Could Corn-Based Fuel Help End America's Dependence On Imported Oil?

LSB: In the wake of potential interruptions in the flow of oil due to the conflicts in the Middle East AND in light of the announcement that British energy giant BP would begin shutting down America's biggest oil field today after an Alaskan pipeline sprang a leak, when are we seriouly going to take a look at the ethanol solution? Check out this story!

(CBS 60 Minutes, May 7, 2006) Gas prices are passing $3 a gallon and climbing, oil companies are making record profits and there is serious concern about this country’s dependence on foreign oil. Those things have sparked a lot of talk about using something else, instead of oil, to fuel our cars.

As correspondent Dan Rather reports, Brazil faced similar problems and already has solved most of them. Instead of gasoline, many Brazilians are using ethanol – which can be made from plants into a kind of alcohol – to power their cars. It’s cheaper and cleaner. As a result, Brazil has virtually stopped importing expensive foreign oil.

So, 60 Minutes wondered: Why can’t we do that here in the United States? Farmers, automakers, Wall Street investors and many scientists think it can be done.

"Fifteen years ago Brazil made a commitment to burning ethanol made from sugar cane as a primary vehicle crop. And lots of energy analysts have scoffed at the idea," says professor Daniel Kammen, who heads the Renewable Energy Lab at the Berkeley campus of the University of California, where he studies ethanol and other alternative fuels.

Dr. Kammen watched Brazil's ethanol experiment for years. "They saw the price trends of ethanol from sugarcane going down, and, of course, the global price of gasoline going up," he says. "And so they emerged at this wonderful time with a program that had been thought through. They made it work — and it wasn't even that hard."

60 Minutes traveled to Brazil to see how they made it work. Brazil had two problems: they grew more sugarcane than they could sell and their economy was being strangled by the high price of imported oil.

Making ethanol out of sugarcane solved both problems. In cities like Sao Paulo, with 18 million people, they call ethanol "álcool," and it’s sold at every gas station, right alongside gasoline.

Ethanol really took off in Brazil when "flex-fuel" cars went on sale four years ago. These cars gave drivers a choice: they can use gas, or ethanol, or any combination of the two. Because ethanol is cheaper, the law of supply and demand took care of the rest.

There’s already a substantial supply of ethanol here in the U.S., where the fuel is made from corn instead of sugar-cane.

You might have noticed at your local gas station that ethanol is already in the fuel. In some places, it's 10 percent ethanol. Oil companies add some ethanol to gas because it boosts octane. But using ethanol as an additive won’t replace much foreign oil, unless Americans switch to what’s called "E85" — 85 percent ethanol and 15 percent gas.

But it's not a simple switch to make. Out of about 170,000 gas stations in the U.S., only 650 sell E85. And, the engines in conventional cars may not perform as well with E85, and could be damaged by it.

In Detroit, they’ve solved the car problem by making small modifications to a standard engine’s fuel-supply and injection systems. That produces the same kind of "flex-fuel" cars they’ve been selling in Brazil, and it doesn’t cost any more than a conventional car.

Flex-fuel autos adjust automatically to whatever's put in the tank – gas, ethanol, or any combination. You can convert a standard car into a flex-fuel vehicle, but you would need a skilled mechanic and some parts to do it.

And ethanol isn’t new to the auto business: the first Model T's ran on it.

"We’ve been working on this ethanol fuel for a long, long time," says General Motors head Rick Wagoner, who ran GM's Brazilian operations before taking over the company.

"I think what we like about ethanol, in this case is that there are things that we can really do right now. It doesn't require massive technology breakthroughs, and it does legitimately reduce the amount of oil the country has to import," says Wagoner.

Today there are about five million flex-fuel cars on American highways. A third of them were made by GM, which now is spending millions to advertise the flex-fuel cars it makes. But in the past, GM – and other automakers – have touted other kinds of alternative-fuel cars, like electric and hydrogen vehicles.

Asked if he is serious about ethanol, Wagoner says, "Fair question. The direct answer is, yes. And we've got a million and a half units on the road as we speak. We’ll be producing more than 400,000 this year. So we actually think ethanol is a really good choice if we want to diversify the supply of fuels in the United States."

That ethanol would come from America’s heartland, places like Steamboat Rock, Iowa, population 300. Until a year or so ago, Steamboat Rock was struggling with a stagnant farm economy, like many Corn Belt towns.

"I felt like the farming community was pretty dormant. I have a son that I would like to get back in the farm, and there just wasn't enough income to support two families," says Mark Seward, who raises corn on a farm near Steamboat Rock.

Even though there's a bumper crop most years, the price of corn stayed low. So some area farmers looked for another use for their corn.

They took a big gamble: they invested their life savings — and convinced neighbors to do the same — to build a factory that would turn corn into ethanol. 60 Minutes met with some of them recently, including Larry Meints, who is a local farmer and the chairman of the board of the Pine Lake Processing Plant.

Meints thinks some people may have thought the plan to get into ethanol production was crazy, and he admits that not all of his friends and neighbors invested in the project. But he says that was their loss. "I think most of 'em that didn't [invest] now wish they would have," he says.

