Bush Promotes Alternative Fuel

Among the boldest pronouncements in President George W. Bush's State of the Union address in January was his ambitious goal of reducing oil imports from the volatile Middle East by three-fourths by 2025. But to achieve this lofty goal, he will need cooperation from the nation's major automakers, petroleum refiners, and ethanol producers, as well as major technological breakthroughs.

Pointing to the nation's growing reliance on crude oil from "unstable parts of the world," Bush stressed the need to develop alternatives to petroleum products. "By applying the talent and technology of America, this country can move beyond a petroleum-based economy and make our dependence on Middle Eastern oil a thing of the past," he declared.

The U.S. currently imports almost 60% of its oil, amounting to more than 12 million barrels per day. About one-fifth of the oil comes from the Persian Gulf, much of it from Saudi Arabia. Without a dramatic change in policy, the Energy Department predicts that imports will account for more than 70% of domestic petroleum consumption in 2025. "Traditionalists may be disappointed that oil and gas weren't the centerpieces of his energy remarks, but the President is absolutely right to map out an expanded strategy in alternative energy," Senate Energy & Natural Resources Committee Chair Pete V. Domenici (R-N.M.) remarked after Bush's speech. "If we can figure out how to affordably refine ethanol from cellulosic biomass, particularly without using a lot of heat, we solve our oil problem and our oil refinery problem. We aren't going to displace foreign oil next year, but the President's moving us in the right direction, and he's picked up the pace."

The energy bill passed by Congress last summer requires refiners to blend 7.5 billion gal of ethanol, nearly double the current amount, into gasoline by 2012. In the U.S., the vast majority of ethanol is made from corn. But corn-based ethanol would not be cost competitive with petroleum-based fuel without a generous federal subsidy. To help put the U.S. on the road to energy independence, Bush has called on Congress to boost spending on clean-energy R&D by 22% in fiscal 2007, including $150 million-up from $90 million in the current fiscal year-to find ways to produce ethanol from wood chips, corn stalks, and other farm waste known as biomass. "Our goal is to make this new kind of ethanol practical and competitive within six years," the President said.

Bush was referring to cellulosic ethanol production. Just now in the demonstration stage, the technology has the potential to make ethanol with as little as one-tenth the amount of energy that the fuel provides, according to a just-published study by researchers at the University of California, Berkeley. The analysis attempts to settle the ongoing debate over whether ethanol is a good substitute for gasoline and thus can help lessen the country's reliance on foreign oil and support farmers in the bargain.

"Ethanol can be, if it's made the right way with cellulosic technology, a really good fuel for the U.S.," says Alexander E. Farrell, an assistant professor of energy and resources at UC Berkeley. "At the moment, cellulosic technology is just too expensive. If that changes-and the technology is developing rapidly-then we might see cellulosic technology enter the commercial market within five years."

Cellulosic technology refers to the use of bacteria to convert the hard, fibrous content of plants, primarily cellulose and lignin, into starches that can be fermented by other bacteria to produce ethanol. Farrell says two good sources of fibrous plant material are willow trees and a tall prairie grass known as switchgrass, though any plant material, from farm waste to specially grown crops or trees, would work. The UC Berkeley study estimates that 1 billion tons of currently unused waste is available for ethanol production in the U.S. "There is a lot of potential for this technology to really help meet our national energy goals," Farrell says. "However, there are still unknowns associated with the long-term sustainability of ethanol as a fuel, especially at the global scale."

Auto manufacturers are able to make cars that run on either regular unleaded gasoline or E85, a blend of 85% ethanol and 15% gasoline. Nearly 5 million flexible-fuel vehicles are now on the road. Although a small amount of ethanol is already added to motor fuel to boost octane, E85 uses almost nine times as much ethanol as regular gasoline, reducing the amount of crude oil needed to make each gallon. Converting a car into a flexible-fuel vehicle costs about $150, and when purchased new, such vehicles are often priced the same as conventional gas-only vehicles.

