15% ethanol mandate puts cart before horse

Vehicles are built with warranties that don’t allow E15 blends, which exceed EPA greenhouse gas emission limits in summer

CHICAGO, Ill. — E15 blends will not break down the ethanol blending wall, says an energy analyst.

The wall was erected last year when the U.S. Renewable Fuel Standard required oil companies for the first time to blend more ethanol than could be consumed in 10 percent (E10) blends.

Blenders bought Renewable Identification Number paper credits instead of actual ethanol to comply with the federal mandate.

The U.S. Renewable Fuels Association is pushing for oil companies to start using ethanol at 15 percent (E15) blends.

It says E15 blends are the solution to the blending wall, which is holding back ethanol sales and ultimately corn sales to the ethanol industry.

Brian Milne, energy editor at Schneider Electric, thinks the association is banking on false hope.

“I just see this huge, massive problem in E15 sales penetrating in any sort of great volume in this country,” he told the DTN Ag Summit 2014.

“I just don’t see it happening.”

Oil companies, automobile manufacturers and fuel retailers all seem reluctant to embrace E15 blends.

Vehicles are still being built with warranties that don’t allow E15 blends. In fact, only two-thirds of new vehicle sales allow for E15, said Milne.

Retailers are afraid of being sued if the fuel causes engine damage.

One hundred stations in 15 states sell the blend, which is a small fraction of the country’s 152,900 stations.

“It’s a drop in the bucket,” he said.

Retailers who want to offer the fuel must invest $80,000 in new tanks, hoses and pumps.

There are also regulatory hurdles.

The U.S. Environmental Protection Agency sets a maximum allowable Reid vapor pressure (RVP) level for gasoline-ethanol blends. It is a measure of the harmful greenhouse gases that the blends release into the atmosphere.

Ethanol boosts octane levels in fuel but it also elevates RVP levels. In fact, the E10 and E15 blends exceed the allowable RVP limits during summer.

The EPA has granted a waiver for E10 blends but hasn’t extended it for E15, which Milne sees as a sign of a lack of EPA support for the higher blend.

E15 blends must also be approved on a state-by-state basis, which can be a long process. It took two years to get approval for two E15 stations in Florida.

Milne thinks the growth opportunity for ethanol is in E85 blends, which are used in flexible-fuel vehicles.

There are 17.4 million flexible-fuel vehicles on U.S. roads, which accounts for six percent of all light duty vehicles. The U.S. Energy Information Administration (EIA) expects that number to climb to 11 percent by 2040.

Those vehicles are being fueled at 2,685 stations equipped with E85 pumps, or two percent of the nation’s stations.

The EIA is forecasting a 780 percent surge in E85 demand to 2.25 billion gallons by 2020 and 5.5 billion gallons of consumption by 2030.

“They do see a huge jump in E85 sales,” he said.

The forecast comes with a caveat that an E85 subsidy of $1.35 to $1.90 per gallon would be needed.

Milne said the fuel must be priced 30 to 50 percent below the cost of E10 blends because E85 has 22.8 percent less energy content than does gasoline.

The number of retail outlets offering E85 blends would also have to increase significantly.

Exports are the other growth market for U.S. ethanol. The country has been a net exporter of the fuel for the past year, shipping 56 million gallons in September.

Canada is the top customer for U.S. ethanol, followed by Mexico and Brazil.

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