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President Urges Automakers to Ramp Up Production of Ethanol-fueled Cars

March 26, 2007 at 6:40 PM EDT
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RAY SUAREZ: The president toured a mini auto show on the White House lawn today, part of his push to promote alternative fuels. Detroit’s big three automakers displayed their latest designs for what are called flexible-fuel vehicles.

The cars run on alternative fuels, such as E85, 85 percent ethanol and 15 percent gasoline. After a private meeting with the CEOs, the president said it was important for Detroit to build more flex-fuel cars to reduce dependence on imported oil.

GEORGE W. BUSH, President of the United States: I found it very interesting that, by 2012, 50 percent of the automobiles in America will be flex-fuel vehicles. That means that the American consumer will be able to use gasoline or ethanol, depending upon obviously price and convenience.

If you want to reduce gasoline usage, like I believe we need to do so, for national security reasons as well as for environmental concerns, the consumer has got to be in a position to make a rational choice.

RAY SUAREZ: The president has called for a big boost in the use of ethanol. Federal law requires more than 7 billion gallons of gasoline consumption come from renewable fuels by 2012. The president’s goal is even higher: 35 billion gallons a year by 2017.

But reaching that goal will be difficult. Fewer than 1 percent of the 170,000 fuel stations in the U.S. pump the E85 blend. Tom LaSorda is CEO of the Chrysler Group.

TOM LASORDA, CEO, Chrysler Group: There’s about 1,100 pumps available today for ethanol fuel. And we said that needs to be increased across the nation, not to every station that’s out there, but at a level that is competitive, where consumers can drive, let’s say, two miles to get that kind of fuel.

RAY SUAREZ: Detroit CEOs say alternative fuels will help improve overall gas mileage. Both the president and the automakers have opposed legislation that would mandate higher fuel economy standards, known as CAFE standards.

Rick Wagoner is the chief executive of General Motors.

RICK WAGONER, General Motors CEO: If the goals are to reduce the growth and the consumption of oil, to reduce oil imports and improve the environment, the opportunity is, first of all, in ethanol and biodiesel.

RAY SUAREZ: In Brazil, where President Bush visited earlier this month, most gasoline contains ethanol. But Brazilian ethanol comes from sugar cane, while U.S. ethanol comes from corn, partially subsidized and the favorite of politicians from farm states.

Ethanol can be made from other sources, such as woodchips and switchgrass. The president has said he’ll back funding research for those efforts.

Ethanol as a fuel source

Robert Bryce
Energy Tribune
The creation of corn ethanol is simply -- it borders on fiscal insanity. We're making subsidized motor fuel out of the single most subsidized crop in America. That's corn.

RAY SUAREZ: For more on ethanol and flex-fuel vehicles, I'm joined by Robert Dinneen of the Renewable Fuels Association, a national trade association for the U.S. ethanol industry.

For the record, the Archer Daniels Midland Group, or ADM, sits on the association's board of directors, and ADM is a corporate funder of the NewsHour and the largest producer of ethanol.

Robert Bryce is managing editor of Energy Tribune magazine. He's written several books on the energy business and joins us from Austin, Texas.

Bob Dinneen, let me start with you. Today we heard from the chiefs of some of the largest car companies on the planet, and they were advocating a flexible-fuel approach as a way to get us out of our current challenge with oil. Why?

BOB DINNEEN, Renewable Fuels Association: Well, look, ethanol today is a blend component in gasoline. Ethanol is used in 46 percent of the nation's fuel. And we can continue to grow that market, and we will, and we should.

But if you're going to make a more meaningful impact on the nation's gasoline market, you're going to have to be able to produce ethanol in much larger quantities. You're going to have a larger market, more flexible-fuel vehicles on the road capable of utilizing those vehicles, and a wider distribution for that fuel.

But if we're ever going to reduce our dangerous dependence on imported oil, we need to start making the steps today so that we can be there and have a more sustainable energy future.

