Flex-Fuel Vehicles in the U.S.: Why Are We Lagging Behind Brazil?

Despite the danger posed by greenhouse gases from transportation, the United States is largely ignoring one of the lowest cost options to combat it: flexible fuel vehicles (FFVs).

Why do we have so few of these “green” vehicles? After all, flex fuel vehicles are permitted to operate on higher ethanol blends than the current standard of E10 (10 percent ethanol blended with gasoline). Sure, they are gasoline engine vehicles, but they’ve been modified to operate smoothly on any mixture from straight gasoline and E10 up to E85 (a blend of 85 percent ethanol and 15 percent gasoline).

In addition, modifying a conventional auto to make a flex fuel vehicle is inexpensive. FFV technology is estimated to cost roughly $100 per vehicle at the time of manufacture. What’s more, retrofit kits are available for many cars for about $400.  Another piece of good news is that FFVs will work even better with bio-butanol, the next emerging advanced biofuel.

Nonetheless, FFVs currently make up only 3 to 6 percent of the total U.S. light vehicle fleet of about 250 million vehicles, compared to 50 percent of the vehicles in Brazil. E85 has captured less than 1 percent of the U.S. gasoline fuel market, and the Energy Information Administration estimates that in 2011, only 1 million of the approximately 10 million ethanol-flex fuel vehicles in the U.S. actually used E85.

Fuel for thought

Rather than pushing for more flex-fuel vehicles, however, oil company associations have launched a public relations blitz against advanced biofuels. The American Petroleum Institute (API), a trade association for the fossil fuels industry, has rolled out a multimedia “fuel for thought” campaign warning consumers about alleged engine damage from E15 and other high ethanol renewable fuels and urging them to ask Congress to repeal the Renewable Fuel Standard.

The American Petroleum Institute has put out a series of print, radio, and television ads seeking to repeal the Renewable Fuel Standard and charging that any ethanol blend greater than E10 would damage car engines/ API

One of the API’s first “fuel for thought” ads featured a car mechanic who tells viewers that ethanol is bad for cars. He quotes the American Automobile Association as saying that “too much ethanol could cause engine damage not covered by warranty.”  As he slides back under the car’s engine supposedly harmed by renewable fuels, the mechanic adds with satisfaction that ethanol is good for him. Critics have attacked the ad as false and misleading: the AAA did not endorse the ad, and it also supports the use of ethanol and alternative fuels. And although higher-ethanol fuel is not suitable for all vehicles, it is suitable for FFVs and some newer vehicles.

 Of course, there are multiple reasons – including misguided government incentives and lack of market pull -- why there are so few FFVs in the United States.  Most galling are the lack of incentives for manufacturers to produce compact car FFVs. Instead, government standards serve as incentives for carmakers to keep producing large, fuel-inefficient SUVs, sedans, and pickup trucks.  This is because EPA rules allow automakers to use a contorted formula involving high ethanol fuels to dramatically overestimate the fuel efficiency of FFVs in calculating their fleets’ corporate average fuel economy.

Because the gas mileage of SUVs and other over-sized vehicles is so poor, carmakers get the biggest bang for their buck by making their least fuel-efficient vehicles into FFVs. As one Consumer Reports writer noted, his 2008 Chevrolet Tahoe test vehicle -- which had a federal Corporate Average Fuel Economy (CAFE) fuel efficiency rating of 16 miles per gallon on its window sticker -- was credited under CAFE rules with a rating of 27 miles per gallon, because it can run on E85.  In this fashion, General Motors obtains a 70 percent artificial boost on the vehicle’s miles per gallon rating -- all for an investment of about $100.

More troubling, the EPA “incentive” allows carmakers to meet fuel-efficiency standards while retrofitting a relatively tiny number of gas-guzzling vehicles.

So, even though FFVs have been available in the U.S. since the 1980s, only 25 percent of new vehicles sold in 2014 will be flex-fuel. But as flawed as the CAFE credit may be, EPA’s plans to substantially reduce it in 2015 and 2016 do not bode well for the future of FFVs. According to Texas-based consulting engineer Thomas Hogan, “Finding an FFV vehicle in the 2035 auto population might be as rare as finding a Dodo bird swimming in your backyard pool.”

