Topic:
STATISTICAL INFORMATION; EMISSION CONTROLS; FUEL (GENERAL); AIR POLLUTION; GASOLINE; ETHANOL; MOTOR VEHICLES; TAX EXEMPTIONS;
Location:
GASOLINE;

OLR Research Report


September 5, 2006

 

2006-R-0524

ETHANOL AS AN ALTERNATIVE FUEL

By: Paul Frisman, Principal Analyst

You asked (1) which states use or encourage the use of ethanol (particularly E85) as an alternative fuel, (2) if car engines must be modified to burn ethanol, (3 ) how ethanol is distributed, and (4) whether the Connecticut state motor vehicle fleet uses ethanol.

SUMMARY

Ethanol refers both to ethyl alcohol and to a blend of ethyl alcohol and gasoline used as a motor vehicle fuel. In the U.S. most ethanol is used in blends of up to 10% ethanol and 90% gasoline (E10 or “gasohol”) to reduce carbon monoxide emissions and prevent air pollution. E10 is not considered an alternative fuel, and conventional gasoline engines can run on E10. According to the U.S. Department of Energy, E10 accounted for more than 98% of ethanol sales in 2003.

Under federal law, blends of at least 85% ethanol and 15% gasoline (E85) are considered alternative fuels. Only specially modified motor vehicles (“flexible fuel vehicles”) can run on E85.

According to the ethanol industry, 16 states offer incentives to ethanol producers. We were able to find 10 states that offer tax breaks to encourage the use of ethanol fuel. From January 1, 1992 through July 1, 2004, the Connecticut motor vehicle fuel tax (CGS 12-458) was one cent less per gallon for gasohol (defined by state law as at least 10% ethyl or methyl alcohol by volume) than for gasoline. That tax break is no longer in effect.

In addition, a number of states encourage or direct their state agencies to buy flexible fuel vehicles or biofuels, including ethanol, or require that gasoline sold in the state include a certain percentage of ethanol.

Ethanol cannot be shipped easily through the nation's fuel pipelines because it absorbs water that exists in pipelines and storage tanks. It therefore must be shipped by barge, rail, or truck before it is blended with gasoline at terminals near its end users. The U.S. Department of Energy states that special care also must be taken in handling and dispensing, as well as transporting, E85.

According to the state Department of Administrative Services, as of July, 2006, 1,610 of its 4,481 cars and light duty-trucks (35.9% of its fleet) were flexible fuel vehicles. The Department of Transportation reports that 74 of the 248 cars and light duty motor vehicles (29.8%) it owned as of that date were flexible fuel vehicles.

STATE ETHANOL INCENTIVES

According to the American Coalition for Ethanol, which represents the ethanol industry, 16 states (Indiana, Kansas, Maine, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, North Dakota, Oklahoma, Pennsylvania, South Dakota, Texas, Wisconsin, and Wyoming) offer ethanol production incentives. We were able to identify 10 states that encourage the use of E10, E85, or both through sales, excise or fuel tax reductions or exemptions. These states are Alaska, Hawaii, Idaho, Illinois, Iowa, Maine, Minnesota, North Dakota, Oklahoma, and South Dakota. The tax incentives in most states are the same for E10 and E85. However, some states offer larger tax reductions for E85 than for E10.

Other states (1) encourage or direct state agencies and departments to purchase flexible fuel vehicles, (2) encourage or require state vehicles to operate on E85 when available, or (3) require that a certain percentage of the gasoline sold in the state include ethanol. According to the U.S. Department of Energy website, these include Georgia, Hawaii, Illinois, Indiana, Iowa, Kentucky, Minnesota, Missouri, Nebraska, New Mexico, New York, Ohio, and Washington.

According to the Department of Energy, other incentives include offering income tax credits for the purchase of vehicles that operate on alternative fuels, including ethanol (West Virginia); reimbursing educational institutions and local governments for installing alternative fuel infrastructure (New Jersey), and offering incentive payments or tax credits to retailers for each gallon of ethanol or E85 sold (Iowa, South Carolina).

A state-by-state description of ethanol incentives can be found in the STATUS: 2006 Handbook, produced by the American Coalition for Ethanol, and at this U.S. Department of Energy website.

ETHANOL ENGINE REQUIREMENTS

Although motor vehicle gasoline engines can run on E10, only flexible fuel vehicles (FFVs) with specially modified engines can use the more corrosive E85. The main difference between FFVs and conventional gasoline vehicles are the materials used in the fuel management system and modifications to the engine calibration system.

FFV engine parts are modified to resist corrosion, and a fuel system sensor in the engine analyzes the fuel mixture and adjusts the fuel injection and ignition accordingly. The National Ethanol Vehicle Coalition (NEVC) estimates that between 4 million and 4.5 million light duty FFVs were on U.S. roads in late 2004. FFVs can operate on pure gasoline as well as any blend of ethanol and gasoline. NEVC reports that most FFVs now run on gasoline. General Motors, DaimlerChrysler, and Ford manufacture FFVs. More information about FFVs is available at this NEVC web site.

DISTRIBUTION

Ethanol is not easily transported through fuel pipelines because it absorbs both water, which may remove some of the ethanol, and impurities, which can harm motor vehicle engines. Ethanol also is corrosive and may damage the pipeline itself. Ethanol therefore must be shipped to terminals by truck, barge or train before it is blended with gasoline.

According to the U.S. Department of Energy, care must also be taken in handling and dispensing E85. Ethanol is not compatible with aluminum, and all aluminum products must be removed from a gasoline dispensing system that will be used to dispense E85.

There also are some restrictions on how E85 must be stored. For more information, see the U.S. Department of Energy's Handbook for Handling, Storing and Dispensing E85 (attached).

ADDITIONAL INFORMATION

For more information on ethanol, specifically E85, please see OLR Report 2006-R-0486 (attached). More information on ethanol and federal public policy issues can be found in this 2006 Congressional Research Service report. This NECV purchasing guide lists FFVs and service stations carrying E85.

Additional information on E85 can be found in the attached article, “Fill Up on Corn if You Can,” (The New York Times, August 31, 2006). Among other things, the article states that 850 of the nation's 169,000 service stations, almost all in the Midwestern “corn belt,” now carry E85. It states that E85 is not available in New England.

PF:dw