel supply, congress relented to lobbyist pressure and extended the $6b per year giveaway for another year. And with that financial incentive in place (along with a “renewable fuel mandate”) but little to no consumer demand to support it, blenders need to find ways to slip ever more ethanol into American gasoline. But, as a recent study proves, even E15 won’t beat the so-called “blend wall”: at best E15 gives the ethanol industry four years of taxpayer-fattened profits before it will be forced to come back and ask the government to yet again increase the amount of ethanol allowed in the gas supply.

Meanwhile, the auto industry that once saw ethanol as a prime opportunity for low-cost greenwashing has made an about-face and is suing to stop the spread of E15, arguing that its effects on engine life haven’t been adequately studied. And because ethanol offers little to no benefits relative to gasoline in terms of environmental or efficiency impacts, the fact that the EPA may be endangering automobile engines in order to keep an oversubsidized industry on (expensive) life support is beyond galling. It’s clear that, with the legislative and executive branches of government held in sway by ethanol-friendly farm states, motorists are now dependent on the court system to do the right thing and end government’s senseless love affair with ethanol.

Recently the ethanol industry has “suffered” from a problem that epitomizes the problematic nature of government subsidies. Known as the “blend wall” this obstacle was created not by negligence on the part of the industry, but by the fact that its lobbying efforts have been far more effective than its marketing efforts. The problem, in a nutshell, is that the 2007 Renewable Fuel Standard mandates a steady increase in the amount of ethanol blended into the national fuel supply, from 9 billion gallons per year (BGY) in 2008 to 36 BGY in 2022… but with gasoline consumption falling and with standard pump gasoline capped at a maximum of ten percent ethanol (recently raised to 15% for vehicles built after 2007), the industry that’s supposed to get America off gas needs more gas to blend its ethanol into. As a study in the American Journal of Agricultural Economics puts it

Total national consumption of gasoline in the United States has been about 140 billion gallons in 2010 and is expected to fall over time due to increasing fuel economy standards. Thus, at present, if every drop of gasoline were blended as E10, the maximum ethanol that could be absorbed would be 14 billion gallons. In reality, 10% cannot be blended in all regions and seasons. Most experts consider an average blend of 9% to be the effective maximum, which amounts to about 12.6 billion gallons. U.S. ethanol production capacity already exceeds this level. Thus, our ability to consume ethanol has reached a limit called the blend wall.

The solution: well, the EPA’s ruling allowing 15% ethanol blends was supposed to fix the problem, but according to this report, that “fix” would only buy some four years before the industry is back to bumping against the blend wall. The solution?

With ethanol as the primary biofuel and either blend limit (E10 or E15), a substantial increase in E85 would be required to fulfill the mandate.

Do you remember E85? A few years ago, automakers like GM were deep into the “Flex Fuel” craze, touting the 85% ethanol blend as America’s opportunity to free itself from foreign oil dependence. But after the so-called “tortilla riots” in which Mexicans protested the rising cost of corn driven up by ethanol (not to mention a growing awareness of ethanol’s environmental costs) GM has become a far less vocal proponent of ethanol, as the Alliance of Automotive Manufacturers has even gone as far as to sue the EPA to stop E15 ethanol blends. And no wonder the enthusiasm for E85 in particular has taken a hit recently: not only does it use the most ethanol, thereby incurring the greatest impacts on food prices and the environment, but the EPA has even stated that

E85 needs to be priced competitively with (if not lower than) conventional gasoline based on its reduced energy content, increased time spent at the pump, and limited availability

And despite the huge government subsidies enjoyed by the ethanol industry, E85 simply isn’t priced anywhere near competitively. But the problem isn’t limited to the issues listed above either: E85 has to be so appealing to consumers that they choose to purchase a “Flex-Fuel” or E85-capable vehicle from the limited models that offer such capability.

Given the blend limits on E10 (or the blend wall), additional ethanol consumption can come from only E85. However, this leads to a new dynamic that further exacerbates the challenge. Unlike E10, which is a derived demand from gasoline, E85 acts as a substitute for E10 in equation. Thus, the effect of increasing E85 is to crowd out some of the ethanol used to blend E10, further lowering the E10 blend wall.

