A few weeks ago, we noted here the sharp decline in biodiesel production during a one-year hiatus in the blending tax credit—more evidence of how biofuel production is dependent on government subsidies to grow. The Wall Street Journal reports today that the game may be up for corn ethanol, too. Now that Congress has cut $6 billion in annual subsidies for ethanol, growth in ethanol production is noticeably stalling. Between 2005 and 2011, ethanol production grew from 3.8 billion gallons to 13.9 billion gallons, but looks to be topping out.
Figure 1
However, the ethanol industry is lobbying the Environmental Protection Agency to increase the amount of ethanol used in the fuel supply from 10 to 15 percent, with a mandate for gas stations to offer E85. As the Journal story reports:
In several steps in the past year and a half, the Environmental Protection Agency has effectively increased the cap to allow gasoline that is 15% ethanol, known as E15. The ethanol industry is pinning its hopes on rapid adoption of E15. “We are putting a lot of faith in E15,” said Walter Wendland, CEO of two ethanol plants in northern Iowa. “We have a market problem out there for our production.”
Very revealing, that last phrase. But as the Journal continues:
But large-scale adoption of E15 faces sizable challenges. Not a single fuel station sells it today. Gasoline stations need to spend money changing pumps and alerting customers. The auto and oil industries have voiced strong concerns about E15, saying the fuel could damage cars and leave customers with expensive repairs.
Figure 2 shows the latest Department of Energy projections for ethanol use in gasoline and in E85, showing that continued growth in ethanol will almost all come in E85, if it comes anywhere at all. Blending of 10 percent ethanol in gasoline is only expected to grow at an annual rate of 0.8 percent through 2035, while E85 ethanol use is expected to grow at an annual rate of 27.5 percent. The power of mandates.
Figure 2: DoE Forecast of Ethanol Growth, 2010-2035
