Economic Impact of Methanol EconomyA Look at Potential Benefits of the Open Fuel Standard Act

The Open Fuel Standard ActThe Open Fuel Standard Act is an innovative bill that will dramatically reduce the strategic importance ofgasoline and oil to our economy while greatly accelerating the development and deployment ofalternative fuels and technologies for transportation. The legislation would require that most new carsenable fuel competition, specifically by being capable of operating on another fuel in addition to, orinstead of, gasoline – whether natural gas, electricity, bio-diesel, alcohol fuel, hydrogen or somethingelse. An OFS creates a marketplace where these energy technologies can compete and breaks thevirtual transportation fuel monopoly of oil; a fuel we know harms both our national security and ournation’s health, with inflated costs that are a detriment to our economic growth. Widespread deploymentof fuel competitive vehicles will increase the resilience and flexibility of our economy by enablingconsumers to make an on the fly choice to switch fuels based on comparative economics at the pump,instead of policy that attempts to pick any one winner in lieu of letting the marketplace drive innovation.

Put simply, the Open Fuel Standard Act is an ‘all of theabove’ energy policy that is a solution to both theunaffordable cost of gasoline and the unsustainable holdthat oil has on our economy. It is a pathway to a cleanenergy future, which starts with employing provendomestic resources and technologies and creating greaterdomestic security. The OFS will enable an economyfueled by innovation in the marketplace by making vehiclesa platform where fuels can compete, which will continuethe advancement of sustainable fuels by creating demandand a market that can support infrastructure deployment.

As an example of the economic benefits of the OFS, we have put together this scenario of the economicimpact of widespread adoption of alcohol flexible fuel vehicles from replacing just a portion of our currentdependence on gasoline with clean burning methanol, one facet of this multi-platform legislation.

Alcohol Fuel’s Impact with the OFSAlcohol fuels, such as methanol - made from natural gas, biomass, agricultural waste, coal and,perhaps in the future, recycled CO2 - and ethanol are cleaner-burning replacements that require onlyslight modifications to current engines to power our vehicles, and they do not require large investment innew infrastructure due to their similarities with gasoline. For around $100 per car – less than half of onepercent the cost of the average car - automakers can manufacturer a vehicle where liquid fuels cancompete on a single platform. A flexible fuel vehicle can operate on gasoline, and blends of ethanol andmethanol up to 85%, which forces each fuel to compete for a consumer’s dollars based on convenience,environmental benefit, and most importantly, cost. The deployment of these vehicles means consumerdemand for alternative fuels will continue to grow as millions more vehicles will be able to operate onthem, and the market will be able to economically invest in infrastructure to meet this demand withoutmassive expenditures by the government.

The methanol fueling infrastructure in particular will grow quickly as costs for the clean fuel are very low,the industry has large production capacity to meet demand and the installation cost for a methanolfueling pump is minor compared to other technologies, with the average pump only about $60,0001. FFVdrivers will immediately be able to make use of methanol, which at wholesale currently sells for $1.04 agallon–without any subsidies. Accounting for state and federal taxes, distribution, and retail mark up, M-85 would retail for $1.83 a gallon. As methanol has less BTUs per gallon than gasoline, a consumerwould use $3.19 of M-85 to travel the same distance – well below the current national average of $3.95for regular unleaded2.

1‘Methanol Refueling Station Costs’ by EA Engineering, Science and Technology February 1, 1999.

2AAA Daily Fuel Gauge (May 1, 2011) - http://fuelgaugereport.aaa.com/?redirectto=http://fuelgaugereport.opisnet.com/index.asp

Methanol Savings vs. GasolineFor every 10% of the gasoline that we currently use that is replaced by methanol, just over 75 milliongallons of methanol would be consumed each day at a cost of $110.6 million to drivers – compared tothe $149.3 million for the same amount of gasoline at current retail prices. This would create an averagesavings of $38.7 million a day for consumers, and over $14.1 billion a year. Each household would bebenefited by over $1,000 average cost savings every year if they filled up with M-85 every day.

Methanol’s price advantage over gasoline is apparent in the above graph of historic prices. The mostcommon feedstock for making methanol today is natural gas, requiring only 100 cubic feet of natural gasto produce one gallon of methanol. Methanol is also the most effective and immediate way to takeadvantage of the price difference between natural gas and crude oil prices. In fact, researchers fromMassachusetts Institute of Technology completed a study entitled “The Future of Natural Gas” in whichthey determined that methanol was “the liquid fuel that is most efficiently and inexpensively producedfrom natural gas,” due its mature production technology and the affordability of deploying FFVs capableof running on all alcohol fuels.

