The EPA’s E15 Ethanol Decision Deserves a Yawn

This post was written by James Coan, Research Associate at the Baker Institute Energy Forum

On Wednesday, the EPA made what, on first glance, appears to be a major announcement: vehicles made in model year 2007 or later can now run on 15 percent ethanol, a product more commonly known as E15. Currently, most vehicles are only allowed to run on fuel up to 10 percent ethanol, or E10.

The decision unleashed an overwhelmingly negative reaction from both ethanol opponents and supporters. The National Petrochemical & Refiners Association called it “unwise and premature,” the Friends of the Earth said higher ethanol blends “could increase emissions of toxic air pollutants,” and even the ethanol-friendly Renewable Fuels Association decried the policy’s limit to only vehicles made in 2007 or newer.

Despite the outcry from all sides, the decision will likely have very little impact. Very few gas stations will choose to sell E15 anytime soon.

The first issue concerns how gasoline is stored at your typical neighborhood gas station, which would essentially require a station owner to give up selling mid-grade and premium fuel. Most stations only have two tanks, one for regular and another for premium, and some have a third if they sell diesel. Mid-grade combines regular and premium. Thus, to sell E15, stations would mostly likely have to use the tank used to sell premium fuel. Station owners are unlikely to want to give up sales of this profitable grade, just to attract owners of cars purchased in the last three years who might be interested in the obscure benefits of E-15. Also, if a car owner would mistakenly buy E-15 for a car older than a 2007, the station owner might be held liable for damages to that car, creating a legal and public relations mess. To sell E 15 properly, station owners would have to have extra signage with warnings and rules about E-15.

While a station could in theory choose to install an entirely new tank and create the necessary signage to sell E-15, the process is very expensive, and it is unclear how carrying E15 would lead to additional profits for a gas station, so the upgrade would be an investment with no return. Only if a company blends in more ethanol than mandated and sells excess credits known as Renewable Identification Numbers (RINs) might they have any revenue to make such an investment.

Even if a gas station figured out a plausible way to carry E15 – maybe they have a station across the street, so one station would be the “E15” station and the other one would be the “premium” station – they may need to upgrade their above-ground gas pumps. Most currently installed pumps, which are technically called “dispensers,” are not certified to handle more than E10. While the safety group Underwriters Laboratories has made it clear that 15 percent ethanol should be fine in the dispensers, they are unwilling to certify them for E15 because that blend actually sometimes has more than 15 percent ethanol. According to Ken Boyce at Underwriters Laboratories, it will be up to the local authorities such as fire marshals to decide whether to allow existing dispensers to pump E15. If they don’t allow it, gas station owners will need to replace gaskets and seals to handle the fuel or completely replace the dispensers, all of which add costs. Some newer gasoline dispensers are certified for blends up to E25.

Some car warranties only insure vehicles using up to E10, and the liability issue of who’s responsible if the E15 damages the vehicles is not completely cleared up by the EPA ruling.

The E15 decision may have a little more impact if the EPA decides to allow it for model years 2001-2006, which it is currently debating. However, even in this case, gasoline station owners might not want to lose customers with vehicles made in 2000 or earlier.

The raw politics of the EPA’s E15 decision, made just weeks before the country’s midterm elections, seems politically relevant but as a practical matter, relatively meaningless as a means to create significant extra markets for corn-based ethanol. The really important ethanol issue still awaits the new Congress. The 45-cent per gallon ethanol blenders’ tax credit expires at the end of this year. In a period of large budget deficits, the government has an opportunity to stop spending more than $5 billion per year on corn ethanol.