Future development and expansion of the biofuels industry, particularly the ethanol industry, could be in trouble, if the Congress and the EPA continue to delay increasing ethanol blends beyond the current maximum of 10% ethanol blends (E10) in the U.S. At least that is the opinion of Robert Wisner, noted economist from Iowa State University, and other economists around the country. The U.S. is quickly approaching the E10 blend wall, which is the point at which ethanol production exceeds ethanol demand at the maximum 10% ethanol blend rate. Even with the current oil disaster in the Gulf region, the federal government has not seemed to alter their position relative to increasing the maximum rate 10% for blending ethanol in gasoline.

Late in 2009, the EPA announced that it would delay a final decision on raising the legal maximum ethanol blend wall above the current 10% maximum, until sometime in 2010, possibly as early as this summer. The hope by many groups that support further growth and expansion of the ethanol industry is that the maximum ethanol blend rate will be increased to a 15% maximum; however, EPA may decide to use a phased-in approach that initially raises the maximum blend rate to 12%, and then gradually increases the blend rate to 15%. Minnesota, which has had a 10% mandated ethanol blend for several years, increased that percentage to 20% a couple of years ago; however, increases in the Minnesota ethanol blend percentage can not be achieved until EPA adjusts the federal maximum allowable level for ethanol blends. Other states are in a similar position, waiting on the federal government, in order to enhance the ethanol blend rate in the gasoline in their state.

Many groups and organizations continue to oppose an increase in the maximum ethanol blend rate by EPA, including the automakers, grocery associations, environmental groups and some livestock organizations, among others. Concerns have been raised about the impacts of a 15% ethanol blend on the performance of some types of gasoline engines, as well as concerns over increased food prices, higher livestock feed costs and the global environmental impact (indirect land use). As a result of these concerns, it is possible that EPA could place restrictions on the year of vehicles (such as 2001 or newer) and the types of gasoline engines that are impacted by the potential increase in the ethanol blend percentage. Small engines for boats, lawnmowers, etc., may be exempted from the increase. It is also possible that EPA could include other safety-net features associated with raising the ethanol blend percentage, possibly linked to thresholds for increases in food costs and feed prices. However, many economists disagree on how much direct impact that U.S. ethanol production is having on U.S. or world food prices.

This summer will be will be very interesting, as we follow the EPA decision in regard to increasing the current 10% maximum for ethanol blends in gasoline. A failure to increase this blend percentage to 12% or 15% by the end of 2010 will spell trouble for the Midwest ethanol industry, which has about maximized the amount of ethanol production that can be consumed at the E10 blend levels. It appears that the U.S. is likely to have another large national corn crop in 2010, meaning that the ethanol industry will need to stay strong in order to prevent the lowest corn prices in several years, which could mean economic hardship for many farm operators in the Midwest. If EPA and the federal government do not strengthen their support for ethanol, the entire biofuels industry could be in economic trouble, which could restrict investment and research in cellulosic ethanol and other forms of new-generation renewable energy.

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 kent.thiesse@minnstarbank.com.