And the blend wall isn’t the only challenge: because E85 must be used to soak up the government’s ethanol mandates, there would also be a pump and Flex-Fuel vehicle (FFV) bottleneck as well. The study concludes that, even with E15 coming from from normal gas pumps

Ethanol in E15 consumption would grow from 13.1 BGY in 2010 to a peak of 19.7 BGY in 2016, before falling to 17.5 BGY in 2022, as the continued growth in E85 once again crowds out the use of the lower-blend fuel. By 2022, there needs to be around 90.4 million FFVs on the roads, served at 236,208 E85 dispensers. The total cost of installation for E85 dispensers and FFVs is $23.4 billion, or an NPV of $8.0 billion for this scenario. Thus, compared with the E10 scenario, the adoption of an E15 blending limit would reduce the consumption of E85 by 6 BGY in 2022 and lessen the demand for FFVs and E85 dispensers. This would save an NPV of $3.1 billion, or 28% of the Scenario 1 E10 NPV.

And who, pray tell, would bear the $8b cost of forcing Americans to buy a fuel they don’t want? Oh, and by the way, the study notes that

the cost estimates provided here are clearly underestimates of total cost

And if E15 is proven to be harmful to non-FFVs, we’re back to “scenario 1″ in which the “underestimated” cost rises above $11b. And all this is necessary only to make sense of a subsidized mandate that will cost taxpayers at least $6b per year next year alone. The ethanol industry has clearly gone down the government subsidy rabbit hole, and it’s time for the madness to stop.

When oil and food industry groups sued to roll back the EPA’s ruling allowing E15 ethanol blends in 2007 and later model-year cars, we concluded

the political tail has wagged the scientific dog on ethanol ever since the farm lobby realized that ethanol could be the next corn syrup. With any luck, this lawsuit could just be the point at which science re-asserts itself.

The missing link: the automakers. Though auto manufacturers have been slowly climbing on board the anti-ethanol bandwagon, in no small part because large domestic OEMs like GM were once closely allied with the ethanol industry, it seems that the coalition to stop E15 is now complete. A new group known as the Engine Products Group, comprised of the Alliance of Automobile Manufacturers, The Association of International Automobile Manufacturers, the National Marine Manufacturers Association, and the Outdoor Power Equipment Institute, has filed a new petition to block the EPA’s E15 ruling.

According to a press release

The petition challenges the ability of EPA to grant a partial waiver for three specific reasons.

• The Clean Air Act does not authorize EPA to issue any “partial waiver” decisions,
• EPA’s own statute passed by Congress in 2007 states that fuels can’t be approved for the market that could cause any failures. Yet, E-15 has been shown to adversely affect engines in non-road products and later model year vehicles, cause emission failures and increase air pollution due to misfueling. Further, administrative records fail to demonstrate that even new model year motor vehicles (other than “flexible fuel vehicles”) would not be damaged and result in failures when run on E-15, and
• The testing, upon which EPA made its decision, was put in the administrative record too late to permit meaningful comment or scrutiny from concerned groups and stakeholders.

Another concern? With E15 approved only for vehicles built after 2007, there are no safeguards to prevent E15 fueling in pre-2007 vehicles. A spokesman explains

While all members of the EPG have and continue to support the development and use of safe and sustainable alternative fuels, the action EPA has taken to permit E-15 to be sold as a legal fuel, even if limited only to certain products, will have adverse consequences for the environment and consumers. A partial waiver, by its nature, necessarily will result in the misfueling of products not designed or tested for E-15 use

The response, from pro-ethanol lobbying group Growth energy:

The scientific evidence demonstrates clearly that E15 is safe not only for newer vehicles – the 2007 and newer approved already by EPA this year – but also for all passenger cars and trucks on the road today. We support the EPA decision to grant the waiver for 2007 and newer vehicles, and we look forward to EPA’s action on 2001 to 2006 model year vehicles. Concerns about misfueling are premature, as EPA is drafting a robust labeling rule and will conduct a vigorous public education campaign, and we are confident that the process will be successful.”

