Anne Korin from the Institute for the Analysis of Global Security has written in to respond to Henry Payne’s latest post:

Henry Payne’s post “Forcing ethanol: The wireless lesson” proves the flex-fuel mandate point. Companies investing in wireless infrastructure owned the supply chain — they installed the infrastructure, sold the cellphones to consumers, and provided the cellphone service. They had reasonable ground to conclude that if they built the infrastructure (cell towers), and contracted with handset manufacturers so that they could sell consumers a competitively priced phone, people would buy their competitively priced service. Consumers that bought cellphones were in fact locked into a particular service on a contract for a period of time to pay off at least part of that infrastructure investment; Some consumers were even hostage to their particular service’s towers.In the transportation sector, the infrastructure is fuel refineries and pumps, and the handsets are vehicles — separate industries, in which no company controls both the pumps and the cars. A fuel station owner has no reason to install an alcohol pump unless the density of vehicles that can use that alcohol is sufficiently high in his area to justify the investment. An investor has no reason to lay out the capital for an alt fuel plant unless he knows there is a reasonable likelihood enough cars in a sufficiently concentrated area will be able to use that fuel to justify that investment. Both must thus wait for the auto companies to decide to produce a high enough proportion of cars that can use a particular alternative fuel.
In theory, the chicken and egg issue could be solved by companies in one industry buying companies in the other — ExxonMobil buying Ford, say — and thus controlling the decision process on both fronts; or it could be resolved through via contractual agreements between auto manufacturers, fuel station owners, and alt-fuel investors, all agreeing to coordinate their efforts.
The purchase of big auto manufacturers by fuel interests is in fact quite possible, but would have rather undesirable results: if oil-fueled Persian Gulf Sovereign Wealth Funds choose to buy controlling interest in GM — six days of OPEC revenues would suffice to purchase the auto company — and thus gain control of the whole decision process, we can assume they would seek to ensure that GM’s cars could only use their product.
If the sole technology option for auto companies was cars that can only run on a particular alt fuel, we’d probably be stuck in the waiting game forever, since an automaker would have no reason to manufacture a car that people could not fuel at the local station. Fortunately, the hurdle for an auto manufacturer to make the first move is relatively low, because flex fuel vehicles that can run on gasoline, ethanol, and methanol can use existing gasoline infrastructure and thus be deployed before alt fuel pumps, and because the cost difference between an FFV that enables fuel choice and a gasoline only car is quite modest.
Those of us who believe that radical Islam is at war with the rest of the world, and that the strategic status of a commodity controlled by Islamic nations – 75 percent of the world’s proven oil reserves are in concentrated in the Muslim world — poses a clear and present national security threat, think it is quite reasonable to take the automakers at their word, turn their oral commitments to make FFVs into a statutory requirement — thus giving alt-fuel investors confidence to go forward–and speed up the entire process.