For decades, the federal government has promoted ethanol as a renewable, homegrown alternative to gasoline in three distinct ways. Proponents see this support as necessary to get the alternative fuel into widespread availability and usage.
The first effort to support ethanol usage is a 51-cent-per-gallon tax credit to "blenders," the companies who blend ethanol into gasoline. This tax credit is intended to raise the price of ethanol for ethanol producers and corn farmers to encourage production, and to lower the price of ethanol products for consumers. It is strongly supported by farm lobbyists.
Despite the tax credit, however, E85 costs about 70 cents a gallon more than gasoline on an energy equivalent basis on average, according to the Department of Energy.
Second, the government provides significant fuel economy credits to automakers who build flex-fuel vehicles that can run on E85.
The fuel economy credit was passed as part of the Alternative Motor Fuels Act of 1988 and counts toward a manufacturer's Corporate Average Fuel Economy (CAFE) standard, which is set by NHTSA. Under the regulations, the average fuel economy for an automaker's entire fleet of vehicles must meet a minimum miles-per-gallon figure: 30.2 for cars and 24.1 for light trucks in 2011. So the more large vehicles a manufacturer builds with gas mileage below that minimum, the more they have to be offset either by smaller vehicles that get better fuel economy or by fuel-economy credits, such as the one for FFVs. This is quite literally a loophole big enough to drive a truck through for automakers that produce many gas-guzzling pickups and SUVs. The FFV credit was intended to provide an incentive to get E85 vehicles on the road. In determining the credit, the government assumes that an FFV will run on E85 half the time and on gasoline the other half. For CAFE purposes, the E85 half is calculated as using only the 15 percent of the fuel that is gasoline. So the government rates FFVs at about 1.67 times the fuel economy that they actually get on gasoline. So our 2008 Chevrolet Tahoe, which had a CAFE rating of 16 mpg on its window sticker, was credited under CAFE rules with a rating of 27 mpg, because it can run on E85. This applies to the Tahoe we bought in New England even though we couldn't find any E85 to use in it near us. The maximum that an automaker's fleet average can be raised because of FFV credits is 1.2 mpg, and the credit is scheduled to be phased out by 2018.
Of the 13 billion gallons of ethanol expected to be produced in 2010 and 2011, less than 2 percent, or 260 million gallons, will be blended into E85. Because our tests show that E85 provides 27 percent lower fuel economy, those 260 million gallons are able to replace only a little more than 214 million gallons of gasoline—a tiny fraction of the 170 billion gallons consumed on American roads every year.
While the credits have put millions of FFVs on the road since the late 1990s, most have been large SUVs, pickups, and sedans that get relatively poor gas mileage and don't do well in Consumer Reports testing.
In the end, these FFV credits have indirectly allowed more large, gas-guzzling vehicles to be sold. As a result, these credits have increased annual U.S. gasoline consumption by about 1 percent, or 1.2 billion gallons, according to a 2005 study by the Union of Concerned Scientists (UCS), a nonprofit organization that focuses on safety and the environment.
The third government initiative to promote ethanol is a mandate Congress passed as part of the Energy Independence and Security Act of 2007 requiring refiners to blend up to 36 billion gallons of ethanol into gasoline by 2022.
This mandate, however, is bumping up against physical and economic limits.
Increasing ethanol penetration much beyond current production will require either expanded sales and distribution of E85, or greater concentrations of ethanol in base gasoline. Automakers say this would essentially require all cars to be flex-fuel vehicles.
From an alternative-energy perspective, it doesn't matter in what proportions ethanol is blended. Whether mixed in E85 or E10, a given amount of ethanol still goes just as far in reducing demand for gasoline.
Ethanol advocates' latest gambit is to increase the percentage of ethanol blended into gas for regular cars from 10 percent to 15 percent. In March 2009, an industry trade group, Growth Energy, petitioned the EPA to allow E15 to be used in regular cars. And Underwriters Laboratories certified regular gas pumps to dispense ethanol blends up to 15 percent.
Furthermore, energy experts at Argonne National Laboratory say that corn production can't be expanded enough to produce more than about 15 billion gallons of ethanol. In 2009, 21 percent of the corn crop was used to produce ethanol, according to the National Corn Growers Association (NCGA). So to meet the 36-billion-gallon mandate will require new sources of ethanol. The government also says corn is not a good long-term fuel source because it diverts corn from the food supply.