And last but not least, there’s a little delicious irony in this brewing battle. If the EPA’s E15 waiver is struck down by the courts, the imminent renewal of the ethanol subsidy package will simply have the ethanol industry bouncing off the “blend wall” all over again. It’s 2008 all over again!

Senate Democrats confirm that an extension of the full 45 cents/gal tax credit and 54 cents/gal import duty has been included in the Senate version of a Bush Tax Credit extension, prompting an angry response from the Brazilian sugar cane ethanol lobby. With Brazilian subsidies set to drop by nine cents per gallon, the Brazilian Sugarcane Industry Association (UNICA) claims that the American subsidy is no longer an “offset” but a full-fledged barrier to trade. UNICA’s President Marcos Jank tells brighterenergy.com

It is clear that the United States is not committed to open and fair trade in clean energy, particularly ethanol. We will have exhausted all options to resolve our differences through informal dialogue and the U.S. legislative process. It will then be time for the WTO to resolve this matter in accordance with applicable international rights and obligations.

Previously it was reported that the ethanol Blender’s Credit would be extended at a lower rate of 36 cents/gal, but with the tax credit extension debate snowballing into a lame duck slugfest, it seems that the subsidy extension was included to bring farm-state legislators on board. In addition to pissing off the Brazilians and possibly sparking a WTO battle, a full five-year extension of ethanol subsidies and tariffs at the current rate will cost the government no less than $31b. But don’t start planting corn yet… House Democrats seem set on scuppering the Senate’s tax credit extension deal (even though they support the ethanol extension). If they keep anything from passing during the lame duck session, the subsidies will expire completely, forcing the industry to champion new legislation. The battle rages on…

It is not a good policy to have these massive subsidies for first generation ethanol. First generation ethanol I think was a mistake. The energy conversion ratios are at best very small… One of the reasons I made that mistake is that I paid particular attention to the farmers in my home state of Tennessee, and I had a certain fondness for the farmers in the state of Iowa because I was about to run for president

Al Gore reveals [via MSNBC] that politics, not science, made an ethanol believer out of him. More than anything else, the admission underlines how badly ethanol can lose the war of ideas and still be heavily subsidized without fear of political attack. After all, what Presidential hopeful (read:every member of Congress) wants to shut down the biggest pork trough in Iowa, a state that just happens to be the first primary of the race for the White House? Heck, Al Gore probably had to lose his favorite weedwhacker to ethanol gum before he came out against the stuff. But just because your representative won’t vote against ethanol, doesn’t mean you can’t… surf over to pure-gas.org for a list of ethanol-free gas pumps near you.

We’ve been tracking mounting opposition to E15 ethanol for some time now, and when the EPA approved the 15-percent corn juice blend for vehicles made in 2007 or later, we saw the opposition begin to crystalize. Now, the Detroit News reports that a number of oil, food and other interest groups have filed suit in a D.C. Circuit appeals court, seeking to halt the EPA’s approval of E15. According to the DetN

The petitioners argue that under the Clean Air Act, the EPA administrator may only grant a waiver for a new fuel additive if it “will not cause or contribute to a failure of any emission control device or system.”

They believe the “EPA has unlawfully interpreted the statute to achieve a particular outcome,” but EPA administrator Lisa Jackson said it was based on “sound science.”

Considering the approval was apparently based on study results from a mere 14 vehicles, it sounds like the industry groups might have a solid point here. Especially when you realize that a major motivation for E15 approval is from the fact that blenders couldn’t sell enough E10 to meet government mandates. As the video above (from June of this year) proves, the political tail has wagged the scientific dog on ethanol ever since the farm lobby realized that ethanol could be the next corn syrup. With any luck, this lawsuit could just be the point at which science re-asserts itself.

At least one of the institutions financing ads damning Democratic candidates this election season wants to put ethanol in your gas tank. The American Future Fund was founded by one Bruce Rastetter, the CEO of Hawkeye Energy Holdings, one of the larger ethanol companies in the US, according to an article in the New York Times. The fund is financing ads aimed at Democrats in key positions to influence booze fuel… so is the problem their “liberal” policies, or the fact that they’re insufficiently supportive of the farm lobby’s beloved corn juice?

