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Ethanol Growing in Popularity Due to Gulf Oil Spill

The implications for the oil industry from the ongoing Gulf of Mexico oil spill are already taking shape, with the administration calling for a Challenger-style investigation and rewriting the playbook for oil & gas leasing and the issuance of safety and environmental permits for offshore drilling. It's less clear how the spill might affect other aspects of energy, beyond boosting the public's interest in pursuing clean energy options. However, it would be ironic if a problem perceived to have arisen because of a "cozy relationship" between oil companies and regulators resulted in an even cozier relationship between the government and the ethanol industry that depends on it for both financial support and the rules that mandate the use of its product. Yet that's exactly what could happen as the administration decides whether to increase the allowable percentage of ethanol in gasoline.

Perhaps you've seen the new ads from Growth Energy, an ethanol trade association: "No beaches have been closed due to spills", with the word "ethanol" fading slowly into view. Then there's "We won't have to wait millions of years to replenish our reserves," and other statements emphasizing ethanol's employment and energy security benefits. It's a clever campaign, and well-timed. On one level, using more ethanol in gasoline seems an obvious response to concerns about our dependence on oil. For all its many shortcomings, ethanol remains the most successful oil substitute in the US market, thanks to the combination of a $0.45 per gallon blenders' tax credit and the steady ratcheting-up of the annual federal renewable fuels standard. Ethanol currently displaces the equivalent of approximately 500,000 barrels per day of gasoline that would otherwise be imported or refined here from imported crude oil. The problem is that the market penetration of ethanol is rapidly approaching the 10% blending limit that has been approved as safe for use in engines that haven't been modified to run on higher-percentage ethanol blends, such as E85. And because E85 has so far failed dismally to take off--accounting for just 0.01% of US gasoline sales in 2008, based on EPA's analysis--any additional ethanol would have to be squeezed into ordinary gasoline, at least in the near term.

Our proximity to this threshold, referred to as the "blend wall", is determined by two factors, in addition to the federally-mandated ethanol blending volume: total US gasoline sales and US ethanol output. Last year Americans bought just under 138 billion gallons of gasoline (including the ethanol blended into it), a reduction of about 3% from the 2007 peak. Without further growth in demand, 10% of that would be 13.8 billion gallons per year (gpy). According to the Renewable Fuels Association, another ethanol trade association, the capacity of existing US ethanol facilities plus those under construction already totals 14.7 billion gpy. In other words, once all the ethanol plants now being built are finished, the industry could supply more than 10% of US gasoline demand without breaking a sweat. But without either a higher blending limit in gasoline or a sudden, unexpected surge in E85 sales, any additional ethanol beyond that level would have no home in the US fuels market. Nor is it obvious that corn ethanol exports represent a viable long-term outlet. Left unresolved, this is a guaranteed train-wreck.

Under the circumstances, it's natural for the ethanol industry to ask its patron for help, in the form of a request for a waiver to blend more than 10% ethanol into each gallon of gas. Last winter, the Environmental Protection Agency told Growth Energy that it was studying their request and would respond by mid-2010. That deadline is nearly upon us, and with more oil spilling into the Gulf of Mexico every day, the pressure on EPA to agree must be mounting. This can't be an easy call to make, especially with the auto makers citing test results indicating that ethanol blends above 10% could harm some car engines. Saying no would call into question the nation's entire long-term renewable fuels strategy, at a time when green jobs and green energy are being widely promoted as the key to a new, more competitive economy. Yet granting that request, either as a favor to the ethanol industry or as a hasty response to the Gulf Coast oil spill would be a mistake that could have serious repercussions, both for consumers and for the administration making such a call. Stay tuned.

By. Geoffrey Styles

Source: Energy Tribune

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  • Anonymous on May 27 2010 said:
    Two (2) Problems:Ethanol mpg is less than gas. andCorn based ethanol increases food costs. Also, corn gets a double federal subsidy.First for farming it, then the 45 cents/gal for ethanol production.In both cases federally collected taxes are going to private industry, with strings attached.Action like this makes it difficult to reduce taxes and the size of the federal government.
  • Anonymous on May 28 2010 said:
    It's time to eliminate oil as the major form of energy for vehicle use - This disaster is a strong reminder that the oil companies and government can't be depended upon to make sure the environment is safe. We can switch to electric cars with a focus on solar energy to power them.
  • Anonymous on June 05 2010 said:
    Ethanol MPG is less than gas, we all know that. People state this like its some big revelation. No one to my knowledge, including the ethanol proponents, have ever said otherwise. I don't really see why this is a problem, as long as its understood. Corn is not necessarily double subsidized, only when the price drops below the price of production. Ethanol has helped raise the price of corn and avoid this, although its barely above that right now (only about $3.15/bushel here in S Dakota). I like the idea of electric cars, but the battery design is still not good enough for them to be feasible. Even if someone came up with a feasible electric car tomorrow, it will take 15 years for the current fleet of vehicles to be retired/replaced. Ethanol is the ONLY fuel other than gas that you can burn in existing automobiles. Peak oil is coming. We can't afford to have only one source (just gasoline) developed for our use.

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