Seeking the Blending Sweet Spot

E15 is getting most of the attention, but is it the best way to expand ethanol’s market share?
By Kris Bevill | August 15, 2011

For years, in coffee shops and grain elevators across the upper Midwest, independent thinkers have voiced their opinions on the benefits of midlevel ethanol blends. Tales of fueling the old Buick, or otherwise unapproved vehicle, with E20 or E30 without experiencing any of the dire consequences threatened by auto manufacturers are not hard to come by, although getting anyone to report the results of their own private fuel test on the record are not so easy. The nonconformists are often corn farmers eager to use as much ethanol as they can and curious to see what will happen if they bump up the blends. They blend it themselves by partly filling the tank with E85 and finishing it off with E10. Or, when available, they use a blender pump. These types of do-it-yourself experiments are certainly not recommended by the ethanol industry nor by the automakers, who say unapproved fuel use will violate warranty agreements. But the fact is, people do it anyway.

Drivers of flex-fuel vehicles (FFVs), which are approved for midlevel blends, also often report that they experience fewer miles lost when using E30 as compared to E85. Sometimes they say E30 gives them as many miles per gallon as regular unleaded, and it often costs a few cents per gallon less than unleaded. The evidence suggests that E30 may be the optimal blend for vehicles, and it presents an interesting case for improved testing of midlevel blends to determine just how high the ethanol-to-gasoline ratio can be in the nation’s vehicles.

In late July, E15 was on the verge of finally being able to enter the fuel market after an exhaustive two years of testing and debate. When Growth Energy filed the initial E15 waiver in 2009, the group claimed that increasing the allowable blend rate for standard vehicles was necessary in order to prevent the ethanol industry from hitting the blend wall—the point at which the market is saturated with as much ethanol as can be legally blended into the fuel supply. The U.S. EPA partially consented, approving the use of E15 for model year 2001 and newer vehicles. Certainly, allowing E15 to be used in so many of the nation’s vehicles is a plus, but is it the best way to expand ethanol usage? Some ethanol proponents believe that rather than bump up the base fuel to include more ethanol, efforts should be focused instead on expanding the availability and capabilities of midlevel blends in order to really utilize the fuel and push out that dreaded blend wall.

Bob Kozak, cofounder of the nonprofit biofuels educational group Advanced Biofuels USA, says E15 is only a short-term solution to the blend wall problem. If the industry were to focus on a higher blend such as E30 as an add-on fuel or performance fuel, leaving E10 as the nation’s base fuel, the nation’s fleet would have time to grow into the midlevel blend as consumer interest also expands. “We aren’t saying that everyone should use it, but let’s start having cars that can use it, so eventually E30 does become the base fuel once you have a fleet turnover,” he says. “The ethanol industry needs to start thinking of itself as a fuel industry rather than as an additive industry. Ethanol should start calling the shots rather than just reacting to the oil industry.”

For now, any discussion surrounding the use of midlevel blends must be focused on FFVs. Several automakers are introducing advanced engines to the market that utilize midlevel blends via a combination of optimized intake/exhaust valve timing, direct fuel injection, turbo charging and computer controls. This combination allows the engine to utilize the higher octane of ethanol to produce increased power, efficiency and comparable mileage to regular unleaded, Kozak says. He believes a low-risk way to introduce these engines, such as Ford Motor Co.’s EcoBoost engine or the Chevy Ecotec engine, is to install them in high-performance vehicles. This would limit the manufacturer’s liability while still creating a small but growing market for midlevel ethanol blends. “Once gearheads like the fuel, it’s easier to spread it out throughout the whole vehicle fleet,” he says.

Current testing in Detroit could be used to prove that it will be worth automakers’ and the ethanol industry’s time to focus on optimizing engines for midlevel blends. “Our testing shows there is a significant value to still calling for flex-fuel vehicles, still wanting them to be E85 capable, but also looking at the value of E30 as something the OEMs [original equipment manufacturers] could plan for,” says Steve Vander Griend, head of ICM Inc.’s research and development of ethanol engines. ICM is leading the research effort in Detroit, which is focused on testing the actual fuel, rather than the specific engines it is used in. “Instead of limiting us to one set point and kind of eliminating the cooling effect, this testing is to look at the performance of ethanol and its limitations,” he says. “What do various blends do to performance, efficiency? The whole goal here is: How do we get more competitive on a volume basis?”

Vander Griend and others say ethanol testing conducted by the U.S. EPA and U.S. DOE does not accurately display ethanol’s benefits because the agencies often use indolene, a form of standardized gasoline, as the blend fuel rather than the conventional gasoline available to consumers. “It is virtually impossible to identify fuel ethanol testing protocols in which ethanol is simply added to gasoline; in government study after government study the base gasoline makeup is changed when tests are performed with ethanol,” Vander Griend recently stated. “It is time for the domestic ethanol industry to better understand the value of ethanol, learn how it is tested, and then offer solutions that deliver the most benefits. Ethanol offers much more value than it is traditionally given credit for, as far as improving efficiency and reducing emissions. However, current policy and regulatory challenges have hidden a significant part of what ethanol has to offer.”