“Of the 14 “liberal” politicians singled out in a list it released last month, nearly every incumbent sits on a panel with a say over energy or agriculture policy,” according to the Grey Lady. “Five sit on the Agriculture Committee; four others are on related committees with say. One candidate was a staff member on a related panel.”

One of the first politicians the American Future Fund supported was former Minnesota Republican Senator Norm Coleman, who had been co-chairman of the Senate Biofuels Caucus. American Future also attacked the Indy Racing League, because of a deal the League made to power Indy cars with Brazilian ethanol, in sharp contrast to its proclaimed mission “to provide Americans with a conservative and free market viewpoint.” Rastetter also helped start a trade group, Growth Energy, that pushes for tariffs on foreign producers, according to the NYT.

The NYT quotes a spokesperson for the American Future Fund, who claimed that ethanol and agriculture policy were not the reasons behind its attack ads. “We’re targeting liberal spending policies,” the newspaper quotes her as saying. Sure. As long as they get their ethanol subsidies.

Bloomberg reports that the Environmental Protection Agency has approved blends of up to 15 percent ethanol in gasoline for cars produced since 2007, handing a victory to pro-ethanol groups like Growth Energy. The EPA had previously capped gas-ethanol blending at 10 percent (E10), on fears that the higher percentage of corn-based ethanol could damage engines. But the approval of E15 hasn’t exactly made those fears go away. According to Credit Suisse analyst Robert Moskow

The approval of E-15 by the EPA won’t have a positive effect on [ethanol giant Archer Daniels Midland] in the near-term. Blenders remain reluctant to implement E-15 because it requires a separate pump and because the EPA has not absolved the blenders of potential legal liability from consumers.

And it’s not just blenders who are up in arms at the decision. Gas refiner Valero Energy, the American Automobile Association and the Detroit automakers (which had previously been pro-ethanol) are all against the increase to E15 in “normal gas.” All of which means E15 isn’t likely to show up at your neighorhood gas pump anytime soon.

In addition to opposition from automakers and blenders (who worry mainly about engine damage liability), environmental and food-producing groups have joined the fight against E15, arguing that the corn-based fuel is bad for the environment and raises food prices. But concern from the Outdoor Power Equipment Institute and SEMA about ethanol’s impacts on older cars and small engines may be having the greatest impact.

Reuters reports that the EPA will rule on the safety of E15 in vehicles built between 2001 and 2006 by December, and says that E15 likely won’t hit pumps until after that ruling has been made. And when E15 does arrive sometime next year, it will have to be distributed from a separate pump with signage indicating that the fuel is safe only for vehicles in approved model-years. The EPA is currently drafting a rule on pump signage for E15.

This means that E15 won’t completely replace E10, giving motorists the opportunity to vote with their pocketbooks to reject the 15 percent blend. Meanwhile, motorists opposed to any amount of ethanol in their gasoline have more resources than ever for finding ethanol-free gasoline in their community. Though the approval of E15 is a setback for those who worry about the corn juice’s affects on their engines, the economy or the environment, there are plenty of ways to resist this giveaway to America’s strong farm lobby. Thanks to the great principles on which this nation was founded, a well-informed population remains free to use the fuel that’s right for them. And, as history proves, politically-popular subsidies are never a match for the power of the market.

Gasoline with up to ten percent ethanol have been approved for public sale in the US, and the ethanol industry has been pushing to increase the maximum allowed blend to 15 percent. Or 12 percent until the EPA can figure out if E15 damages engines. But with automakers turning against the e15 push, fears about E10-related engine damage (which primarily began with boat and small engine operators) are being more widely heard. So why is E10 allowed if it damages engines? For one thing, trailerboats.com points out that

Yamaha warns that due to the fungible nature of fuels in transit from refinery to service station, some E10 fuels may actually get an extra dose of ethanol

In other words, E10 may be safe but you may not actually be getting E10. But more importantly, the market is answering the call of consumers. Over at pure-gas.org, a site dedicated to connecting Americans with stations offering ethanol-free gasoline, the number of registered “pure gas” pumps has skyrocketed since June of last year. But, warns the site’s founder (a BMW motorcycle enthusiast),

We buy [ethanol-free gas] because we want to fuel our vehicles with it. If you want to save money on gas, this site is of no use to you – it will NOT have gasoline prices on it. They vary from day to day and this site isn’t about saving money. It’s about finding pure gasoline for your machine.

