On Jan. 21, the EPA announced that E15 blends (15 % ethanol and 85 % gasoline) are now cleared for usage in cars and pickups built from 2001 to 2006. Late in 2010, the EPA had approved the E15 fuel blends for cars manufactured in 2007 and newer. Prior to the increasing of the allowable amount of ethanol in gasoline, the federal maximum ethanol blend was 10%. Minnesota currently allows up to a 20% ethanol blend for gasoline. It is estimated that approximately 62% of the cars and light trucks being driven today in the U.S. are 2001 or newer. The most recent E15 announcement by EPA does not affect gasoline for cars and trucks manufactured prior to 2001, or for boats, snowmobiles, lawnmowers and other small engines.
As expected, ethanol support groups, such as Growth Energy and the Renewable Fuels Association, along with ethanol proponents in Congress, hailed the EPA decision to widen the use of the E15 fuel blends, while the petroleum industry, food groups and the livestock industry criticized the decision. It will take awhile for retailers to install new E15 pumps, and for the ethanol industry to produce the added ethanol to meet the growing demand for E15 fuel blends. EPA will also implement new labeling requirements for E15 pumps, which along with the growing anti-ethanol sentiment in some regions of the U.S., could temper the full effect of the added allowable ethanol in gasoline.
If the E15 fuel blends were implemented to the full extent, it could mean an estimated 17.5-20 billion gallons of ethanol being used annually in the U.S., which compares to just over 13 billion gallons being used currently. The 17.5-20-billion-gallon level of U.S. ethanol production would require approximately 6.5-7 billion bushels of corn to produce the ethanol, compared to the approximately 5.0 billion bushels of corn currently being used for ethanol production. The current levels of relatively high corn prices may slow the expansion of existing ethanol plants or the construction of new plants in order to increase ethanol production. Cellulosic ethanol is still in the development stage, and may be years away from commercial production. Current U.S. renewable fuels guidelines call for total renewable fuels production in the U.S. of 15 billion gallons by 2015, which can probably be met by the current infrastructure and production capacity.
The U.S. ethanol industry has more than 200 ethanol plants in two dozen states, primarily centered in the Midwest. Annual ethanol production in the U.S. is now estimated at 13-14 billion gallons/year, or about 8% of the total fuel production. The average ethanol plant employs 40-50 people, and is very important to the rural economy of the Corn Belt. Many ethanol plants in Minnesota and Iowa are smaller plants that were initiated by investment dollars from farmers and local businesses. The initiation of these ethanol plants in the past was greatly aided by the existing tax incentives for ethanol production. Many feel that we need to continue the ethanol production incentives to encourage the next generation of ethanol production from cellulosic, biomass and other new feedstock sources.
Groups such as Growth Energy and the Renewable Fuels Association, along with the National Corn Growers Association and major farm organizations, have been strong supporters of the adoption of the E15 blends and extensions of ethanol tax credits and incentives. However, many other groups, including some livestock organizations, have opposed the E-15 blends, and the extension of the ethanol tax credits and incentives. Oil companies, automakers and food companies have filed a lawsuit designed to block the 2010 decision by EPA allowing the sale of E15 gasoline blends.
In December 2010, the tax bill passed by congress and signed by President Obama included a renewal of $7 billion/year to continue the current ethanol tax credits and incentives for 2011, which included the 45¢/gal. ethanol blenders credit (VEETC) and the 54¢/gal. tariff on imported ethanol, as well as other smaller incentives and tax credits. Support for the extension and continuation of the ethanol tax credits and incentives was not unanimous, and several members of Congress wanted to reduce, eliminate or have more targeting of the tax credits and incentives. Many members of Congress want to re-visit to ethanol incentives in 2011 to consider future revisions. After the tax bill was passed by Congress, opposition to extending ethanol incentives was voiced by the American Meat Institute, Milk Producers Council, Natural Resource Defense Council, National Taxpayers Union and ActionAid USA, among others.
Prior to congressional action on the tax bill, a list of 59 groups and organizations sent a letter to congressional leaders calling for discontinuation of the ethanol blenders credit at the end of 2010. The list of those opposed to the VEETC included environmental and hunger groups, livestock and tax payer organizations and large food companies. A list of those that signed on the letter, in addition to the five organizations mentioned earlier, included the Tea Party, the Grocery Manufacturing Association, the National Catholic Rural Life Conference, the Center for Food Safety, the Environmental Working Group, the National Wildlife Federation, the Sierra Club, the National Chicken Council, the National Turkey Federation and several state dairy producer groups. While the National Pork Producers Council did not sign the letter, they have also lobbied extensively against extending ethanol tax incentives.
Future of Ethanol Policy
Even though E15 has been approved by EPA for most vehicles from 2001 and newer – and the federal subsidies and tax incentives for production of ethanol have been extended for 2011 – the controversy regarding ethanol is not likely to go away. During 2011, congress will likely be looking a lot of ways to reduce the huge federal budget deficit, which could affect future incentives for production of biofuels. The “food vs. ethanol” debate is likely to heat up again in 2011, with high corn prices affecting the profitability of livestock production, and potentially leading to food price increases. The current divide among members of congress, as well as among farm organizations and commodity groups, on the future direction of renewable energy policy in the U.S. could also have an impact on the future of the ethanol industry.
Editor’s note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at [email protected]