"Converting to ethanol fuel will not require a big change in the economy," says Daniel M. Kammen, director of the Renewable & Appropriate Energy Laboratory at UC Berkeley. "We are already ethanol-ready. If ethanol were available on the supply side," he says, the demand would be there. Currently, the U.S. has 95 ethanol plants with a combined production capacity of about 4.3 billion gal annually. That's enough to replace only 3% of the 140 billion gal of gasoline that the U.S. burned last year. Thirty-two new ethanol facilities and nine expansions are scheduled to begin production over the next 18 months, adding another 1.8 billion gal of annual capacity.

Californians may be voting this November on a state proposition requiring that all new cars sold in the state be flexible-fuel-ready. If the proposal is adopted, Kammen says, California will be poised to move toward the situation in Brazil, where many cars burn pure ethanol made from sugarcane. Some venture capitalists already are putting money behind ethanol and cellulosic technology, as witnessed by recent investments by Microsoft Corp. Chairman Bill Gates and strong interest by Sun Microsystems Inc. cofounder Vinod Khosla. Gates put $84 million into West Coast producer Pacific Ethanol Inc., and Khosla is seeding BC International Corp., which plans to make cellulosic ethanol from switchgrass.

"The investment by Gates is an example of the excitement and seriousness the venture capital community sees in cellulosic technology, which they see as now ready to go prime time," Kammen says. "Our assessment is that it is a very strong winner and that the effort needed to go the last 10% of the way to get cellulosic on board is actually very small." He believes that ethanol could replace 20-30% of fuel usage in the U.S. with little effort in just a few years. In the long term, Kammen says, the U.S. might even be able to match Sweden, which recently committed to an oil-free future based on ethanol from forests and solar energy.

Robert Dinneen, president of the Renewable Fuels Association (RFA), says he is pleased that Bush "recognizes the need to move the country toward an energy future that is less dependent on unreliable and increasingly costly foreign sources of oil and more dependent on domestically produced renewable fuels like ethanol." He notes that E85 can be used in flexible-fuel vehicles being produced in increasing numbers by General Motors Corp. and Ford Motor Co. "There isn't an ethanol producer in the country that isn't actively pursuing a cellulose-to-ethanol research program," Dinneen says. "Although corn will continue to be the major feedstock for U.S. ethanol production, the development of cellulosic ethanol technology offers a promising complement and a new era for the U.S. ethanol industry." But he acknowledges that "the technology and the economics aren't there yet" to produce enough ethanol for a massive switch to E85.

In recent months, GM and Ford have increasingly turned to hybrid and flexible-fuel vehicles to revitalize their struggling businesses. The companies each have about 1.5 million E85-capable vehicles on the road, and both have promised to accelerate production. Flexible-fuel vehicles are especially appealing to domestic automakers because Japanese carmakers have shown little interest in bringing the technology to the U.S. At the Washington (D.C.) Auto Show in January, GM and Ford touted their nontraditional vehicles and announced unprecedented national advertising and marketing campaigns to build awareness among consumers.

And at the Winter Olympics last month, GM launched its "Live Green, Go Yellow" initiative. The ad campaign, which will continue throughout the year, is designed to make consumers, energy producers, and policymakers aware of the E85 capability already found in GM vehicles and to pave the way for more E85 vehicles that the company will launch this year. "With the ongoing concern over national energy policy, having more renewable fuel choices such as ethanol-blended fuels is a great energy option available today," says Brent Dewar, GM vice president of marketing and advertising. "This campaign asks the simple question, 'What if every vehicle was yellow?' In a way, in the world of ethanol, yellow is the new green, because its main source is from corn. The challenge will be to communicate and have Americans understand what is E85." In 2006, GM will offer nine E85 flexible-fuel models, bringing an additional 400,000 E85-capable vehicles into its fleet.

