Incentives Not Enough to Convince Michigan Gas Stations to Sell Biofuel

Rich GroganBiofuels such as ethanol and biodiesel were once heralded as stars of our renewable energy future. But how practical is it for service stations to sell biofuels?

Rich Grogan, an assistant professor in the Department of Management at Antioch University New England (AUNE), put that question to owners of service stations and oil companies in Michigan. If biofuels were going to be embraced by the driving public, consumers would have to find it convenient to purchase them. Grogan, who earned a PhD in organizational sustainability from Michigan State University, wanted to know how and why the retailers on the ground floor of the industry made their decisions.

“In Michigan, between ninety and ninety-five percent of service stations are locally ownedâ€they are small businesses,” according to Grogan. “And so each one of these small businesses had to determine for themselves whether or not to offer biofuels … And if they chose not to, there could be no massive adoption by consumers.”

Many Barriers
Grogan found that few service stations in Michigan actually offered ethanol and biodiesel to their customers, despite financial incentives from the state government. Although the expense of new infrastructure was the reason most commonly given for not offering biofuels, it was not the only justification. Service-station owners also faced an uncertain regulatory environment at the state level and resistance from the big gasoline and diesel brands. Gas stations that did gear up to sell biofuels, on the assumptions that there would be sufficient demand and that it would give them an advantage over their competitors, faced an uncertain return on their investment, since customer demand often didn’t materialize.

Grogan presented the study’s results in his paper “Choosing Sustainability: A Case Study of Service Stations” at an international conference on small and medium enterprises, SMEs: Moving Toward Business Sustainability, that was sponsored by the Network for Business Sustainability this fall in Montreal.

Grogan undertook his study from 2007 to 2010, interviewing service-station owners about their decisions on whether or not to invest in the infrastructure needed to offer biofuels. “Biofuels were the darling of U.S. politicians, who promised that biofuels would reduce petroleum use; in Michigan, they were touted as the economic savior of a depressed economy,” he wrote. The state was offering up to $7,500 to station owners to defray the cost of upgrading infrastructure.

He found that government incentives were not sufficient to convince gas-station owners to install the pumps and other infrastructure needed to sell biofuels, which could cost as much as $100,000. Grogan concluded that, if they were going to succeed on a wide scale, policies designed to encourage sustainable practicesâ€such as Michigan’s biofuel incentiveâ€must realistically calculate the costs and impacts of infrastructure changes and simultaneously address the need for decision support among small business owners.

Find Grogan’s presentation in the conference proceedings here.