Monday, June 27, 2011

The Open Fuel Standard Could Make A Healthier Ethanol Industry

The Open Fuel Standard intends to bring fuel competition to the pump, ensuring that a growing percentage of new cars are warranted to operate on a range of alternative fuels and helping the ethanol industry out of a dead-end for growth.

The bill was introduced by congressmen John Shimkus (R-IL), Eliot Engel (D-NY), Roscoe Bartlett (R-MD)and Steve Israel (D-NY);  requiring 50% of new cars to be warranted for alternative fuels such as flex-fuel, biodiesel, hydrogen, bioethanol and a range of others by 2014. This would increase to 80% by 2016 and 95% by 2017. They claim the bill would allow consumers to choose; either for cost or for fuels from a particular source. They also claim that the bill would reduce dependence on foreign oil and would be a step towards sustainable fuel use. The idea is that this Act would provide certainty to investors that backing alternative fuels would be a growing investment and would also encourage fueling stations to supply a range of alternative fuels. Importantly; the bill is technology neutral, not specifically backing any one fuel type and if it passes, the bill will provide a better environment for alternative fuel growth and proliferation.

In 2008, GM, Ford and Chrysler stated that they were willing to make 50% of their new vehicles flex-fuel by 2012, which they estimate can be done at a cost of $100 per vehicle; not a great deal in the grand scheme of new car prices. This modification would allow the same vehicle to use a range of alcohol fuel blends in addition to gasoline so that consumers could respond to variation in fuel prices; effectively allowing an open market to select the most effective fuels. As it stands, alcohol fuels have the best position given the relatively large amount of infrastructure in place, investment and current research on the technology.

The Methanol Institute has declared its support for the Open Fuel Standard Act.

Methanol Institute Executive Director, Gregory Dolan:
"The Open Fuel Standard Act is all about choice. By ensuring that new cars can operate on something other than gasoline, Americans can reap the benefits of multiple alternative fuels. Methanol in particular is poised to play significant role in reducing our dependence on gasoline, as the most affordable, easily deployed, sustainable fuel available that would retail at the pump today for just $3.19 per gasoline equivalent gallon."
Methanol fuel is one of the alternative fuels that could benefit from the OFS; it can be produced from natural gas or from biomass and can be produced relatively cheaply, though most engines are not designed to use it in high percentage blends and can be damaged by its use over time. With the increase in vehicles that can use alternative fuels, the methanol fuel market would be well placed to expand as it can be at pumps for $3.19 a gallon; less than current US gas prices. As gas prices continue to increase and alternative fuel producers strive to drive costs down, we might well see greater competition at the pumps and cheaper fuel.

The bill addresses a problem that has been ongoing in biofuels; it provides a longer term solution to the ethanol blending wall than simply increasing the blending limit.The bill is not specific to fuel type, however in practice the fuels it will most likely benefit are alcohol based fuels by increasing their consumer base over the next few years and making room for growth. Growth in the ethanol fuel market at present is limited by blending restrictions; even with legislation to increase the limit from E10 to E15 in normal cars, this is only a short term fix. US ethanol production will catch up with this limit within a few years, a limit which is already being criticized for the damage E15 might do to normal gasoline engines. With more vehicles on the road which are warranted for using high percentage alcohol fuels such as E85, this would give the US ethanol industry more headroom to grow, more healthy competition and more incentive to implement more advanced production technologies to make a larger impact on future ethanol markets.

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