Fuel Choice: Turn Oil into Salt

The authors of “Turning Oil into Salt” believe the ethanol industry should make passing an Open Fuel Standard priority No. 1
By Holly Jessen | May 13, 2011

When Gal Luft and Anne Korin talk about flex-fuel vehicles they mean vehicles that are warranted to run on any combination of ethanol, methanol and gas, or on biodiesel. As a bonus, they’d like to see that vehicle also be a plug-in hybrid for electric power. For them, what alternative fuel powers the vehicle isn’t as important as choice for the consumer.  “This is about opening cars to fuel competition so that drivers can react on the fly to changes in oil price by choosing a fuel that is more economic on a per-mile basis,” Korin tells EPM, “whether that fuel is made from corn or coal or natural gas or sugarcane or anything else.”

Who are Luft and Korin? The pair co-direct the Institute for the Analysis of Global Security, a Washington-based think tank focused on energy security. Together they also founded the Set America Free Coalition, which has three main goals: educate people about the dangers of U.S. dependence on foreign oil and the need for fuel choice; increase demand for and use of flex-fuel vehicles (FFVs) and plug-in hybrids; and to generate support for policies that increase fuel choice. In 2009 the pair published “Turning Oil into Salt: Energy Independence Through Fuel Choice.”

They are strong advocates for the Open Fuel Standard, which would require mandated quantities of FFVs. The legislation has been set before Congress since 2005 and was reintroduced in the U.S. House of Representatives in early May. The bill, sponsored by Reps. John Shimkus, R-Ill., Eliot Engel, D-N.Y., Roscoe Bartlett, R-Md., and Steve Israel, D-N.Y., aims to increase the number of FFVs on the road gradually, requiring 50 percent of new vehicles be FFVs by 2014, 80 percent in 2016 and 95 percent in 2017. Besides being warranted to operate on combinations of ethanol blends, natural gas, hydrogen or gas, the bill also mentions biodiesel, fuel cell or plug-in electric drive as possible technology combinations.

Last, but certainly not least, they are outspoken critics of oil’s virtual monopoly in transportation fuel. The Organization of Petroleum Exporting Countries—OPEC— controls 78 percent of world oil reserves but accounts for only 40 percent of global oil production, they point out in their book, adding that the cartel is manipulative and deliberately constrains supply. For example, OPEC’s crude oil production has not increased since 1973, despite adding Angola and Ecuador as new members. In that same time, global oil demand and non-OPEC production has nearly doubled. “Oil’s virtual monopoly over transportation fuel is the source of its strategic importance,” Korin tells EPM. “It is the source of the power of the OPEC oil cartel to bring our economy to its knees. Opening vehicles up to fuel competition is key to knocking oil off its strategic pedestal and reducing our vulnerability to OPEC’s machinations.”


Competitors or Allies?
But what would motivate the ethanol industry to support legislation that would allow drivers to fuel up with methanol? Why should it root for the commercial success of electric vehicles? Luft and Korin present strong cases for both.

Luft sees it as just plain “silly” that the ethanol industry views electric vehicles as competition and that the electric vehicle industry feels the same way about ethanol. And he doesn’t think the U.S. industry should feel threatened by Brazilian ethanol either. Methanol, Brazilian ethanol, electric vehicles—if the U.S. can break free of OPEC’s control there’s room for all to profit. “I think the more groups you have out there pursuing solutions to alternatives to oil, the more chance that we could end the monopoly of oil,” he tells EPM.

Laws mandating FFVs have not gone anywhere, Korin says, because legislators coming from states outside the Corn Belt have no reason to support ethanol FFVs. If methanol were added to the mix, however, FFVs would become much more attractive to legislators from states strong in coal and natural gas production. While most methanol is made from natural gas, China makes a large amount of it from coal. If the producers and supporters of corn, natural gas and coal were to join together to ask lawmakers to mandate FFVs, that would be a nearly unbeatable coalition, she says.

Congress is currently divided into two categories when it comes to ethanol—those that love it and those that hate it, Luft says. Often legislators from coal and natural gas producing states are among those that are very hostile toward ethanol. However, if all FFVs also operated on methanol, those states would be much more sympathetic to the goals of the Open Fuel Standard, Luft says, because their states would get a bigger piece of the liquid transportation fuels pie. And, so would ethanol.

In contrast, the effort to go from E10 to E15 won’t tear down the blend wall. “That might buy you a little bit of time but a few years later you are going to hit it again,” he says. “What then?”

If every vehicle were a FFV there would be no such thing as the blend wall. The transportation sector would absorb as much ethanol as the industry can produce, as well as methanol. “It means that there will be much more impact in terms of energy security, because there will be a much bigger market for alternative fuels than there is today,” he says.

