The Ethanol Fraud
Source: http://feedproxy.google.com/~r/ContrarianProfits/~3/l8NAe1Pq010/17517Posted on Wednesday, June 3rd, 2009 | In Market Commentary
While the viability of the electric car is still heavily debated, the other attempt to reduce our dependency on foreign oil is making news again. And the news is not good.
Ethanol fuel currently comprises up to 10 percent of a gallon of gas. There is a movement underfoot, primarily led by 54 ethanol manufacturers, to increase this to 15 percent per gallon. This request is based on the current government mandate that 10.5 billion gallons of ethanol be blended into gasoline this year, and rise to 36 billion gallons by 2022.
Look at it this way: there likely won’t be enough demand for that many gallons by 2022 at the current 10% blend, so the only way to reach the target is by increasing the blend to 15%, perhaps 20%.
If it were only that simple.
Already, there are numerous reports of engine failure due to ethanol blends that are higher than 10 percent. Simply put, existing engines are being destroyed at a 10 percent blend. A higher blend will accelerate the process. The other big problem: auto manufacturers’ warranties cover fuel blended with up to 10 percent ethanol. Increasing the blend to 15 percent will void all factory warranties, and rightly so.
But here’s the real rub: just a little over a week ago, the Obama Administration proposed raising mile-per-gallon requirements by 2016. This would raise the required fleet average from the existing 27.5 to 35.5 mpg. Cars would see the biggest increase in fuel economy, from the current requirement of 27.5 mpg standard to 39 mpg in 2016. Light trucks would see the requirement rise from the current 24 mpg to 30 mpg.
The problem with all of this is these requirements are to be met by 2016, in the middle of the timeframe to increase the use of ethanol in a gallon of gas (remember, 36 billion gallons by 2022).
The problem is that ethanol is less efficient that gasoline!
A gallon of E85 (85 percent ethanol currently used in “flex-fuel” vehicles) has approximately 27 percent less energy than a gallon a gasoline, according to drivingethanol.org. This translates into a 10-25 percent loss in fuel economy.
So on one hand, the government is requiring that more ethanol be blended with gasoline by 2022. This will undoubtedly lead to lower fuel economy. On the other hand, the President just proposed a major increase in fuel economy be in place by 2016.
Time will tell how this plays out. But I hope that the increased fuel standards take effect and we can finally end the ethanol fraud.
Last 5 posts by Christian Hill
- Don’t Believe What You Hear About a Housing Recovery - August 5th, 2009
- Inflation May Show It’s Ugly Head, Big Week for Bank Earnings - July 13th, 2009
- Don’t Be Afraid To Take The LEAP - July 8th, 2009
- Take Advantage of the Growing Demand for Composite Materials - June 17th, 2009
- Will The Rally Last? - May 27th, 2009
contrarian profits, Electric Car, foreign oil, less energy, Market Commentary, Obama administration
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