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Biofuel Economics: EPA Mandates Increased Ethanol Use

Cole Gustafson, NDSU Biofuels Economist Cole Gustafson, NDSU Biofuels Economist
The national blend rate for ethanol next year will be 10.21 percent.

By Cole Gustafson, Biofuels Economist

NDSU Extension Service

The Enivornmental Protection Agency (EPA) has announced that the national blend rate for ethanol next year will be 10.21 percent. This directive raises a number of interesting questions for auto owners, ethanol producers and the livestock industry.

The previous ethanol blend rate was 7.76 percent, as established by the Energy Independence and Security Act of 2007. This is an average national blend rate. There are some areas of the country, namely the Southeast, that have minimal ethanol consumption. To meet the mandate, other areas of the country must blend higher levels of ethanol in gasoline to meet the national goal.

The EPA was under pressure from the ethanol industry to increase the blend rate to avoid hitting a “blend wall.” With the rapid growth of the ethanol industry, more ethanol is being produced than consumers are purchasing with the existing 7.76 percent blend rate.

Nationally, the U.S. consumes about 140 billion gallons of gasoline annually. In the next couple of years, the ethanol industry capacity will exceed 14 billion gallons. Thus, a blend rate higher than 10 percent is needed unless more consumers start to purchase higher blends of ethanol, such as E85 (fuel containing 85 percent ethanol). This is in stark contrast to overall consumer petroleum demand. Next year, ethanol consumption will increase, while overall petroleum demand falls.

The EPA has resisted a blend rate higher than 10 percent because of existing automobile warranties. Automobile manufacturers only warrant their vehicles if 10 percent or less ethanol is used unless the vehicle is flex-fuel equipped. The EPA could be liable for damages if auto makers don’t revise their warranties. While future vehicles can be modified to accommodate higher ethanol blends, the greatest potential risk is to automobiles that already have been sold and still are under warranty. Consumers owning older vehicles without warranties will have to weigh the risks of using higher blends.

Livestock producers also are concerned about the EPA’s action. Now that the EPA has decided to move past the prior threshold of 10 percent, producers feel the EPA will continue increasing the blend rate. They argue that devoting increasing portions of our nation’s crop base to biofuel production leaves lower quantities of livestock feed available.

Ethanol producers now will have to adjust production levels to meet the new blend rate. Prices of ethanol, along with most petroleum products, have dropped considerably since midsummer. This new increase in demand will aid the industry, but only on a temporary basis.

New ethanol production plants continue to begin operations, which is increasing total supplies even further. Risk and margin management still are going to be key underlying contributors to overall plant and industry health.

NDSU Agriculture Communication

Source:Cole Gustafson, (701) 231-7096,
Editor:Rich Mattern, (701) 231-6136,
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