Mad as heck about $5 gasoline? According to new research from Iowa State, the price could have hit $6 per gallon, if the US had not had its ethanol supply.

A landmark 2009 study, conducted by researchers at Iowa State’s Center for Agricultural and Rural Development, and updated this week for impacts through 2011, found that US ethanol production reduced wholesale gasoline prices by an average of $1.09 per gallon, in 2011.

Yep, that’s $143 billion saved for US public last year, which has seen gasoline prices sharply rising for years – a savings that averages $1,225 per year, per US household.

But, more starkly, let’s talk about pain at the pump.

That cost of gasoline, which famously reached $5.39 per gallon this past year at a DC gasoline station near the White House, could have topped out at nearly $6.50 per gallon, using the research findings, adding a few pennies for the added margin and percentage-based taxes.

In the ethanol-rich Midwest, the regional impacts are even more stark. The researchers found that E10 ethanol reduced gasoline prices by an average of $1.69 per gallon. Now, gasoline prices in Chicago this spring were topping $4.67 per gallon – imagine a positively European $6.30 per gallon for gasoline, Chicagolanders.

Yikes.

Now, it stands to reason that E10 ethanol would be cheaper than gasoline, because mileage is reduced by 2.5-3.0 percent, owing to ethanol’s lower energy density. But that accounts for around a 10 cent differential, owing to reduced mileage. The other buck in that $1.09 in savings, that’s kept by consumers, and stays in the communities they live in, rebuilding jobs and local economies.

The visibility problem of avoided cost

It really is a tough thing, getting someone excited about all the savings they achieved because of something that didn’t happen – in this case, even higher gasoline prices. It’s like trying to get someone really, really excited about a colonoscopy. When things are bad, its hard to rally the troops with “heck, it could be worse, boys and girls,”

But consider what the price of sugar would look like, for example, if there were no Splenda, Sweet & Low or Equal out there. Consider how many laws there are in place to prevent price gouging during weather emergencies – precisely because we know what happens to the price of water, when its on offer in the middle of a desert.

How did the savings happen?

“Growth in US ethanol production has added significantly to the volume of fuel available in the US,” said Professor Dermot Hayes, one of the authors of the updated report, which you can download here.

“It is as if the US oil refining industry had found a way to extract 10% more gasoline from a barrel of oil,” Hayes added. “This additional fuel supply has alleviated periodic gasoline shortages that had been caused by limited refinery capacity.  It has also changed the relative prices of gasoline and diesel and allowed the US to switch from being a net importer of gasoline to a net exporter. As a result of these changes, US gasoline prices are measurably lower than would otherwise have been the case. This gasoline price impact has been documented in a peer reviewed academic journal and the price dampening effect has increased as ethanol production has grown. This impact is greatest in the regions of the country where ethanol penetration is greatest.”

The impact of ethanol on gasoline prices is intensifying. Over the period from 2000 through 2011, the authors found that E10 ethanol reduced prices by an average of $0.29 per year, with the impact rising to $0.89 per year by 2009.

Why the sharp impacts in the 2009-2012 period? Three primary factors are responsible for ethanol’s more robust price benefit at the pump in 2011:  higher oil and gasoline prices, higher ethanol inclusion, and ethanol being priced at a larger-than-normal discount to gasoline.

As the economists noted, “Average crude oil price increased from about $80/barrel in 2010 to about $95/barrel in 2011. Correspondingly, average U.S. wholesale gasoline prices have risen 30% from 2010-2011.  A wider than normal price differential between ethanol and gasoline prices provides further economic incentives for ethanol production and consumption…”

Reaction from the Renewable Fuels Association

“While it’s hard to imagine that gas prices could be even higher than they are now, this study clearly underscores that the current pain at the pump would be far worse without ethanol,” said Bob Dinneen, President and CEO of the Renewable Fuels Association, which helped fund the research.  “Because ethanol makes up 10% of our gasoline pool today, it significantly reduces demand for oil and puts downward pressure on gas prices. From coast to coast and border to border, ethanol is helping save consumers money.  In these times of high unemployment and sky-high gas prices, ethanol is one America-made solution that is providing some respite for battered American families trying to make ends meet.”

Reaction from the usual suspects

Radio silence from the “drill, baby, drill” crowd, who are presumably loathe to try and explain how a return to an “oil and oil alone” policy is worth $1.09 per gallon to the average consumer. And $143 billion, annually, to the makers of the incumbent energy, which presumably explains why they are so mad about ethanol in the first place.

Elvis has left the building: The multiplier effect

Had ethanol not been around, the $143 billion would have, generally speaking, gone offshore, in higher payments for imported fuels needed to make up for the energy shortfall. Now, according to CreateJobsforUSA.org, every $3000 in equity invested in small business via their programs results in one added job. Is that true? Hard to say, no matter what the figure is, $143 billion residing in domestic banks, invested in local communities, is going to produce one heck of a lot of economic activity. It’s the multiplier effect, and the halo effect, at work.

