US allows more ethanol in gasoline for newer cars

by Reuters
Wednesday, 13 October 2010 08:26 GMT

* U.S. to blend 15 billion gallons of ethanol by 2015

* Gasoline stations worried about confused drivers

* Corn prices could rise further if E15 broadly accepted (Adds more details, quotes)

By Timothy Gardner and Tom Doggett

WASHINGTON, Oct 13 (Reuters) - The U.S. government on Wednesday approved a 50 percent boost in the amount of ethanol in gasoline for newer cars, a decision that could help Democrats in the Midwest corn-growing states but be opposed by food companies, automakers and environmentalists.

The Environmental Protection Agency approved a request from ethanol producers to raise the amount of ethanol in a gallon of gasoline used by cars made in 2007 or later to 15 percent from 10 percent. The new fuel is known as E15 gasoline.

"Thorough testing has now shown that E15 does not harm emissions control equipment in newer cars and light trucks," EPA Administrator Lisa Jackson said.

If refiners and gasoline stations broadly accept the higher blends, it could lift corn prices further and potentially reignite worries about feeding the world as corn mainly eaten by livestock is diverted to make fuel.

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Graphic showing U.S. ethanol production

http://link.reuters.com/wex27p

Scenarios - Higher U.S. ethanol blends may face roadblocks

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Factbox - Important dates for higher U.S. ethanol blends

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Factbox - Obstacles for higher ethanol content in gasoline

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Ethanol groups including Growth Energy, which filed for the waiver, also expect the EPA to approve E15 by December for cars built from 2001 to 2006.

"We must roll up our sleeves and make this split decision work," said Tom Buis, Growth Energy CEO. "We will not rest until the wall comes down completely."

Buis and leaders of top U.S. ethanol companies said they would push for E15 to be allowed for all vehicles.

Wednesday's partial approval of E15 could lend struggling Democrats support in the Midwest ahead of Nov. 2 congressional elections. But the higher blends are unlikely to be quickly adopted by gasoline retailers.

"EPA's unwise and premature decision ... may be good politics in Corn Belt states on the eve of the midterm elections," a refiner trade group said.

"But it is bad news for every American who owns a car, truck, motorcycle, boat, snowmobile, lawnmower, chainsaw or anything else powered by gasoline," the group added.

Gas station owners are concerned about the liabilities of selling the fuel because automakers say the higher blends may rot fuel lines and damage engines over time.

Oil refiners accused the EPA of making U.S. drivers "guinea pigs in a giant science experiment" by allowing E15.

"The effect of such a partial and segmented approval, as we read it, is likely to be slow and uncertain expansion in the ethanol market," Mark McMinimy, an analyst at Washington Research Group, said in a research note.

HURDLES

An immediate hurdle is the corn price <Cc1>, which has hit two-year highs near $6 a bushel. Livestock feeders and food makers worry about increased demand from ethanol makers for the grain, which is fed to livestock and whose starch is used in products as diverse as baby food, toothpaste and aspirin.

"America's vast fuel needs cannot be met by burning our feed supply," a trade group for meatpackers said on Tuesday.

Ethanol consumes one out of every three bushels of corn grown by U.S. farmers. While touted as a fuel that reduces greenhouse gas emissions, environmentalists worry the downsides of industrialized farming outweigh ethanol's benefits.

The EPA approval could help ethanol producers, such as top U.S. makers Poet and Archer Daniels Midland <ADM.N>, which say higher blends are needed to draw down a supply glut.

Shares in Green Plains <GPRE.O>, one of the few publicly traded companies with most of its business focused on ethanol, rose more than 5 percent.

Federal law requires energy companies to blend 15 billion gallons of the fuel made from grains a year into the gasoline supply by 2015, up from 12 billion gallons this year.

By next year 65 million cars built since the 2007 model year will be able to use E15, representing one-third of U.S. gasoline consumption, the EPA said. That number will grow rapidly as the fleet turns over to 100 million vehicles and 50 percent of fuel demand by 2014.

But the higher blends face opposition from automakers.

"We don't think it serves anybody well to rush the higher blends into the marketplace," said Gloria Bergquist, a spokeswoman for the Alliance of Automobile Manufacturers.

She said more testing needed to be conducted on whether the blend hurt engines. "As automakers, we built our vehicles to run on E10. You can't change the fuel after the car is made."

Ethanol does displace crude oil in gasoline production, making the United States less dependent on foreign petroleum suppliers. But E15 gasoline probably will not be available until the second quarter of 2011, after the EPA approves the higher blends for older vehicles.

Many service stations are reluctant to offer E15 because most fuel pumps have not been certified to sell it. Service station owners could also be sued by consumers if E15 harms the engines of cars, boats and chainsaws.

Valero Energy Corp <VLO.N>, a large oil refiner and ethanol producer, said it generally supported pro-ethanol policies. "But in this case it's hard to imagine any retailer, including Valero, selling the E15 blend at its sites without liability or warranty protection," Valero spokesman Bill Day said.

To help clear any confusion with drivers, the EPA on Wednesday will propose a rule on placing E15 labels on gasoline pumps. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ To see the proposed E15 label, please click on EPA website: http://www.epa.gov/otaq/regs/fuels/additive/e15/420f10054.htm <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

(Additional reporting by Charles Abbott and Carey Gillam in Kansas City; Editing by Russell Blinch, Lisa Shumaker and Dale Hudson)

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