High prices for oil and gasoline have resulted in increased interest in finding alternative fuels to replace petroleum fuel used in the transport sector. This coupled with the need to reduce greenhouse gas emission have led to the promotion of ethanol as a viable fuel for use in automobiles. The promotion of fuel ethanol has been one of the main goals of the United States Energy Policy. Various significant incentives and policies have been developed by the federal government to promote the ethanol industry.
The fuel Ethanol market depends heavily on federal regulations and incentives. To encourage the production of ethanol, the government has introduced a tax credit of 51 cents per gallon of ethanol produced. This incentive is aimed at making it possible for ethanol to compete with gasoline. Small-scale ethanol producers qualify for production credit in addition to the tax credit.
Renewable fuel standard (RFS) was established through the Energy Policy Act of 2005, the act was further expanded by the Energy Independence Act of 2007. The act requires the United States to use 9 billion gallons of renewable energy in 2008, with usage increasing each year to 36 billion gallons by 2022. Ethanol is expected to take a higher portion in meeting this requirement.
In South America, the production of ethanol is relatively low compared to the United States. To take advantage of this situation, the federal government has come up with incentives that will reduce tariffs on imported ethanol to 2.5% with an added duty of $0.5 per gallon. This incentive is part of a wider policy to reduce the barrier to the importation of ethanol.
Under various state and federal incentives and laws, the production and consumption of ethanol have increased. 6.8 billion gallons of ethanol was consumed in 2007 compared to 1.8 billion consumed in 2001. At the beginning of 2008, over 8 billion gallons of ethanol were produced, with domestic production expected to grow by 13 billion gallons per year.
One barrier to large-scale fuel ethanol consumption is the cost compared to that of gasoline. The fuel ethanol is more expensive than gasoline per gallon, even with tax incentives on ethanol production and importation. Another setback is the fact that ethanol has lower energy per gallon compared to gasoline, this means that a lot of fuel ethanol is required to travel the same distance using gasoline. With the continued rise in gasoline prices, these setbacks are becoming less significant and ethanol is seen as the best alternative fuel to gasoline.
Currently, Congress is in the process of reauthorizing all existing farm programs to pave way for the 2008 Farm Bill. The bill seeks to extend and expand many provisions in the 2002 energy farm bill. When passed, the bill will pave way for increased funding to ethanol production and create new tax incentives for ethanol producers. Besides the 2008 Farm Bill, there is ongoing research that will facilitate shifting the production of fuel from corn-based starch to cellulose. When fully implemented, all these plans and incentives will see a significant increase in the use of renewable energy for transportation in the United States.
Reference
Energy Security for the 21st Century, 2008. Web.
Ethanol Grows as Gas Alternative, 2008. Web.
Fuel Ethanol; Background and Public Policy Issues, 2008. Web.
Wilfred Kohl (1990) Methanol as an Alternative Fuel Choice, United States, International Energy Press.