Relief at the pump, begins with the pump

High gas prices?! They’re a scandal, all right.

Turns out, alternative fuels are affordable fuels. And getting them distributed — well, here’s a chance for Iowa to show the way.

Last Friday, a distinguished group of Iowa’s political leaders gathered at Lincolnway Energy in Nevada, not far from Ames, for a “Defend the RFS” event.

“Why the Obama administration would side with the big oil companies over Iowa’s homegrown renewable fuels is baffling,” said Iowa Governor Terry Branstad. “The EPA has turned its back on rural America, and our economy and family farms will suffer as a result….This debate isn’t over. I will lock arms with our agricultural groups, our family farmers, leaders from both parties, and Iowans in fighting for Iowa’s homegrown, reliable, and safe renewable fuels.”

With arms locked, helmets on, rifles loaded, what transformative action does the distinguished Governor propose that the Iowan horde undertake?

“I encourage Iowans to officially comment to the EPA.”

Whoops.

Well, there’s nothing wrong with commenting, and if it takes the Governor to lock arms with agricultural groups, family farmers, leaders from both parties to prompt the average Iowan to post a comment on a website — well, we commend the Governor for undertaking the action, but you have to wonder.

As the noted energy writer, Robert Rapier, has been pointing out for a number of weeks on Twitter, the most practical action that Iowa can take in this political season is to lock arms with agricultural groups, family farmers, and leaders from both parties, and put an E85 ethanol pump at every gas station in Iowa.

There are good economic reasons to do so, and good benefits that would flow therefrom.

The cost hurdle

Depending on the station, it costs $20,000-$60,000 to outfit a gas station in Iowa with an E85 pump by swapping out the mid grade, 89 octane gasoline pump.

How a legislative program could work

Why shouldn’t Iowa help its retailers sell more ethanol? After all, Iowa is a net fuel exporter — producing more ethanol and biodiesel than it consumes in total fuels of all kinds. Why shouldn’t low-cost fuel bring relief at the pump right at home?

If the average conversion cost for a station is $50,000, a legislative program might offer one-half of that cost in the form of a grant, and one-half in the form of a low-interest loan. NREL estimates (in this guide) that payback for the retailer is under two years based on typical business conditions — that’s generally in the “acceptable” range for retailers. Such a program would cost Iowa, for the 1500 stations that don’t have E85, something like $37.5 million.

The retailer benefit

There are good business reasons to make a change. These days, only about 9 percent of gasoline sales are sold in mid-grade — and premium and mid-grade account for roughly half the sales they did a decade ago. E85 is a growing market, with more flex-fuel cars becoming available each year.

The Iowan benefit

The immediate beneficiary would be the Iowa driver. Wholesale E85 ethanol is running at up to a 20 percent discount to gasoline (after allowing for the energy differential), based on spot prices for RBOB gasoline to the wholesale E85 price from Quad County Corn Processors. The lines at any Costco or Wal-Mart selling discounted gasoline will tell you something about the kind of happy you can create with a 5 percent savings on fuel — imagine 20 percent.

The Iowa benefit

In the macro-sense, Iowa would reap a benefit — an expanded market for E85 means more gallons, more revenue, more jobs.

How much? Given that Iowans consume roughly 1.3 percent of US fuel consumption, and there are now 15 million flex-fuel vehicles, and vehicles average around 600 gallons of fuel per year — a fair estimate for the addressable Iowa E85 market is around 120 million gallons.

Now, in Brazil, where gasoline and ethanol compete in this way – cars can run either fuel and every pump offers both — ethanol was outselling gasoline before the sugarcane drought and rising sugar prices constrained the ethanol supply.

So, let’s assume that home-grown fuel could command a 70% market share in Iowa, for flex-fuel cars, based on delivering a 20% savings vs. gasoline and universal availability. That would equate to a market expansion of roughly $180 million, based on $1.70 ethanol.

That’s nearly a 5-1 return on the investment, for Iowa — in terms of swapping out imported energy for domestically produced energy.

A reasonable requirement

Given that Iowa would be putting up the tab, it wouldn’t be unreasonable to require that those pumps deliver Iowa-made fuel.

That means that $180 million each year, that used to be mailed to Houston, Caracas, Calgary or some other fuel exporter, stays home in Iowa.

And you know how it goes with the economic multiplier. That’s $180 million spent at Iowa stores, deposited in Iowa banks and available for local lending, spent in improving Iowa, instead of improving Caracas. Not to mention that reducing the cost of living in Iowa makes the state more competitive, for jobs, businesses, and attracting great workers to the state.

The national benefit

It wouldn’t do the country one bit of harm for one market to have unfettered access to ethanol and gasoline — and let the best fuel win.

One reasonable expectation — once consumers see that drivers are saving on fuel, and that the state is reaping a benefit in local economic development and revenue — you might see South Dakota, Minnesota, Illinois, Indiana or Nebraska adopt such a program.

We’ve seen airports invest in wireless access — or communities invest in electric power access — or invest in access to water via irrigation — or invest in waterways or railroads. To gain access to powerful enablers of a better world.

Nationally, there are estimates that as much as 8 billion gallons of E85 could be distributed, if the access was available. For the state of Iowa, as the largest biofuels-producing state, that’s a trend worth being a kickstarter on.