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The prices of oil and gasoline in the world market are not always as stable as countries importing these commodities hope it to be. There are instances when the prices would just go as high as possible that it becomes difficult for importing countries to adjust to such increase. Aside from this, the use of gasoline in vehicles has proven to be a potential danger to the environment as exemplified by past researches. Newton (2003) mentions that biofuels are clean-burning alternatives to gasoline and diesel and are produced from domestic and renewable sources. These are alternative fuels that are simple to use, non-toxic, biodegradable and free of sulfur and aromatics, in essence.
At present, not all countries are into using biofuels yet. Brazil is noted to be the country which has considered the use of biofuels for quite a time now. In fact, Eisberg (2005) relates that Brazil can claim to be the country where the idea of utilizing biofuels as alternatives to gasoline and diesel originated. The said country invested in its 30-year national program to develop substitutes for crude oil products. Approximately 50 percent of the vehicles in the country are already operating on 50 percent pure ethanol. As of 2005, more than 18.9 bn L of ethanol is produced every year and is believed to increase 4 times as much by 2015. Hence, Brazil is considered to be the leading producer of bioethanol with approximately 400 plants operating as of 2005.
The European Commission (2006) conducted a survey in 2004 that showcased various countries who already have invested in biofuels anytime within the years 1992 to 2004. These countries are Belgium, Canada, the Czech Republic, Finland, France, Germany, Ireland, Italy, Korea, Luxembourg, Poland, Slovakia, Spain, Sweden, Switzerland, the United Kingdom and the United States of America. Results of the survey showed that in 1992, out of the 17 countries mentioned, only France and Germany were found to engage in the use of biofuels.
However, come 2004, 11 out of the 17 seventeen countries were already utilizing biofuels. Hence, there is evidence to indicate that gradually, these countries have substituted pure gasoline with biofuel. In fact, Truini (2005) revealed that higher prices of diesel and gasoline caused the tide to turn so that the use of alternative fuels became more attractive and so are their prices. Because of the growing number of countries considering the use of alternative fuels, this study came into being. The increasing use of biofuels in replacement of pure gasoline has an economic impact on the demand for gasoline which in turn will affect the prices of the commodity.
The conduct of this study is imperative because this will determine the behavior of the relationship existing between amount of alternative fuels being utilized and the price of pure gasoline as being used by vehicles as well as the extent of the association between these two variates. This result is important for manufacturers of both the alternative fuel and pure gasoline.
If the consequence of the increased used of alternative fuel is a decline in gasoline price, then manufacturers would obviously not put so much investment in such commodity as it will only prove to be worthless particularly in terms of sales and profits. On the one hand, the result of the study will also be beneficial to consumers who are still using pure gasoline, at least for countries where the use of alternative fuel is not yet a requirement. The benefit will come in terms of low commodity prices which are of course favorable to consumers.
Past studies usually showcase the role of alternative fuel as well as the benefits and disadvantages accrued to using them. However, there is not much past research that actually shows how gasoline prices react to increased use of alternative fuel and its impact to manufacturers and consumers alike. This study hopes to fill in this gap between literature and practice.
It is the expectation of this study that the following research questions will be answered:
What is the impact of the increasing use of biofuel as an alternative to pure gasoline to the prices of these commodities?
Does increased use of biofuel result to lower demand for pure gasoline?
Is there a significant difference between the average amount of two types of biofuel that is consumed by vehicles, that is, if bioethanol is more preferred than biodiesel?
What are the countries that have been successful in gradually replacing pure gasoline with biofuel?
What are the benefits as well as limitations of using biofuel as an alternative to pure gasoline?
With the data that will be collected using a secondary source as well as an extensive review of literature regarding biofuel, it is hoped that the culmination of this research will provide answers to the above-mentioned queries.