ICM is participating in the Detroit testing because it wants to better understand the qualities of ethanol, Vander Griend says. Ethanol’s high octane level has been a limiting factor in most previous testing because the limits of the engine are reached before the octane is fully utilized. This is a particularly poignant issue with regard to E85, which is well-known to have more horsepower than regular unleaded, but as yet has been unable to achieve the same efficiency rates. This could likely be due to the fact that engines are simply not able to fully utilize the fuel.

Current engines are engineered to operate on low-octane fuels. Typical unleaded fuel measures at about 87 octane while, by comparison, a fuel comprised of 98 percent ethanol, has octane levels ranging from the upper 90s to low 100s. Because gasoline has dominated the transportation fuels sector since automakers began mass producing vehicles, engines have been optimized for low-octane fuels. In order to experience the true benefits of ethanol, engines need to be optimized for increased fuel compression. This would result in improved mileage and greater efficiency, experts say, and would benefit E85 as well as midlevel blends. “If we could get the manufacturers to put additional software in the computers to be able to run on, let’s say E30 as well as E10, they could change the timing in the computer program and get the same mileage as you get on gasoline,” Kozak says.

Vander Griend says there is likely a small cost increase for auto manufacturers to make these modifications, but if the industry can guarantee a waiting market for those engines, manufacturers can make it happen. Therefore, the strategy to expand blender pump availability simply has to work if large numbers of the U.S. drivers can ever be expected to use E30 or another midlevel blend.

But in the complicated world of ethanol, even the strategy to expand blender pumps could unintentionally jeopardize the future of midlevel blends. Phil Lampert, an ethanol consultant who has spent more than a decade focusing on E85 expansion, says the Senate agreement to remove the Volumetric Ethanol Excise Tax Credit could result in the demise of E85 and blender pumps. Under the current 45-cent VEETC, E85 can be sold at a 15 to 20 percent discount to regular unleaded gasoline, which compensates for the loss of mileage experienced when using the fuel. Without that credit, retailers will not be able to sell E85 at a reduced price and motorists will be forced to pay the same price for a fuel that gets fewer miles per gallon. “If we’re not able to price E85 correctly, very few people are going to be willing to take a loss of mileage for the same price,” he says. “We’re fearful that if the price is higher or the same, and people are losing mileage, they’ll buy it one time and won’t be back.” This drop off in demand could have devastating effects on retail ethanol infrastructure. Lampert predicts that less than 25 percent of the approximately 2,400 existing E85 pumps will still be operating six months after VEETC is eliminated. And if E85 pumps are closing, why would any retailer consider adding a new E85 pump or invest in the installation of blender pumps? Yes, the compromise to repeal VEETC includes incentives to alleviate the financial commitment for blender pump installation, but expanding ethanol availability is only one part of increasing consumption. “It’s not just build it and they will come. It’s build it and price it correctly and they will come,” he says. If it’s not priced right, it won’t sell. And if it doesn’t sell, retailers are certainly not going to be swayed to install more pumps simply because they can do it at a discount.

Lampert admits that E85 is still a very small portion of the overall ethanol industry. Approximately 120 million gallons of E85 are expected to be sold this year—less than 1 percent of overall ethanol sales. “But there’s no blend wall for E85,” he adds. “If we had the infrastructure out there and we had it priced correctly, we could sell 3, 4, 5 billion gallons of E85 to the existing flexible-fuel vehicles.” In his conversations with retailers, Lampert says he’s not convinced that many will offer E15 when they are finally able to. And without E15, the next option to increase ethanol’s market share is through midlevel and higher blends for FFVs. “I think we’ve got to refocus our effort to accommodate E30 and E85,” he says.

One way to correct the loss of tax incentives from VEETC could be to modify another existing section of the tax code that allows for a 50-cent-per-gallon credit for alternative fuels, Lampert says. That credit applies to such fuels as propane and hydrogen but not E85, which is currently classified as a gasoline additive, not as an alternative fuel. But Lampert and a group of E85 retailers are working to change that and to extend the credit, which is currently set to expire at the end of this year.

Clearly, the path toward any type of expanded ethanol usage is not possible without auto manufacturers. It could take up to two decades to optimize the nation’s entire fleet to use midlevel ethanol blends, but many midlevel proponents believe that long-term commitment is necessary in order to sustainably build out the ethanol market. “The ethanol industry has to look to the long term and not rely on quick fixes such as E15,” Kozak says. “The industry will have to have patience to stick with a long-term plan even if the results are slow at first. The oil industry used to compete with whale oil. It didn’t really take off until internal combustion engines came out. There was nothing magical about how it became a leader.”

“If we can develop a solid infrastructure and establish a blender pump network, within three to five years, we could potentially anticipate the pricing between regular and premium fuels to be cut in half through the availability of midlevel ethanol blends,” Vander Griend stated. “This can offer the auto industry the framework to increase compression ratio and in turn, enable the auto industry to manufacture more turbo-charged vehicles. Consumer education is paramount to this initiative. Consumers who understand octane does indeed matter because it improves mileage, provides savings at the pump, and mitigates adverse health effects, are consumers who will choose ethanol.”

Author: Kris Bevill
Associate Editor, Ethanol Producer Magazine
(701) 540-6846
kbevill@bbiinternational.com