A fleet of flexible fuel vehicles would allow consumers to chose between gas and biofuels. The competition would save consumers money and move the U.S. towards energy independence. Shown above is the prototype Ford Escape Flexible Fuel Hybrid. (Photo courtesy of the Ford Motor Company.)

When the President of the United States discusses switch grass in the state of the union, you know something has changed. "We’ll also fund additional research in cutting-edge methods of producing ethanol, not just from corn, but from wood chips and stalks, or switch grass. Our goal is to make this new kind of ethanol practical and competitive within six years," www.whitehouse.gov/stateoftheunion/2006/index.html" >said President Bush. The speech recognized the need to reduce our nation’s consumption of oil by substituting alternative fuels or biofuels for gasoline. Switch grass is one example of an environmentally friendly crop that could be harvested and converted into transportation fuel. In this article, we look at what it would take to economically replace gasoline with biofuels.

The U.S. consumes about 150 billion gallons of gasoline per year. Currently, we consume nearly www.eia.doe.gov/oiaf/aeo/index.html" >21 million barrels of petroleum per day. Gasoline is the largest single product made from that petroleum. Our dependence on foreign sources of oil funnels billions of dollars to shaky and hostile regions, increasingly causing defense and foreign policy experts to cite our oil addiction as a "national security emergency." Our reliance on foreign sources also undermines our economic stability, exposing our markets to price shocks; spikes in oil prices have preceded each of the major recessions over the last 30 years.

America’s cars, trucks and buses account for 27 percent of U.S. global warming pollution. Thus, a "climate friendly" domestic fuel is desirable for economic, security and environmental reasons.

Over the last few years, federal mandates for gasoline additives have increased the use of ethanol, which now accounts for about 3 percent of our gasoline supply. Ethanol, derived primarily from corn, is blended in quantities of up to 10 percent in gasoline (also called E10 or low-blend); the maximum amount that all vehicles sold in the U.S. are certified to handle. Existing federal policy enacted in last year’s energy bill called "www.energy.gov/taxbreaks.htm" >EPAct 2005," will increase the volume of ethanol from the current 4 billion gallons/year to 7.5 billion. Low-blend alone will not solve our problem because existing vehicles are not designed to exceed E10 and recent evidence has shown that there are air quality risks with using low-blend ethanol in warm weather in air basins with already poor air quality. In order to achieve independence from foreign sources of oil, while minimizing environmental impacts, we must pursue the growth of a high-blend ethanol market and vehicles that are certified to use it. It also requires expanding beyond corn-based ethanol to cellulosic ethanol.

Thus, the President’s goal requires vehicles that run primarily on biofuels - not gasoline.

The U.S. needs three things to have a fuel that is competitive with gasoline:

1. Cars that can run on either gasoline or alternative fuels
2. Alternative fuels that compete with the expected price of gasoline
3. An infrastructure to deliver the fuel conveniently to consumers

All three exist today but in too limited a choice of vehicles, too low a volume, and in too few stations. In a six-year timeframe, the only likely alternative fuel candidate is E85 (85 percent ethanol and 15 percent gasoline). E85 can be delivered through existing gasoline retail infrastructure and run in flexible fuel vehicles (FFV), which can operate on any combination of gasoline and ethanol.

All U.S. vehicles can run on a mixture of gasoline and up to 10 percent ethanol. To use more than 10 percent, the vehicle must be specifically designed to be a "flexible fuel vehicle" (FFV). An FFV has a fuel system which can handle the more corrosive properties of ethanol, a sensor to measure the percentage combination of ethanol and gasoline, an adjustment mechanism enabling engine calibrations and special injectors. Ford Motor Company estimates the incremental cost of a FFV vehicle at $100 to $150 per unit. In addition, an FFV must be re-certified to verify it meets federal and state emissions standards - adding a significant one-time cost.

FFVs provide considerable consumer choice by allowing customers to shop for cheaper fuel - using E85 when oil prices are high and gasoline when oil prices are low. This consumer-choice model has worked extremely well in Brazil, where ethanol now comprises 40 percent of the market and FFVs are widespread.

