The ethanol bubble has been bursting a bit lately. I don’t say that with glee, because I hate to see people lose money, especially when it was due largely to misleading claims. (I say that even though 95% of the hate mail I get comes from ethanol investors). I hope the end of the irrational exuberance we have seen in the ethanol market will lead to a more fact-based look at which technologies are needed to replace or supplement fossil fuels, and what technical challenges must be overcome before that happens.
There are certain things we can do to help ethanol along that I completely agree with. Because of the great potential, I think we need to heavily fund cellulosic ethanol research. I think we need to encourage the pursuit of closed-loop ethanol processes, like the one E3 Biofuels is building. I have no problem with making most vehicles flex-fuel. I do have a problem with requiring E85 pumps at some percentage of gas stations. We can’t even produce enough ethanol to roll out E10 nationwide, so why force gas stations to put in a lot of E85 infrastructure when we can’t possibly produce the E85 to justify the expense? I also have a problem with forcing oil companies to pay for the pumps. If ethanol producers insist on E85 pumps, they should be required to pay for their installation, since they are the ones who will primarily benefit from E85 sales.
While I support the production of more flex-fuel vehicles, the CAFE loophole for flex-fuel vehicles is appalling. The government regulates fuel efficiency in the U.S. with Corporate Average Fuel Efficiency, or CAFE standards. When the average fuel efficiency falls below a certain level for a car manufacturer, they must pay a penalty. This provides an incentive for auto makers to produce fuel-efficient vehicles.
However, there are a couple of loopholes that have limited the effectiveness of the standard. One is that light trucks have an exemption that allows them to get worse fuel efficiency without being penalized. Because SUVs are classified as light trucks, there is an incentive for the auto maker to produce SUVs. The good news is that the government recently passed legislation to close the loophole. The bad news is that it doesn’t take place until 2011, meaning we have 5 more years of gas-guzzling SUV sales to contend with.
While this loophole is being closed, another is being opened. Did you wonder why automakers have embraced E85? Have they suddenly gone “green”, and therefore E85 just seems like the right thing to do? No. By making flex-fuel vehicles, they are able to exploit another loophole in the standards. This loophole has recently been reported on in the press. Car and Driver was the first to bring this to my attention in Tech Stuff: Ethanol Promises. The article explains:
With fewer than 600 stations selling E85 fuel in 37 states, why have GM, Ford, and DaimlerChrysler been cranking out these flex-fuel vehicles by the millions?
The answer is the mandatory Corporate Average Fuel Economy (CAFE) standards. Federal law requires that the cars an automaker offers for sale average 27.5 mpg; light trucks must achieve 22.2 mpg. Failure to do so can result in substantial fines. However, relief is available to manufacturers that build E85 vehicles to encourage their production.
The irony here is that although E85 in fact gets poorer fuel economy than gasoline, for CAFE purposes, the government counts only the 15-percent gasoline content of E85. Not counting the ethanol, which is the other 85 percent, produces a seven-fold increase in E85 mpg. The official CAFE number for an E85 vehicle results from averaging the gas and the inflated E85 fuel-economy stats.
Consumer Reports recently weighed in with The Ethanol Myth. On the CAFE issue, they reported:
GM’s advertising says, “Energy independence? The answer may be growing in our own backyard,” and has coined the slogan “Live green, go yellow,” referring to the corn from which most U.S. ethanol is made. DaimlerChrysler, Ford, and GM have said that they plan to double production of FFVs and other biofuel vehicles to 2 million by 2010.
The FFV surge is being motivated by generous fuel-economy credits that auto-makers get for every FFV they build, even if it never runs on E85. This allows them to pump out more gas-guzzling large SUVs and pickups, which is resulting in the consumption of many times more gallons of gasoline than E85 now replaces.
With the loophole in place, their motto should be “Live green, go yellow, consume more fossil fuels.” By all means, build flex-fuel vehicles. But close this loophole, which may very well result in much higher gasoline consumption in the future.
With the loophole in place, their motto should be “Live green, go yellow, consume more fossil fuels.” By all means, build flex-fuel vehicles. But close this loophole, which may very well result in much higher gasoline consumption in the future.
Absolutely right Robert,
Everytime I see one of GM’s misleading “Live green, go yellow” adverts my blood pressure increases. Same for the new Ford ads.
The ads of both companies are purely a marketing ploy and part of a program to allow them to avoid paying the CAFE penalties. If they sell enough flex-fuel vehicles their corporate average goes up, even though the actual amount of fuel consumed actually increases.
