60 Minutes on Ethanol

I finally got around to watching last Sunday night's "60 Minutes" segment on ethanol fuel. I wasn't surprised at the show's enthusiasm for the alternative fuel, which has received lots of publicity, lately. I commend them for featuring a solid authority on ethanol's economic and energy balance, Daniel M. Kammen, Ph.D. of U.C. Berkeley, while also giving the oil industry's trade association, the API, a chance to comment. Unfortunately, I also wasn't surprised by the absence of hard data to put ethanol's potential into context. Here are a few facts that were missing from the broadcast:

1. 60 Minutes traveled to Brazil to see how that country's successful flexible fuel program worked, but apparently failed to note two key data points. First, the 40% or so of Brazil's fuel needs met by "alcool" amounts to 4.8 billion gallons per year. Last year the US produced 3.9 billion gallons. In other words, the US already uses nearly as much ethanol as Brazil, with its vast sugarcane industry--a much more efficient producer of ethanol than corn. Brazil's entire ethanol output equates to only 3% of US gasoline demand. Scaling that up to the point at which it would be material to our energy needs is a non-trivial proposition.
2. The 60 Minutes report omitted the linchpin of corn ethanol's economic attractiveness in this country: the 51 cent per gallon federal tax credit for ethanol blending. If it requires that level of subsidy to compete with gasoline at $3.00 per gallon, growing its share of the market is going to cost taxpayers a fortune. The "green gold" mentioned by the Iowa ethanol co-op member isn't just coming from the marketplace, but from Washington, too.
3. E-85 was mentioned by several of the segment's interviewees, including the CEO of GM, but none of them mentioned that a gallon of E-85 will only take you three fourths as far as a gallon of gasoline, because of its lower energy content and the richer fuel/air mixture required for complete combustion. For example, the government's mileage ratings for flex-fuel vehicles running on E85 are 26% lower for the 2005 Ford Taurus, and 22% lower for the Chevy Tahoe. With gasoline at $3.00/gallon, E85 should sell at $2.25/gallon or less to deliver comparable value. Despite this, E85 often sells for prices approaching those of regular unleaded.

Though it came late in the segment, I was pleased at the mention of cellulosic ethanol, which holds the only possibility of producing enough ethanol in the US to matter, without driving up the price of all the grains we consume. By comparison, corn ethanol is a dead end, though you'd never guess that from Sunday's program. Professor Kammen is right when he says it could provide a transition to cellulosic ethanol, but until the country can produce enough ethanol to replace the MTBE that is leaving the gasoline pool--one of the key contributors to today's high gas prices--E-85 can't be more than a niche product, and that mostly in the Midwest.