Government E85 Policy - (What) are they thinking?

The Thai government is pressing ahead with an accelerated introduction of their E85 policy, and while this might seem like good news, some are already starting to question the wisdom of this decision. Here are some thoughts on E85, and the way it is being pushed.

What is E85?

E85 is a blend of petrol and ethanol. Yes, you've seen this all before! First there was "Gasohol" which was effectively E10, or 10% ethanol and 90% petrol blended.

Gasohol received a lukewarm reception in Thailand, with much confusion as to what it was, and many feared that it would damage their cars engines and fuel systems. But as petrol prices increased folks began to give Gasohol a chance. Manufacturers started to help the cause too, by offering guarantees that their cars could work with Gasohol.

Next, E20 came along, and this time it wasn't just cheaper fuel. Cars capable of running on E20 fuel benefited from a tax break that resulted in a 5% price reduction on E20 capable cars.

The E20 tax break took effect on January 1st this year, and now we are already looking at E85 with an even lower tax rate, so E85 cars will be even cheaper.... or will they?

So, E85 is the next step in the "Gasohol" strategy: 85% ethanol, with the remaining 15% being petrol.

Cheaper fuel

Reports vary, but it seems that E85 will cost approximately 10-15 baht per litre less than regular 95 octane petrol. At current prices that would mean a fill of E85 would cost 25-35% less than petrol.

Sounds good, until you discover that you are going 30-35% less kilometers on your tank of E85, than you would be able to on regular petrol.

Unless E85 is at least 30% cheaper than regular petrol, it is actually going to cost you more to run on E85 than it would on petrol.

But the cars will be cheaper, right?

Eventually they should be, but it looks like the first batch of E85 capable cars will be imports from Europe. Currently Volvo has a version of the C30 that runs on E85, and Ford can offer the Focus kitted out for the new fuel also.

Although these cars will benefit from a lower excise rate, and the figure being suggested at the moment is around 10%, the expense of importing, and other costs associated with flex-fuel vehicles might mean that prices will not be as compellingly low as they were with the E20 cars.

Won't this kill the Ecocar project?

This is another angle to this strategy that might not be all that well thought out. If Ecocars are taxed at 17%, but E85 are at 10%, then the Eco-car might be a less attractive business proposition for manufacturers in Thailand. This is particularly true when you consider the strings attached to Eco-car, with minimum investments, production targets, fuel economy and emissions targets etc.

Is it all bad?

Well, there are some real benefits to E85. For starters lower emissions, and a higher octane rating of around 100-105, resulting in better performance.

But there is more bad news. E85 is popular in other parts of the world, including Brazil and the US, but in both cases the agricultural industry is comfortably able to produce the crops used for ethanol production.

Increased ethanol production in Thailand, will affect food production.

Ethanol might not be the best way forward for Thailand, or if it is, this just doesn't seem to be the best time for it.