Squeeze play for ethanol - Flexible-fuel cars a hot topic
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Squeeze play for ethanol
Flexible-fuel cars a hot topic, but a long way from consumer mainstream
WASHINGTON (MarketWatch) -- Lawmakers and automakers, confronted with irate consumers facing record gasoline prices and with criticism over U.S. dependence on oil, have orchestrated a vigorous push to bring more alternative fuels such as ethanol to local service stations and put more flexible-fuel vehicles on the road.
But not everyone is on board with the pro-ethanol fervor that has gripped Washington and Detroit. Critics note that flexible-fuel vehicles account for just 2% of the registered vehicles on the road and running them on ethanol would hardly make a dent in gasoline consumption.
Almost all of the flexible-fuel vehicles on the road today burn regular gasoline rather than ethanol. Part of the problem is infrastructure -- only about 700 of the roughly 180,000 retail gasoline outlets in the country offer ethanol-blended fuel, and a majority of those are located in the Midwest where ethanol production is concentrated, industry analysts said.
These vehicles are estimated to run on alternative fuels just 1% of the time, said Don MacKenzie, a vehicles engineer with the Union of Concerned Scientists.
Hoping to entice gasoline stations to install pumps that dispense biofuels such as ethanol, lawmakers have proposed refunds of up to $30,000 for new investments. Earlier this month, Ford Motor Co. Vice President Sue Cischke joined a bipartisan group of lawmakers in Washington to back proposed legislation to boost the number of service stations that sell ethanol-blended fuel.
"This legislation is an investment in our energy infrastructure that will help increase the availability of alternative fuels like E-85," said Sen. Jim Talent, R-Mo, a sponsor of the legislation.
The heads of the big three automotive companies met with Republican and Democratic lawmakers after the introduction of the bill and pledged to build more flexible-fuel vehicles.
These vehicles can run on gasoline, ethanol, or a blend of the two often referred to as E-85. Fuel marketed as E-85 is made up of 85% ethanol and 15% gasoline. Ethanol is an alcohol-based fuel primarily made from corn in the U.S.
"The CEOs discussed how alternative fuels like ethanol and advanced diesel can diversify America's transportation energy sources and called for greater availability of E-85 at the nation's gas pumps," the companies said in a joint statement following the meetings.
"We are 100% behind them," said Michelle Kautz, spokeswoman for the National Ethanol Vehicle Coalition.
Consumers with flexible-fuel vehicles appear to be embracing ethanol where it is available, the group said. In Minnesota, sales of E-85 were up 320% for the first three months of 2006 versus the same period a year ago, according to the coalition. The state had 207 outlets dispensing ethanol-blended fuel at the end of March compared with 106 in 2005.
Funding infrastructure
The Alternative Refueling System Act of 2006 -- sponsored by Sens. John Thune, R-S.D., Ken Salazar, D-Colo., Barack Obama, D-Ill., and Talent -- is designed to extend that kind of availability. A version of the legislation has also been introduced in the House.
Under the Senate bill, gas stations could be reimbursed for 30% of the cost, up to $30,000, for each new fueling system they add that can dispense biofuel. Stations can apply for the reimbursement up to two times.
Retail stations can also tap a new federal income-tax credit if they install pumps that dispense biofuel. The tax credit, which was included in the energy bill passed by Congress last year, provides up to $30,000 per property for the installation of alternative fueling systems.
"We've been inundated with calls from [gasoline] retailers" interested in the tax credit, said Kautz.
There are currently about 5 million flexible-fuel vehicles in the U.S., out of the slightly more than 221 million vehicles registered, according to Federal Highway Administration.
The big three automakers produce the bulk of the flexible-fuel vehicles sold in the U.S. and have announced plans to roll out more in the coming years. In 2004, U.S. automakers made 674,678 flexible-fuel vehicles available, according to the Energy Information Administration, the statistical arm of the Energy Department. This was down from 859,261 made available in 2003.
General Motors has announced plans to add more than 400,000 vehicles to its fleet in 2006 that can run on ethanol. Ford will have put 2 million flexible fuel vehicles on the road by the end of 2006, according to the company.
Oil industry attacks ethanol support
Not everyone sees ethanol as a silver bullet.
"Flexible fuel vehicles can potentially be a piece of the puzzle, and an important piece of the puzzle," MacKenzie said. But he added that raising fuel economy standards for all vehicles, a proposal automakers have steadfastly opposed, would be a faster way to address oil consumption.
"Biofuels are promising and can replace some fuel use, but even development of cellulosic ethanol only has the potential to displace, at most, 10% to 20% of the world's oil demand," John German, manager of environmental and energy analyses for American Honda Motor Co., told a House panel last week. Honda has focused its efforts on developing hybrid and hybrid-electric vehicles.
Oil industry representatives attacked the latest wave of ethanol proposals as government largesse for a small segment of the automotive market.
"Ethanol already enjoys billions of dollars of federal subsidies each year paid by federal and state taxpayers," said Bob Slaughter, president of the National Petrochemical and Refiners Association.
"Frankly, enough is enough. We think Congress should replace irrational exuberance with reason in considering any other proposal that provides additional subsidies to ethanol," Slaughter added. |