In the U.S. there are about 5 million FFVs, not due to consumer demand, but because a manufacturer gets a "credit" on their fuel economy requirements for every FFV they produce. This is true even if the car never runs on anything except gasoline. This federal law from 1988 has allowed manufacturers to continue to produce vehicles with lower fuel economy with no public benefit.

In 2006, U.S. manufacturers are expected to sell between 700,000 and 1,000,000 FFV vehicles and both GM and Ford are mounting significant consumer campaigns to get FFV owners to use E85. The increase in FFV’s necessitates an increase in E85 fueling stations and auto companies want to see more E85 pumps available. Ford is focusing in the Midwest in www.verasun.com/releases_11_4_05.htm" >partnership with VeraSun, a major ethanol producer. General Motors media.gm.com/servlet/GatewayServlet?target=http ://image.emerald.gm.com/gmnews/viewmonthlyreleasedetail.do?domain=74&docid=22876">announced a relationship with Shell Oil Products and VeraSun to add 26 E85 pumps in the greater Chicago area.

To achieve wide-spread production and use of E85 we will need the majority of new U.S. vehicles to be available as FFVs. There are two general paths for making this happen. The federal government (or possibly states) could mandate a phase-in of FFVs (in fact, the "Vehicle and Fuel Choices for American Security Act" - S. 2025 and H.R. 4409 - does just that). Alternatively, if U.S. consumers made FFV capability a purchasing criteria, the car companies would happily increase FFV production to respond to demand. However, consumer demand is contingent upon E85 being widely available and being less expensive per mile driven than gasoline.

As the chart below shows, there were a variety of crops in various countries that produced ethanol at production costs competitive with gasoline during 2005. (Note that these are production costs in Euros per liter, and not the actual sales price.)

Source: The Economist, New Energy Finance, DOE, UK Petroleum Industry Association (via: Imprimatur Capital)

The production price of gasoline in California is approximately $.61 per gallon for refinery costs plus the price of crude oil (see www.energy.ca.gov/gasoline/index.html" >Weekly Transportation Fuels). At a cost of $42/barrel, the production cost of gasoline is $1.61 per gallon (there are 42 gallons per barrel). In the U.S., ethanol made from corn has a production cost less than $1 per gallon (exclusive of equipment depreciation) and during the period of $40-a-barrel oil, it was being sold to refineries for about $1.20/gallon.

There is less "energy density" in ethanol and thus a car optimized for gasoline will get less miles per gallon with ethanol. There are no complete studies on what the actual mileage is (see www.wqad.com/Global/story.asp?S=3972760" >Gasoline vs. E85 for an example). The theoretical worst case is about 1/3 fewer miles per gallon. Most drivers report a 5 to 20 percent reduction in miles per gallon. Using the 1/3-worst-case, one would have to discount the value of ethanol by 1/3, making it about $1.60 per gallon-equivalent of gasoline. Thus, without any tax benefits (the federal government offers a $0.51/gallon excise tax credit per gallon of ethanol, current corn-based ethanol is price competitive with gasoline at about $42/barrel and above. (Note: The final consumer price of gasoline includes $0.50/gallon in taxes.)

The U.S. Energy Information Administration estimates future costs and consumption of energy from all major sources. Their www.eia.doe.gov/oiaf/aeo/index.html" >2006 annual energy forecast predicts 2010 imported crude oil to be priced at $43.99/barrel and imported low-sulfur light crude at $47.29/barrel. The price during the week of February 19th, 2006 was about www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/weekly_petroleum_status_report/current/pdf/table13.pdf" >$56. World-wide demand will increase during the next six years and volatility of supply is likely to continue. As a result, the government forecast would seem optimistically low. On the other hand, a successful alternative to petroleum could cause OPEC countries to artificially drop prices in order to economically damage the alternative fuels.

Currently, ethanol is made the same way beer or wine has been produced. A sugar or starch is fermented into alcohol. The two main crops today are sugar cane and corn. Those crops will have incremental improvements in the production process, but they will always be fundamentally limited by availability of land and the cost of production. Most experts expect to make ethanol from the cellulose in plant material and find crops that can produce large amounts of cellulose per acre.

This is where switch grass and cellulosic ethanol comes in.

