How Ethanol Price Can Affect the Automobile Industry

How Ethanol Price Can Affect the Automobile Industry

An ethyl alcohol, ethanol is a renewable resource and a biofuel alternative, made from various plant products known as ‘biomass’ such sugar cane, corn, barley, and other cellulose feedstock through the hydration of ethylene and fermentation of sugars with yeast.

Ethanol is used in a variety of applications, and the production of industrial ethanol is expected to increase from 115.6 billion liters to around 128.4 billion liters by 2025, with the ethanol price forecast depicting a steady pattern. Asia is the biggest manufacturer and consumer of industrial ethanol, followed by Europe, which is the second largest consumer of industrial ethanol.

Use of Ethanol in the Automobile Industry

Apart from the applications of ethanol in industries of personal care, cleaning products, and food & beverage, nearly half of the production is used as automobile fuel. Although automobiles are typically fuelled by gasoline, as a non-renewable fossil fuel, the supply of gasoline is limited and the prices are prone to fluctuation. Therefore, ethanol is being increasingly used as an automobile fuel, as an additive to gasoline and on its own.

According to the U.S. Department of Energy, more than 98 percent of the currently used gasoline in the U.S. contains ethanol, most commonly in a mix of 10 percent ethanol for 90 percent gasoline. The use of ethanol in combination with gasoline further serves to oxygenate the fuel and reduce air pollution. One of the major benefits of using ethanol as a fuel source is that it is one of the few fuels that can be used in a gasoline designed engine without modifications. However, for long term use of alternative fuels, including ethanol, in automobiles, experts advise using flexible fuel vehicles which are better equipped to handle alternative fuels.

Effect of Ethanol Prices on Automobile Industry

The automobile industry worldwide is heavily influenced by fuel prices, with new developments and technology often focused on ways to optimize the fuel process. The most widely used automobile fuel is gasoline, however, there are several drawbacks to its use that is encouraging the development of alternative fuel models. While electric cars are gaining popularity, they are yet to be established in the global market. In comparison, ethanol-fuelled vehicles have been found to have a higher success rate, which is visible in Brazil, where cars have been using ethanol blends since 1976 and more than 14 million automobiles have flex-fuel engines using 100 percent ethanol fuel.

An increased supply of ethanol which would result in lower prices would further encourage the development of the automobile industry to turn to flex-fuel engines compatible with using 100 percent ethanol fuel. As a renewable resource, ethanol is considered to be a more desirable fuel alternative for the automobile industry as compared to fossil fuels. The ethanol fuel market has been growing in leaps and bounds, driving the development of compatible engines in the automobile industry.

The automobile industry is growing at a steady pace in developed and developing nations, with increased demand from developing nations. Due to a limited supply of traditional fuel sources such as fossil fuels, the industry is continuously looking for alternatives, for which ethanol fuel is emerging as a popular solution. Based on the ethanol prices, the automobile industry can expand into creating more flex-fuel engines suited to utilize 100 percent ethanol.