My rule of thumb: “It takes four gallons of E85 to do the work of three gallons of gasoline.”
By the way: Vinod has a major article on biofuels in the issue of Wireless magazine that just hit the newstands. (Mine arrived in yesterday’s mail.)
I actually agreed with a lot he said — it is obvious he is looking forward to sources of ethanol other than corn. (I was raking leaves this afternoon and thinking, “Wouldn’t it be nice if we could convert to fuel the billions of tons of leaves that fall from the trees each autumn?”
Vinod even mentions the promise of the more complex alcohols such as butanol.
But he does repeat the tired canard that gasoline only returns 80 units of energy for each 100 consumed. He is confusing efficiency with return on energy invested. (I don’t have his e-mail Robert, but I suggest you contact him and correct him.) He is smart enough to know better by now, and one almost has to believe his stating that again is intentional.
If ethanol producers insist on E85 pumps, they should be required to pay for their installation, since they are the ones who will primarily benefit from E85 sales.
Hear, hear!
Installing E85 infrastructure should be an individual choice of fuel retailers, and not a government mandate or funded with taxpayer money as Illinois is now considering.
I recently sent a letter to the governor of Illinois telling him that if every fuel station in the U.S. (or in his state) had E85 infrastructure, most of that infrastructure would have to sit unused because there wouldn’t be enough ethanol to supply them all.
Regards,
Gary Dikkers
“The government regulates fuel efficiency in the U.S. with Corporate Average Fuel Efficiency, or CAFE standards.”
There you go again Robert – letting Big Oil get away with it again.
Have you noticed the tremendous technology leaps in the world since the advent of the microprocessor and the availability of the commercial PC in the mid-70’s? Do you know that today’s auto has dozens of processors and other semiconductor devices? Never mind the technology used to design and manufacture autos. Heard about robots? Today’s auto is a league apart from anything that was available before the microprocessor revolution. There has also been a revolution in materials science.
In most other Western countries they have seen significant mileage efficiency improvements relative to US auto manufacturers.
Yet, US auto manufacturers just cannot improve the mileage efficiency of the auto. No matter how hard they try they just cannot do it. Isn’t that just the darndest thing?
You would think that a US auto manufacturer offering the US consumer an auto that delivers 60 to 100 (or more) miles to the gallon would be a market winner. But, no. The US auto manufacturer just cannot do it. Why?
Well, ask yourself who would be the primary loser if we had very efficient mileage autos so that you would not need as much gas? The US auto manufacturers? Nope, try again. The oil companies? Bingo. That’s right the oil companies would lose big time if you’d had (real) mileage efficiency. The Oil Lobby and Big Oil are the reason why the US has lousy auto mileage efficiency.
Oh, I just can’t wait for your diatribe saying this just ain’t so.
There you go again Robert – letting Big Oil get away with it again.
Getting away with what? Lobbying for these CAFE loopholes? It wasn’t too long ago that either Tillerson or Raymond at ExxonMobil got into a public spat with one of the automakers because they were complaining that fuel efficiency hadn’t substantially increased in 20 years. So, what is it that they are supposed to be getting away with here?
The Oil Lobby and Big Oil are the reason why the US has lousy auto mileage efficiency.
Can you show that Big Oil has actually lobbied to have the CAFE standards watered down?
Oh, I just can’t wait for your diatribe saying this just ain’t so.
Well, I am going to disappoint you. You made a claim. I won’t bother launching into a diatribe, since you didn’t actually provide any evidence for the claim.
Furthermore, if Big Oil had lobbied to water down CAFE standards, why on earth do you think I would defend that practice? Do you think my primary purpose is to defend Big Oil? Do you think all of the stuff I have written on conservation somehow benefits Big Oil? Do you think my positive essays on E3 Biofuels, biodiesel, raising gas taxes, and lowering the speed limit somehow benefit Big Oil?
I think you are a bit confused about my objectives. There are certain times that my objectives will coincide with those of my employer. There are other times they will not. But my objective is promoting sound energy policy, and debunking mythology in the area of energy policy.
The period I’m covering is soon after the 1972/3 oil crisis ie. the availability of the first commercial PC in 1975 till now – 30 years, a generation.
You are asking for evidence of the Oil Lobby’s work. You are kidding me aren’t you? You really suppose that the industry lobbyists on K Street leave a paper trail. Only someone who is politically naive would ask such a dumb question.