While there are no major cellulosic production facilities today, private industry and governments are very active in addressing the three factors affecting its use - the amount of biomass per acre, the amount of ethanol that is produced per ton of biomass and the cost of production. There are numerous possible variations on these three factors. We will use switch grass as one illustration.

Today, sustainable methods can be used to produce about 5 dry tons of switch grass per acre per year. Assuming the yield improvements we have seen in other crops (such as corn) can be expected for switch grass, we can speculate on tripling production over time, to 15 dry tons/acre. Current conversions techniques produce about 33 gasoline-gallon-equivalents/ton. According to an NRDC report entitled "www.nrdc.org/air/energy/biofuels/contents.asp" >Growing Energy," the conversion should improve to 80 gallons per dry ton over the next 10 to 15 years.

Let’s assume for the moment that all 44 million current farm acres in South Dakota were used for biomass. Forty-four million acres multiplied by 15 dry tons/acre multiplied by 80 gallons per ton would yield 53 billion gallons/year, or about one third of the U.S. supply. Converting this to barrels of oil per day, South Dakota would rank 3rd in www.eia.doe.gov/emeu/steo/pub/3atab.html" >OPEC country production quotas, with 3.4 million barrels/day, behind Saudi Arabia with 9.1 million and Iran with 4.1 million.

Of course, we are not implying South Dakota would do this (although the math shows their farmers would get more profit per acre if they did), but rather to illustrate a point. A recent www.eere.energy.gov/biomass/pdfs/final_billionton_vision_report2.pdf" >report from the U.S. Department of Energy stated: "In the context of the time required to scale up to a large-scale bio-refinery industry, an annual biomass supply of more than 1.3 billion dry tons can be accomplished with relatively modest changes in land use and agricultural and forestry practices." At 80 gallons/dry-ton, this would amount to more than 100 billion gallons.

Estimates done by NRDC (see www.nrdc.org/air/energy/biofuels/contents.asp" >"Growing Energy") project the cost of such advanced cellulosic ethanol at $.59-$.91/gallon gasoline equivalent. Thus, existing ethanol techniques can compete with oil above $40 per barrel allowing time for cellulosic ethanol to eventually compete with oil at virtually any price anticipated over the next twenty years.

There are only minor differences between an E85 pump and a gasoline pump. If service stations were so inclined, they could convert gasoline pumps to E85 pumps or add an E85 pump. The most cost-effective way would be for stations with three storage tanks offering low-, mid- and high-octane gasoline to replace the mid-octane tank with E85. (A mid-octane could still be produced by blending the low- and high-octane gasolines.) Such a conversion is possible for under $5,000 if state-certified equipment is already available.

If a new storage tank needs to be added, the costs can easily increase to $25,000 to $50,000 per pump. E85 can be delivered to the station in standard tank trucks.

What would motivate a station operator to offer E85? In Minnesota, a state program provides financial incentives and, as a result, there are more than 100 stations. New York has significant grant funds available in its proposed State budget for making stations E85 capable. In the U.S. overall, the 600 total E85 fueling stations are concentrated in the Midwest, where most of the ethanol is produced. It constitutes a small fraction of the 170,000 total retail gas stations in the U.S. Under the EPAct2005 fueling stations are eligible to claim a 30% tax credit for the cost of installing E85 ethanol pumping stations. This should significantly increase the availability of E85.

The key to increasing the number of pumps may lie in the independent station operators. Their margins are better with ethanol than with gasoline because they can get long term commodity contracts and they can compete on price with the majors since there is a more level playing field for purchasing ethanol than exists in gasoline.

The remaining question is whether the price advantage will be passed on to the consumer. Current E85 pumps generally price their product at a discount to gasoline, typically $0.50/gallon below regular gasoline, or just enough to attract customers. (A consumer needs to compare the actual cost per mile driven with gasoline and E85 for their own vehicle.) As the volume of ethanol increases, we can reasonably expect market forces to drive down the cost to consumers, providing downward pressure on fuel prices that does not exist in today’s market.

