The Race To Solve Your Car's Gas Woes
As Prices Soar, The Push Intensifies To Find Cheaper, Greener Options

The alternative fuels race is on. Again. After a 20-year hiatus, ethanol, methanol, biodiesel, electricity, and other potential fuels are pushing to challenge king gasoline at the pump. But the race is a tricky one. The successful fuel not only has to be cheaper than gasoline, it has to be produced in huge quantities and survive future swings in gas prices. There's another potential hurdle: Environmentalists want alternatives with smaller greenhouse-gas emissions than gasoline. So, it's not clear that any alternative fuel will cross the finish line — let alone beat gasoline — anytime soon. Analysts worry that, in an eerie repeat of the 1980s, alternative fuels will get going just as the price of oil falls to a level where they can't compete. Among today's alternative-fuel contenders, the early leader is ethanol made from corn. "Corn ethanol is the one to beat right now," says Paul Gallagher, professor of economics at Iowa State University. The economics make sense. Middle East tensions and other factors have pushed the oil price higher: In June it averaged $65 a barrel. At that price, it cost $2.20 to produce a gallon of gasoline — about $1.56 for the oil itself and 64 cents for refining costs, according to the federal Energy Information Administration. By contrast, it costs just under $1 to produce a gallon of ethanol at current corn prices of about $2 a bushel, Professor Gallagher estimates. That means ethanol would continue to be profitable even if oil prices drop dramatically and corn prices increase, he says. That price buffer is key, analysts say, because history has not been kind to alternative fuels. In the 1980s, when gasoline prices were also at record levels and the nation felt similarly vulnerable to Persian Gulf oil, President Carter's U.S. Synthetic Fuels program was in full swing. But just as various alternative fuels got going, oil prices plummeted and made most of them uncompetitive. In 1986, President Reagan killed the Synfuels program. But ethanol made from corn faces a supply problem. Even if the entire U.S. corn crop were devoted to producing E85 (a blend of 85 percent ethanol and 15 percent gasoline), it would supply only about 12 percent of U.S. needs, studies say. That means ethanol — if it is to succeed as a true alternative to gasoline — will have to be made of something other than corn. Other materials are being tested: corn stover, wood, wheat straw, and other organic waste. Some estimate that low-maintenance switchgrass could nearly quadruple the output of ethanol from a single acre. But turning these cellulose-based materials into ethanol hasn't been tested at a full-production scale. One Canadian pilot plant near Ottawa can make about 80 gallons of ethanol for every ton of wheat-straw refuse it uses — costing about $2 a gallon to produce, estimates Gallagher, who toured the facility recently. With a full-scale plant, the cost could drop well under the cost to make corn ethanol as efficiencies improve to 60 cents a gallon or less, a 2004 study by the Natural Resources Defense Council (NRDC) found. "I'm willing to say that ethanol from cellulose is the most promising fuel we can see today," says Nathanael Greene, an NRDC analyst. "But we can't have the idea that the search is over. We need performance-based incentives to uncover other possible fuels that may be out there." One alternative source of ethanol — sugar cane — is heavily used in Brazil. If the U.S. lowered import barriers to sugar-cane-based ethanol, the fuel could play an important role, says Gal Luft, an analyst at the Institute for the Analysis of Global Security. Another possibility: methanol made from coal, he says.
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