“It wasn’t too long ago that either Tillerson or Raymond at ExxonMobil got into a public spat with one of the automakers because they were complaining that fuel efficiency hadn’t substantially increased in 20 years.” I bet that made Tillerson/Raymond feel good. By chance, weren’t these comments made in the past few years while the price of gasoline has been rising. It’s called who can I move the spot light onto to take heat away from me.
Let’s assume for a second that mileage efficiency can be improved to say 60 miles per gallon and assume the average today is 20 miles to the gallon. I pick the 60 number because it is generally accepted that it is not only possible but can be done with existing technologies lying on the shelf ie. it has been proven and built but they’ve not put it into production autos.
Next, let’s assume that the Bush administration passes a new regulation tomorrow that all new autos must deliver a minimum 60 miles to the gallon. This means that oil companies would lose two thirds of their revenue in the future.
I guess you’re now going to tell me that Big Oil wouldn’t be worried about this one little teensy bit. Water off a ducks back to them to lose two thirds of all their future revenues.
Gasoline prices have been coming down rather hard of lately, I think that explains pretty much all the deflation in ethanol.
Gasoline prices have been coming down rather hard of lately, I think that explains pretty much all the deflation in ethanol.
That explains the devaluation in ethanol prices. But ethanol stocks started falling off sharply well before gasoline prices started coming down.
You are asking for evidence of the Oil Lobby’s work. You are kidding me aren’t you?
I am asking you to support the insinuation that Big Oil is behind the watering down of CAFE standards. This is a claim you made, that you apparently admit you can’t support. While I agree that Big Oil has been involved in a lot of bad things over the years, I have never seen any evidence of this one, and we do get tarred with a very wide brush sometimes. So, I think the least you could do is to support your allegations. After all, when the XOM guys recently complained about fuel efficiency, don’t you think the auto lobby would have pointed it out if they had lobbied for watered-down standards?
I guess you’re now going to tell me that Big Oil wouldn’t be worried about this one little teensy bit.
If you polled the Big Oil CEOs, then I bet they wouldn’t support raising the efficiency to 60 mpg. I would support raising the efficiency to those levels. After all, I can easily get another job. My kids can’t get another planet to grow up on. I do know for a fact that some of them are concerned about high oil prices, because of the effect on the economy. I have personally heard my CEO, in public and in private, call for more conservation for this very reason. I have heard other CEOs do the same.
Robert: Excellent post, this loophole has been around for years but hasn’t gotten the attention it deserves. One other loophole that I think may have been closed recently: Vehicles over 8500 lbs gross weight were considered medium duty trucks and thus didn’t count in CAFE at all. I remember reading that Chevy intentionally stiffened the springs on the Suburban to get it into the medium category and out of the CAFE calculation. The Ford Excursion was also considered medium duty, so the 10 MPG didn’t affect Ford’s average.
TWS: Have you considered that cars in other countries get better mileage because they’re smaller and use diesel? Americans like big and diesel engines cost more and have a hard time meeting US emissions requirements. There are cars in the US that get 60 mpg (hybrids), but they’re regarded as not being worth the extra cost when gas in only $3 / gallon.
The problem with CAFE is, it forces manufacturers to build more efficient vehicles but it doesn’t motivate auto buyers to want them. The automakers are doing everything possible to get around CAFE, not because they’re evil, but because they perceive that consumers are willing to pay for larger, more powerful vehicles. It’s not that they don’t know how to make more efficient vehicles, they just don’t want to.
I don’t really fault them for trying to work around the flawed CAFE rules, though I share Dikkers’ anger at the misleading ad campaigns.
A fuel tax is what we need; let consumers know that fuel prices are going to go high and stay that way, and they’ll start demanding fuel-efficient vehicles. The tax could be phased in to let people adjust. 25 cents a year, every year, for a decade would add $2.50 to the price of a gallon of fuel in a very predictable fashion, giving time for people to adjust as the fleet naturally turns over.
I found a link to the details of the spat between Exxonmobil and the auto industry. XOM took out an ad stating:
“Every form of transportation–planes, trains and automobiles–now benefits from improved fuels and engine systems. So why is that despite this overall progress, the average fuel economy of American cars is unchanged in two decades?”
Jason Vines, the head of communications at Daimler-Chrysler, wrote a scathing article on Big Oil in response. One thing that he didn’t do, though, was accuse Big Oil of lobbying against higher fuel standards. Don’t you think he would have done so if they actually had?
You can read some of the details here, in a story from Gristmill.