Historical Perspectives

In 1925, Henry Ford had quoted ethyl alcohol, ethanol, as “the fuel of the future.” He furthermore stated, “The fuel of the future is going to come from apples, weeds, sawdust—almost anything. There is fuel in every bit of vegetable matter that can be fermented.” Today, Henry Ford’s futuristic vision significance can be easily understood.

In ancient times, ethanol was known as an intoxicating drink. It is the same alcohol used in beverage alcohol but meets fuel-grade standards. Ethanol that is to be used as a fuel is “denatured” by adding a small amount of gasoline to it. This makes it unfit for drinking. During the late 1800s, ethanol was used in the United States for lamp fuel and sales exceeded 25 million gallons per year (Morris 1993). At the request of large oil companies, the government placed a tax on ethanol dur­ing the Civil War. This tax almost destroyed the ethanol industry. In 1906, the tax was lifted and alcohol fuel did well until competition from oil companies greatly reduced its use. The first large-scale use of ethanol as a fuel occurred during the early 1900s when petroleum supplies in Europe were short. In America, Henry Ford’s Model T and other early 1920s automobiles were originally designed to run on alcohol fuels. Germany and the USA both relied on ethanol to power vehi­cles for their armies during World War II. After World War II, oil prices decreased which caused the use of ethanol to decrease as well. The limited use of ethanol continued until the oil crisis in the early 1970s. The use of ethanol as a fuel has grown since the late 1970s. It was first used as a gasoline extender because of oil shortages. In 1973, the Organization of Petroleum Exporting Countries (OPEC) caused gasoline shortages by increasing prices and blocking shipments of crude oil to the United States. The OPEC action called attention to the fact that the United States was extremely dependent on foreign oil. The focus shifted once again to alternative fuels such as ethanol. At that time, gasoline containing ethanol was called “gasohol.” Later, when gasoline was more plentiful, ethanol-blended gasoline was introduced to increase the octane rating and the name “gasohol” was dropped in favor of names reflecting the higher octane levels. “E-10 Unleaded” and “super unleaded” are examples of names used today.

Ever since the modest inception of a sizable ethanol industry, technology on the whole has risen, thus developing lower cost methods of producing greater quantities of fuel ethanol which are simultaneously more efficient in their use of fossil fuel inputs. These combined effects have helped production of ethanol fuel rise in US by more than 225 % between 2001 and 2005 (Renewable Fuels Association 2006). Ethanol has also been used outside the United States, most notably in Brazil which started a program of government-mandated ethanol pro­duction in 1975 and has since encouraged production of flex-fuel vehicles (FFVs) and cars fueled entirely by ethanol (Luhnow and Samor 2006). Due in part to this jump start on ethanol production and its geographic advantage in growing sug­arcane (an ideal ethanol feedstock), Brazil is one of the biggest producer of eth­anol. Brazil is so efficient that it can produce a gallon of ethanol for about one dollar (Luhnow and Samor 2006). The Brazilian ethanol market, which was once dependent on governmental regulation and subsidies, has blossomed into a system that thrives even without regulation. Fuel ethanol production in the United States caught up to Brazil’s for the first time, growing by 15 % in 2005, as both remained the dominant producers (REN21 2006). Although there are cultural and institu­tional differences between USA and Brazil, the general pattern of ethanol produc­tion and consumption under a regulatory environment in the USA could closely mirror what has happened in Brazil. Their policy effectiveness can be used as a benchmark for the American market.

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