Parlak (2002) provides a short description of what biofuels are. According to the author, biofuels are essentially alcohols, ethers, esters and other chemicals made from cellulosic biomass, such as the residue of herbaceous and woody plants. For transportation purposes, biofuels that are of use include biodiesel, bioethanol, biomethanol and pyrolysis oil. In developed countries however, the most common types of biofuels used are biodiesel and biomethanol.
Bioethanol is essentially an alcohol while biodiesel is composed of fatty acid alkyl esters. Bioethanol is produced using a process that is very much like brewing beer. On the one hand, vegetable oils, animal fats and recycled greases are the raw materials for making biodiesel. Most of ethanol produced is used to blend with gasoline directly for use by vehicles in the transportation sector. Biodiesel, on the contrary, can be used in varying concentrations with little or at times no modification to the standard diesel car engine (Newton, 2003).
Eisberg (2005) reveals that in the United States, 85 percent of the ethanol produced from corn is blended with gasoline. In 2003, the ethanol-gasoline blend accounted for more than 10 percent of the total US gasoline sales. By the end of 2004, over 28 ethanol plants were constructed in the country which furthered the ethanol boom. According to Landscape & Irrigation (2006), if all vehicles use the 85-percent-ethanol-gasoline blend, more than 3.5 billion gallons of gasoline annually will be displaced. As of 2006, there are 170,000 gas stations in the United States however there are only approximately 700 pumps with the 85-percent-ethanol-gasoline blend.
In Brazil, on the other hand, a 20 percent blended biodiesel since 1997 has also started to become prominent among vehicle drivers to counter the increasing gasoline prices (Eisberg, 2005). This country commissioned its first biodiesel plant in March 2005. Biodiesel from soybean, castor bean and sunflower seeds is being produced at 12 m L every year and 2 percent of which is to be blended with the conventional diesel.
The Landscape & Irrigation (2006) published significant environmental and consumer benefits in using biodiesel compared to gasoline and these are a) an average of 30 percent fuel economy; b) up to 20 percent less emissions of a greenhouse gas, carbon dioxide; c) increased performance, range and towing capability; and d) longer life and increased resale value. Petrowski (2002) adds that pure biodiesel can reduce cancer-causing emissions by as much as 94 percent and it reduces greenhouse gas emissions from diesel by up to 78 percent which makes it the only existing method to reduce diesel’s contribution to global warming.
Bennett (2004) reveals that the United Kingdom (UK) has been in the tail of the biofuel race. The country has only a single liquid biofuel plant that produces approximately 16000 t of biodiesel annually, mainly from waste cooking oil. The increase in the prices of crude oil, however, provided the means for the UK biofuels industry based on homegrown crops to keep up with other leading countries in biofuel utilization. France, in contrast to UK, has been expanding their biofuels output to more than 1 Mt every year.
Despite the seemingly unperturbed use of biofuel in vehicles, there are also researches presenting the limitations of these alternative fuels. Petrowski (2002) relates that one of the factors contributing to the limitation of alternative fuels is the termination of Methyl tert-Butyl Ether (MTBE), a flammable liquid used as additive in unleaded gasoline. This substance is considered advantageous with regards to cost and reliability compared to ethanol but then MTBE has been eliminated as an acceptable blending fuel. Miranowski (2006) adds that the recent ethanol expansion resulted to an increase in the capital cost per gallon of new ethanol production capacity and so price of the commodity also becomes a challenge.
With biodiesel on the other hand, even if it is considered the fuel of choice, the issue of price cannot be ignored. According to Petrowski (2002), soybean oil is one of the raw materials of biodiesel. Notably, it costs between 17 and 23 percent per pound and 7.5 pounds of soybean oil is required to come with a pure biodiesel. On the average, the raw material costs $1.5 per gallon and adding other costs of production, the overall cost would be more than $2.4 even with amortization plus its production cannot be possible without subsidies, credits or mandates.
