The use of ethanol in gasoline blends increases the oxygen content of the fuels and permits more complete combustion of the hydrocarbons in gasoline. For this reason, ethanol is called an "oxygenate." The U.S. Environmental Protection Agency (EPA) mandates the use of oxygenates in winter gasoline formulations in areas of the Nation that are prone to carbon monoxide pollution. The 10 percent, 7.7 percent, and 5.7 percent ethanol proportions, by volume, impart approximate oxygen content levels of 3.7 percent, 2.7 percent, and 2.0 percent to their respective fuel mixtures.
While "neat" ethanol(2) is one of the alternative fuels defined by EPACT, ethanol in this form has to date been consumed only on a limited basis in demonstration vehicles and fleets. Representative "nearly neat" ethanol/gasoline blends are E85 and E95--gasoline mixtures containing 85 and 95 percent ethanol, respectively. Ethanol has been tested extensively in heavy-duty diesel engines, such as those used in buses and heavy trucks, and has displayed favorable environmental characteristics. While E85-powered passenger cars are being used in some government fleets, manufacturers' production quantities have been limited. Ford Motor Company authorized production of a limited number of E85-powered Taurus model cars in 1995 and will make E85 a standard flexible-fueled vehicle option in 1996.(3) U.S. production of fuel ethanol was about 1.15 billion gallons in 1993 and 1.28 billion gallons in 1994. Ethanol shares the gasoline oxygenate market with methyl tertiary butyl ether (MTBE). Other oxygenate additives are manufactured,(4) but MTBE and ethanol are the major commercial oxygenate products. A Federal motor fuel excise tax reduction, similar to the one for ethanol, has been provided for ethyl tertiary butyl ether (ETBE) by recent legislation, giving ETBE a reduction at the point of blending with gasoline, based on the volume of ethanol consumed as a feedstock in its production (see Appendix E).
Most manufacturing is clustered in the Midwest, reflecting close proximity to good supplies of the primary ethanol feedstock, corn. (About 95 percent of ethanol manufacturing is corn-based.) In addition, many plants are located in close proximity to major rivers, making economical shipment by barge of both feedstocks and finished product viable. Wider distribution of the finished fuel is usually made by tank truck, because phase separation (absorption of moisture) can occur during pipeline shipment. In addition to significant consumption near the sources of production in the Midwest, areas prone to winter carbon monoxide pollution from motor vehicles require ethanol as a gasoline additive to comply with EPA standards.
While this development was clearly a setback for the ethanol industry, it may be offset to some extent by the favorable IRS ruling, mentioned above, and recent market factors related to MTBE, including: