The ethanol mirage: What is GM talking about?

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For a while, hybrids were getting all the headlines. Then there were occasional rumblings about diesel and hydrogen as alternatives to plain old gasoline. And suddenly we're hearing a lot about ethanol as a gasoline substitute. So which of these technologies is going to save America from its dependence on foreign oil?

The answer depends on which automaker happens to be conducting a PR campaign to buff its environmental image. Right now that would be General Motors, which has been running ads and sending executives around to talk to journalists about ethanol, the gasoline substitute made from corn and other agricultural crops. GM's promotions note that the big automaker has produced more than 1.5 million cars capable of running on ethanol, a renewable resource that can grow right out of American soil. GM's "flex-fuel" vehicles can run on plain gasoline or any blend of up to 85 percent ethanol/15 percent gas, which is known as E85. Flex-fuel vehicles don't cost extra, and many people who buy them don't even know they can fill them with the ethanol blend. So isn't this a huge opportunity to wean ourselves from petroleum produced by nettlesome nations like Iran and Venezuela?

Well, it would be–if only you could find some ethanol. I recently spent a week driving a 2007 Chevy Tahoe–one of GM's big new SUVs–which, I discovered by looking at the window sticker, can run on E85. Not only that, but E85 has a higher octane rating than gasoline, which supposedly makes the vehicle perform slightly better. I set out looking for some of this miracle fuel. It turns out that the ethanol station closest to my home near New York City is a mere 200 miles away, in Annapolis, Md. There are four ethanol stations in New York, but they're strictly for government use. If I lived in Chicago I would have had better luck, since there are 10 ethanol stations in or around that city that are open to the public. But nationwide there are just 619, fewer than 13 per state. And many of those are for government or private fleets.

Why is GM making a big deal out of flex-fuel vehicles for which there is hardly any flex-fuel? Guesses, anyone? Over the past several years, Toyota and Honda have drawn eco-accolades for introducing the first hybrid vehicles on the market, while GM has been peddling Hummers, fighting increases in fuel-efficiency requirements, and complaining that the Japanese automakers aren't as clean as they seem. On a few matters, GM execs have a point: In addition to its thrifty hybrids, for instance, Toyota builds some big gas-guzzlers of its own (the Sequoia SUV averages only 16 miles per gallon). And hybrids aren't as economical as they seem to be when you add in the extra $2,000 or more they cost to purchase. But GM also knows it has been totally outflanked by competitors who understood far sooner that there's a healthy market for cars with a conscience. And the E85 campaign is a rear-guard action to regain some lost ground with a public that–surprise!–cares about environmental issues.

Oh–there's money involved, too. Federal fuel-economy regulations basically give automakers extra credit for building dual-fuel vehicles–whether drivers use a gasoline alternative or not. That effectively allows the automakers to build less-efficient vehicles than they'd otherwise have to, and to avoid fines they'd be likely to incur for failing to meet fleetwide fuel-economy targets. Economically, it's a no-brainer. To make a car on the production line ethanol-compatible, it costs only about $100 extra, to add a sensor that can detect what kind of fuel is in the tank and make a few other modifications. Drivers don't have to do anything different when running on ethanol, so there's no consumer confusion to worry about. Yet converting a bunch of regular automobiles into flex-fuel vehicles has probably saved GM $350 million in fines it would have had to pay for falling short of fuel-economy requirements, according to David Friedman of the Union of Concerned Scientists. That's not altruism or environmentalism. It's just business.

Ethanol does hold promise. "I give GM credit," Friedman told me. "The ability to operate on an alternative fuel gives more choice to consumers." He'd like to see GM promote flex-fuel vehicles more heavily where there are pumps–mainly in a handful of midwestern states–and browbeat Exxon Mobil and other energy companies into producing more ethanol and making it more widely available. And how about coming clean with consumers? Instead of boasting about selling a bunch of flex-fuel vehicles that will never taste ethanol, why not do something that actually increases the use of ethanol–and decreases the consumption of oil? Then, boast about that.

--Rick Newman