Gasoline made from petroleum takes carbon stored in the ground and releases it into the atmosphere. Ethanol made from biomass takes carbon from the atmosphere, absorbs it into the plant material and releases it when burned in the vehicle. The new carbon comes from the fossil fuel energy used to grow crops and make the ethanol. NRDC forecasts that advanced cellulosic ethanol will produce less than 15 percent of the global warming pollution that gasoline produces. Thus, once the free market for E85 comes into existence, it would be in the U.S.’s best interest to have a global warming pollution standard for fuels - just like there are standards for other pollutants. This would help prevent market price fluctuations from causing a shift to higher global warming pollution.

The President’s six-year goal of a competitive cellulosic ethanol industry will help to drive an E85 market as long as three factors occur roughly concurrently: an increase of the FFV fleet of cars in the U.S., advances in ethanol production from an increased variety of crops (including cellulosic ethanol), and an expansion of E85 infrastructure. Consumers have the most to gain from such a transition: competitive fuel prices, increased national security coupled with an economic boost due to domestic sources of fuel, and a low-carbon fuel reducing global warming pollution.

While the corn ethanol market has already taken off as a result of existing federal programs, cellulosic ethanol, FFVs and E85 pumps have not. Cellulosic ethanol is starting to receive significant public and private investments. Auto companies would be happy to make the cars if only there were E85 pumps conveniently located for consumers. Independent station owners (and the majors eventually) would be happy to sell E85 if only there were cars creating demand. Solving the remaining stalemate will mostly likely fall on government policies - or a major economic shock coming from the price or availability of gasoline. A government/private partnership is the best alternative to both spurring and sustaining an E85 market.

David Hawkins, Director of NRDC’s Climate Center, speaks at E2’s EcoSalon at Google.

More than 200 E2 members and guests gathered on February 23 at the Mountain View, California, campus of Google, Inc., to participate in an EcoSalon, "Global Warming: Where do we go from here?" Michael Jones, Chief Technology Officer for Google Earth, demonstrated the power of Google Earth to "take" people to places they might not otherwise see, and galvanize the public to action on environmental issues to which they feel more directly connected as a result of having "visited" through Google Earth.

David Hawkins, Director of NRDC’s Climate Center, presented an overview, using layered Google Earth images, of global warming’s effects around the globe, including a model of what the San Francisco Bay Area might look like if sea levels rise one or more meters (see David’s presentation). David proposed energy efficiency, renewable energy, and CO2 capture and geologic storage as the best solutions to immediately tackling the problem of rising greenhouse gas emissions. Within those broad goals, he provided examples of more specific benchmarks, such as increasing the average gas mileage of the nation’s vehicle fleet to 54 mpg by 2050, generating 30 percent of our electricity from wind, and equipping more of our existing coal plants with carbon capture and storage technologies. NRDC’s Ralph Cavanagh, Co-director of the Energy Program, and Devra Wang, Director of the California Energy Program, discussed how California is leading the nation in energy efficiency and is continuing to make strides toward reducing greenhouse gases through implementation of recently passed regulations and the development of new regulations to be considered by the legislature and voters this year.

E2 is supporting a California bill, AB 32, which would reduce statewide global warming pollution by 25% by 2020. This is consistent with Governor Schwarzenegger’s reductions discussed in the January E2 newsletter. We will keep you updated on the actions you can take in support of California’s global warming legislation in the coming months.

Many thanks go to Google for hosting this EcoSalon on their campus, and to Legacy Venture for co-sponsoring the event.

On February 21, 70 members of Portland’s energy, environmental, and business communities gathered at the Jean Vollum Natural Capital Center, headquarters of www.ecotrust.org/" >EcoTrust, for E2’s first Oregon EcoSalon, "A New Energy Future for America" featuring U.S. Senator Ron Wyden (D -OR) and Co-Director of NRDC’s Energy Program, Ralph Cavanagh. Senator Wyden discussed challenges at the federal level for establishing economically and environmentally robust energy policy, but emphasized Oregon’s clear potential to be the nation’s center for green energy. Ralph Cavanagh highlighted the Northwest’s accomplishments in energy efficiency and renewables, largely due to the partnerships between NRDC and Oregon’s progressive energy leaders, many of whom were in the room. Ralph agreed with the Senator that Oregon is considered a model for successful energy practices across the country. Both speakers underlined the need for the business community to bring its leadership, capital, and entrepreneurial thinking to the creation of a thriving cleantech sector as well as the development of policies to promote such innovation.

