Know Your Energy Customer

Biofuels need a growing demand base, uniform regulations and steady infrastructure development.

Editor's Note: This is the final installment of a four-part series on renewable fuel issues written by Economics Editor John Otte from his trip to the USDA Outlook Conference recently.

Thanks to the almost seamless transition of huge amounts of ethanol into our nation's gasoline pool, ethanol is gaining broader consumer acceptance.

"Our experience shows customer acceptance is the single most important factor in the success of a product, especially a transportation fuel," says Red Cavaney, President and Chief Executive Officer, American Petroleum Institute. "We must work together to maintain and build the consumer acceptance of ethanol to ultimately realize ethanol's full potential within our nation's transportation fuels portfolio.

"Our companies have decades of experience in producing, distributing and marketing transportation fuels," he says. "In the spirit of cooperation, we wish to raise several potentially limiting concerns."

Set uniform standards

"Adoption of state ethanol mandates is ultimately anti-consumer and not pro-ethanol," explains Cavaney. "A national patchwork of differing fuels requirements and implementation regulations will likely limit the total amount of ethanol used. It will certainly interfere with the reliable supply of fuels during times of supply disruptions, potentially making fuel prices more volatile.

Congress recognized this potential outcome from the proliferation of boutique fuels in gasoline and eliminated their expansion in the Energy Policy Act of 2005. The Renewable Fuels Standard, set forth in that same legislation, stresses maximum fuel flexibility.

Grow needed infrastructure

"We were all stretched to the limit last year in maximizing ethanol integration into the national gasoline pool, in good measure due to a tight wholesale delivery infrastructure," says Cavaney. "Growth in infrastructure must keep pace with consumer demand. It can be neither faster nor slower than that demand and must also recognize the pace of technological change. For example, the time required to turn over the vehicle fleet."

Greater cooperative work involving infrastructure among all stakeholders, in advance of large new volumes of ethanol production entering the market, will benefit the consumer.

E-85 availability, demand

E-85 currently remains a location-specific fuel. Its promise is presently being best realized in areas of agricultural concentration, especially corn, and in areas with more flexible fuel vehicles, especially fleet activity.

"E-85 needs greater demand," says Cavaney. "Less than 5% of our existing fleet of automobiles and light-duty trucks can use E-85. Vehicle makers must up FFV production over time to create the demand level needed to get retail service station owners – who are overwhelmingly small businessmen and women - to make the significant investments essential for expanded E-85 sales at retail. We are pleased to note automakers' commitments to higher levels of FFV production."

Integrate new technologies

At some point domestic corn ethanol production will max out.

"Too little attention is being paid to the transition from that point forward, especially impacts associated with a delay in mass-scale production of cellulosic ethanol volumes," says Canvaey. "The Energy Policy Act of 2005 contains language potentially adaptable to such a circumstance, around which stakeholders may want to begin discussions. The consequences of a failure to be adequately prepared for such an inflection point could adversely affect tens of millions of Americans and millions more in global markets."

Let market do it

"Allowing market forces and consumer preferences to determine where and how ethanol is consumed is the most effective and least costly way to integrate ethanol into our transportation fuels system," says Cavaney. "Last year, our industry used 25% more than the target amount of ethanol established under the RFS. Additionally, nearly 50% of all gasoline consumed in the U.S. now includes ethanol.

"Clearly, ethanol and biodiesel have bright futures, although biodiesel is starting from a smaller base," he concludes.

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