That would cause a shift in people’s minds, Korin says, transforming alcohol from an additive to a fuel. If 15 percent of the vehicle fleet—meaning all vehicles, not just new ones—were FFVs, there would be a strong business case for fuel station owners to retrofit or put in new pumps to sell alcohol. “As long as oil is above the price at which alcohol is economic, on a per mile cost comparison, drivers will prefer to fuel with alcohol,” she says. In the book, the case is made that critics are on the wrong track when talking about ethanol’s lower energy content compared to gasoline, because the relevant metric is cost per mile, not miles per gallon.


Getting it Done
FFVs today aren’t warranted to run on both ethanol and methanol, but they could be, with just slight tweaks by the manufacturer. To show it is possible, the authors examine Brazil’s success in going from an oil-dominated market to fuel choice. In 2008, 80 percent of the vehicles sold in Brazil were FFVs. It costs only about $100 more for manufacturers to add a fuel sensor and a corrosion-resistant fuel line, creating an FFV. “Lest anyone think it can’t be done in the United States, many of the flexible fuel vehicles sold in Brazil are made by General Motors and Ford,” they say.

Natural gas is also widely used for transportation in Brazil. When oil prices soared in 2008 the Brazilian government began subsidizing natural gas. At the time the book was written, 10 percent of the Brazilian fleet, or more than 1.5 million vehicles, ran on natural gas. Many of those vehicles are also FFV so they can run on any combination of ethanol, gas or natural gas—much like the ethanol, methanol and gas FFVs Luft and Korin would like to see mandated here in the U.S.

Getting the Open Fuel Standard passed for fuel choice in the U.S. will require the support of the ethanol industry in a direction it hasn’t embraced in the past. “If the ethanol industry makes it a true priority and joins forces with the methanol industry, I think it quite likely that an Open Fuel Standard bill would pass,” Korin says. “If it is not a priority for the industry, and priority means emails and letters and phones ringing off the hook, then that will have a consequence.”

Things will have to change in Congress as well if the bill is to fare better than it has in previous years. Although there are 60 U.S. Senators from farm states, in 2010 the Open Fuel Standard had the support of only seven co-sponsors in the Senate, Korin says. The bill introduced in the House this year only has four. In contrast, a bill to promote the production and use of natural gas-fueled vehicles, introduced in April, had 180 co-sponsors in early May. With numbers like that its clear to Korin that legislators from farm states don’t feel the bill is important to their constituents—and they won’t, unless the ethanol industry makes it clear that fuel choice is a priority. “When the industry decides something is important, it knows how to do that very well,” she says.

Luft thinks the bill has a good chance of passing in 2011 because it won’t cost the taxpayers anything, Luft says. It’s not a tax incentive, it’s simply a mandate for automakers to produce FFVs. “Right now Congress is very wary of anything that costs money,” he says.

The political fight will be with automakers. That’s not a reason to back off, however. The auto industry also opposed seatbelts and airbags—all standard features in vehicles today. “The way I see it, we bailed them out, we might as well get something in return,” Luft says.

Korin scoffs at politicians’ hesitation at passing mandates for FFVs. Didn’t Congress cooperate long enough to mandate the transition from analog to digital television broadcasts? That’s an encroachment on a much more trivial part of our lives than fuel choice, she says.


Persistent Myths
Besides outlining the need for fuel choice, the authors tackle misconceptions facing corn ethanol—“the fuel the pundits love to hate.” For one thing, everywhere he goes, Luft meets misinformed people who believe that ethanol causes starvation. This myth has its roots in 2008 when ethanol faced its fiercest critics, who gave the industry a black eye by claiming biofuels was at the root of a commodity price boom. The source was an “orchestrated campaign” by Big Oil, food makers and others opposed to ethanol on the grounds that it is a waste of taxpayer money, Luft says. “All of these groups came together and helped each other and funded each other,” he says. “They did huge damage to the industry.”

Food companies perpetuate the myth out of resentment, Korin says. When oil prices pass a certain point, ethanol makes corn economic, she said, which means price supports for corn are no longer necessary. In that scenario the food industry has to pay market prices for corn syrup and animal feed. “Big Food for years has used underpriced corn syrup, enjoying taxpayer dollars paid as price supports to corn farmers, as a replacement for sugar, because the U.S. has a sugar quota and tariff system that keeps sugar prices much higher than elsewhere in the world,” she says. “But instead of taking on the sugar lobby, Big Food has masqueraded itself as a defender of the market and the poor, in the hopes of reverting to a world in which ethanol goes away, corn price supports are required, and it gets all the underpriced corn syrup it wants.”

Even more than Big Food, Big Oil is the real culprit, Luft says. Food prices go up when oil prices go up. “The major factor in the production of food is oil, the shipping the packaging, the fertilizer, and everything, that goes into making food,” he says.

In 2010 the World Bank reversed its 2008 analysis that biofuels caused a spike in commodity prices, and said financial investors, high oil prices and other factors were likely culpable. Yet the food versus fuel argument is still getting recycled at ethanol’s expense in public opinion. This time around, Luft hopes the ethanol industry will go on the offense rather than the defense to fight the myths about ethanol while continuing to highlight the dangers of addiction to foreign oil. “All of this needs to be communicated in a very sophisticated way so that the public understands that ethanol is a friend,” he says. “It’s not some sort of corrupt lobby that is taking their money and squandering it.”

