The producers are proposing to sell ethanol to oil refiners at the wholesale price of gasoline, said Bill Maloney, managing director of Maui Ethanol, which will use molasses from Hawaiian Commercial & Sugar Co.'s Pu'unene Mill to make ethanol.

Tax credits should cut the effective wholesale price to about 50 cents a gallon. And since ethanol boosts octane, refiners will be able to use a cheaper grade of gasoline to get the same octane rating. This combination of savings should more than offset any costs for piping and for ethanol storage facilities at refiners' terminals, Maloney said.

Yet the oil industry continues to argue that ethanol is likely to drive up fuel prices.

"Adding ethanol to gasoline increases our costs," said David Leonard, spokesman for Tesoro, which runs one of the state's two major refineries. "Ethanol is going to become an upward pressure on gasoline prices."

Leonard said government tax credits ultimately would increase the costs to consumers even more.

A state energy consultant says, however, that there are distinct savings that should maintain or reduce prices at the pump.

"If the economics are passed on to the consumer, the cost of gasoline might actually be lower. ... More importantly ... any price impact of using ethanol, whether positive or negative, is very minimal and far less than the many other factors — such as crude oil price increases and supply imbalances — that impact gasoline prices," said Robert Reynolds of Downstream Alternatives, a consultant to the state Department of Business, Economic Development & Tourism, who presented a series of workshops on ethanol in May.

Maria Tome, an alternative-energy engineer with DBEDT, said almost all states sell some ethanol-blended gas, and a few — such as New York, Minnesota, Connecticut and California — sell 90 percent or more of their gasoline blended with ethanol.

"When other states have implemented the conversion to ethanol, they did not see significant increases in price," Tome said.

Gov. Linda Lingle signed the new rules for Hawai'i last week.

Ethanol, or ethyl alcohol, is sometimes called grain alcohol. (Methanol, also known as methyl alcohol or wood alcohol, cannot be used interchangeably with ethanol.)

Every automobile sold in the United States can run on a 10 percent ethanol blend — sometimes called E10 — without modifications and with full warranty protection. Already, about a third of the gasoline sold in the United States has ethanol mixed into it. Most ethanol is made from corn. Hawai'i's ethanol will be made from sugarcane products, mainly molasses and bagasse.

Blends with more than 10 percent ethanol can cause problems in standard engines. Auto manufacturers build "flex-fuel" cars and trucks that can use 85 percent ethanol and 15 percent gasoline, called E85, but this mix is not proposed for sale in Hawai'i. (Cars can be configured to run pure alcohol. Automobiles in Brazil use nearly 100 percent ethanol. Henry Ford's Model T was able to run on gas, alcohol or a mixture.)

Marine engines and the gas engines on lawnmowers and other yard equipment can all use E10. Every major outboard motor manufacturer authorizes 10 percent ethanol mixes, although most warn that problems may occur with higher mixes of ethanol.

Both Honda and Nissan warn against using gasoline that contains more than 10 percent ethanol. The top outboard motor manufacturers use similar language.

E10 fuel mileage differs by car. Ethanol produces a little less energy than gasoline, but engines run cleaner and slightly cooler on it, which can make up the difference, according to the Canadian Renewable Fuels Association.

Tesoro's Leonard agreed. "The bottom line is that ethanol has less energy than gasoline, but the studies on mileage go both ways."

The Environmental Protection Agency says drivers won't be able to tell which fuel they are using.

"Ethanol vehicles exhibit the same power, acceleration, payload and cruise speed as conventionally fueled vehicles," the EPA says in its fact sheet, "Clean Alternative Fuels: Ethanol."

DBEDT's Tome said lower-compression cars might see a slight reduction in mileage, but she agreed performance should not differ. "At a 10 percent level, you're not going to notice," she said.

Despite North America's long, extensive history with ethanol blends, a significant opposition exists.

Maloney said arguments claiming ethanol production causes air pollution date to older corn-to-ethanol plants, but these would not apply to cane-to-ethanol production. The primary by-product of the molasses-to-ethanol plant he is proposing, he said, is a nontoxic compound high in potassium, which can be applied directly to fields as fertilizer.

Some argue that creating fuel ethanol uses a lot of energy. But Maloney said it takes less energy to make ethanol out of cane than out of corn, and much more energy to pump oil out of the ground and refine it to gasoline.

The California Air Resources Board says ethanol-blended gasoline pollutes by "permeation," meaning car fuel systems leak more using ethanol blends than straight gas. The ethanol industry's Renewable Fuels Association disagrees, saying that with the reduction in tailpipe pollution from ethanol blends, ethanol fuels are cleaner.