Price it and they will come                       

Former Brazilian president Luiz Ignacio Lula da Silva in flex fuel vehicle, 2007/ Getty Images

The lack of incentives for carmakers is not just a business issue, but a very real obstacle in the fight against global warming. Transportation accounts for 28 percent of all energy consumption in the U.S., and it remains almost exclusively the domain of fossil fuel-driven gasoline and diesel vehicles.

Even though the Department of Energy estimates that enough bio-ethanol could be produced to satisfy 30 percent of gasoline demand, penetration of alternative fuel is small, with ethanol accounting for 4 percent of all energy used in transport.  Ninety-two percent of transportation energy comes from petroleum, with 3 percent from natural gas and 1 percent from electricity. Perhaps not surprisingly, transportation accounted for 32 percent of all CO2 greenhouse gas emissions in the most recent survey in the United States.

Despite these potential gains, fuel ethanol consumption has stalled. This is largely because the Environmental Protection Agency originally limited the amount of ethanol that could be blended into gasoline to 10 percent by volume, due to concerns about ethanol damage to the engines of older vehicles. This so-called “blend wall” means that the U.S. gasoline market can only accept 12 to 13 million gallons per year of ethanol, which is about what corn ethanol producers are currently able to produce.  This leaves no real market for an increase in regular ethanol production or more advanced biofuels.

Two recently released studies suggest that FFVs and E85 can solve the short-term blend wall problem and ensure the growth of renewable fuels.

If 80 percent of the existing FFV fleet used E85, it would increase ethanol demand sufficiently to consume the available supply, overcoming the glut caused by the E10 blend wall, according to a study from Iowa State University. It argues that the key driver is appropriate pricing of E85. A separate study by Philip Verleger, former visiting fellow at the Peterson Institute for International Economics, has shown that lowering the price of E85 can dramatically spur acceptance by FFV owners.

Small wonder that consumers are paying attention. “In many locations today, a gallon of E85 is priced at least $1 less than regular E10,” says Bob Dinneen, president and CEO of the Renewable Fuels Association. “These dynamics explain why we recently saw E85 purchases in Minnesota double in just one month.” (For the coastal view, see the side story to the left on FFV owners at the pump in California.)

A chicken-and-egg dilemma

Another overlooked driver for increased ethanol use is the increasing U.S. fuel economy standards – that is, standards for more efficient fuels.  On March 7, 2012, President Obama made fuel efficiency and alternative fuel vehicles, including flex fuel vehicles, staples of his energy policy. This was accompanied by increasingly stringent CAFÉ standards – 54.5 miles to the gallon by 2025 - and investments in alternative fuel vehicles and fuel infrastructure. 

Leading independent automotive technology firm Ricardo reports that nearly 3 out of every 4 vehicles will require a higher-octane fuel in the future to meet these standards.  The demand for  high-octane fuel has already strained our existing refining infrastructure, and the strain will only grow by 2025.  How could the demand best be met? By high-octane biofuels such as ethanol and butanol. For this reason alone, having fleets of FFVs that can burn these at high blend ratios will be critical in the next 10 to12 years. 

This brings us to a chicken-and-egg dilemma: Automakers resist bearing the slightly higher cost to produce FFVs because there is not a market demand for them, and the developers of advanced biofuels cannot count on the rapid emergence of a vehicle fleet to provide a large-scale market for their products. Changing the incentives and mandates for automakers to offer FFVs across all their models would be the easiest and least expensive way to achieve the benefits of increasing biofuel use. Producing FFVs now to pave the market for the introduction of advanced biofuels at scale, experts say, is clearly the best choice.

In addition, increasing fuel efficiency while requiring the broad introduction of FFVs could dramatically reduce greenhouse gas emissions from transport over the next 10 to 20 years. This will be particularly true when the commercial-scale production of advanced biofuels takes off in the United States.  As the advocacy group American Coalition for Ethanol puts it, “While automakers and other engine manufacturers may need to make adjustments to accommodate this new fuel, they benefit by making a product that operates on the fuels of the future.”

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