According to a new analysis by the Center for Agricultural and Rural Development at Iowa State University, the so-called ethanol “blend wall” can be overcome and Renewable Fuel Standard (RFS) requirements can be met in 2014 and beyond through increased use of attractively-priced E85. The analysis is titled “Price It and They Will Buy: How E85 Can Break the Blend Wall.”
“Pricing E85 low enough to generate fuel cost savings has the potential to quickly increase ethanol consumption, perhaps by three billion gallons over the next year or two,” write the study’s authors, Profs. Bruce Babcock and Sebastian Pouliot. “Rather than being a physical barrier to increased ethanol consumption, the E10 blend wall is an economic barrier that can be overcome by increasing the incentive for drivers to use E85 to fuel their vehicles.”
The analysis demonstrates how the RIN market works to lower the effective cost of E85 at the retail level, and explains the interaction among corn, ethanol, gasoline and RIN prices.
“Current RIN (Renewable Identification Number) prices are high enough to achieve modest increases in ethanol consumption above 13 billion gallons and to create incentives to increase the ability to consume lower-carbon ethanol in 2016 and beyond,” the authors write. “Current high RIN prices create a large incentive for oil companies to increase consumption of E85 because expansion in E85 consumption will decrease RIN prices.”
The authors conclude that it will be less expensive for oil companies to invest in E85 infrastructure than it would be to continue to pay high RIN prices.
The authors also point out that the current fleet of flex fuel vehicles (FFVs) has the capacity to conservatively consume 6.6 billion gallons of ethanol annually and more FFVs are on the way. Further, they found that more than one-third of FFV owners have access to E85 within five miles from their home. Continue reading