MC Weekly Issue #9, Tuesday, February 7, 2006

“Now that we can do anything, what will we do?”

Welcome to Massive Change Weekly, an electronic newsletter sharing news about groundbreaking achievements in global design.

All of a sudden, ethanol has had its tipping point.

As everyone knows by now, George Bush got a different kind of religion this week when he announced that America was “addicted to oil” and made a surprise plea for developing alternative fuels like ethanol. A week before Bush’s State of the Union address, however, Fortune published a lengthy article, “How to Beat the High Cost of Gasoline”, where they argued, “Stop dreaming about hydrogen. Ethanol is the answer to the energy dilemma. It’s clean and green and runs in today’s cars. And in a generation, it could replace gas. Forever.”

Fortune’s piece appeared at the same time that GM (GM!) launched a new awareness campaign about their flexible-fuel vehicles that can run on both traditional gasoline and E85, which is comprised of 85% ethanol and 15% gasoline. http://www.onlygm.com I was surprised when I heard the first radio spot on NPR telling me that GM was committed to “energy independence”. Their slogan is “Live Green Go Yellow”.

Ford, though not as aggressive with a campaign yet, also touts its flex-fuel vehicles.

Media response to Bush’s address was extensive and, in some ways, predictably skeptical. The Wall Street Journal proclaimed “Bush’s Latest Energy Solution, Like Its Forebears, Faces Hurdles.” They cite as one of the hurdles that the “White House is offering little money to back up its rhetoric: just $150 million next year, hardly enough to revolutionize a multibillion dollar energy market”. But, as surely the WSJ knows, in the US at least, the switch to ethanol is going to have to be market-driven. High gas prices, uncertainty in the Middle East (made even more pronounced this week by the anti-Danish and anti-EU riots over political cartoons of Muhammed), a desperate need to turn GM and Ford a round, and a similar consumer demand that fueled the hybrid market, will all have a bigger impact on the transformation of the energy economy. Government will mainly help through the approach to taxes.

But now at least everyone knows about fuel-flexible vehicles. For example, though some media pundits commented that there are “only” 5 million fuel-flexibie cars in the U.S., and only 600 out of a total of 170,000 gas stations that can presently pump E85, how many people new there are any such cars and gas stations? How many owners of fuel-flexible vehicles even knew they could power them with energy derived from corn husks, wood chips and switch grass?

Brazil is a country that has successfully ended its “addiction to oil” by supporting ethanol. Their program goes back to 1975 but, because of low world oil prices, it didn’t catch on quickly. Brazil then mandated that gas stations carry both gasoline and ethanol, and that ethanol be less expensive (the difference being made up with subsidies). It also ended subsidies to sugar farmers (sugar being the main source of ethanol in Brazil), thus lowering sugar prices by forcing farmers to become more efficient and competitive. The US and Canada would have to similarly end politically sensitive agriculture subsidies, and open up markets globally in order to make ethanol competitive. And they could import ethanol itself from surplus-producing countries like Brazil, as they started to do in the wake of Hurricane Katrina and Hurricane Rita. Despite the 57-cents-a-gallon import tax, it was still more economical than crude oil where prices topped $60 per barrel.

As of 2005, E85 is frequently sold for up to 35% lower cost than gasoline in the US, owing mostly to government subsidies and the elimination of state taxes. Much of this discount can be attributed to various government subsidies, and, at least in the United States, the elimination of state taxes that typically apply to gasoline and can amount to 47 cents, or more, per gallon of fuel. The tax exemption is set to expire in 2007, but could easily be extended.

Media pessimism also focused on the fuel economy of flexible-fuel vehicles, because ethanol contains less energy per gallon of fuel than gasoline. At worse, flexible-fuel vehicles run 30% less efficiently. More recent models are more like 5-15% less efficient. It’s important to remind ourselves, though, that we are in the very early days of development. Saab, for example, claims that they’ve developed a turbocharged car that runs better on ethanol because of a higher compression ratio engine.

Historically, the first popular flexible-fuel vehicle was actually a model-T, developed for use by self-reliant farmers who could produce their own fuel. Similarly, an early version of the Model A was also designed as a flex fuel vehicle, with a dash-mounted control that allowed for easy adjustments to the single-barrel Zenith carburetor, regulating the air fuel mixture depending on what fuel was being used.

One final objection that has been made to the ethanol optimists is that the US isn’t addicted to oil; instead, it’s addicted to the automobile. More mass transit is the answer to the problem. But this is an either/or fallacy. Surely we can build more and better mass transit, and introduce E85 as an alternative fuel source. And introduce develop other fuel sources (eg, hydrogen) and other smart measures, such as more bicycle and Segway-friendly cities, denser urban environments, etc. The solutions to our problems in the future will be distributed and heterogeneous.

This entry was posted on Monday, June 12th, 2006 at 10:54 pm and is filed under MC Weekly. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.