Report: E85 not most common alternative fuel

In a country where corn-based ethanol incites an avalanche of controversy, many may be surprised to know that ethanol isn't the most common alternative fuel. The 134 billion gallons of gasoline that powered America's vehicles last year included about 13 billion gallons of ethanol. But the Energy Information Administration doesn't consider one drop of blended ethanol as a true alternative fuel.

Qualifying for the official tally are electricity, hydrogen, propane, natural gas and ethanol blends exceeding 85 percent, or E85. Even without counting blended ethanol, E85 is a relatively common fuel in the country's heartland and Pacific Northwest. If it is not E85, what takes the biggest piece of the pie?

Total alternative fuel use grew 13 percent in 2011 from 2010 to a total of 515.92 million gasoline-equivalent gallons, with growth occurring in nearly every category. However, the annual summary from the EIA isn't a marginal news story that investors should overlook. Here's why.

Natural leader

Natural gas is the leading alternative fuel. In 2011, natural gas vehicles consumed 247 million gasoline-equivalent gallons. To put that in perspective, drivers are still 541 times more likely to drive to work on a tank of gasoline than on natural gas. Nonetheless, as far as alternative fuels go, natural gas takes the cake.

The long road ahead can be viewed as a negative or an opportunity. It may be painfully slow and incredibly difficult to challenge the monopoly of gasoline-powered vehicles, but changes are happening. One reason for the slow adoption of natural gas vehicles is simple. The EIA admits that currently, natural gas and other alternative fuels are used primarily in heavy duty vehicles.

In fact, from 2003 to 2011, the amount of natural gas vehicles on the road grew at an annual rate of 10 percent! No wonder analysts expect the company to grow at a 20 percent clip for the next five years, according to Yahoo! Finance.

Consider that municipalities and industrial giants such as Waste Management are converting their fleets -- in this case garbage trucks -- to run on natural gas fuels. It's a little easier for Waste Management, since it uses biogas generated from its managed landfills to fuel its own vehicles. Clean Energy Fuels also sources biomethane from one of its landfills in Dallas. In fact, the facility can produce up to 36,000 gasoline-equivalent gallons each day. It's like the old saying goes: One man's trash is another man's fuel.

That doesn't mean smaller vehicles aren't in the race. Energy giant Halliburton is going all-in on a nationwide pilot program testing natural gas vehicles. The company will deploy 100 light duty trucks to determine the challenges and feasibility facing their wider adoption. Aside from being a potentially huge step forward for bringing the technology mainstream, Halliburton expects the savings to pile up. The company's estimated annual fuel savings are $5,100 per vehicle.

Charging up for a bright future

Electric vehicles have yet to go mainstream, accounting for just 7.6 million gasoline-equivalent gallons of fuel use in 2011. However, that represented growth of 36 percent over 2010. The EIA admits that electricity use in transportation is dominated by "low speed category vehicles" (whatever that means). That won't last very long if Tesla Motors has its way. 

Luckily for the electric-car pioneer, the trend was being established well before it went public. Despite the domination by, presumably, golf carts, the EIA also states that electric-automobile inventory increased by 10,245 in 2011. In 2010 there were only 11,654 electric vehicles in the U.S., which means the industry grew 88 percent in 2011.

That is astonishing, but it's just the beginning. Tesla cranked out more than 4,750 Model S vehicles in the first quarter. The idea of plugging in a vehicle is certainly catching on.

Foolish bottom line

Ethanol may have lost on a technicality, but it still dominates the alternative-fuel discussion. It's easy to find flaws with the Renewable Fuel Standard, which mandates the use of ethanol and biodiesel in transportation fuels, but there's no debating that it has thrust the renewable fuel into the energy mix virtually overnight. 

With or without a bill for mandated electric-vehicle use, Tesla's plan to disrupt the global auto business has yielded spectacular results. But giant competitors are already moving to disrupt Tesla. Will the company be able to fend them off?