E15—Increased Ethanol Usage?
The Biden administration’s announcement earlier this spring that the Environmental Protection Agency (EPA) would use its emergency authority to allow sales of fuel blended with 15 percent ethanol (E15) during summer satisfied a long-term goal of many agricultural organizations—the year-round sales of E15. In most years, E15 cannot be sold at retail stations beginning June 1 in two-thirds of the country. The restriction runs until September 15. The EPA waiver removed this prohibition and enables E15 sales during the summer driving season. Following the announcement, Governor Ricketts and eight other Midwest state governors have called for a permanent waiver allowing year-round E15 sales. Also, legislation has been introduced by Nebraska Congressman Adrian Smith and Nebraska Senator Deb Fischer to allow for year-round E15 sales.
While the announcement from the Biden administration and the other initiatives are positive, a question remains regarding the impact to sales of ethanol-blended fuels? A USDA report on future market opportunities for E15 says ethanol consumption has remained relatively stagnant since 2010 (Figure 1). However, in 2019, E15 sales surpassed E85 sales for the first time. And according to the White House, there are 2,300 locations across the country which sell E15. Scott Irwin, an agricultural economist with the University of Illinois, estimates the upper bound of sales of E15 was 2.9 billion gallons in 2021 out of a total U.S. gasoline use of 134.8 billion gallons.
Figure 1. U.S. Ethanol Production, Consumption, & Blend Rate
One of the challenges to the growth of E15 and other higher blends is several big fuel consuming states, like California, have regulations which only allow sales of ethanol-blended fuels up to 10 percent. Also, to sell E15 or higher blends, retailers may need to invest in new equipment. A temporary waiver may not provide enough regulatory certainty to justify an investment. A permanent waiver, though, could. Finally, according to the AAA, U.S. gasoline demand so far this summer is off 7 percent, no doubt due to elevated gasoline prices. And the future portends of less gasoline usage as the world works to reduce carbon emissions. So, while the waiver temporarily removes one impediment to greater E15 sales, others exist. More E15 will likely be sold with the waiver, but the overall impact will be small.
What about E15 sales in Nebraska? Information from the Nebraska Ethanol Board indicates there are 110 stations in the state which sell E15. Since July 2019, motor vehicle fuel sales in Nebraska have averaged roughly 75 million gallons per month. Of this, 86 percent or 64 million gallons contain ethanol (Figure 2). Fuel sales during the June-September typically account for 31 percent of total annual sales. Assuming this percentage holds, and all E10 sales in the state converted to E15 (highly unlikely), ethanol sales would increase an estimated 12 million gallons during the summer months, equal to 1.3 percent of total fuel sold in Nebraska in 2021. On an annual basis, it could mean an additional 38 million gallons of ethanol sold.
Finishing up, while a temporary or permanent waiver allowing E15 sales in summer will help ethanol sales, other obstacles must be overcome to have a significant, lasting boost to sales.
Figure 2. Nebraska Monthly Motor Vehicle Fuel Sales (July 2019-Jan. 2022)