Economist: “Blending Wall” Stands in Way of Ethanol Growth

Posted on January 3, 2009. Filed under: Blender's Tax Credit, Hydrous Ethanol | Tags: , , , , |

Economist: ‘Blending wall’ stands in way of ethanol growth

 

WEST LAFAYETTE, Ind. (December 19, 2008) – Ethanol production opened the door to the renewable fuels industry. The industry now must get past an imposing wall of federal regulations and market conditions if it hopes to grow, said a Purdue University agricultural economist.

 

“The ethanol industry is now faced with what is called a ‘blending wall,'” said Wally Tyner, an energy policy specialist. “The ethanol industry will not and cannot grow with the blending wall in place. That means we won’t have cellulosic ethanol and the demand for corn for ethanol will be limited unless the blending wall is somehow changed or we find a way around it.”

Unless the barrier is removed, ethanol production could level off by 2010, Tyner said.

 

The blending wall refers to the amount of ethanol gasoline companies are permitted to blend with petroleum-based fuel. Federal standards set the amount at 10 percent of gasoline consumption.

 

“As a nation we consume about 140 billion gallons of gasoline a year,” Tyner said. “So if we blended ethanol with every single drop of gasoline we consume, the maximum amount of ethanol blended would be 14 billion gallons a year. But for a number of reasons we can’t blend ethanol with every drop of gasoline. Our effective blending wall is actually about 12 billion gallons, or 9 percent.

 

“We’re not at 12 billion gallons yet, but we’ll be there in 2009 or 2010. When we hit that blending wall, the Environmental Protection Agency cannot require gasoline companies to blend more ethanol than they are legally permitted to blend.”

 

Several factors prevent the ethanol industry from breaking through the blending wall, Tyner said. For starters, there are too few cars and trucks on the nation’s roads capable of running on any gasoline with an ethanol blend higher than 10 percent, or what is commonly called E10, Tyner said. A huge gap exists between the E10 fleet and flex-fuel vehicles that run on E85 – an 85/15 ethanol to gasoline blend, he said.

 

“Only about 7 million of our nation’s 300-plus million cars are E85 flex-fuel vehicles,” Tyner said. “Also, we have just 1,700 fuel pumps in the entire country that can dispense E85, and most of those are in the Midwest. All of the E85 that’s marketed nationwide could be produced by one ethanol plant.”

 

Some in the ethanol industry have proposed that E10 be replaced by an E15 or E20 blend, thereby increasing ethanol use. However, automobile manufacturers do not believe today’s E10 vehicles can run on a higher ethanol blend, Tyner said.

 

“Because the automobile fleet in the United States turns over about every 14 years, it would take some time before E15 or E20 cars would be as common as E10 are now,” he said.

 

Ethanol production growth also is held back by environmental and infrastructure factors, Tyner said.

 

“In the South during the warm summer months, the vapor pressure of ethanol blends is higher than conventional gasoline,” he said. “That causes more evaporative emissions and means the blended fuel does not meet Environmental Protection Agency evaporative emission standards.

 

“On the infrastructure side, ethanol cannot be shipped by pipeline because it is so corrosive and would absorb any water in the pipeline. It must move by truck, rail or barge instead. That presents logistical problems.”

 

For ethanol production to push past 12 billion gallons per year the blending wall would have to be eliminated and oil prices would need to increase, Tyner said.

 

The blending wall affects corn prices, as well, by cutting the link between the corn price and the cost of crude oil, Tyner said. In the ethanol era, corn prices have followed oil prices up and down.

 

“In the economic models we’ve developed, corn prices never exceed $6 per bushel with the blending wall in place, even with oil prices at $160 per barrel, because you simply can’t blend any more ethanol,” he said.

 

“So the blending wall is perhaps the biggest issue the ethanol industry will face in 2009-10. Without a resolution of this issue, ethanol industry growth is about finished.”

 

Writer: Steve Leer, (765) 494-8415, sleer@purdue.edu

Source: Wally Tyner, (765) 494-0199, wtyner@purdue.edu

Ag Communications: (765) 494-2722;
Beth Forbes, forbes@purdue.edu
Agriculture News Page

 

 

About Renergie

Renergie was formed by Ms. Meaghan M. Donovan on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten ethanol plants in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita.  Each ethanol plant will have a production capacity of five million gallons per year (5 MGY) of fuel-grade ethanol.  Renergie’s “field-to-pump” strategy is to produce non-corn ethanol locally and directly market non-corn ethanol locally.  On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida Department of Environmental Protection’s Renewable Energy Technologies Grants Program.  Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice.  On April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector.  By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is more economical, cleaner, renewable, and more efficient than unleaded gasoline.  Moreover, the Renergie project will mark the first time that Louisiana farmers will share in the profits realized from the sale of value-added products made from their crops. 

 

 

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2 Responses to “Economist: “Blending Wall” Stands in Way of Ethanol Growth”

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This is exactly what you get when you let the government micro manage such a large and important economic sector like energy. It is clear that EISA 2007 and the ethanol blending mandates are a corporate welfare program for E85. E10 is never mentioned in the act and the universal spread of E10 is an unintended consequence which is having huge economic repercussions in states including economic damage and a public safety impact. There are a number of piston engine applications that should never use ethanol blended gasoline. Most of these applications are exempted in the six states with mandatory E10 laws, but the other 44 states without these exemptions are going to face serious economic problems as their marine, aircraft, antique and classic cars and recreational vehicle economies are going to be impacted by the universal spread of E10. Lawsuits will follow. And of course the most ironic of all economic problems from ethanol is starting to be felt, the fact that ethanol is now raising the price of everyone’s gasoline, now that ethanol is more expensive than clear gasoline, just in time to add to the economic cataclysm playing out across our nation.

I recommend that you read Act 382, a copy of which appears on this weblog. The legislature found that the proper development of an advanced biofuel industry in Louisiana requires implementation of the following comprehensive “field-to-pump” strategy developed by Renergie, Inc.:

(1) Feedstock other than corn;
(2) Decentralized network of small advanced biofuel manufacturing facilities;
(3) Use of blending pumps rather than splash blending; and
(4) Hydrous ethanol

Moreover, preliminary tests conducted in Europe have proven that the use of hydrous ethanol, which eliminates the need for the hydrous-to-anhydrous dehydration processing step, results in an energy savings of between ten percent and forty-five percent during processing, a four percent product volume increase, higher mileage per gallon, a cleaner engine interior, and a reduction in greenhouse gas emissions. Europe and Brazil are currently utilizing midlevel ethanol blends, including hydrous ethanol, in non-FFVs.


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    Renergie created “field-to-pump," a unique strategy to locally produce and market advanced biofuel (“non-corn fuel ethanol”) via a network of small advanced biofuel manufacturing facilities. The purpose of “field-to-pump” is to maximize rural development and job creation while minimizing feedstock supply risk and the burden on local water supplies.

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