RAY SUAREZ: Robert Bryce, you heard Bob Dinneen here in Washington talking about ramping up production capability, ramping up consumer capability of buying this stuff. Will those things get us to where the president and the car executives said we ought to be?

ROBERT BRYCE, Energy Tribune Magazine: No, they won't. And, you know, what is interesting to me in writing about the energy business and following this issue is how so much of this push for ethanol is couched in terms of national security, and imports, and so on, and so forth.

The reality of the ethanol business now in America is that a lot of this rhetoric is simply being used to propagate more subsidies for this industry. The creation of corn ethanol is simply -- it borders on fiscal insanity. We're making subsidized motor fuel out of the single most subsidized crop in America. That's corn.

Second, when you look at the contribution now that corn ethanol is making and ethanol overall to the American oil mix, the ethanol industry produced about five billion gallons last year. That's the equivalent of about 200,000 barrels a day of oil equivalent. That's 1 percent of America's overall energy consumption.

If you took all of the corn in America, Ray, and converted all of that corn into ethanol, you'd produce about the equivalent of about 1.3 million barrels a day of oil equivalent. That's equal to about 6 percent of America's total oil consumption.

There's this idea somehow that, in the Renewable Fuels Association and these other ethanol boosters, that America can solve its oil imports and become more energy secure with ethanol. I think it's largely just a canard. This is just cover for propagating more subsidies for this industry.

If I can make one other factual correction...

RAY SUAREZ: Quickly, please.

ROBERT BRYCE: ... about what the president said, he said, by 2012, that 50 percent of the vehicles in the U.S. will be flex-fuel. That's not correct. What I think he meant to say was that half of the vehicles now that the big three will be building will be capable of burning E85, but right now there is something like 250 million vehicles in America. Only about 6 million of them can burn E85.

RAY SUAREZ: Bob Dinneen, how do you respond?

BOB DINNEEN: Ray, I don't think anybody has said that ethanol is a panacea, that ethanol is going to replace every gallon of gasoline and crude oil that we use in this country. But it is a start.

And the fact of the matter is, the investment that this nation has made in ethanol is absolutely paying off. Every dollar that the taxpayer has spent to invest in renewable technology has returned four dollars in economic activity throughout the entire economy.

Look at what this industry is doing. Last year alone, the 5 billion gallons of ethanol that we produced created 160,000 jobs. It stimulated more than $46 billion in gross output.

From an environmental standpoint, the 5 billion gallons of ethanol we produced last year reduced greenhouse gas emissions by some 8 million tons. Ray, that's the equivalent of taking 1.2 million vehicles off the road.

It's not everything to date, but it is a great foundation for what we as a nation can do with enough commitment. The grain ethanol industry that's here today is going to allow for investment in cellulosic ethanol conversion technologies.

The ethanol industry you see today will be unrecognizable from the industry you'll see five years from now, with new feed stocks, new, more efficient technologies, and new markets, like E85. But if we don't start today with a real commitment, we're never going to get there.

Subsidizing ethanol production

Robert Dinneen
Renewable Fuels Association
If we are going to move our nation's economy at least a bit away from just hydrocarbons and more towards carbohydrates, more towards renewable fuels, we have to have incentives in place to allow that to happen.

RAY SUAREZ: Well, the brunt of Mr. Bryce's attack was on the money. Absent those subsidies, would this make any economic sense for farmers, for fuel, the big oil-producing companies that are also part of the supply chain for getting E85 into your local gas stations?

BOB DINNEEN: Ray, there's no question, but the incentives that are available to oil companies to blend ethanol have helped to build this industry.

But you know what? There is no free market for energy any place in the world. And if we are going to move our nation's economy at least a bit away from just hydrocarbons and more towards carbohydrates, more towards renewable fuels, we have to have incentives in place to allow that to happen.

