Farm fields landscape

Ethanol and Gasoline

by David Morris
April 22, 1997
published in St. Paul Pioneer Press

From The Institute for Local Self Relience

This Earth Week let's talk about ethanol and gasoline.

Back in the early 1920s car companies were designing more powerful, higher compression cars. They needed an additive to boost octane and eliminate engine knocking. With an octane rating of 110 ethanol was a perfect choice. But ethanol displaces about 10 percent of the gasoline. The oil companies were determined not to give that business to America's farmers.

Instead, the industry chose to mix a small amount of lead into the gas. By 1940 leaded gasoline was the norm. Thirty years later the evidence of the resulting damage to human health from lead in the air and soil had become so compelling the federal government banned leaded gasoline.

Did the oil companies then choose ethanol? Nope. They reformulated gasoline, a chemical stew of over 200 noxious ingredients. To achieve higher octane they increased the proportion of toxic and carcinogenic chemicals like benzene, toluene and xylene to 30, 40 even 60 percent of the gasoline.

In 1990 the federal government again stepped in and imposed a cap on benzene and aromatics in parts of the country (not Minnesota). Congress also required oil companies to add oxygen to gasoline in big cities. Pound for pound nothing gives you more oxygen than ethanol. Yet almost all oil companies chose to use a product made from gas and oil called MTBE.

Despite the hostility of the oil companies and their company owned gas stations, ethanol is now widely used. One percent of the nation's transportation fuel, some 1.5 billion gallons, is now made from a renewable resource–plant matter. More than 30 companies in 15 states produce ethanol. Archer Daniels Midland (ADM) once dominated the industry and still is by far its biggest single producer. But the fastest growing segment consists of smaller, local and often farmer-owned enterprises.

The oil companies want to nip this competitor in the bud. Their strategy is to end the tax incentives to ethanol. Ethanol costs too much, they argue, and why should someone in New York City subsidize someone in Minnesota?

These are fair questions. Ethanol does receive handsome tax incentives. Yet this country has a longstanding policy of nurturing renewable energy industries in their early years, and ethanol is still a very small and fragile industry. In contrast, the oil industry is mature and dominant. Yet oil companies receive several times the tax incentives as ethanol firms. The oil depletion allowance alone, a particularly loathsome part of the tax code which allows companies to benefit the more they deplete a nonrenewable resource, is larger than all federal and state benefits to ethanol. Not surprisingly, Bill Archer, the powerful Texas Republican leading the charge against ethanol, refuses to cut a penny from the oil industry's incentives.

A good economic comparison shouldn't stop at comparing tax incentives. The Pentagon spends $50 billion a year to protect access to mid eastern oil. Why shouldn't consumers of gas and diesel pay for this directly at the pump? The cost? Some 20 cents a gallon, about four times the federal tax incentives for ethanol. I'm assuming we won't need a miliary force to invade Minnesota or Iowa or Illinois to force its farmers to sell us their homegrown fuels.

Ethanol refineries are excellent economic development vehicles. They create more jobs per gallon than oil refineries. A million dollars spent in Minnesota on ethanol may increase economic activity by half a million dollars more than if that money were spent on oil. Ethanol now accounts for some 8 percent of Minnesota's transportation fuels. The half dozen existing ethanol plants could double to 12 in two years if the tax incentives keep pace with the industry's expansion.

Sometimes oil companies argue that ethanol is bad for the environment. It is a hard argument to make because it flies in the face of common sense. How can replacing the most toxic parts of gasoline with a drinkable liquid like alcohol degrade the environment? Ethanol blends can reduce the overall toxicity of gasoline by 25 percent. Ethanol reduces climate-altering greenhouse gases. And unlike oil spills, ethanol spills are not an environmental hazard.

Given that ethanol is liquor, I sympathize with those who think it is too good for our cars. But I'm taken aback by the oil companies' claim that cars are too good for ethanol. Your car is more likely to be harmed by the remarkable variations in ordinary gasoline than by ethanol. Since 1990 GM has recommended ethanol blended fuels for its cars. Motorists have driven more than a trillion miles on ethanol blends with no problems.

Ethanol is our nation's largest renewable energy industry. This Earth Day we should hoist a glass of one of ethanol's lower octane cousins and make a toast to its continuing success.