Summary: Over the past year, GAO has done a substantial amount of work in the alcohol fuels area and has issued three reports on the subject. Alcohol fuels have a vast potential for replacing petroleum fuels, particularly in the automotive sector. The technology to produce alcohol fuels, both ethanol and methanol, exists today. Ethanol is now making a contribution toward stretching availabe gasoline supplies, and methanol could eventually be produced in sufficient quantity to totally replace gasoline. Ethanol commercialization has benefited substantially from the waiver of Federal and State gasoline taxes. The cost differential between ethanol and gasoline should narrow in the future. Ethanol production, sufficient to enable a nationwide gasohol program, would depend on the development of cellulose technology. Such a program could cut U.S. oil imports by 260 million barrels a year. Methanol can be produced from almost any organic feedstock. At least initially, production of methanol for automotive use is expected to be from coal. Although no commercial-size methanol-from-coal production plant currently operates in the United States, the technology to produce methanol has been commercial for years. Production cost estimates are highly encouraging. It can be used as an automotive fuel within existing technology by low cost modifications. In terms of its environmental and health characteristics, methanol is also possibly superior to gasoline. However, neither methanol-from-coal nor vehicles optimized for its use are being domestically produced today. No infrastructure exists for distributing methanol from its production source to points of sale. The investments associated with developing the production capacity and converting the automobile and the automotive fuel industries will not be easy to overcome. The administration has proposed to terminate funding for feasibility studies, cooperative agreements, and loan guarantees for alcohol fuel projects. GAO has not reviewed the effectiveness of the specific subsidies encompassed by the proposal, but it believes that an appropriate level of alcohol fuels production could be achieved without these additional subsidies. Excessive ethanol subsidies could result in an economically unjustified commitment of resources to ethanol, which has less potential than methanol.
