Breaking That Dirty Old Habit

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Today's ethanol boom has nothing to do with Gaffney & Co.'s extreme solution, but if ethanol use were to evolve into the mainstream, it would multiply the plug-in's gas savings. Gaffney's group calculates that if by 2025 all cars are hybrids, half of them plug-ins and all of them running on an 80% ethanol blend, U.S. gas imports could drop from the projected 20 million bbl. a day to 8 million bbl. But today it is not national security that drives ethanol demand so much as environmental regulation. Refiners buy ethanol because it helps gasoline burn more cleanly--and it is one of two additives the government requires polluted cities to use to cut down on certain tailpipe emissions. Because the traditional additive, a toxic substance called MTBE, tends to pollute groundwater, many states are opting for ethanol.

But there are huge debates about ethanol's economic viability. The Federal Government provides a 51¢ tax exemption to gasoline refiners for every gallon of ethanol used, to keep the product competitive. (Conservative activist Gray points out that the oil industry has long enjoyed far larger tax breaks.) And now, Senate mandate aside, Illinois Senator Barack Obama has slipped an amendment into the energy bill providing a $30,000 tax credit to encourage gas stations to pump "E85," an 85% blend of ethanol and gas used by so-called flexible-fuel vehicles. There are already 4 million such cars on U.S. roads. The Set America Free plan calls for just such incentives.

Debate has long raged over whether ethanol takes more energy to make than it delivers--something called the energy balance. Most experts now agree that from cornfield to factory vat, the amount of energy expended in making the fuel accounts for about 80% of the energy in it. But refiners say ethanol is still an inefficient option. Because it tends to separate from gas in pipelines, it has to be trucked to terminals and blended there by specially modified machines. That increases costs. "There is a question about the real cost of this product," says Robert Slaughter, president of the National Petrochemical & Refiners Association. "How many federal-assistance programs do you need to make it work?"

In fact, the real answer to such cost issues is bioethanol, which is the same stuff as ethanol but is made from wood or plant wastes like cornstalks. One of the few oil companies to back bioethanol is Shell. It invested in a pilot plant run by a small Canadian biotechnology firm named Iogen, which put itself on the map by shipping the first commercial batch of ethanol made from straw last year. Iogen CEO Brian Foody says he expects to break ground on a 50 million-gal.-a-year plant next year. The hawk-and-dove coalitions want bioethanol to fuel future cars. It's loved as much by fiscal conservatives for turning waste into treasure as it is by environmentalists for its overwhelmingly positive energy balance. A bioethanol industry would even help deplete the global-warming gas carbon dioxide from the atmosphere, notes Woolsey. And corn ethanol can't be produced in sufficient quantities to dent oil imports: roughly 4 billion gal. will be made this year. Vehicles in the U.S. consume that much gas in just 11 days.