The U.S. Environmental Protection Agency (EPA) announced on November 17 that the 2009 renewable fuel standard (RFS) will require most refiners, importers, and non-oxygenate blenders of gasoline to displace 10.21% of their gasoline with renewable fuels such as ethanol. That requirement aims to ensure that at least 11.1 billion gallons of fuels will be sold in 2009. . . . While the RFS requirement is increasing by about 23%—from 9 billion gallons in 2008 to 11.1 billion gallons in 2009—the percentage requirement is increasing by nearly one third, from 7.76% in 2008 to 10.21% in 2009.
The larger relative increase in the percentage requirement reflects the fact that fuel consumption is expected to be lower in 2009, so a greater percentage of renewable fuel is needed to reach 11.1 billion gallons of renewable fuels. . . .
The 2009 RFS is also pushing up against what is known as the "blend wall." Most gasoline sold in the United States contains at most 10% ethanol (a blend known as E10), but the new RFS requires a slightly greater percentage of gasoline to be displaced with renewable fuel. . . . One way to sell greater amounts of ethanol is to sell E85, a blend of 85% ethanol and 15% gasoline, but despite rapid growth in the number of E85 pumps, there are still only about 1,800 E85 pumps in the United States. . . . To address the blend wall issue, DOE and others are studying the use of mid-range blends, such as E15 and E20, for use in standard gasoline-burning vehicles. Allowing all gasoline blends to contain up to 20% ethanol would double the potential market for ethanol.
The Energy Independence and Security Act of 2007 requires that the RFS to have annual increases until it reaches 36 billion gallons of ethanol in 2022, 15 billion gallons must come from corn ethanol and 22 billion gallons from second-generation biofuels. In 2015 corn ethanol is required to reach a peak of 15 billion gallons out of the total renewable fuel target of 20.5 billion gallons. The market share for corn ethanol remains at 15 billion gallons until 2022 when the target total for all renewable fuels reaches 36 billion gallons.
On a purely voluntary basis, gasoline blenders have always used more ethanol than the required minimum because increasingly high oil prices made ethanol an attractive fuel in its own right. Today, 12/1/08, with oil at $50.77/bbl (NYMEX) and RBOB gasoline at $1.095/gal (NYMEX) and ethanol at $1.596/gal at the Chicago Board of Trade (CBOT) it makes no economic sense to blend ethanol with gasoline.The RFS will become binding for the first time in 2009. Gasoline blenders will have to use 11.1 billion gallons of ethanol because that is what the law tells them, not because it makes economic sense
This was always going to happen at some time, given the much more ambitious RFS volume obligations in the 2007 law. It was never going to be possible to blend 20.5 billion gallons into the gasoline supply by 2015 without much wider uptake of E85 vehicles or other modifications of the U.S car fleet. But the unprecedented cyclical reduction in gasoline demand has brought the blending wall much closer.
While I am a supporter of ethanol as a means of reducing our dependence on foreign oil, I am not a supporter of the use of corn ethanol to the extent required by the RFS. Ten billion gallons per year (bgy) of corn ethanol is about the maximum that should be supported, let alone 11 or 15 bgy. Greater amounts seems to be an irresponsible way of utilizing U.S. farm resources at the present time. I would advocate reducing theses requirements to ten bgy and the total requirement from all sources of biofuels frozen at 11 bgy until cellulosic ethanol, biodiesel and biobutanol become more viable sources of fuel; greater amounts can always be produced if the market supports it. In fact it is time to take the emphasis off corn ethanol entirely and concentrate on cellulosic ethanol made from non-food feedstocks and biobutanol which can be used in up to 100% concentrations in current vehicles. After these technologies have been proven to be economically viable, say by 2015, then let market forces determine which flavor of fuel is most viable. Supporters of cellulosic ethanol claim that current corn ethanol production facilities can be easily converted to producing cellulosic ethanol, thus increasing the yield of fuel per acre.
The establishment of a market for ethanol and other renewable fuels is a worthy objective to prepare for future times when the cost of oil once again becomes more onerous and in short supply. The market for corn ethanol has been established and should be maintained. Subsidies for corn ethanol should be dropped as soon as possible, but this will not be possible as soon as I had anticipated, due decreasing prices for oil. I would favor that any subsidies be based on the difference between the cost of gasoline and the cost of ethanol. Because of corn ethanol, markets for biodiesel, biobutanol, cellulosic ethanol and any future biofuels should develop more easily and subsidies be required for only a short time, if at all.
Requiring all new vehicles be flex-fueled vehicles makes a lot of sense to me. This is the least costly way to enable widespread use of biofuels. Some $30 to $100 per car seems to be a reasonable price to pay to enable wider use of biofuels. Pontiac's new G6 is available with a flex-fuel 3.5L V6 at no additional cost over the gas version in the full range of body styles. Is this a sign of things to come? and by an American car company!
Vinod Khosla, the well known Silicon Valley, in his words, venture assistant, to technology based ventures, has a good, seemingly objective, White Paper, Food vs Fuel that should be of interest to readers of this post and thosee interested in the renewable fuels market in general. His view on corn ethanol is very similar to mine (which I developed independently, much before I heard of him), but expressed much more eloquently:
The future that Professors Runge, Senauer and Lester Brown and many other critics of corn ethanol see is similar to what we envision – cellulosic and biomass-based biofuels that offer better potential solutions, higher efficiencies, and a better environmental footprint. However, it is vital to note that none of this would have been viable without corn-ethanol in the first place – none of the university research, financial capital, or political backing for cellulosic would exist without the corn-based version proving its functionality and priming the market and infrastructure. Ethanol in its current manifestations has provided a valuable stepping stone away from the age of oil, and the transition to a cleaner and more environmentally friendly future based on cellulosic biofuels.