The book also delves into the Volumetric Ethanol Excise Tax Credit and efforts to stop subsidizing the renewable fuel. Although Luft and Korin oppose subsidies, they make it clear ethanol isn’t the only energy source receiving government support. Personally, Luft tells EPM, he’d like to discontinue all subsidies and let everyone compete in the free market. Still, if he had a choice between tax incentives for the oil industry—which has been getting billions for decades—or the ethanol industry, the choice, for him, is clear. “I’d rather give my money to Americans, who will plow the money back into the economy, than send it overseas,” he says. Conversely, ethanol haters attack ethanol over VEETC while ignoring the government support received by Big Oil. “It’s not intellectually honest to discriminate against one fuel and not the other,” he says. “You have to apply the same logic.”

Another part of the problem is that many don’t realize that VEETC is actually a blenders credit, not a tax credit to ethanol producers. If the public were polled they’d say the tax credit was a handout to the ethanol industry and farmers, when the recipients are actually companies like BP and Valero. “This is where I think the industry is missing a big opportunity,” he says. “It’s a handout to Big Oil, and I think the industry needs to make this point much more known to the public.”

Another thing ethanol critics love to shout about is that it takes more energy to make ethanol from corn than the energy produced when it’s burned in a vehicle. This isn’t a so much a myth as it is “irrelevant and intellectually dishonest,” Korin and Luft argue. It’s a law of nature that when raw energy is converted to a usable form it takes more energy than the energy produced, be it crude oil, coal, corn or sugar cane. Food takes 10 calories of fossil-fuel energy to produce a single calorie of food for sale in today’s supermarkets, according to food expert Michael Pollan—and the U.S. is still addicted to breakfast, lunch and supper, plus snacks. A 2008 study by Bruce Dale concluded that it takes 1.19 mega joules of fossil fuel to produce one mega joule of gasoline compared to only 0.77 for corn ethanol and 0.10 for cellulosic ethanol. “The point is, gasoline’s energy requirement is greater than ethanol’s … and yet this hasn’t prevented any of us from using this ‘net energy loser,’” Luft and Korin write.

Why ‘Friendly’ Oil Isn’t the Answer
Luft and Korin call it a fallacy that buying less oil from the Middle East and more from friendly nations, such as Canada, is the answer. The idea sounds reasonable, they say, but doesn’t work because oil is a fungible commodity. In other words, the oil market is like a swimming pool where oil from all sources commingles.

“We don’t get all or even most of our oil from the Middle East,” they write. “In fact, the Middle East is the source of barely one quarter of our imports. But that doesn’t lessen the control the Middle Eastern countries, which sit on some two thirds of world oil reserves, have over the world market. We don’t import a drop of oil from Iran, but anything that impacts Iranian supply affects the whole market, affects oil prices for everyone, not just those who buy directly from Iran. If Iran’s president decided to cut the country’s oil exports or block the Straits of Hormuz, the increase in price would be felt across the board. Therefore, if we just shuffle around our sources of oil supply by buying oil from different countries than we do today, it will not reduce our vulnerability to the oil cartel’s market manipulations. Someone else will buy the oil we would have bought from supplier A, and we will buy the oil they were buying from supplier B—no difference whatsoever will be felt by the suppliers (or us).”

Likewise, the push to drill for more domestic supplies of oil or the call to use less oil both perpetuate oil’s monopoly in the transportation sector and do nothing to weaken OPEC, they say. The policies might, at best, keep some U.S. dollars from going overseas. “When non-OPEC countries drill more, OPEC simply drills less, and when we use less, OPEC also uses less—witness the multiple production cuts in 2008 and 2009 geared to propping up oil prices. Neither efficiency or drilling will serve to strip oil of its strategic status.”

Source: “Turning Oil into Salt,” pages 6,7.

Why Oil and Salt?
The fact that most people haven’t a clue what salt might have to do with oil is the very reason Korin and Luft compared it to oil in the title of their book. Until about 100 years ago, salt was one of the most sought after commodities, according to Mark Kurlansky who wrote “Salt: A World History”. It was used to preserve food and was so important Roman soldiers were actually paid in salt—hence the word salary is derived from the Latin word for salt.

Indeed, salt played an important role in many wars, including the American Revolution. In the seventeenth century, British leaders urgently talked about “the dangerous national dependence on French salt,” Kurlansky says. What seems laughable today was very serious business until food preservation technologies and refrigeration broke salt’s strategic importance as a commodity. With fuel choice, the authors hope that oil’s strategic status will be broken as completely as the hold salt once held—thus turning oil into salt. When that happens, perhaps succeeding generations will say, “Oil? What countries produce oil?”—just as most people today have no idea what nations produce salt.

Author: Holly Jessen
Associate Editor,
Ethanol Producer Magazine.
(701) 738-4946
hjessen@bbiinternational.com