The event was graciously hosted by Ecotrust, a LEED Gold-rated building, courtesy of Astrid Scholz. Cooper Mountain Vineyards kindly donated refreshments, including their fine line of organic wines. Rafati’s provided fresh and healthy catering.

On February 16, E2 Southern California members joined Santa Monica City Councilmember Bobby Shriver and a panel of green building experts to celebrate Green Communities, a five-year, $555 million initiative to build more than 8,500 environmentally healthy and affordable homes throughout the country. Created by Enterprise, in partnership with NRDC, Green Communities will transform the way America thinks about, designs and builds affordable communities. The panel included Ashok Gupta, Director of NRDC’s Air and Energy Program; Stockton Williams, Vice President of External Affairs, Enterprise; Ann Sewill, Vice President and California Director, Enterprise; Nancy Sutley, Deputy Mayor for Energy and Environment, City of Los Angeles; and Joan Ling, Executive Director, Community Corporation of Santa Monica.

In its first year, the Green Communities partnership has resulted in a new standard for green affordable housing and has provided funding and financing for 4,300 new green affordable homes. Two such projects include the James Wood Apartments in Los Angeles and the Plaza Apartments in San Francisco. Compared to conventionally built homes, these green housing developments will reduce costs and consumption of natural resources, resulting in $1.5 million in energy savings, more than 5,000 tons in reduced greenhouse gas emissions and 30 million gallons in reduced water use per year. To learn more about the business rewards of sustainable construction, please visit www.nrdc.org/buildinggreen" >NRDC’s Building Green website, which provides case studies of green buildings, including the Solaire in New York City and NRDC’s Robert Redford Building in Santa Monica.

On February 15, New England E2 members Berl Hartman, Rob Moir and Susan Goldhor testified at the Department of Environmental Protection (DEP) public hearing in Salem, Massachusetts, in favor of strict regulation of CO2 emissions from Massachusetts’ power plants - the so called ?Filthy Five’ - and against Governor Mitt Romney’s proposals to weaken regulations already in place.

Berl Hartman, a clean energy marketing consultant, focused on the economic opportunities that the current regulations could create for Massachusetts’ companies, pointing out that the Governor’s proposed price caps on CO2 offsets would remove incentives to develop and invest in local technology to modernize plants and directly reduce pollution.

Susan Goldhor, a biologist and founder of the Center for Applied Regional Studies, highlighted the effects of global warming we are already experiencing and the fact that many scientists predict we may be approaching an irreversible tipping point. She noted that the tax benefits to the city of Salem from the power plant could well be far outweighed by the cost of climate change to this coastal community.

Rob Moir, vice president of ocean policy for the Ocean Alliance, former curator of natural history at Salem’s Peabody Essex Museum and founder of the Salem Sound Coast Watch, spoke about both the local and global impacts of power plant pollution. From the Salem perspective, Rob objected to the governor’s proposal that would allow CO2 offsets from anywhere in the world, noting that Salem would benefit most from cleaning up power plant pollution using local technology and companies.

On February 2, New England E2 members attended a lunch briefing hosted by Mintz Levin featuring Jim Hunt, Boston’s chief of Environment and Energy Services, and Jacob Scherr, NRDC’s Director of International Programs. At a time when federal actions on the environment are at a standstill, our speakers discussed how cities and local governments have taken a leadership role in finding environmental solutions.

Jacob shared his experience during last summer’s U.N. World Environment Day on green cities, which was attended by mayors from leading cities around the world. Leaders at the conference focused on implementing specific actions to address issues such as water, energy, waste, urban design, transportation and environmental health in an effort to establish a sustainable urban environment for its people. Jim described Boston’s commitment to energy efficiency and sustainability by highlighting the city’s efforts such as promoting green tourism and green building construction; encouraging renewable energy sources such as solar and wind; retrofitting City Hall to be more energy efficient; and converting city vehicles into hybrids. He hopes these and other environmental initiatives will send a message to our leaders at higher levels of government to follow suit.

