APRIL 27, 2006
By Ed Wallace
Ethanol: A Tragedy in 3 Acts
Amid the current panic about
gas prices many people are embracing ethanol. But that's not such a good
During the comment period for the RFG (reformulated gas) program, supporters
of ethanol had argued that the volatile organic compound (VOC) emission
standards in the program -- 42 U. S. C. 7545 (k) (3) (B) (i) -- would
preclude the use of ethanol in RFG because adding ethanol to gasoline
increases its volatility and raises VOC emissions, especially in the
The American Petroleum Institute v. the U.S. Environmental Protection Agency
[Docket #94-1502 (Heard by the U. S. Court of Appeals for the District of
Columbia Circuit and decided on April 28, 1995)]
If there were ever a time when the truth in advertising standards should be
put back into place, it's now -- during the current (third) attempt to
convince the public that the massive use of corn-derived ethanol in our
gasoline supply will alleviate our need for foreign oil. Ultimately, the
answer to just one question determines ethanol's actual usefulness as a
gasoline extender: "If the government hadn't mandated this product, would it
survive in a free market?" Doubtful -- but the misinformation superhighway
has been rerouted to convince the public its energy salvation is at hand.
Act I, Scenes 1 and 2
The use of ethanol to reduce our dependence on foreign oil is nothing new.
We also considered it during our nation's Project Independence in 1974, the
year after the first Arab oil embargo. After the second energy crisis in
1979, an income tax credit of 40 cents per gallon of 190-proof ethanol
produced was instituted as an incentive for refiners of ethanol to blend
this product into gasoline.
Because this federal largesse now existed, within five years, 163 ethanol
plants had been built -- but only 74 of them were still in operation. As
gasoline availability opened up in the 1980s and gas prices went down, many
ethanol plants simply went out of business.
Shortly thereafter, in yet another attempt to broaden the product's usage,
Congress enacted a law that allowed car manufacturers to take excess mileage
credits on any vehicle they built that was capable of burning an 85% blend
of ethanol, better known as E85. General Motors (GM)
took advantage of the credits, building relatively large volumes of the
Suburban as a certified E85 vehicle. Although in real life that generation
of the Suburban got less than 15 mpg, the credits it earned GM against its
Corporate Average Fuel Economy (CAFE) ratings meant that on paper, the
Suburban delivered more than 29 mpg.
Other manufacturers also built E85-capable vehicles -- one such car was the
Taurus. Congress may have intended simply to create a market for this
particular fuel by having these vehicles available for sale. But what the
excess mileage credits actually did was save Detroit millions each year in
penalties it would have owed for not meeting the CAFE regulations' mileage
Act II, Scenes 1 and 2
In the mid-'90s the Clean Air Act of 1990 kicked in, mandating that a
reformulated gasoline be sold in the nation's smoggiest cities. So the
Clinton Administration again tried to create an ethanol industry in America,
by having the Environmental Protection Agency mandate that fully 30% of the
oxygenates to be used in gasoline under that program come from a renewable
source. But members of the American Petroleum Institute had already geared
up for the production of Methyl Tertiary Butyl Ether (MTBE), their oxygenate
of choice. The ensuing lawsuit was argued before the Court of Appeals for
the District of Columbia on February 16, 1995.
The EPA took the position that it had been given a mandate to find ways to
conserve the nation's fossil-fuel reserves, so it needed a renewable fuel --
and ethanol neatly fit that bill. But there were problems with that
argument, not least of which was the fact that the judges could find no
charter or mandate from Congress that gave the EPA the statutory right to do
anything about fossil fuel, reserves or otherwise.
Even more damaging, the EPA's own attorney admitted to the judges that
because of its higher volatility, putting ethanol into the nation's fuel
supply would likely increase smog where it was used. One of the judges, on
hearing that the EPA was actively promoting a substance that could in fact
diminish air quality, wondered aloud, "Is the EPA in outer space?"
The final decision favored the American Petroleum Institute. The judges
agreed that the EPA was bound by law only to promote items that would
improve air quality -- not to reverse the nation's advances in smog
reduction. That decision was apparently forgotten with record speed. In the
summer of 2000, ethanol as an additive was mandated for the upper Midwest,
including the city of Chicago and parts of the state of Wisconsin.
Act II, Scenes 3 and 4
After Asian economies had collapsed in the late '90s, the price of oil had
fallen to as low as $10 a barrel. Gasoline was selling in many parts of the
U.S. for as little as 99 cents a gallon. But by 2000, the per-barrel price
had risen to $32, and gas was averaging $1.55 a gallon nationally. As they
are today, the nation's drivers were incensed by the rising prices of
gasoline and oil. And then reformulated gasoline made with ethanol hit
Chicago and points north. Gas prices there suddenly soared over $2.00, with
a few stations selling their product for as much as $2.54 per gallon.