Also at the Washington Auto Show, Ford unveiled a research-only version of its Ford Escape that seeks to combine two petroleum-saving technologies: hybrid electric power and flexible-fuel capability. "Both hybrids and ethanol-fueled vehicles can significantly lessen U.S. dependence on imported oil while reducing the impact on our global environment," says Nancy Gioia, Ford's director of sustainable mobility technologies and hybrid programs. "The Escape Hybrid E85 program could lead to the breakthroughs needed to marry these two important technologies." Starting this year, Ford plans to produce about 250,000 vehicles annually that can run on E85.

If just 5% of the U.S. vehicle fleet were powered by hybrids operating exclusively on E85, Ford says, imports of oil could be reduced by about 140 million bbl per year. "We are extremely pleased to see Ford take on this endeavor," says Phillip J. Lampert, executive director of the National Ethanol Vehicle Coalition (NEVC). "This is a leap forward in the E85 industry and will help the nation even further reduce our dependency on foreign oil."

One key issue that needs to be addressed for flexible-fuel vehicles to gain nationwide traction, however, is the lack of a national infrastructure for E85. Of the 170,000 gas stations nationwide, only about 600 carry E85, and the overwhelming majority of those are located in a few Midwestern states. But the number of stations more than doubled in 2005 and could increase to about 2,500 by the end of the year, as stations take advantage of new tax credits for the cost of retrofitting pumps and tanks, according to NEVC.

The Energy Policy Act of 2005 signed into law last August includes a tax credit incentive for businesses that add one or more E85 pumps to their fueling stations. Inserted into the final version of the legislation by Sens. James M. Talent (R-Mo.) and Barrack Obama (D-Ill.), the measure provides a 30% federal income tax credit, worth up to $30,000, to help offset the cost of installing or switching traditional petroleum pumps to E85 fueling systems. "We've talked for too long about energy independence in this country. E85 gives us an opportunity to actually get something done about it," Obama remarked after the Senate approved the measure. "There are two kinds of car companies: those that make fuel-efficient cars and those that will. We can't follow the world anymore. We must lead." Lawmakers are currently considering legislation that would increase the E85 infrastructure tax credit from 30% to 50%.

To create greater consumer awareness and acceptance of E85, in January, GM launched a project in California with Chevron Technology Ventures and Pacific Ethanol to demonstrate E85's use in GM's flexible-fuel vehicles. GM will make E85-capable Chevrolet Impala passenger cars and Silverado pickup trucks available to the state, while Chevron will help install the pumps for fuel supplied by Pacific Ethanol. "This agreement represents the future of the motor fuels industry: automakers, ethanol producers, and petroleum companies working together to reduce U.S. dependence on fossil fuels," Dinneen says. "Automakers and oil companies have read the tea leaves and realize that renewable fuels like ethanol will only increase in popularity and use."

Meanwhile, VeraSun Energy Corp., the nation's second largest ethanol producer, is working with both Ford and GM to expand ethanol's infrastructure by converting existing fuel pumps to VeraSun's branded E85 in retail outlets throughout the Midwest. "Increasing flexible-fuel vehicle production and E85 use represents the best near-term solution to significantly reducing our dependence on foreign oil," says Bill Honnef, vice president of sales and marketing for VeraSun. He says the two largest hurdles to expanded E85 use are access to convenient fueling locations and lack of consumer awareness. "Because flexible-fuel vehicles can run on both gasoline and E85, most owners are not aware they are driving a flexible-fuel vehicle and simply use gasoline," Honnef remarks. "Our research indicates that nearly 70% of flexible-fuel vehicle owners are unaware they are driving one. We believe we can make great strides in both areas."

In February, GM and VeraSun announced the opening of 20 new E85 fueling stations in the metropolitan Chicago area, the first in a series of planned joint ventures. "These initiatives are important to the nation on various levels and are clearly in line with the President's path toward energy independence," Honnef says. GM will also participate in a test with Shell Oil Co. to gauge consumer interest in alternative fuels by monitoring behavior at the pump. Shell will supply E85 pumps at a half-dozen stations in Chicago, and GM will market the availability of those stations to its customers and dealers. "This pilot program with GM gives us a unique opportunity to test consumer openness to alternative fuels in a real-world situation," says Dan Little, fuels manager for Shell Oil Products U.S.

