July 27, 2010
The Importance of E15
A research paper from Bruce A. Babcock of Iowa State University that was funded by UNICA has generated a lot of attention lately, mostly because it suggests that allowing the tax credit and the tariff to lapse wouldn’t have much of an impact on the U.S. ethanol industry. Growth Energy has repeatedly pointed out that these government supports are important because ethanol only has access to a small portion of the transportation fuel market. With more market access, the government supports become less important.
So who’s correct? It turns out that they both are. Babcock’s paper is based on the assumption that EPA allows intermediate blends in a way that substantially increases U.S. ethanol demand (p 22). Translated for the layperson: Babcock’s paper assumes that the EPA approves E15 and it results in the use of a lot more ethanol. This is evident in the various scenarios the paper presents, the majority of which show U.S. ethanol production at 15 billion gallons. Without E15 (or a significant increase in FFVs and blender pumps), it is impossible to use 15 billion gallons of ethanol in the U.S. market.
That is the essential contribution of the paper: if the ethanol industry gets access to a bigger share of the market, the government supports aren’t as important. That’s essentially what we’ve said in the Fueling Freedom Plan. But our plan goes much further. Rather than just allowing ethanol to compete for a few billion extra gallons, Growth Energy proposed busting the market open and forcing all fuels to compete for the consumer’s dollar.
So why the confusion? Well, the public communications from Babcock haven’t helped. For instance, in an OpEd from him today on the Hill’s web site, Babcock writes about E15 this way: most gas sold in the United States contains 10 percent ethanol — a limit the Environmental Protection Agency may increase to 15 percent this fall. Saying that the EPA “may increase” the blend is dramatically different than his study which ASSUMED not only the existence of E15, but also that the introduction of E15 “substantially increases U.S. ethanol demand.”
Changing that point so dramatically in the OpEd does not give a clear picture of the study’s findings and completely undervalues the true role that ethanol supports have played in the growth of the industry and how important market access is for its future.
