The problem is the other half — vehicles still in use built before 2000. All these cars and pickups can run on E10, but E15 is very likely to cause engine damage if it is used in these older vehicles. Will gas stations install pumps specifically for E15 alongside the E10 pumps? At about $20,000 per pump?
If both E10 and E15 are available and a motorist uses the E15 in an older vehicle, who is liable for the damage? The only way the new E15 rule works is if all cars are approved for the new blend because that’s the only way that a gas station owner is likely to carry E15. And the EPA probably can’t approve E15 for all cars, because the agency hasn’t done enough testing on the older models.
What is clear is that in the battle between automakers wanting to stay with the E10 standard and farmers wanting to go to the higher E15 standard, the farmers won. The federal government subsidizes each gallon of corn ethanol to the tune of $0.45, and imposes an import tariff of $0.54/gallon on ethanol made from sugar cane in Brazil.
Both the subsidy and the tariff expire at the end of 2010. The US Congress, usually a tame lapdog for the farm industry, has sought more information before deciding whether or not to extend the incentives. The Congressional Budget Office estimates that US taxpayers will pay $7.6 billion in 2010 to support the corn ethanol business. Some 30% of the US corn crop will be used to produce 12 billion gallons of ethanol.
The CBO also notes that most of the $0.45 blender’s credit goes to ethanol producers and corn growers. These credits cost US taxpayers about $6 billion in tax receipts. And as for its effectiveness at mitigating carbon emissions — reducing CO2 emissions by using an ethanol blend costs about $750/metric ton of CO2 equivalent.
If ethanol should lose its preferential treatment (admittedly, not likely), a pure play ethanol company like Pacific Ethanol could just disappear overnight. ADM, Valero, and Bunge make nice profits from their ethanol business, but the companies would likely continue to prosper with ethanol. Cosan stands to gain handsomely, especially because the company currently makes a profit on the sugar-cane ethanol it exports to the US, even with the tariff in place.
The US corn ethanol industry is about to change. The exact dimensions of that change are unclear, but corn ethanol’s support in Congress is waning or E15 would have been approved for every vehicle in the US. Coupled with the negative economics, the glory days of corn ethanol may be in the rear-view mirror.
Paul Ausick
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