Ethanol: The Blend Wall Looms

As if ethanol producers don’t have enough woes already, there’s a new problem looming. The industry has been hit by plunging oil prices, the recession, and the perception that the use of corn to make fuel has whacked consumers with higher food prices. Now comes the problem of the `blend wall.’

Here’s what that means. Right now, ethanol is added to (i.e. blended in with) about 70% of the nation’s 135 billion gallons of gasoline used in a year. But the blended ethanol/gasoline fuel contains no more than 10% ethanol (a fuel called E10), thanks to current rules and automakers’ warnings that using higher percentages of ethanol in fuel would void vehicle warranties.

Realistically, ethanol will never make it into all of the U.S. gasoline supply. So say it gets into 90% of those 135 billion gallons. That means the total annual market for ethanol is limited to a bit over 12 billion gallons (and less if the recession cuts into gasoline use). Yet the industry already produced 9 billion gallons in 2008, with more plants being built. Next year, the capacity will jump to well beyond 12 billion gallons. As an internal industry memo warns, “if we don’t increase the base blend of ethanol beyond E10, the industry will crash into the blend wall in early 2009.”

That’s why one of the many battles now being waged in Washington is a push by ethanol companies and their trade groups to boost the allowable amount of ethanol in gasoline to 15%.

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