Early this month, the government of British Columbia granted formal protection to more than five million acres of the Great Bear Rainforest Park, a vast coastal temperate rainforest that is home to eagles, wolves, grizzlies, black bears and the rare white "spirit" bear found only in that region (and which also serves as NRDC’s logo). NRDC designated the area as one of its first Biogems and, for nearly a decade, waged a passionate campaign with our local and national partners to secure this important government protection. Thanks to the hard work of NRDC’s experts and supporters - as well as those of our colleagues in the environmental community - this unique ecological gem is now under permanent protection.

NRDC’s Advocacy Center publishes a monthly newsletter, Capitol Insights. Since the last issue of Insights, House Republicans have elected Ohio Representative John Boehner as the new majority leader and the Senate confirmed Judge Samuel Alito to the United States Supreme Court. This issue of Insights focuses on President Bush’s proposed federal budget for FY 2007 and offers an inside look at the proposal and how it could affect important federal environmental programs. E2 members can view this newsletter at: .

On February 14, Center for Legal Assistance to Pollution Victims (CLAPV), China’s leading environmental law organization based in Beijing, and NRDC signed an agreement that will strengthen China’s legal mechanisms for environmental protection and broaden public participation in crucial public decision-making. Under the agreement, the two groups will host environmental litigation training workshops for Chinese judges, lawyers and government officials; educate the public about domestic and international experience in environmental protection; and convene international forums on a range of legal and public participation issues.

NRDC and CLAPV started working together late last year, even before entering into a formal collaboration. In December, the organizations collaborated on expert comments to China’s State Environmental Protection Administration (SEPA) on a draft SEPA policy on public participation in environmental impact assessments. The organizations both recommended that the agency toughen legal penalties for noncompliance and allow for more public input earlier in the process. (www.chinacleanenergy.org/docs/general/NRDCComments.pdf" >See a copy of NRDC’s comments on these draft measures in English and Chinese.) For more information on NRDC’s work in China, please www.nrdc.org/international/default.asp" >see NRDC’s International Issues webpage.

Production of ethanol biofuels using farm crops and agricultural leftovers yields significant net energy savings, according to a new NRDC-commissioned report that reaffirms the vast potential these fuels have to save oil and reduce the heat-trapping emissions responsible for global warming. The paper, written for NRDC and the Washington-based Climate Solutions by Roel Hammerschlag of the Institute for Lifecycle Environmental Assessment, was published February 9 in the journal Environmental Science and Technology and commissioned by the NRDC and the Washington-based Climate Solutions.

The new analysis re-examines the most important published papers calculating the biofuels’ energy balance - nonrenewable energy in versus total energy out - from farm field to gas tank, and everything in between. The corn-based process used to make 95 percent of the ethanol produced in the United States today yields a positive energy balance ranging from 1.29 to 1.65 (with 1.00 representing the energy break-even point, and numbers less than that a net loss). "Cellulosic" ethanol production processes that can utilize many different crops, and much more of the plants themselves, yielded a strikingly higher positive energy balance, ranging from 4.40 to 6.61. The energy balance on gasoline is just 0.76, meaning it takes more energy to make than we get back. www.nrdc.org/air/transportation/ethanol/ethanol.asp" >Click here to access the abstract and full versions of the paper.

Citing chronic underfunding of vital public health and environmental safeguards, fifteen environmental groups, including NRDC, released a budget blueprint on February 2 outlining their priorities and recommendations for the federal government’s Fiscal Year 2007 budget. The blueprint, titled "www.saveourenvironment.org/GREENBUDGET.pdf" >A Green Budget for a Healthy America," addresses repeated funding cuts of almost $1.3 billion (adjusted for inflation) that have plagued many important initiatives in recent years. Almost every government agency has had to deal with the financial strain of budget cuts, but environmental protections have suffered disproportionately. At the same time, programs that increase pollution and threaten natural resources have received additional funding for destructive activities such as logging in natural forests, excessive grazing on public lands and handouts for the oil and gas industry. The Green Budget calls on Congress and the Administration to ensure Americans have clean air and water, and to preserve our natural landscapes and the wildlife that depend on them.