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Some corn with your CAFE, monsieur?

Isn't genetic engineering great?Tom Daschle and Vinod Khosla propose in today’s Times that the CAFE fuel economy standards be reworked to include incentives for increased ethanol use.

The 1973 oil embargo gave us the 1975 CAFE standards and the resulting, albeit short-lived, surge in fuel economy. Will this summer’s combination of $4/gallon gas, Al Gore’s Inconvenient Truth, and a few more violent hurricanes provide another tipping point for progress on fuel efficiency standards?

Certainly biofuels hold promise as a tool to reduce greenhouse gas emissions, although there is some skepticism and a thriving debate over ethanol’s role in battling climate change. Our read: today’s ethanol is marginally good, offering somewhere on the order of a 10% to 26% emissions reduction over regular gasoline. Future developments in biofuels, like the switch grass that got a plug in the recent State of the Union address, hold much more promise as low-carbon fuels.

But is CAFE really the right place to drive ethanol usage? CAFE is a system that regulates which vehicles get produced. It has no explicit linkages to actual fuel use, and the resulting disconnect is particularly strong for flex-fuel vehicles, which get credit for being fuel-efficient under CAFE, regardless of whether consumers ever take advantage of their flex-fuel capabilities.

Khosla and Daschle charge that CAFE “does nothing” to encourage renewable fuel change. Well, that’s true in actuality, but it’s not for lack of structure in CAFE. In 1988, Congress enacted the well-intentioned Alternative Motor Fuels Act (AMFA). This program created incentives to develop vehicles capable of filling up with the ethanol blend known as E85. The result? 3.4 million flex-fuel vehicles produced, and only 182 stations at which to fill up their tanks.

So the real issue is fuel infrastructure, not automative technology. What are the barriers to deployment in retail gas? A barrel of ethanol sells for less than half the cost of a barrel of oil in Brazil. What is preventing the US from following Brazil’s example? Perhaps carbon markets can help by establishing a firm and market-driven price signal for carbon so a new generation of green capitalists have the incentive to produce and distribute low-carbon or no-carbon fuels. With today’s ethanol production having a marginal but positive impact, there is a path for biofuels to be a part of the solution. But simply putting more flex-fuel cars on the road doesn’t get us closer to that goal.

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