Gasohol (#312, Topic B)

President Bush is scheduled to deliver his sixth annual State of the Union address tonight. One of the topics he is likely to cover in his address, widely speculated among commentators over the airwaves all day, appears to be energy policy, including strategic petroleum reserve and alternative energy sources, particularly ethanol. At the beach, one of the games I enjoyed playing is to find gasoline stations posting the lowest prices -- Delaware, with lower gasoline taxes, generally has a 20-cents-per-gallon advantage over Maryland. Last week was no exception. One station, in Rehobeth Beach near a factory-outlet shopping mall, posted premium at $2.219 per gallon. The price was not only 34 cents per gallon cheaper than the gas in our car (I filled the tank in a station near us before going to the beach); it was also five cents per gallon cheaper than other stations in Delaware. (Hey, I am a retiree; every penny counts.) So, I drove in. At the pump, there was a small sticker: 10% GASOHOL. So, the gasoline this station was selling contained 10% of ethanol. I have never added ethanol before. All I read was that gasoline from ethanol was more expensive to process than gasoline from crude oil. (On the basis of BTU content, the former costs between $1.50 and $2.50 per gallon, while the latter costs between $0.50 and $0.60 per gallon.) Here, not only was the price not higher, it was in fact the lowest. (On the way home, I never saw another station posting such a low price.) So, unsure of what I was getting, before pumping any gas, I went in to the station and talked to the manager. She said that many customers stated to her that that was the best gaoline they had ever added. Being a good sport (after all, I was driving my wife's car), I took a chance and filled the tank. My instinctive reaction was that it ran smoother -- perhaps the octane rating is higher than 93 posted -- and quieter. So, my first ethanol experience was a pleasant surprise on at least two fronts -- the low price and the good performance. Ever since that experience, I got into thinking -- why is gaohol so reasonably priced? Is there a government subsidy about which I know nothing? The latter point seems quite plausible. A decade and half ago, while a staff member of the World Bank Group, I had the opportunity to visit a conglomerate in Brazil. One of its companies was involved in ethanol processing -- at a loss. Upon inquiry, I was told that the government provided ample subsidy to assure itself of a good energy source. I am curious how the president plans to cover this topic in tonight's address. Let us wait and see.