The Bottom Line

Heartening news for biofuels stakeholders, who can and ought to trumpet the results. It is sometimes a difficult sell – persuading the public to feel good about an avoided cost. But its worth an effort from the friends of alternative fuels, who have something really important to crow about – how much alternative fuels save the consumer from the kind of prices that monopolists offer.

Someone ought to make up an “I Saved You $1220 last year. Ask me How.” T-shirt, and ethanol producers ought to wear them. It’s a story they ought to be proud to tell.

Free tire air for improved fuel economy; bicycle tuning; renewable fuels; on-demand carbon offsets; at-pump recycling; community transit info; Propel’s got it all going in the Golden State.

In California, Propel Fuels is launching the company’s first Clean Mobility Center, in Fullerton.

The Center offers a distinctly different customer experience, featuring high performance renewable fuels (E85 Flex Fuel, biodiesel blends) alongside conventional fuels. With a focus larger than just oil, Propel’s new stations enable customers to carbon offset fuel purchases, improve fuel economy, find transit routes and ride share opportunities, tune bicycles, and recycle on the go.

The new station model provides a highly visible platform to introduce the benefits of renewable fuels to a mainstream driver base alongside conventional options in some of the most underserved renewable fuel markets. For the first time, drivers can offset carbon emissions from their fuel purchase right from the pump by directly funding clean air projects through Propel’s partnership with the Carbonfund.org Foundation.

The Clean Mobility Center fueling station offers vibrant, brightly colored green pumps selling renewable and conventional fuels side-by-side, built with recycled materials, LED lighting, paperless transaction options and more. The Center offers free air stations for filling tires, increasing fuel economy, bicycle tuning and repair stations, carbon offset purchases directly at pump, at the pump recycling stations, a community transportation information kiosk, bus routes, ride share, bike lanes. Plus, the latest in green vehicles will be on display including the latest in FlexFuel and Biodiesel models from General Motors, Ford and Volkswagen.

During this Grand Opening week, Propel is giving away $10 in freerenewable fuels for any driver wishing to try E85 or biodiesel.

In Iowa, retail fuel stations can apply for up to $100,000 each in grant funding from the Iowa Renewable Fuels Infrastructure Board as part of the third $1 million tranche aimed at helping increase the number of blender pumps available to the public during 2012. Applications are open through May 18.

In Wisconsin, a federal district court judge has found in favor of Danisco in an on-going dispute between it and Novozymes regarding the patent on an alpha-amylase enzyme.

The judge overturned a last October’s ruling and $18.2 million in damages in favor of Novozymes, saying the patent had an inadequate written description.

In California, Rentech has reported its Q1 financial results, with a net loss per share of $0.01. Revenue was 57% higher than estimated as warm weather has allowed farmers to begin using fertilizer earlier, allowing the company to monetize its principal asset, the East Dubuque fertilizer plant.

The company has also scaled back its renewable energy efforts to reduce capital expenses as management has indicated its plan to limit cash outlay for an individual project at $40m.

In the UK, fallout from Sustainable AgroEnergy which is under investigation by the Serious Fraud Office and later had its assets frozen. Now it seems that some investors may have been “mis-sold” interest in the company by regulated financial advisors, meaning that some may be able to claim as much as $64 million back from the Financial Services Compensation Scheme.

The company who provided due diligence on Sustainable AgroEnergy may face legal action by agents and advisors who sold interest in the company if it turns out that the due diligence wasn’t properly undertaken.

In Australia, the New South Wales Treasury has repeatedly warned the regional government that the benefits of the 6% ethanol blending policy are questionable at best, with any savings at the pump from E10 being balanced out by the lower energy content in ethanol-blended fuels. It says the biggest benefit of the policy is to prop up local ethanol producer Manildra.

In Zimbabwe, Green Fuels says it is selling ethanol to retail fuel stations for $1 per litre, about 19 cents per litre cheaper than it should be in order to get a foothold in the local market. Retailers are turning around and selling ethanol at $1.36 per litre, which the government thinks is too high. The company is still wrangling with the government to get a blending policy in place, and the latest obstacle seems to be the government’s insistence that it isn’t aware of the company’s ethanol pricing structure.

In Delaware, DuPont Tate & Lyle Bio Products announced that they have appointed Brenntag India as their distributor for Zemea propanediol in India.

Zemea is a natural, 100 percent biobased ingredient made from corn sugar through fermentation and developed for use in the cosmetics and personal care market. It is an environmentally sustainable alternative to petroleum-based glycols and glycerin.  Brenntag Asia Pacific has more than 40 offices, over 40 distribution facilities and approximately 1,275 employees.  In addition to the newly authorized country of India, Brenntag also manages distribution of Zemea in Thailand, Vietnam, Philippines, Malaysia, Indonesia and Singapore.

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