EPA Oks E15 Fuel for Older Cars

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After months of testing, the Environmental Protection Agency (EPA) on Friday approved the use of gasoline containing up to 15% ethanol (E15) for use in automobiles manufactured between 2001 and 2006.

The decision means that roughly 62% of vehicles now on U.S. roads can use the higher-ethanol gasoline.

This is good news for U.S. corn producers and the ethanol industry, but the announcement was expected and will not have an immediate impact of U.S. ethanol usage as the transition to fuels with higher ethanol content will be complicated.

It remains uncertain how soon the higher ethanol blends will be available at U.S. gas stations. The EPA must first approve a labeling process and then fuel stations must install more blender fuel pumps that can deliver E15.

However, many retailers say it will cost too much to install the necessary equipment to offer the fuel and some major fuel companies, including Valero, Marathon and Tesoro, have already said they won’t sell E15 because of concerns consumers may use the wrong fuel or that E15 may void engine warranties.

At least two lawsuits have been filed challenging the EPA’s authority to regulate ethanol blends.

Three trade groups representing oil companies filed suit against the EPA in federal court earlier this month and in December, trade groups for the auto industry and engine manufacturers filed a similar suit. The agency contends it has such authority under the U.S. Clean Air Act.

Ethanol producers are also seeing their production plans complicated by rising corn prices, which have eroded profit margins since ethanol price increases have not kept pace with corn prices lately.

Ethanol prices slipped from their recent highs last week under pressure from record weekly production, a 4.2% rise in inventories and a 1.4% drop in gasoline prices.

There does not appear to be any threat of a sharp drop-off in corn-for-ethanol usage in the near term as most plants are still turning a profit when DDG sales are factored in. However many ethanol plants are now buying corn on a hand-to-mouth basis.

The March ethanol-corn crush margin last week fell by 3¢ to only 0.2¢/gal., according to the Chicago Mercantile Exchange, however, including DDG, the March corn for ethanol crush margin was still at 35.9¢/gal. at the end of the week.

According to one industry executive, corn-for-ethanol usage may fall short of USDA’s 2010-2011 projection of 4.9 billion bushels due to the improved quality of this year’s corn crop compared to the weather-delayed 2009 harvest.

During a teleconference on Friday, Todd Becker, CEO of Green Plains Renewable Energy, said that if ethanol yield rates are one-tenth of a gallon higher than projected with the new crop, fuel makers would consume 150 million bushels less than USDA projects.

 

Editor’s note: Richard Brock, Corn & Soybean Digest's marketing editor, is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report.

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