At the same time the industry is collecting a 51 cents-per-gallon federal subsidy for each gallon of ethanol it mixes with gas and sells as E10 (10% ethanol and 90% gas), it's working against the E85 blend with tactics both overt and stealthy. Efforts range from funding studies that bash the spread of ethanol for driving up the price of corn, and therefore some food, to not supporting E85 pumps at gas stations. The tactics infuriate a growing chorus of critics, from the usual suspects—pro-ethanol consumer groups—to the unexpected: the oil industry's oft-time ally, the auto industry.
The industry collects the subsidies, but didn't lobby for them—Congress created them to encourage a larger ethanol market. While oil reps say they aren't anti-ethanol, they are candid about disliking E85. Says Al Mannato of the American Petroleum Institute (API), the chief trade group for oil and natural-gas companies: "We think [ethanol] makes an effective additive to gasoline but that it doesn't work well as an alternative fuel. And we don't think the marketplace wants E85."
One prong in the oil industry's strategy is an anti-ethanol information campaign. In June the API released a study it commissioned from research firm Global Insight Inc. The report concludes that consumers will be "losers" in the runup to Congress' target of 35 billion gallons of biofuel by 2017 because, it forecasts, they'll pay $12 billion-plus a year more for food as corn prices rise to meet ethanol demand. The conclusions are far from universally accepted, but they have been picked up and promoted by anti-ethanol groups like the Coalition for Balanced Food & Fuel Policy, made up of the major beef, dairy, and poultry lobbies. Global Insight spokesman Jim Dorsey says the funding didn't influence the findings: "We don't have a dog in this hunt."
Of the 179,000 pumps at U.S. gas stations, only about 1,000 pump E85. Almost none are at oil-company-owned stations. And if an independent station that operates under, say, the Exxon (XOM ) or Shell brand wants one, it can cost around $200,000 to install a separate pump when all the gas suppliers' restrictions are met. Exxon Mobil Corp. bars branded independents from buying fuel from anyone but Exxon, though it let a handful install E85 pumps for test marketing—as separate machines on separate islands nowhere near Exxon or Mobil signs. ConocoPhillips (COP ) has a similar policy. But switching existing tanks and pumps to E85 is the cheapest way to offer it, with more than 50% of costs often offset by various subsidies. Mannato says companies want to prevent consumers who don't have flex-fuel vehicles, which run on either gas or E85, from gassing up with E85. Also, they "don't want their brand associated with someone else's product."
A FACE-OFF WITH DETROIT
The industry's stance angers carmakers, which have more than 5 million flex-fuel vehicles on the road. General Motors (GM ), Ford (F ), and Chrysler all pledge that half of new-vehicle sales should be flex fuel by 2012 but are waiting for bigger commitments to E85 pumps. "Big Oil is at the top of the list for blocking the spread of ethanol acceptance by consumers and the marketplace," says Loren Beard, senior manager for energy planning and policy at Chrysler, referring to the struggle to