Ethanol & Other Alternative Fuels
Essay Preview: Ethanol & Other Alternative Fuels
Report this essay
Managerial Economics 2
Running Head: Managerial Economics Ð- Ethanol and other Alternative Fuels in the United States
Overview
I have discovered that the high price of gas has intensified the search for alternative fuel
resources to help lessen our dependence on fossil fuels. Methods such as carpooling, mass
transit, and hybrid cars will not, by themselves, solve the problem. As the debate goes on for
ethanol and alternative fuels, I found that President Bush has backed federal funding for
continued research and Congress is calculating the best way to implement it.
One alternative that has received a great deal of attention is ethanol. There is some debate
about the efficiency of ethanol. One side feels the energy costs to produce ethanol outweigh the
benefits. These opponents state producing and running tractors, the production costs and even the
energy consumed by workers including food, transportation and police protection raise the costs.
The worker cost is not usually figured in comparisons like this. I also found that the naysayers
also didnt take into account the added value of ethanol byproducts, which can be used in cattle
feed. The analysis was based on the technology in use at the time, which included old processing
plants. There is reason to believe ethanol production will become more efficient, possibly at a
faster rate than the mature petroleum industry. The newest plants incorporate technology to
streamline the process and save energy and money.
“There are a lot of new technologies”, said Hosein Shapouri, an agricultural economist for
the U.S. Department of Agriculture. “Its going to continue to improve the yield, and also lower
Managerial Economics 3
the energy.”
Besides bushels of corn, researchers are looking for other energy efficient methods to
produce ethanol. Theyre researching sugar cane and switchgrass. There are three more
challenges they have to face because the fuel has yet to prove its market viability for cars without
subsidies; the high price of natural gas may force some plants to switch to coal, harming their
environmental profile; and the cost to revamp fuel stations for ethanol blends are steep.
I will pursue the rest of my paper by doing a deep dive into the impact of Ethanol as alternative
fuel, What it Is, and What it could mean to consumers.
Impact of Ethanol
Ethanol is a high-octane, anhydrous (water-free) alcohol produced by fermenting converted
starch from corn with yeast. Ethanol can help reduce global warming because less carbon
dioxide is released into the atmosphere than with conventional gasoline. Because it is an
environmentally friendly source of high-octane fuel, it is widely used as a blending ingredient in
gasolineЖmore than four billion gallons per year.
Today, all car manufacturers approve the use of ethanol in their warranties. Ford Motor
Company, General Motors and DaimlerChrysler recommend its use for environmental reasons.
A growing number of cars and trucks designated as Flex Fuel Vehicles can use ethanol blended
up to 85 percent with gasoline. The availability of Flex Fuel Vehicles continues to improve on a
yearly basis. There are currently more than two dozen different models of FFVs available from
various auto manufacturers and an estimated six million FFVs on the road in the United States.
Some car owners are unaware that they even own a vehicle that can operate on E85 – a blend of
Managerial Economics 4
85% ethanol and 15% gasoline. Between 2001 and 2007, U.S. fuel ethanol production capacity grew 220% from 1.9 billion to 6.1 billion gallons. Much of this growth was made possible by government regulation and legislation that actively supports the ethanol industry by creating mandatory ethanol demand and financially attractive investment opportunities in ethanol production capacity. The market is becoming mature with an increasing number of IPOs, M&A activity and large R&D investments. Although the U.S. have become the largest fuel ethanol producer in the world, specific market characteristics such as the geographic distribution of production versus consumption, the lack of infrastructural development for fuel ethanol distribution and transportation, types of ownership and the limited production capacity of corn, will all have a significant impact on future development.
The U.S. ethanol industry became more competitive in 2007, a new report from the Federal Trade Commission (FTC) details. According to the report, “The ethanol production industry is not concentrated, and has become even more unconcentrated over the last year.”
“The highly competitive nature of the U.S. ethanol industry is helping to accelerate the continued evolution of this rapidly expanding domestic renewable fuels industry,” said Renewable Fuels Association President Bob Dinneen. “Ethanol producers across the nation are investing resources