Are Ethanol-Based Fuels Economically Viable Alternatives for Gasoline?
Because of the increasing need for alternative energy sources to oil, every day we hear about ethanol as a fuel alternative. This is a study of ethanol as a fuel alternative from a purely economic standpoint.
Another problem comes to light when one sees that consumers are now becoming aware of the fact that a gallon of E85, the standard ethanol blend for cars, provides approximately one-third less mileage than a gallon of unleaded gasoline due to its lower energy content. This should be reflected in the pump price, otherwise ethanol is no deal for the motorist. If the pump price for regular unleaded gas is at to US$2.25 a gallon, then the mileage equivalent price per gallon for E85 should be US $1.59 – a price approximately equal to the current US domestic production cost per gallon, leaving no room for profits.
When these and other problems are considered (see Appendix), it comes to light that ethanol is not in fact an economically viable alternative. Though current lobbying and political movements are pushing for alternative fuel sources and ethanol is widely considered to be a frontrunner, from a purely economic standpoint other options need to be pursued.
Appendix: Other Problems with Ethanol
Gasoline Production Economics: Ethanol blends evaporate readily. Therefore, using ethanol increases refiner production costs and reduces operating flexibility. Storage and transportation costs increase due to the hydrophilic solubility of ethanol (ethanol exposed to air will gradually draw water out of the air, diluting it). In addition, the amount of ethanol that can be blended into gasoline without major changes to engine structure is limited to around 10%. As a result, ethanol is unable to dilute many of the less desirable gasoline components.
Ethanol’s Tax Subsidy: Ethanol is not currently economically viable without its substantial federal tax subsidy – currently 53 cents per gallon – and supplemental state tax incentives. Foreign producers, such as Brazilian state oil company Petrobras (PBR), one of the world’s largest ethanol producers, have opened negotiations to sell its sugar-cane based ethanol to the U.S. market. It seems they believe they can make money despite the tariff wall designed to protect domestic producers. The Brazilian production cost is estimated to be between US$ 0.87 to $1.10 a gallon compared to approximately US $1.59 a gallon for domestic producers.
Supply Uncertainties & Distribution Concerns: Ethanol use is generally currently limited to the Midwest, with little capacity for expansion. Ethanol supplies can be uncertain due to feedstock (i.e., corn) shortages caused by summer droughts. Ethanol’s high affinity for water does not allow blending at the refinery, nor transportation through the existing nation-wide gasoline pipeline infrastructure. Ethanol must be stored in segregated tanks, can only be transported by rail or truck and must be blended into gasoline at the terminal or retail station.
Environmental Concerns: Ethanol actually emits more harmful smog-forming emissions in the summertime than MTBE due to its high tendency to evaporate. Because ethanol is used in lower volumes, it provides less reduction in toxic air emissions than MTBE.
Consumer Acceptance: Automaker owner manuals warn buyers of performance problems with ethanol. Some consumers now perceive ethanol-blended gasoline or “gasohol” as an “inferior product,” making consumers less willing to purchase it. In addition, most engines currently are not built to be able to withstand high levels of ethanol.
Liked it
