U.S. EPA Said to Permit Blending More Ethanol Into Gasoline

The Obama administration granted a request from ethanol producers to increase concentrations of the corn-based fuel additive in gasoline for vehicles made for 2007 and later. Ethanol makers rose in New York trading.

The Environmental Protection Agency today agreed to let refiners add as much as 15 percent ethanol to a new blend, up from the current 10 percent. A decision on using more ethanol in fuel for vehicles in model years 2001 through 2006 will be made after further testing, the EPA said in a statement.

“This is a first step,” said Tom Buis, chief executive officer of Growth Energy, an industry trade group in Washington that promotes ethanol as a cheaper alternative to gasoline and a way to reduce U.S. reliance on foreign oil. “We know we have challenges we have to address.”

Archer Daniels Midland Co. is among producers that pressed the EPA to raise the limit for an industry that’s had at least a dozen companies seek bankruptcy protection since 2008. Oil companies, automakers and environmental groups say adding more ethanol may damage engines, boost food prices and worsen air quality, and refiners and convenience stores that sell fuel may be reluctant to market the new blend.

Photographer: Jeffrey Sauger/Bloomberg

An E85, 85 percent ethanol, fuel pump at a Citgo gas station in Michigan. Close

An E85, 85 percent ethanol, fuel pump at a Citgo gas station in Michigan.

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Photographer: Jeffrey Sauger/Bloomberg

An E85, 85 percent ethanol, fuel pump at a Citgo gas station in Michigan.

Archer Daniels of Decatur, Illinois, rose 51 cents, or 1.6 percent, to $33.22 at 4:15 p.m. in New York Stock Exchange composite trading. The company is the second-largest U.S. ethanol producer behind closely held Poet LLC, based in Sioux Falls, South Dakota.

Energy Ethanol Tests

A decision on the blend, known as E15, for cars made for 2001 through 2006 is likely to come in November after the Energy Department completes testing of those vehicles, according to the agency.

The EPA won’t raise ethanol concentrations for automobiles from 2000 or earlier because sufficient testing isn’t available, Gina McCarthy, EPA’s assistant administrator for air and radiation, said today on a conference call with reporters.

The Obama administration doesn’t have the power to order use of E15, though the decision has “the potential to increase the use of renewable fuels in the future,” McCarthy said.

Green Plains Renewable Energy Inc. in Omaha, Nebraska, rose 62 cents, or 5.5 percent, to $11.91 on the Nasdaq Stock Market. Pacific Ethanol Inc., a Sacramento, California-based producer of the fuel, rose 10 cents, or 10 percent, to $1.10. Aventine Renewable Energy Holdings Inc. rose 50 cents, or 1.9 percent, to $27.50 in the over-the-counter market.

No Refiner Requirement

Companies like ADM may not see an immediate boost from the EPA decision because refiners won’t be required to sell the new blend, said analyst Robert Moskow of Credit Suisse AG in New York.

“The approval of E15 by the EPA won’t have a positive effect on ADM in the near-term,” Moskow, who has an “outperform” rating on ADM shares, said in an Oct. 6 report. “Blenders remain reluctant to implement E15 because it requires a separate pump and because the EPA has not absolved the blenders of potential legal liability from consumers.”

Valero Energy Corp., the largest U.S. refiner, and Marathon Oil Co., the largest refiner in the Midwest, are concerned the new blend may leave them liable for engine damage, according to company spokesmen.

“Rushing through this new fuel standard without complete research may be good politics but is bad policy,” Bob Greco, director of downstream operations for the American Petroleum Institute, a Washington trade group, said today in an e-mailed statement.

Decision Delay

The EPA delayed its ethanol decision in December, saying the agency needed more time to test the blend. A decision was again postponed in June, prompting Growth Energy, which sought the E15 approval, to write to President Barack Obama expressing frustration with the process.

AAA, the nation’s biggest motoring organization, said in July 2009 the EPA should reject Growth Energy’s request because higher blends may damage exhaust systems, engines and fuel pumps and destroy catalytic converters. General Motors Co., Ford Motor Co. and Chrysler LLC have said the Obama administration should be cautious about increasing the ethanol percentage in gasoline.

“EPA has placed retailers in a very precarious position,” said John Eichberger, vice president of the National Association of Convenience Stores, which said it sells 80 percent of gasoline in the U.S. The group urged retailers to use “extreme caution” before selling E15.

Gasoline retailers will not be allowed to sell the blend until the EPA completes rules for gasoline-pump labels. Growth Energy’s Buis said E15 may be available to motorists in the first three months of next year.

Boat Engines Excluded

The decision excludes non-road engines such as boats and snowmobiles. The National Marine Manufacturers Association, a Chicago-based trade group for the recreational boating industry, said it’s worried that consumers may become confused and put the wrong fuel in boats.

“We are astonished that EPA has decided to move forward with a fuel that will increase air pollution and damage hundreds of millions of existing products,” President Thom Dammrich said in a statement today. The U.S.’s 66 million boaters will be left “holding the bag for performance issues and expensive repairs,” he said.

The Natural Resources Defense Council, a New York-based environmental group, said the EPA’s approval of the higher ethanol concentrations is risky.

‘Serious Risks’

“Though seen as a win for corn-ethanol lobby groups like Growth Energy, the new ethanol blends come with serious risks for our engines, wildlife, water and the air we all breathe,” Nathanael Greene, a renewable-energy policy analyst with the group, said today.

Growth Energy, which is headed by Wesley Clark, a retired Army general and 2004 Democratic presidential candidate, has said ethanol is 59 percent “cleaner” than straight gasoline.

Raising the “blend ratio” will boost demand, according to Growth Energy. By law, the U.S. must use 12 billion gallons of renewable fuels such as ethanol next year, up from 10.5 billion in 2009, and use 15 billion gallons by 2015.

The annual market value for ethanol in the U.S. has risen to $27.1 billion since federal support began under President Jimmy Carter during the 1970s energy crisis.

The U.S. pays a 45-cent tax credit to gasoline refiners that make a blend of as much as 10 percent ethanol, an incentive that is up for renewal at the end of this year.

To contact the reporters on this story: Kim Chipman in Washington at kchipman@bloomberg.net; Mario Parker in Chicago at mparker22@bloomberg.net

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net.

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