High-ethanol gas: Not coming to a pump near you
Oil refiners complained that it is impossible to inject more ethanol into the U.S. gasoline pool without risking damage to engines or voiding some manufacturers' warranties.
E85 represented a path to a compliance - and a way to boost revenue - with the Renewable Fuel Standard. By blending and selling more E85, which can be used in flex-fuel vehicles that can run on conventional gasoline or higher blends of biofuels, energy companies could have met higher biofuel quotas by, in effect, jumping over the blend wall.
"If there were ever a time E85 might begin to move, it is now, and the EPA RFS level would remove any incentive to grow E85," said Wally Tyner, an energy economist at Purdue University in Indiana.
Stifled, Not Killed
Under pressure from the oil industry and from meat processors complaining that demand for corn-based ethanol is raising commodities prices, the EPA on Nov. 15 proposed reducing the targeted amount of biofuel to be blended next year. The new target was set at 15.21 billion gallons of biofuel in the nation's fuel supply in 2014, down from the current mandate of 18.15 billion gallons.
Corn growers, biodiesel companies and ethanol producers have blasted the EPA for caving in to the complaints. But no group relied more heavily on the biofuel mandate than those who market and sell E85.
The EPA deal will not "kill (E85), but it will certainly stifle it," said Mike Irmen, vice president of commodities and risk for ethanol at The Andersons Inc, which runs four ethanol plants and is among the top sellers of E85.
The government's proposal follows a bipartisan vote two years ago in Congress to strip $6 billion in subsidies from the ethanol industry.
While companies such as The Andersons and Green Plains Renewable Energy Inc are expected to formally object to the proposal during the comment period, the market for ethanol credits, known as RINs, shows traders are figuring the EPA's proposal will move forward.
Oil companies say there is scant demand for E85. "We're not opposed to anyone who wants to sell it," said Carlton Carroll, a spokesman for the American Petroleum Institute.
However, some oil companies began considering installing E85 pumps earlier this year after the price of RINs surged nearly 3,000 percent, to a record $1.50, this summer on worries about meeting an expanded biofuels target next year.
A RIN (short for Renewable Identification Number) credit is created for each gallon of biofuel produced in the country. Producers of the fuel can sell the credits to other energy stakeholders such as refiners or importers that purchase the RINs in order to come into compliance with the law's requirement for biofuel production.