So we’re wondering: does ethanol-free gas exist near you, and if so, is it more expensive? Finally, is there a price premium you would be willing to pay for ethanol-free gas? Or would you even pick corn-free gas (and its groundwater-accumulating carcinogen MTBE) at price parity with E10?

America’s ethanol producers were some of the few Americans optimistic or cynical enough to find a bright side to the BP Gulf spill. Ethanol’s lobbyists-in-chief, GrowthEnergy, decided it would be real cute to run ads highlighting all the bad things ethanol hadn’t done. One of which is not “Ethanol has never harmed the Gulf of Mexico,” by the way. As the ad parody above points out though, even if the ethanol was creating a dead zone in the Gulf of Mexico for years before the BP spill, there are quite a few other things ethanol hasn’t done. Like this, just in from the AP [via Google]: convince the EPA to buy into its shameful, manipulative PR line and rush a decision on increasing blending limits.

Not that it’s much of a victory. After all, not exploiting a tragic disaster to shove down wasteful subsidies is hardly something to brag about. And it’s looking like E15 (“normal” gas with 15 percent ethanol, instead of the federal cap of 10 percent) will be approved this fall, as there’s no other way for blenders to meet their subsidized 12b gallon 2010 blending mandate. Secretary of Agriculture Tim Vilsack tells the AP that tests look “good” and that discussing a timeline is a positive sign for ethanol.

With this green light, USDA is surging ahead on our work to provide support to feedstock producers, biofuel refiners and infrastructure installers, such as blender pumps, to ensure that all the pieces of the ethanol supply chain are ready to supply the market demand,

But the ethanol industry wasn’t having it. GrowthEnergy made a statement harping on the BP spill, the Renewable Fuel Association called for an interim approval of E12, and ArchersDanielMidland said it was “disappointed.” [via domesticfuel.com]. And all because the EPA wants to test vehicles (even then, only 2007 models and later) to prove they won’t be harmed by the 15 percent blends that the industry is so impatient for. But this is the second time the pro-ethanol forces have seen an E15 ruling delayed, and their billion dollar boondoggle needs to be fed to keep going. After all, when the ethanol industry talks about “demand,” they’re not referring to consumers, who have shown a marked distaste for the corn juice. Demand for ethanol begins and ends in Washington D.C.

Well, the good news is that the EPA has thus far refused to allow gasoline blends of more than ten percent ethanol. The bad news is that the Agency has yet to take a firm stand against the idea of eventually allowing E15 into the nation’s gas pumps. In fact, as the EPA’s response to the ethanol lobbying group Growth Energy’s request to allow E15 [full document in PDF form here] opens:

It is vitally important that the country increase the use of renewable fuels. To meet that goal EPA is working to implement the long-term renewable fuels mandate of 36 billion gallons by 2022. To achieve the renewable fuel requirements in future years, it is clear that ethanol will need to be blended into gasoline at levels greater than the current limit of 10 percent.

This time though, the glacial pace of bureaucracy is a positive. Though the EPA believes that “the robust fuel, engine and emissions control systems on newer vehicles (likely 2001 and newer model years) will likely be able to accomodate higher ethanol blends, such as E15,” it won’t have definitive results until August of 2010. After all, the EPA admits that “presently, data are available on only two vehicles.” By May though, it will have tested 12 additional vehicles, making the data set literally good enough for government work. Unless that data “highlights potential problems,” the EPA says it will approve E15 for 2001 model year and later cars, pending the necessary changes in pump and vehicle labeling. [Hat Tip: Paul Greenberg]