But the investment that the taxpayer is making is being met by additional investments from private industry. And as our industry grows, you see a lot more capital coming into this industry. And, more importantly, you see a lot more intellectual capital coming into the industry, as well, that's absolutely revolutionizing the ethanol industry today.

RAY SUAREZ: How about that, Mr. Bryce, the idea that, yes, there is a subsidy, but it's necessary sort of seed corn to get the whole thing going, if you'll excuse the metaphor?

ROBERT BRYCE: It's expensive seed corn, Ray. Let me take one point that Mr. Dinneen made about greenhouse gas emissions. I simply don't buy it.

If you look at the net energy gains or lack of net energy gains in corn ethanol, it's very much an open question as to whether corn ethanol produces any new net energy at all. There are credible studies that say, in fact, it has a negative net energy balance.

And if it is just merely break even, and many studies, including studies done by the GAO and the Congressional Research Service, estimate that the greenhouse gas emissions from corn-based ethanol are no better than the greenhouse gas emissions from gasoline. So that is simply a nonstarter.

Mr. Dinneen mentioned cellulosic ethanol. Look, this is the equivalent of vaporware in the software industry. We've been talking about cellulosic ethanol for decades.

RAY SUAREZ: And let me just jump in there. It would be made from waste products, fibers, the leftovers from a lot of agricultural things, the things that we would throw away otherwise rather than the grain itself.

ROBERT BRYCE: Sure. And President Bush mentioned switchgrass, which is another item that's constantly brought up as one of the potential feed stocks. Look, it's a great idea, but the problem is that these plants don't give up their sugar easily.

Scientists have been trying to solve this for years. So this idea that suddenly we're going -- you know, the problem with Mr. Dinneen's reasoning, I think, is, what is the ultimate goal here? Is it a 1 percent reduction in America's oil imports? Is it 2 percent? What is the end goal? And that's where the ethanol industry can never say exactly what it is. And that's what's remarkable.

The influence of standards

Robert Bryce
Energy Tribune
If we want to reduce oil consumption, the solution is simple but politically difficult, and that's a motor fuel tax.

RAY SUAREZ: Let me get a quick response from both of you on just that question. Would conservation, tougher corporate average fleet efficiency standards, or CAFE, get you to the same place where using corn to make gasoline would get you?

BOB DINNEEN: Well, I'm not sure it's an either/or situation, Ray. I think we need both. We need to be doing everything we possibly can to reduce our energy use through more conservation, but we also need to be doing everything we can to wean ourselves from our dependence on petroleum because of the energy security impacts that that dependence has, because of the environmental implication of oil use, and because of the economic benefits of producing value-added products from our own renewable feed stocks.

It's not just vapor. It's real; it's here; and we need to be doing more of it.

I don't know what Mr. Bryce's solutions are. He seems to want to stick his head in the sands in Saudi Arabia and just ignore the problem. We don't want to ignore the problem...

RAY SUAREZ: Let me get a quick response from Mr. Bryce on what his solutions are. Quickly, please.

ROBERT BRYCE: Well, a couple things. One is, what's interesting to me, Mr. Suarez, about why the automakers are on board on this is that, by building E85 vehicles, what they are allowed to do is artificially inflate their CAFE numbers. They are actually able to artificially inflate their fleet efficiencies, and that is why they're so pro-E85.

Last month, U.S. News and World Report estimated that, between 2001 and 2008, this CAFE credit loophole that they're exploiting is actually resulting in the U.S. burning something on the order of 17 billion gallons of additional fuel than they would otherwise.

What are my solutions? It's always the same issue, Mr. Suarez and Mr. Dinneen. It's always the same thing. If we want to reduce oil consumption, the solution is simple but politically difficult, and that's a motor fuel tax. It was the solution after the first Arab oil embargo in 1973, and President Nixon didn't want to do it.

The other hard solution which the automakers clearly don't want is federal mandates to force them to make more efficient vehicles. They don't want it.

RAY SUAREZ: Got to end it there. Thank you, sir.

ROBERT BRYCE: Thank you.