GM, Ford Introduce New Ethanol-Powered Vehicles

Published April 1, 2006

General Motors and Ford Motor Company have begun selling new “flex-fuel” ethanol vehicles that run on 85 percent ethyl alcohol. The new generation of vehicles has led to renewed interest in, and renewed debate over, the asserted benefits of ethanol-blend gasoline.

Flex-Fuel Vehicles Introduced

General Motors already has produced more than 1.5 million flex-fuel vehicles, including nine different models of cars and SUVs. Ford also has a fleet of flex-fuel vehicles, including the F-150 pickup truck. GM and Ford plan to produce another 650,000 flex-fuel vehicles in 2006.

The vehicles can run on regular gasoline or an ethanol-gasoline mix of up to 85 percent ethyl alcohol, known as E85. E85 reduces fuel economy by about 25 percent from that of conventional gasoline, but it allows for quick acceleration and may reduce engine wear. The main selling points, according to ethanol supporters, are reduced vehicle emissions and a reduced dependence on foreign petroleum.

One obstacle to widespread use of E85 fuel is a lack of availability at gas stations. Currently, only 600 gas stations in the United States carry E85. General Motors is working with the state of California to expand the E85 infrastructure, while Ford is working with VeraSun Energy of Brookings, South Dakota to make existing gasoline pumps compatible with E85.

Production Efficiency Improving

The new flex-fuel vehicles highlight an ongoing debate about advances in ethanol technology. Although ethanol was long seen as an inefficient fuel source the existence of which was dependent on government subsidies and mandates, some scientists say ethanol will in the near future be able to compete with gasoline on a level economic playing field.

A study by University of California at Berkeley researchers published in the January 26, 2006, issue of Science claims to end debate over whether ethanol consumes more energy than it produces.

“The long-standing debate over whether ethanol is good or bad on an energy basis … we believe that 20-year-old argument is now solved,” said one of the study’s authors, professor Dan Kammen of Cal-Berkeley, in the Contra Costa Times. “You can get more energy out.”

Kammen said making ethanol from sources other than corn would produce an even more efficient and less expensive product.

“The real benefits come from this switch [from corn to other plants], and it is a switch we want to see happen,” Kammen told the Contra Costa Times.

Free-Marketers Divided

Free-market environmentalists were sharply divided over the proper role of ethanol in the U.S. market.

“Whether the net energy balance for ethanol production is negative or positive is irrelevant,” said Joel Schwartz, an adjunct scholar at the American Enterprise Institute. “If you believe that the extent of ethanol use as a motor fuel should be determined by market forces without government intervention, all that matters is whether potential producers can deliver a gallon of ethanol at a price consumers are willing to pay.

“If ethanol displaces petroleum,” Schwartz added, “it will displace petroleum from the highest-cost producers. This presumably means that ethanol would displace U.S. petroleum production, rather than Middle East petroleum production.”

Jay Lehr, science director for The Heartland Institute, sees real potential in ethanol. “I have argued against ethanol quite a bit in the past, but the technology now exists to make ethanol a win-win proposition for American farmers and American consumers alike,” Lehr said. “Having worked with farmers and ethanol for 15 years, I have come to the conclusion that in the long term the nation will end up a winner, at least until we bring nuclear power back on center stage. Fifteen years ago I lectured widely against ethanol, today I have moved marginally to the other side.”

“The problem with ethanol is that if it made economic sense, it would not need tax preferences,” countered Jerry Taylor, director of natural resource studies at the Cato Institute. “Ethanol is treated quite differently [than other fuels] under federal tax codes. Without such tax preferences the industry would not exist. Regardless of the semantics, whether an industry is the beneficiary of a direct government handout or from government heavily taxing all of its competitors but not itself, giving one industry preferential tax treatment over another is the definition of the term ‘subsidy.'”

“I don’t think free-market environmentalists should ever be talked into supporting higher taxes in the name of some mythical ‘level playing field,'” countered Heartland Institute President Joseph Bast.

James Hoare ([email protected]) is managing attorney at the Syracuse, New York office of McGivney, Kluger & Gannon. The views and reports expressed are his alone and do not represent those of McGivney, Kluger & Gannon or the partners of the firm.