The Way I See IT

Ethanol sells itself cheap with wholesale gas prices
By Mike Bryan | September 01, 2002
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Ethanol is still fighting a cost comparison battle with wholesale gasoline. Part of this misguided pricing policy is a result of not having a clear focus on exactly why ethanol is important. Why do we have 67 ethanol plants online and more on the way? What benefits are the United States and other countries expecting to achieve by building an ethanol industry?

We talk of energy security for America. While clearly an important issue, oil imports are not going to be single-handedly reduced by ethanol. Biodiesel, solar, wind, and fuel cells are just of few of the other emerging technologies that will help build a bridge to energy security. As long as ethanol is viewed primarily as a replacement for gasoline, it is inevitable that it will continue to be compared on a similar cost basis.

Ethanol is not gasoline. It's better than gasoline. It is not designed to replace gasoline, it is designed to enhance gasoline, to improve performance, to reduce tailpipe emissions, to provide octane, reduce toxic components and to extend the supply of gasoline. But it is not now, nor has it ever been, designed to totally replace gasoline.

The American Dairy Association has not gotten caught up in a national debate comparing the price of cream to the price of wholesale coffee. Nor has the corn sweetener industry been frustrated by having to match the price of sweeteners with the wholesale price of soft drinks. These products have a clear, well-defined missionthey simply enhance the product into which they are blended. Ethanol is a blend stock that improves the quality of the gasoline into which it is blended, so there should be little correlation between the price of ethanol and the price of gasoline.

A 10 percent ethanol blend adds nearly three octane points to gasoline. Ethanol provides significant reductions in tail pipe hydrocarbon emissions, helping the petroleum industry achieve mandated clean air standards. By adding ethanol to gasoline, toxic reduction requirements are easier for refiners to meet because of dilution. In a time when refining capacity has peaked, the addition of ethanol can be an important contributor to extending fuel supplies. All of these advantages, and more, are available to the petroleum industry when they use ethanol, plus they receive a handsome gasoline excise tax credit. Not a bad deal for a product that has all that to offer. . . but is still expected to compete on a gallon-to-gallon price basis.

Ethanol should be priced for the value it adds. It's better than gasoline. It has better emission characteristics, it's renewable, it reduces greenhouse gas emissions, it's domestically produced, and it has enormous economic and environmental benefits - for the petroleum industry and the country. Trying to achieve a cost comparable to that of wholesale gasoline made from imported oil cheapens ethanol and opens it up for unjustified criticism.

Mike Bryan
President, BBI International