by Mike Bryson

Portland, OR
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The a short article from last Thursday, TheState covered an interview with oil lobby economist John Felmy.¹ The quick interview shows that Felmy lays the blame on higher oil prices in decreased supply from U.S., Nigeria, Venezuela and Iraq oil wells, as well as the fact that no refineries have opened in the US in ten years due to bureaucracy. He doesn’t cover the fact that the dollar may have lost half its value in that ten year time frame; fiat inflation caused by the Federal Reserve’s doubling of the amount of dollars in circulation over the decade.

In New York, Governor George Pataki signed into law yesterday a bill to make it easier for New York gas stations to sell E85 and ethanol-blend alternative fuels.² New York has some harsh overregulation that prevents gas stations from selling fuels that their brand doesn’t market. This reduces the supply of fuels that a particular gas station can purchase. New York is not the only state with such harsh restrictions on what a company can provide to the consumers. The New York Association of Service Stations and Repair Shops executive director said with only 200,000 alternative fuel vehicles on the road, there’s little market for E85. Are we seeing preferential treatment for a few companies that do offer the E85 blend?

Republican Governor candidate Dick DeVos is offering a campaign promise to cut farm property taxes and develop Michigan into an alternative fuel center.³ DeVos said that he believes the governor’s role must be to provide leadership that promotes an environment of sensible regulation, low taxes, a favorable business climate and a skilled work force for producers, processors and marketers of Michigan’s agricultural products. Considering that previous Michigan politicians are mostly to blame for the state’s destruction through excessive taxation, regulation and bureaucracy, don’t put much faith in DeVos’ promises. Michigan has a very unique opportunity to attract hundreds of businesses if they removed all barriers to competition; their high number of available laborers would bring many corporations back if not for the state’s outrageous preferential treatment. Current Democratic Gov. Jennifer Granholm just signed into law bills that lower the state tax on each gallon of ethanol-blended fuel to 12 cents, down from the 19 cents figured into a gallon of regular gas, and that lower the tax on biodiesel fuel from 15 cents per gallon to 12 cents. Another new law offers grants to gas station owners who want to sell E85 and biodiesel fuel. Here we see some good things (lowered taxes) and some terrible things (state grants) that will likely not just wipe each other out but make things worse for new businesses who will have to pay for the grants through higher prices to the consumers.

Twelve new FlexFuel vehicles have been announced for 2007 by DaimlerChrysler, Ford, General Motors, Mercedes Benz and Nissan.⁴ FlexFuel capability allows the car to accept regular gasoline, E85 or usually a combination of the two. The FlexFuel vehicle makes the most sense as it doesn’t force owners to use ethanol, but it might increase the demand for local stations to carry the alternative fuel.

Discuss this report at the oil report forum.
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Mike Bryson is the news editor of the Global Unanimocracy Network. He lives in the Portland, OR region where he works as an IT business developer and point of sale consultant. E-mail Mike with news links or comments on this report.

The oil industry is one of the largest State-Business cartels in the world, and most of the time we hear government blaming Big Business on oil’s rocketing price in dollars. Today, though, we see the volley back as the oil lobby lays some blame on government for the rising price of oil.¹ Edward Murphy, downstream general manger at the American Petroleum Institute, said ethanol mandates, instead of the free-market approach, along with government prerogatives like gasoline price-gouging legislation, “exacerbate” the already high prices. The article continues: ethanol was first subsidized in 1978 and is currently empowered by the high prices and slow, but growing, commitment of automakers to create more vehicles that can run on E85 — 85 percent ethanol and 15 percent gasoline.

Is ethanol a viable alternative fuel, though? Not really, saying Bill Walker at the LRC.² Walker says the ethanol leads to deforestation, unsafe pesticide use, excessive energy wasted in ethanol production and of course additional government sponsorships that cost the taxpayers in hidden ways.

The State of Maryland believes that consumers will see price decreases due to ethanol and E85, but they refuse to let consumers use the newest ethanol gas station in Baltimore.³ Only state vehicles and those registered by nonprofits can use the station, said Dave Humphrey, director of external affairs for the Maryland Department of General Services. Since the State will be the primary user of the new station, who ends up paying for the additional costs to provide the service? Installation of the tank and the pump work was partially funded by a $330,000 U.S. Department of Energy grant and two grants totaling $50,000 from the Maryland Grain Producers Utilization Board, which is a Maryland farmer-backed group aimed at promoting grain usage. The Federal government, as well as a lobbying group that wants more corn-based fuels to be sold.

Another ethanol/E85 plant is being built in the Midwest at a cost of over US$100 million, this one in the Quad-Cities region.⁴ It is the first plant in the Iowa Quad-Cities region, but it joins 24 other plants in neighboring areas. The industry hopes to annually create 2.7 billion barrels of E85/ethanol fuel in coming years, and Iowa is currently producing 20% of the nation’s ethanol fuel.

Nissan is quietly entering the Flex Fuel market as it prepares to launch a Nissan Armada SUV that can use either E85 or gasoline.⁵ The FFV will be sold in regions that currently have E85 stations and a market for E85-capable vehicles. This is a bit of a shock as most Asian car manufacturers are focusing on hybrids rather than ethanol-based vehicles. Toyota and Honda are famous for their hybrid line.⁶

The National Taxpayers Union says that consumers and taxpayers will not see any benefits from the Federal and State subsidies going to ethanol and alternative fuel production.⁷ Despite federal and state subsidies, a guaranteed market that is protected from international competitors, and millions of dollars from private investors, it is abundantly clear that ethanol is not and may never be a truly competitive energy alternative, said study author and NTU Policy Analyst Jeff Dircksen. The additional annual cost of purchasing a blend of 85 percent ethanol and 15 percent gasoline (E85) would be $968.72 in New York (driving a Chrysler Sebring), and $1,570.40 with a Dodge Durango. Even Midwestern consumers inside the “Ethanol Belt” would pay $413.71 in additional fuel costs driving the Durango.

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