Big Oil asks for a truce
An industry bigwig sits down with green energy-policy wonks, and says the oil companies are not anti-ethanol. Believe it?
By Adam Lashinsky, FORTUNE senior writer

NEW YORK (FORTUNE) - As oil prices creep ever higher, the petroleum industry has begun keeping some strange company.

No, not the usual gang of high-priced oil lobbyists, dubious foreign (and domestic) despots, Texas politicians, and so on. I'm talking about folks who are in favor of promoting the use of alternative fuels -- specifically ethanol, the alterna-fuel that's made from corn and, one day, from other plants.

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The Aspen Institute, a nonpartisan think tank, and FORTUNE Magazine recently held a lunchtime panel in Washington, D.C., on the future of ethanol. It followed on a Fortune article in January as well as ongoing policy work by the big thinkers at Aspen.

The usual suspects turned out for lunch, a well-dressed, policy-oriented bunch from the capital that for the most part is motivated to see ethanol succeed. The list included prominent environmentalists, officials from the departments of Energy and Agriculture, a congressional staffer from a corn state, various other think-tankers (economists and not-so-dismal scientists), lobbyists for corn growers and even an investment banker raising money for ethanol plants.

Seated at the head of the table, however, was a rare species for this kind of get-together: Red Cavaney, president of the American Petroleum Institute. Take a moment just to consider how delicious it was to see the face of Big Oil surrounded by energy-policy wonks whose perspectives are all colored in various shades of green. Big Oil has done its fair share in the past to frustrate the ambitions of the alternative-energy crowed. To hear Cavaney tell it, though, the oil patch wants a truce.

The oil industry is not anti-ethanol, says Cavaney. It is "committed to providing affordable fuels reliably to the American consumer." If that includes ethanol, so be it. Sounds good, but are Cavaney and the groups that pay his salary to be believed?

In one sense, yes. Already, the oil industry is the biggest purchaser by far of ethanol. They are using it as an oxygenate to make gasoline burn more cleanly, and they've been doing so increasingly as regulators across the country have begun banning MTBE, the current additive of choice.

But gasoline blended with ethanol is 90 percent gas and just 10 percent corn. That equation isn't going to break America's "addiction to oil," to quote the noted conservationist George W. Bush. What would help is the widespread use of E85, a blend that's 85 percent ethanol and 15 percent gasoline.

E85 is virtually impossible to find in the U.S. because only about 0.3 percent of U.S. filling stations sell it. That's not going to change soon, says Cavaney, because most service stations in the U.S. are owned by small business people who are franchisees of the major oil marketers. For them to invest in the equipment needed to sell E85 would be a giant capital outlay.

What's more, he notes that the oil industry was burned by being forced to adopt MTBE, only to have the substance subsequently become the subject of massive liability law suits. (Small amounts have been found to pollute drinking water.) As such, the industry will move cautiously on E85.

Give the oil industry credit for listening. Still, Cavaney's ma-and-pa argument is a bit of a red herring. Any of his profit-gushing member companies easily could subsidize E85 infrastructure if they cared to.

It is said you can judge people by the company they keep. We're a long way from cutting greenhouse-gas emissions that are damaging the environment and from cutting our reliance on foreign sources of oil. The oil industry sitting down, in public no less, with the clean-fuel crowd at least is a step in the right direction. Top of page

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