Will the ethanol “blend wall” block biofuels growth?

Expanding U.S. ethanol production comes up against declining fuel demand and policy uncertainty.

In November 2013, the U.S. Environmental Protection Agency (EPA) released its proposed Renewable Fuel Standards (RFS) for 2014, including a controversial reduction in federally mandated volumes for renewable fuels like ethanol. The proposed policy would limit total domestic corn ethanol use to 13 billion gallons, cut the cellulosic ethanol goal to 17 million gallons and reduce the overall renewable fuel mandate from 18.15 to 15.21 billion gallons. The Agency has suggested that proposed reductions to the RFS volumes are based upon their projections of biofuel volumes that can likely be produced and used domestically in 2014. In some ways, the market is driving the RFS rather than policy taking the lead.

Two significant obstacles limit the ability of the U.S. market to absorb any more of what is currently the most economical biofuel, corn ethanol. According to Michigan State University Extension, ethanol is most commonly blended with petroleum-based gasoline as E10 (10 percent ethanol). Overall, U.S. consumption of gasoline has declined by 0.5-0.8 percent annually for several years. Reduced consumption is partially the result of advances in vehicle fuel efficiency. Higher MPG ratings should be celebrated, but lower demand for gas also means less room for ethanol. The real sticking point, however, is fact that current market forces and policy limit the rate at which ethanol can be blended with gasoline.

The U.S. automotive industry has been steadfast in its position that blends higher than 10 percent ethanol have potential to damage vehicles, and thus void many manufacturers’ warranties. This is despite the results of a 2011 study by the Department of Energy finding that fuel blends containing as much as 15 percent ethanol cause no significant damage to vehicles manufactured after 2001. Beyond that, Flex fuel vehicles that can burn as much as 75 percent ethanol as E85 have been available for years, but account for only 3 percent of America’s light duty fleet. In addition, only 10 percent of flex fuel vehicles on the road actually use E85.

Development of infrastructure for higher ethanol blends has simply been slow and incomplete following marginal early sales. Some suggest that the lower energy content by volume  and relative MPG provided by E85 may be to blame for its limited acceptance in the marketplace.

If gasoline consumption remains near 130 billion gallons in 2014 as projected, the 10 percent “blend wall” will continue to limit ethanol use to approximately 13 billion gallons. The revised RFS anticipates that nearly the entire 2014 ethanol mandate will be fulfilled by ethanol derived from corn grain. However, the recent construction of three ligno-cellulosic ethanol biorefineries in the Midwest has reinvigorated hope for the scalability of plants fermenting fuel from corn stover. Poet-DSM, Dupont and Abengoa are now in the process of contracting with farmers to supply approximately 275,000 tons of corn stover per facility in 2014.

Many in the bioenergy and corn industries feel that proposed changes to the RFS could discourage this kind of positive development in biofuels. Cellulosic ethanol provides a higher net energy balance and avoids the food versus fuel debate by relying on low value biomass rather than grain. However, if the ethanol market and RFS mandated volumes continue to show signs of instability, investors could easily get cold feet.

Innovative approaches to using more ethanol, such as blending pumps, could provide a partial solution, keeping the door open for cellulosic ethanol. Blending pumps allow the consumer to select their blend according to manufacturer’s recommendations or their preference and simultaneously control costs for retailers wary of installing separate E15 or E85 pumps.

If the blend wall is left as-is and the image of higher ethanol blends is not improved, it will be very difficult to boost ethanol consumption in the United States much beyond current levels. Alternatively, slow investment in higher ethanol blends over time and the promotion of compatible vehicle designs would build on the success of grain ethanol and support the next generation of even more efficient bio-based transportation fuels. A 60-day public comment period on the EPA‘s proposed changes to the RFS is scheduled to run through February. See the Federal Register notice and share your comments at their website.

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