Why alternate fuels are bogus

Everyone’s going green these days, and if you want proof, drop into your local Chevy dealership and look around. The bow-tie boutique closest to SSGM’s Toronto editorial offices has a gleaming Silverado out front with a curious engine technology: Flex Fuel. This engine can accommodate a wide variety of gasoline-ethanol blends, including the much talked about E-85, as well as regular pump gas.

Apparently, the system works well, and from a greenhouse gas perspective, it should reduce net CO2 emissions when running on “moonshine.” For those of you who don’t drink, or skipped high school chemistry class, ethanol is basically the stuff that Junior Johnson used to haul before the birth of NASCAR: corn liquor. And “corn” is the important part of the concept, because the rise of ethanol as a fuel has nothing to do with environmentalism. It’s about farming, or more precisely, the farm lobby that holds the key to so many vote-critical Midwestern states in the U.S. Despite noises about freer global trade, the reality is that the U.S. Federal government is in the business of handing out big-time subsidies to corn producers; a practice that hasn’t escaped the attention of America’s trading partners. In the long run, the subsidies will have to be curtailed if the U.S. wants to avoid continual trouble with the World Trade Organization and competing countries. (Canada excepted, of course, where we’ll continue to run up the white flag around every issue that comes between us and the U.S.).

Eventually, however, those Midwestern U.S. farmers are going to have to do without their handout, which is why ethanol is such a brilliant move by the Bush administration. By mandating ethanol blends as motor fuels, they can simultaneously artificially increase demand for corn (meaning higher prices) and claim progress on greenhouse gas emissions. It’s effectively a corn subsidy, leaving room to remove the direct price support and replace it with an indirect one. Clever Huh? Unfortunately, it’s also stupid from an environmental standpoint because ethanol isn’t a great motor fuel.

I know, Indy cars and dragsters love alcohol, but it doesn’t vaporize well at low temperatures and it has a lot less energy per litre than gasoline. And if you make it from corn, you’re basically turning human food into motor fuel, which could result in higher prices at the supermarket for us, or increased hunger for parts of the Third World. There’s an innovative Canadian company named Iogen that’s developed a way to make alcohols from cellulose, i.e. wood waste, so there might be a way out of the fuel vs. cornflakes dilemma, but in the end, ethanol may turn out the same as other alternate fuels that take on gasoline: priced out of the market. The reasons are two: Market economics and taxes. If a true alternate replaces gasoline, gasoline prices will fall and the alternate’s price will increase based on supply and demand.

Remember when propane was going to be the next big thing? The taxation issue is the sleeper, however. With so much of the price of a litre of motor fuel going to government, any actual price advantage favouring an alternate won’t be felt at the pumps, unless the government decides to take a lower cut of the pump price. When has government ever done that? I think we’re going to be burning gasoline and diesel for a long time to come.