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| The Basics | Is ethanol the answer? Not yet
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Anything that'll blunt the effect of gas prices is a hot topic these days. But ethanol costs more, and the cars and the fuel can be hard to find.
By BusinessWeek
There is no question that renewable energy is an extremely important topic these days, especially with talk of oil going as high as $100 a barrel. Nearly everyone wants a means to wean the world off of its gasoline addiction at a time when it is not only a threat to global security but also to the environment.
The problem is that the alternatives are unproven, inadequate or prohibitively expensive. And in some ways, ethanol may be all three. While there is no question that ethanol works as a gasoline substitute, it is not the silver bullet that many people wish it to be.
While E10 is the most common ethanol-based fuel, E85, a blend of 85% ethanol and 15% gasoline, has a higher octane rating and burns cleaner. Today many vehicles can burn E10, which has a lower ratio of ethanol to gasoline, but only E85-capable "flex fuel" vehicles -- that burn either E85 or gas -- can run on the cleaner fuel mixture. See a complete list of all the E85-compatible cars on the market in the U.S.
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Dollar difference
There are a few drawbacks to E85. It has a lower energy content that leads to lower fuel economy and vehicle driving range. Until recently this lower fuel economy posed less of a concern because the cost of E85 was around 30% less than a gallon of gasoline. But as demand for E85 has surged, so have prices. Despite stepped-up production by companies such as Archer Daniels Midland (ADM, news, msgs), this increased demand, plus a tariff on imported ethanol, which adds 54 cents to the cost of a gallon, makes it more expensive than gasoline.
Moreover, since it is less efficient, drivers have to spend even more. At today's prices, it would cost around $3,368 per year to run a Dodge Ram 1500 pickup on regular gas and $3,615 on E85.
And there is a long way to go before domestic production will be able to play a meaningful role. Today there are only 93 ethanol plants in the U.S., with an additional 24 under construction. Production will increase to 5 billion gallons by the end of the year. While that sounds like a lot, consider that the average annual consumption of gasoline is 140 billion gallons per year.
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Further frustrating the uptake of ethanol is the fact that fewer than 1,000 of the more than 176,000 fueling stations in the U.S. sell it. Not surprisingly, most of them are located in farm states, such as Illinois and Minnesota, which are among the largest producers.
Still, today more than 5 million vehicles in the U.S. can run on E85, and the auto makers are making a lot of noise about ramping up production of flex-fuel vehicles. Unlike some hybrids and other alternate-fuel vehicles, they are identical to regular cars, SUVs and trucks. Better still, unlike hybrids, E85-capable vehicles don't cost more to buy.
There is no denying the appeal of ethanol, especially in terms of its potential. In various countries around the world, notably Brazil and Sweden, it is in common use. In the U.S. currently there are 26 car and truck models available that can run on ethanol, although they are not available in every state.
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