E15 Approval Doesn't Guarantee Demand

The Environmental Protection Agency is expected to make a determination on the E15 waiver this September.

But it does not seem likely that simply approving E15 will increase ethanol consumption by 50%, warns Pat Westhoff, author of The Economics of Food: How Feeding and Fueling the Planet Affects Food Prices.

That type of scenario would only happen if everyone who was buying E-10 would willingly switch to E-15, if this had no effect on the development of E-85, and if sufficient supplies were available, he says, of which none seem very likely.

"Even in a best case scenario, it seems likely that at least some consumers would be less willing to buy E15, the development of E15 would hinder E85 growth, and ethanol supplies would not respond overnight even under favorable assumptions," Westhoff states.

Geoff Cooper, vice president of research and analysis at the Renewable Fuels Association., notes that EPA's delay approving higher ethanol blends makes it apparent that EPA is not yet comfortable with E15.

A decision has been delayed for nearly 10 months. The catch, it may only be for 2001 and newer vehicles. Or even worse, for 2007 and newer vehicles with the 2001 approval coming in November or December.

Cooper warns that the model year stipulation will only confuse retailers and consumers. "We remain convinced that unless EPA approves E15 or E12 in every vehicle it will have very little impact on ethanol demand. We've talked with retailers who told us that if they can't put E15 in every vehicle, they're not going to mess with it."

RFA has pushed for a move to E12 with a stroke of a pen, which it says is allowed under the current statute without approving the E15 waiver request. Currently 2% of MTBE (another oxygenate that ethanol has replaced over the years) can be stacked on top ethanol. So 12% of an oxygenate, or all ethanol, could be blended into gasoline.

"EPA has been cagey on the E12 idea and dragging their feet on really considering E12 as an option," Cooper says.

In a full analysis of supply and demand outlooks under higher ethanol blends, Dan O'Brien, grain extension economist at Kansas State University, estimates that for each 1% increase of ethanol allowed in U.S. gasoline blends, 1.3 billion gallons more ethanol will be produced each year with requisite increases made in the U.S. Renewable Fuels Standard (RFS). For each 1.3 billion gallons of addition ethanol produced, an additional 464.3 million bushels (mb) of corn is projected to be used to produce the ethanol.

Earlier this month three major farm and ethanol groups called on Environmental Protection Agency Administrator Lisa Jackson to formally approve the use of E12 (12% ethanol) in the nation's gasoline supply.

In a letter to Jackson, the American Coalition for Ethanol, National Corn Growers Assn. and Renewable Fuels Assn. wrote, "Based on EPA's delay in acting upon the full E15 waiver and on our concerns that the agency will restrict the use of E15 to cars made in 2001 and thereafter, we encourage EPA to formally approve the use of E12 for all motor vehicles as an immediate interim step pending any ongoing additional testing on E15."

The groups pointed to the President's stated goal of reducing reliance on oil imports and reiterated that expanded use of domestically produced ethanol will help accomplish that goal. Their letter reviewed previous EPA findings, policy positions and research to support approval of E12 use.

"EPA has a clear basis and the authority to approve E12. While we think delay on E15 is unnecessary and will slow progress on expanding the use of ethanol, we all agree that approval of E12 is a vital interim step that EPA can and should take," they wrote.