The perspective of production and production: Henan Province promotes ethanol gasoline

Henan Province was the first in China to promote ethanol gasoline, and it has been four years since the pilot program began. Today, more than 95% of the fuel market in Henan uses ethanol gasoline. But how did the province overcome challenges related to production, technology, cost, pricing, and market acceptance? A recent reporter’s investigation explored these issues. **Raw Materials: No Major Concern** The primary raw material for producing fuel ethanol is corn, also known as Chenhualiang. In the past, the government had to provide over 10 billion yuan in annual subsidies to support aging grain storage. Henan alone stores more than 250 million tons of wheat each year, with Chenhualiang reaching 3.2 million tons. The annual financial burden on the government was as high as 28 billion yuan just for this purpose. However, the situation has now changed significantly. Ethanol gasoline production has consumed all of Henan’s excess grain, completely relieving the financial pressure on the government. Looking ahead, Henan plans to continue using surplus grain as the main raw material for ethanol production. According to the Provincial Development and Reform Commission, overstocked food reserves must be rotated periodically. Although not officially classified as Chenhualiang, these stocks have been stored for a long time and are no longer suitable for human or animal consumption. Ethanol production often goes hand-in-hand with feed production. As a major grain-producing province, Henan produces the most wheat in the country year-round. Tianguan Group, the national fixed-point producer of ethanol gasoline, produces 300,000 tons of fuel ethanol annually, requiring 1.05 million tons of raw materials. After accounting for 320,000 tons of combined feed output, actual grain consumption is less than 730,000 tons — about 1.8% of Henan’s annual grain output. This level does not threaten food security overall. **Price: The Key to Consumer Acceptance** Price is the main factor influencing consumer choice between ethanol and regular gasoline. Since its introduction, ethanol gasoline in Henan has always been cheaper than conventional gasoline. Even when oil prices soared, the preferential policy for ethanol gasoline remained unchanged. In 2005, for example, the retail price of ethanol gasoline was 0.1 yuan per liter lower than that of regular gasoline. The wholesale-to-retail margin was 5.5%, compared to an average of 7% for non-distribution systems. Sinopec Henan Branch also offered a differential allowance based on distance. Additionally, a floating subsidy of 50 yuan per ton was maintained. By March 2005, the policy of a 0.1 yuan per liter discount and a 50 yuan per ton wholesale subsidy continued. Even after national price increases in June and July, ethanol gasoline still offered a 0.05 yuan per liter discount, with a 50 yuan per ton profit margin. **Cost: The Most Pressing Challenge** Production costs for ethanol gasoline are higher than those for regular gasoline, which has long been a barrier to its development. To encourage manufacturers to cut costs and improve efficiency, the state has gradually reduced subsidies. Initially, the government provided substantial direct subsidies, but since 2004, fixed-rate subsidies have taken over. For example, in 2004, Henan Tianguan Group received a subsidy of 2,070 yuan per ton of ethanol. By 2024, this had dropped to 1,721 yuan per ton. From 2006 to 2008, the state agreed to reduce the subsidy further to 1,373 yuan per ton. Moving forward, reducing costs will require companies to expand access to low-cost raw materials, enhance resource utilization, and achieve technological breakthroughs. **Energy Efficiency: Needs Further Evaluation** Some drivers reported issues such as higher fuel consumption, reduced engine power, and increased wear on certain car parts during summer. These concerns were raised by several users during interviews. Zhang Shizeng, a senior technician at Henan’s Ethanol Gasoline Promotion Office, explained: “From a technical perspective, ethanol has a lower calorific value than gasoline. Adding 10% ethanol reduces the energy content by about 3%. This may slightly lower power performance. However, ethanol’s high oxygen content improves combustion efficiency, allowing more complete burning of previously unburned gasoline components. As a result, fuel consumption may remain stable or even decrease slightly.”

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