Also last month, Ford said it plans to create a Midwest ethanol corridor by converting approximately 40 existing gasoline fuel pumps in Illinois and Missouri to E85, thereby increasing availability by about one-third this year. Ford estimates that there are 50,000 owners of Ford flexible-fuel vehicles in Illinois and 28,000 in Missouri. The company says it will work with fuel providers and government officials to increase the availability of ethanol in neighboring states as well. "Ford has been putting flexible-fuel vehicles on the road for years, but the ethanol fueling infrastructure has not kept pace," Ford Executive Vice President Anne Stevens said in a statement announcing the project. "For energy diversity to be a reality for our customers, there must be a growing infrastructure that is convenient for them. Our focus is on encouraging retail fuel providers to incorporate E85 fuel options in their operations."

Critics point out that ethanol has several drawbacks. Ethanol contains only about two-thirds as much energy as gasoline, which translates into fewer miles per gallon. Ford says its Escape Hybrid E85 experiences about a 25% reduction in fuel economy when running on E85 than when running on regular gasoline. GM estimates that the mileage loss with E85 in its vehicles is 20 to 25%. As a result, consumers need to fill their tanks more often. But NEVC's Lampert points out that, on average, E85 costs about 10 to 20 cents less per gallon than regular gasoline. "E85 has to be priced lower than regular unleaded gasoline to make it a wash for the consumer," he says. "I think most surveys and polls show that consumers will pay a little bit more for an environmentally friendly product, but not a lot."

Major oil companies also note that significant distribution problems must be resolved before they can make E85 widely available. Shell President John Hofmeister told Sens. Richard G. Lugar (R-Ind.) and Tom Harkin (D-Iowa) in a letter last month that E85 cannot be distributed and marketed through the existing gasoline infrastructure. Ethanol also cannot be shipped through the pipelines used for petroleum products, so it has to be transported by rail.

Hofmeister also noted that the alternative fuel currently can be used only in a relatively small number of vehicles. But he added that Shell is continuing research into E85 and may expand its availability in the future. "We do, however, recognize that our experience with E85 in the U.S. has thus far been fairly limited," Hofmeister wrote, saying his company could change its policy on the basis of the result of the pilot program in the Chicago area. Lugar and Harkin recently asked the oil industry to describe "what is needed to improve the availability of E85 to consumers." The two senators are sponsoring legislation that would require all automobiles sold in the U.S. to be manufactured as flexible-fuel vehicles within 10 years.

Lampert says his organization's top priority for 2006 is "to continue to incentivize the automakers to build flexible-fuel vehicles." He notes that in 1988, Congress passed the Alternative Motor Fuels Act, which jump-started the alternative-fuel-vehicle industry by providing automakers with incentives to produce cars and trucks that can be operated on fuels other than unleaded gasoline. "This has been a tremendously successful program," says Lambert. "Obviously, there's an additional cost in making a flexible-fuel product. Today, the automakers are absorbing that at no extra cost to the consumer. But let's look at how we can build more flexible-fuel vehicles. We need to continue to provide incentives."

Meanwhile, though energy conservation groups credit the White House for stressing alternative sources of energy, they say the cellulosic ethanol research initiative should be linked to an increase in auto fuel-efficiency standards, a move the Administration has steadfastly opposed. "It's time for Bush to break America's oil habit by picking up a pen and doubling gas mileage standards," says Anna Aurilio, legislative director of the U.S. Public Interest Research Group. U.S. consumers will spend $8.7 billion more than they should at the gas pump in 2006 because "Bush has opposed meaningful increases in miles-per-gallon standards," she says.

By raising fuel economy standards, says Carl Pope, executive director of the Sierra Club, the U.S. could save more oil than the country currently imports from the entire Persian Gulf or could ever take out of Alaska's Arctic National Wildlife Refuge, combined. "President Bush is failing to take the single biggest step toward reducing our oil dependence: making our cars, trucks, and SUVs go farther on a gallon of gas," he remarks.