At some stations in southeast Wisconsin, where reformulated gasoline wasn't
required and gas cost considerably less, pumps ran dry in the panic, as
savvy consumers topped off their tanks. Citing the Lundberg Survey, the
Associated Press on June 12, 2000, stated, "Dealers in the Midwest, where
many cities use a reformulated gas blended with the corn derivative ethanol,
are paying a premium at wholesale."
Just a few months later, Brazil -- which had worked toward energy
independence since the mid-'70s oil crisis and had already mandated that the
percentage of ethanol in its fuel be raised to 24% -- was forced to import
ethanol refined by the Archer Daniels Midland Co. (ADM)
when the nation's sugar-cane crop suffered a devastating drought. Brazil
understood that a year of poor crops was just as damaging to its national
fuel supply as Iran taking its oil off-market would be to the rest of the
Then came the third act in this ethanol play -- and possibly the most
misleading and disingenuous PR campaign ever.
Act III: Cue the Fact-Checker
It started with Congress, which mandated that even more ethanol be used to
extend the nation's fuel supply. From General Motors, an ad campaign called
"Live Green, Go Yellow" gave America the impression that by purchasing GM
vehicles capable of using E85 ethanol, we could help reduce our dependence
on foreign oil.
What GM left out of its ads was that the use of this fuel would likely
increase the amount of smog during the summer months (as the EPA's own
attorneys had admitted in 1995) -- and that using E85 in GM products would
lower their fuel efficiency by as much as 25%. (USA
Today recently reported that the Energy Dept. estimated the drop
in mileage at 40%.)
But one final setup for the public has gone unnoticed. At the Web site,
www.fueleconomy.gov, which confirms the 25% to 30% drop in mileage
resulting from the use of this blended fuel, another feature lets users
calculate and compare annual fuel costs using regular gasoline to costs
But the government site's automatic calculations are based on E85 selling
for 37 cents per gallon less than regular gasoline, when the
USA Today article reports that
at many stations in the Midwest E85 is actually selling for 13 cents per
gallon more than ordinary gas. Using the corrected prices for both gasoline
and E85, the annual cost of fueling GM's Suburban goes from $2,709 to
$3,763. Hence the suggestion that truth in advertising should come back into
play. Possibly GM could rename this ad campaign "Shell Out Green, Turn
Epilogue: Get this Wasteful Show Off the Road
The other negative aspect of this inefficient fuel is that numerous studies
have found that ethanol creates less energy than is required to make it.
Other studies have found that ethanol creates "slightly" more energy than is
used in its production. Yet not one of these studies takes into account that
when E85 is used, the vehicle's fuel efficiency drops by at least 25% -- and
possibly by as much as 40%. Using any of the accredited studies as a
baseline in an energy-efficiency equation, ethanol when used as a fuel is a
net energy waste.
Furthermore, no one has even considered the severe disruption in the
nation's fuel distribution that mandating a move into ethanol would cause.
Over the past month, gas stations from Dallas to Philadelphia and parts of
Massachusetts have had their tanks run dry due to a lack of ethanol to
blend. The newswires have been filled with stories bemoaning the shortage of
trucks, drivers, railcars, and barges to ship the product. Ethanol can't be
blended at refineries and pumped through the nation's gasoline pipelines.
The recent price spikes for gasoline have forcibly reminded the people of
Chicago and Wisconsin of what happened when ethanol was forced on them
during the summer of 2000. Moreover, the promise of energy independence that
Brazil has explored through ethanol is widely misunderstood. Recently a
Brazilian official, commenting on our third and most recent attempted
conversion to ethanol, said that when Brazil tried using agricultural crops
for ethanol, it achieved only a 1:1.20 energy conversion rate, too low to be
worth the effort.
FINAL BOW? On the other hand, ethanol from sugar cane delivered 1:8 energy
conversion, which met the national mandate. Unfortunately for us, sugar cane
isn't a viable crop in the climate of our nation's heartland. But the part
of Brazil's quest for energy independence that the media usually overlooks
is that ethanol wasn't the only fuel source the country was working on: Its
other, more important, thrust was to find more oil. To that end, last week
Brazil's P50 offshore oil platform was turned on. Its anticipated daily
output is high enough to make Brazil totally oil independent.
More smog, infinitely worse gas mileage, huge problems in distribution, and
skyrocketing prices for gasoline. Maybe now that we're witnessing the third
act in America's ethanol play, the upcoming epilogue will close this show
forever. Even great advertising works only if the product does.
Wallace is a recipient of the Gerald R. Loeb
Award for business journalism, given by the Anderson School of Business at
UCLA. He hosts the talk show Wheels Saturdays from 8:00 to 1:00 on 570 KLIF
and is a weekly columnist for the Fort Worth Star Telegram. E-mail: