The Ethanol Glut

"When Congress wrote the rules (increasing usage of ethanol) in 2007, gasoline consumption had been growing for years.

Gasoline consumption hit a peak of 3.4 billion barrels that year and then fell to 3.3 billion barrels last year, and it could end 2009 at about the same level."

It's clear that it will be very difficult, if not impossible to reach the mandate of 15 billion gallons of biofuels by 2012, or 36 billion gallons in 2022, up from less than seven billion gallons in 2007.

"As of yet, not all gasoline is blended with 10 percent ethanol, but that saturation point is rapidly approaching.

As for E85, the problem is that at current prices, it does not make economic sense for drivers, and most of them use regular gasoline in their flex-fuel cars.

Gasoline was selling on average Thursday (11/26) for $2.63 a gallon, while E85 was selling for $2.23 a gallon. That might make E85 sound like a bargain, but cars go fewer miles on a gallon of ethanol than of gasoline. Adjusted for that factor, E85 on Thursday was effectively 31 cents a gallon more expensive than gasoline.

A return of $4 gasoline might change things, by making E85 a relative bargain and spurring wider use. So would an unexpected spurt in total fuel demand. Otherwise, it is not at all clear how the nation's coming surplus of ethanol can be absorbed."

Contributor's comment: Another solution would be for Congress to add a 'fossil fuel fee per gallon' so that E85 becomes more competitive with gasoline.