Ethanol has hit a wall; the blend wall. The current 10% ethanol-gasoline blending cap “threatens to restrict the development of ethanol infrastructure and capacity, and ultimately restrain the development of advanced biofuels,” wrote a bipartisan congressional group to EPA Administrator Lisa Jackson. The letter urged Jackson to approve a waiver request that would increase the limit on the amount of ethanol in the country's fuel supply from 10% to 15%.

Growth Energy and some 50 ethanol producers applied for this waiver on March 6, which the EPA must grant or deny by Dec. 1, 2009.

The original public comment period for this issue was extended from May 21 to July 20. “Statute calls for the EPA to make a decision within 270 days of receiving the waiver application,” says Catherine Milbourn, senior press officer, EPA. Comments may be viewed at www.regulations.gov.

The waiver has a reasonable chance of being granted, says Bob Young, chief economist, American Farm Bureau Federation. With the Renewable Fuel Standard (RFS) calling for 36 billion gallons of renewable fuels (15 billion gallons of conventional biofuels and 21 billion gallons of advanced biofuels) by 2022, the U.S. would need to blend more than 10% ethanol in the fuel supply.

The U.S. corn-based ethanol industry is close to producing the 12.95 billion gallons already specified in the RFS for 2010. When that “blend wall” is hit, the EPA cannot require gas companies to blend more ethanol than they are legally permitted to blend. The RFS also would have to be reduced, says Wallace Tyner, Purdue University agricultural economist.

Without a change, the cellulosic ethanol industry could be “dead on arrival” because any fuel produced could not be blended because of the wall, Tyner says.

But if EPA does not grant the 15% request, it could possibly approve a blend somewhere between 10% and 15%, Milbourn says.

Jamey Cline, director of biofuels and business development, National Corn Growers Association, says that while it's difficult to predict what decision EPA will make, the amount of sound scientific research on intermediate blends is helping.

The waiver application must include data on the compatibility of materials with the new blend, durability, emission impacts and driveability effects associated with the use of the waiver fuel, Milbourn says.

What economic impact could increasing ethanol blends to 15% have? A North Dakota State University study indicates that such a blend increase would generate 136,000 new green-collar jobs in the U.S. Every billion gallons of ethanol produced injects more than $24 billion into the economy, Cline says.

Today, ethanol prices are severely depressed because of the oversupply relative to the 10% limit, Tyner says. But switching to 15% would provide an immediate increased demand of 50% in all areas that are currently blending at 10%. That demand increase would help return the ethanol industry to profitability.

But, a 5% increase in ethanol blends would unlikely have much impact on corn prices. Studies by the Food and Agricultural Policy Research Institute and Iowa State University indicate that the blend increase would probably increase corn prices by just 4-5¢/bu.

Approving the waiver request would send a signal that the federal government wants to see the biofuels market work, Young says. “If the government wants to meet the RFS of 36 billion gallons of renewable fuel, it will have to consider raising the blend percentage,” he says.

Cline agrees, adding that approving the waiver request also would send a positive signal about cellulosic ethanol to the financial community. The U.S. needs a stable corn-based ethanol industry so it will help advance cellulosic ethanol, he adds. Existing ethanol facilities will help advance production as they work with corn fiber, cobs and stover.