Higher biofuel mandate would have little effect on pump price | Food and Environment Reporting Network

The government could set the ethanol mandate above the so-called blend wall and have little impact on retail fuel prices, says a paper by two Iowa State University economists. The fuel industry could meet the mandate by lowering price for E85, fuel made with 85 percent ethanol, and selling more of the biofuel. “We find that compliance with ethanol mandates that are feasible to meet with current infrastructure would have small, if any, effects on the retail price of E10,” says the paper by Sebastian Pouliot and Bruce Babcock of the Center for Agricultural and Rural Development.

E10, gasoline that contains 10 percent ethanol, is the traditional blend for cars and light trucks. EPA has proposed relaxing the so-called Renewable Fuels Standard for this year, partly because of arguments about the blend wall, the point where all of the fuel is E10 and there is no room for more ethanol. When that happens, the oil industry says refiners will have to pay large sums for ethanol credits, which allow them on paper to comply with the mandate to use biofuels, and raise fuel prices to offset the expense. The CARD paper reaches the opposite conclusion.

“To a certain extent, lowering the price of ethanol will move ethanol,” Babcock said in an interview. A paper in January by Pouliot and Babcock on ethanol mandates suggested up to 1 billion gallons a year could be sold as E85.

There is divided opinion among ag and ethanol groups whether EPA will announce the 2014 mandate before or after the Nov 4 congressional elections. EPA officials have hinted the figure will be larger than the roughly 13 billion gallons was was proposed initially for corn ethanol. A couple of lobbyists say EPA is likely to propose the mandate for 2015 shortly after it issues the 2014 regulation.

“Right now, our focus is on finalizing the 2014 RFS,” said an EPA official when asked about 2015. When it submitted its proposal to White House review on Aug 22, EPA said its over-arching goal was to put the Renewable Fuels Standard on a path of growth.

“My worry…is that they (the mandates) will mirror each other,” said an ag lobbyist who was concerned EPA would set both at 10 percent of projected fuel use rather than follow the schedule set in 2007 of 14.4 billion gallons of corn ethanol in 2014 and 15 billion gallons in 2015 and later years. A bushel of corn yields 2.8 gallons of ethanol.

With cellulosic ethanol plants starting large-scale production this year, there could be more competition among biofuel producers for sales. “The infrastructure won’t get built unless you have a higher mandate,” said one analyst, so retailers would buy the equipment to sell higher blends of biofuels and automakers would build cars and trucks designed to use the fuel.