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 now been four years since the pilot program began. Today, over 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 report by a journalist delves into these issues. **Raw Materials: No Major Concern** The primary raw material for producing fuel ethanol is corn (Chenhualiang). In the past, the government had to provide annual subsidies exceeding 10 billion yuan to support aging grain storage. Henan alone holds over 250 million tons of wheat each year, with Chenhualiang reaching 3.2 million tons. The government used to spend 28 billion yuan annually on subsidies just for this grain. However, the situation has changed significantly. Now, ethanol gasoline production consumes all of Henan’s excess grain, effectively eliminating the financial burden. Looking ahead, the main source of raw materials for fuel ethanol in Henan will be surplus grain. According to the Provincial Development and Reform Commission, overstocked grains need regular rotation. Though not officially classified as Chenhualiang, these stocks have been stored for a long time and are unsuitable for human or animal consumption. **Production and Food Security** Ethanol production is often combined with feed production. Henan, a major grain-producing province, produces more wheat than any other region in the country. 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 feed output, the actual grain consumption is less than 730,000 tons, which represents only 1.8% of Henan’s normal grain output. This means that food security remains unaffected overall. **Price: A Key Factor for Consumers** Price is the most important factor influencing consumer acceptance of ethanol gasoline. Since its introduction, ethanol gasoline in Henan has always been cheaper than regular gasoline. Even when oil prices rose sharply, the preferential pricing policy for ethanol gasoline remained unchanged. In 2005, for example, the retail price of ethanol gasoline was 0.1 yuan per liter lower than 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. On top of that, a 50-yuan-per-ton floating discount was still applied. By March 2005, the policy remained the same—ethanol gasoline was still 0.1 yuan cheaper per liter. Even when national gasoline prices increased by 200–250 yuan per ton, ethanol gasoline remained 0.05 yuan cheaper per liter, with a profit margin of 50 yuan per ton for producers. **Cost: The Main Challenge** Producing ethanol is more expensive than producing regular gasoline, which has always been a major obstacle to the development of fuel ethanol. To encourage manufacturers to reduce costs and improve efficiency, the state has gradually reduced subsidies. In the early stages, the government provided significant subsidies. For example, in 2004, Tianguan Group received a subsidy of 2,070 yuan per ton of ethanol. By 2005, this was reduced to 1,721 yuan per ton. From 2006 to 2008, the state agreed to further cut subsidies to 1,373 yuan per ton. Moving forward, reducing costs will require companies to expand access to low-cost raw materials, enhance comprehensive utilization, and achieve technological breakthroughs. **Fuel Efficiency: A Mixed Picture** Some drivers have reported issues such as higher fuel consumption, lower power, and swelling parts in their vehicles, especially during summer. These concerns were raised after interviews with users. Zhang Shizeng, a senior technician from Henan’s Ethanol Gasoline Promotion Office, explained: “From a technical standpoint, ethanol has a lower calorific value than gasoline. Adding 10% ethanol to gasoline reduces its energy content by about 3%, which can affect power performance. However, ethanol’s high oxygen content increases the oxygen level of gasoline by 3.5%, leading to more complete combustion and improved fuel efficiency. As a result, overall fuel consumption may remain stable or even slightly decrease.”

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