Newton (2003) also adds that efficiency as one of the commercial values of biofuel is an issue. In UK, the Petroleum Industry Association (UKPIA) which represents the oil refining and marketing companies in the country provided three main reasons for not using biodiesel in the past years and these are a) low availability; b) difficulties in blending biodiesel with other types of fuel because of the differences in density; and c) costly to produce than standard gasoline or diesel, even with tax incentives.
There are also efforts towards overcoming these challenges and limitations and one of which is the establishment of an ethanol research pilot plant in 2000 (Comis et al, 2000). The new plant will provide a venue for scientists and researchers to develop the technologies needed to improve the efficiency of ethanol production. Methods will be designed to allow various crops to be processes in one facility making the production more efficient.
Objectives of the Study
Generally, this study seeks to determine the impact of the increased use of biofuel as alternative fuel to the price of gasoline. Specific objectives include:
determining the benefits as well as challenges faced with the use of biofuel;
determining the proportion of countries that are already using biofuel; and
assessing the relationship between the demand for biofuel and price of gasoline.
Secondary information will be used to attain the objectives of this research. The secondary source will be Mc-Graw Hill Companies’ Platts, a major provider of energy information about the world. The data that will be considered are data on average annual gasoline prices, amount of bioethanol and biodiesel demanded as well as the names of the countries utilizing alternative fuel from 1996 to 2006. Also, to determine the benefits and challenges faced by countries using biofuel, an extensive literature review will be done to document in detail the benefits of biodiesel and bioethanol as well as their limitations.
Basically, since impact of increasing use of biofuel to gasoline prices will be assessed, regression analysis will be done. This is to determine the relative importance of various factors affecting the use of biofuel instead of pure gasoline. Correlation analysis, on the other hand will be of help to determine the extent of association between the demand for biofuel and price of gasoline. Descriptive statistics will also be produced to determine the proportion of countries in the world using biofuels.
Bennett. M. (2004). The biofuel boom: a chance for the UK? Chemistry and Industry. Retrieved April 4, 2007 from http://www.highbeam.com/doc/1G1-125230169.html
Comis, D., Hardin, B. and Stelljes, K. B. (2002). Bioenergy today: scientists worldwide are researching a wide variety of ways to improve ethanol and biodiesel production. Agricultural Research. Retrieved April 4, 2007 from http://www.findarticles.com/p/articles/mi_m3741/is_4_50/ai_85467226
Eisberg, N. (2005). Fuel with a cleaner future. Chemistry and Industry. Retrieved April 4, 2007 from http://www.highbeam.com/doc/1G1-134866629.html
Landscape & Irrigation (2006). Starring Role: domestic auto makers picking up efforts regarding renewable fuels. Retrieved April 4, 2007 from http://www.highbeam.com/doc/1G1-153048770.html
Miranowski, J. A. (2006). Economic Drivers of Biofuels Expansion. Retrieved April 4, 2007 from http://www.extension.iastate.edu/ag/MIranowskiPresent.indd.pdf
Newton, R. (2003). Biofuels are the future: is ethanol the answer to the UK’s new renewables targets? Chemistry and Industry. Retrieved April 4, 2007 from http://www.highbeam.com/doc/1G1-103846475.html
Parlak, N. B. (2002). Biofuels: Environmental and Economical Impact of Using Renewable Energy Sources in Fossil Fuel Importing Countries. Retrieved April 4, 2007 from http://www.toprak.org.tr/isd/can_34.htm
Petrowski, J. (2002). The age of biofuels: will infrastructure and pricing issues continue to be stumbling blocks? National Petroleum News. Retrieved April 4, 2007 from http://www.highbeam.com/doc/1G1-87510601.html
The European Commission (2006). The Reporting of Biofuels. Retrieved April 4, 2007 fromhttp://forum.europa.eu.int/Public/irc/dsis/chpwg/library?l=/statistics_committee_1/microsoft_reportingpdf/_EN_1.0_&a=d
Truini, J. (2005). Gas price rise hits alternative fuels, too. Waste News. Retrieved April 4, 2007 from http://www.highbeam.com/doc/1G1-136839720.html
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