To replace 10% of our current gasoline demand we would use about 2.6 trillion cubic feet of natural gaseach year. At a current cost of $4.50 per thousand cubic feet for natural gas, that would mean over $11billion worth of natural gas would be consumed. This represents a mere 10% of our current annualproduction of natural gas in the U.S. – which is expanding with new discoveries and technologies - andallows us to conserve consumer money, tap into domestic resources, and reduce harmful engineemissions like particulate matter, cancer causing agents and smog that come from gasoline.

Methanol also benefits from polygeneration – in that anything that is, or ever was, a plant can be used toproduce this biodegradable fuel. Natural gas, coal, biomass, agricultural waste, landfill gas, industrialwaste and even CO2 itself can all be used for methanol production based on existing maturetechnologies, as well as cutting edge science. The U.S. has abundant supplies of all of these resourcesavailable to meet our transportation needs, and methanol serves as a gateway technology to advancedbiofuels adoption. Renewable methanol fuel – and derivative fuels such as bio-diesel and bio-dimethylether (DME) – can also help efficiently and economically achieve the U.S. Renewable Fuel Standardtargets.

Methanol Production in the U.S. and Jobs ImpactThe number of permanent jobs in present-day large scale methanol from natural gas production plantsis about 120 jobs per facility, producing 1.7 million gallons of methanol per day. Thus, displacing 10% ofthe gasoline market with domestically-made methanol would create between 5,000-7,000 highly-skilled,high-paying jobs in engineering, chemistry and advanced sciences. Using the EIA’s jobs multiplier forindirect jobs in the communities of these facilities, it is estimated that another 70,000–90,000 jobs wouldbe created as well as tens of thousands more in the natural gas supply sector.

For methanol manufacturing plants that use biomass, researchers at MIT average that there are 50permanent jobs per biomass-to-methanol plant - due to their generally smaller scale of about 160,000gallons a day. Additionally, to satisfy the biomass collection requirements for these facilities if 10% ofgas were replaced, researchers at MIT cited that over 300,000 jobs would be created around thecountry. As with most biofuels, these are primarily rural jobs that can help bring vitality back into smalland rural towns decimated by the economic downturn and aid in development of biomass in theheartland and timber regions of America.

With the demand created by the Open Fuel Standard Act, during the initial construction phase for thesefacilities, a large economic benefit would be immediately realized by communities. About 40% of thecost of a new methanol plant is labor for installation, with some of the largest new plants costingupwards of $1.2 billion each. With more than 40 of these plants needed to offset gasoline consumptionby 10% with all domestically produced fuel, there would be up to $20-22 billion of short-term, immediateinvestment and then over $7 million in payroll at each facility each year.

This would also be distributed production of fuel whereregions could tap into the resources that are most abundantin their area – natural gas in Texas, Louisiana, andColorado; timber in the Northwest, agricultural waste in theHeartland, and landfill gas by our major cities. And with ourtransportation fuel being produced in multiple regions, oureconomy would be more resistant to price spikes anddisplacement caused by production shut downs in any onearea – like currently when hurricanes impact the Gulf Coast.

The OFS Big PictureThe Open Fuel Standard Act of 2011 offers a way to not only reduce our dependence on foreign oil, butalso jumpstart our own domestic energy economy while reducing harmful emissions and keeping moreof our money in the U.S. The accelerated deployment of alternative fueling vehicles will spur innovationin the transportation sector. And instead of ‘picking winners and losers’ like other energy strategies, theOFS is a no-cost piece of legislation that will only pick one loser, our dependence on gasoline, and letmarketplace and consumer demand drive the selection of technologies and fuels that will succeed in thelong-term.

This bill is truly an ‘’All-of-the-Above’ energy strategy that will help put Americans back to work creatingthe energy that drives our economic growth. The technologies included in this legislation represent thefull spectrum of alternative fuels and vehicle technologies, promoting all vehicles that can run onsomething other than gasoline. The above forecasts for job creation and economic impact from methanolrepresent only one piece of the larger puzzle – and tens of thousands of more jobs and billions more ineconomic benefit can be realized by implementation of this legislation, all while increasing our energysecurity and strengthening our technology and innovation sectors.

The economy and American consumers are calling out to lawmakers to take action that addresses therapidly increasing cost of transportation and the harmful health effects we are exposed to by gasolineadditives and emissions. The Open Fuel Standard Act will force gasoline to compete at the pump withother technologies which are cleaner and more affordable, and decrease the strategic importance of oiland its numerous harmful effects on our economy and domestic security.