That’s because business is very good. The plant opened just a year ago and quickly hit maximum capacity.

Larry Hansen, a member of the plant's board of directors, says the biggest impact on the community has been that the price of corn in the area rose from five to 10 cents a bushel.

"If you've got eight million bushels coming in, all that extra money that was being sent down the river is now here in the community," says Seward, who is also on the board. Another board member, Polly Granzow, says, "There are oil fields in Texas, and that is called their black gold. And I think Iowa, that’s our green gold."

The folks at the plant showed 60 Minutes how they do it: huge trucks filled with corn come into the plant every day and unload their cargo into what is, in reality, an industrial-sized distillery.

In a maze of pipes and tanks, corn, water and yeast are mixed and fermented into beer. Operators keep track of everything on computers.

"In 48 hours, each fermenter will make about 15 percent volume beer," Plant manager Scott Dorow explains. It's not stuff you want to drink. "It's non-filtered, and, but it's very sweet-smelling. And you can definitely tell it's beer."

Then, under high temperatures, the mixture is distilled in a giant version of an old-fashioned corn-liquor still. What emerges at the end is ethanol, which is nearly pure alcohol. Trucks carry it to a nearby railroad line. For the farmers who own the plant, ethanol is more than just a new way to make money. "

Ethanol has been one of the best-kept secrets that is out there. We know it’s a good product. We know it's good for the economy. We know it’s good for the environment," says Granzow.

And more and more people are seeing it that way. To meet rising demand, the plant will expand to double its capacity by next year. But the farmers who run the place are already thinking beyond that: to a new process of making ethanol from cellulose, instead of corn. This would be much cheaper, because cellulose is found in everything from prairie grass to agricultural waste to wood chips. "

And if that becomes economically viable I think our plant could be converted over to that way of producing ethanol, too," Meints explained.

Pine Lake isn’t unique – from New Jersey to California, about 300 ethanol plants are in operation, or on the drawing boards. By 2012, the government expects processors to make 7.5 billion gallons of ethanol a year. That’s only drop in the American oil bucket, since the country uses 140 billion gallons of gasoline a year.

But Professor Kammen at Berkeley says it's a good first step. "Ethanol provides a wonderful short-term option because we can use corn today to make it, and have significant savings in terms of off-setting gasoline, and modest savings on a greenhouse gas level," he says. "The big plus is it’s available today, so we could make this transition starting tomorrow, if we wanted."

Oil industry executives, taking heat from Congress over their multi-billion-dollar record profits, favor a different approach. They want to spend billions find to new sources of oil, which is more expensive to produce, instead of switching over to E85.

Red Cavaney, the head of the American Petroleum Institute, the oil industry’s trade association, says it’s not the oil and gas companies who are going to make the investment in order to sell E85.

He estimates it will cost up to $200,000 to bring E-85 to each station — and the people who own the stations, he says, would have to foot the bill.

But, while oil companies own only a fraction of the nation's gas stations, they have a huge influence over what's sold at most of them — and for how much.

"It's my understanding that the petroleum industry in general says "ethanol — fine," but not in favor or E85. Is that true?" Rather asked.

"No, that's not correct," Cavaney replied. "The six largest refiners said that they support the E85 in their facilities as long as the mixture arrives and meets the government specifications for that. But we must understand that the market is exceptionally limited."

Cavaney says that's because only 5 million of the country’s 133 million cars can use E85.

"If all the focus is on E85, you’re gambling on starting with a very small base and you’re gonna have to go very quick to get big volumes," Cavaney says.

"Why shouldn't I think, well, this is just a way for the oil companies to slow or snuff out the growth of ethanol, and other alternatives?" Rather asked.

"We think we've shown that we're strong supporters for ethanol where it's appropriate," Cavaney answered.

But what the oil industry considers "appropriate" is limiting ethanol to an additive and not moving quickly to something like E-85.

"What we don’t wanna do is over-promise to the American public what can be done with these alternative fuels, and then under-deliver," says Cavaney.

But some states, like California, are already moving to deliver E-85 to more gas stations by helping pay the cost of adding the E-85 pumps. Professor Kammen from Berkeley says the process would be a lot less expensive than the oil industry’s estimate of $200,000 per station, and wouldn’t take that long.

"The transition is pretty easy. It looks like its $30,000 to $40,000 per gas station to change over and have ethanol-dedicated pumps," he says.

"Are we talking three years? Five years? 20 years?" Rather asked.

"I think it's less than that, actually." Kammen replied. "I would bet that we will have enough ethanol stations within two to three years' time, at most. The reason is that the transition is so easy. That doing the retrofit to have ethanol pumps available can be done in a matter of weeks."

That just what the farmers in Steamboat Rock, Iowa, like Larry Meints, want to hear.

"It's a win-win thing for the nation, and for our local economy here to create jobs locally, rather than sending the money overseas, and sometimes to people that really don’t like us very well," he says.

LSB: Read more about E85 (the term for motor fuel blends of 85 percent ethanol and just 15 percent gasoline) here.