The Renewable Fuels Association this week released a report that said attractively priced 85% ethanol blended fuel will be the key to overcoming the "blend wall" and meeting Renewable Fuel Standard volume targets in 2014 and beyond.
The projection is based on a new economic analysis prepared by the Center for Agricultural and Rural Development at Iowa State University.
The crux of the argument, study authors Bruce Babcock and Sebastian Pouliot say, is that E85 could increase biofuel consumption by as much as three billion gallons within the next few years, if it's priced low enough. And that threshold could be enough consumption to break the "blend wall."
The E10 "blend wall" has become a popular term to describe the point at which consumption of ethanol will be forced past levels that can easily be met using 10% ethanol blends. This volume is currently at about13 billion gallons of ethanol consumption, report authors estimate.
Rather than being an actual physical barrier to increased ethanol consumption, the E10 blend wall represents an economic barrier that has the potential to be overcome, the authors say, by increasing the incentive for drivers to use E85 in their vehicles.
But to expand E85 use, Babcock and Pouliot say Renewable Identification Numbers, which represent ethanol companies' commitment to producing the required amount of ethanol, and the RIN market will play a key role.
"Current RIN prices are high enough to achieve modest increases in ethanol consumption above 13 billion gallons and to create incentives to increase the ability to consume lower-carbon ethanol in 2016 and beyond," they say.
Expanding ethanol production can lower the fuel's cost at the retail level, and benefit oil companies, which would in turn pay less for RINs. That lower cost would outweigh the cost to invest in E85 infrastructure, the paper argues.
Even with the current fleet of flex-fuel vehicles (those that are manufacturer-approved to run on E85), report authors say the potential for E85 growth is strong. Together, FFVs have capacity to consume 6.6 billion gallons of ethanol each year.
Access isn't an issue, either, they say – more than one-third of FFV owners have access to E85 within five miles from their home.
While this expanded production to drive consumption could be a way to move forward, the Environmental Protection Agency recently announced that it intends to scale back RFS mandates in 2014, even though it retained the 16.55 billion gallon overall mandate for 2013.
That could cause a wrinkle in Babcock and Pouliot's study, as they note that only if the EPA continues next year with RFS requirements "significantly above the E10 blend wall" will RINs encourage increased ethanol consumption and drive E85 demand.
Read the full report, Price It and They Will Buy: How E85 Can Break the Blend Wall.