Today I want to conclude the recent series of articles on ethanol. Previous articles in this series were:
- Ethanol Industry In Free Fall Since President Trump’s Inauguration
- The Problem With The Ethanol Industry
- How To Fix The Ethanol Industry
To recap, the ethanol industry has been hit hard since President Trump’s inauguration, as I warned it probably would be shortly after he was sworn in. Today’s ethanol industry is essentially a product of the Renewable Fuel Standard (RFS) which was created in 2005. The ethanol industry has been dependent since then on continued federal support of the RFS for its markets.
But there are powerful interests on both sides of this argument, which puts the ethanol industry in a position of perpetually lobbying for continued federal support. This support has weakened during the Trump Administration, as the Environmental Protection Agency (EPA) — which administers the program — has granted hardship waivers to many small refineries.
These hardship clauses are meant to protect small refineries that process less than 75,000 barrels of oil per day from “disproportionate economic hardship” under the RFS. These waivers save the refiner money, but also lower the value of the credits refiners must pay to comply with the mandate. That, in turn, weakens the ethanol mandate, which hurts the ethanol industry.
My proposed solution is for the Midwestern states to band together to provide sufficient state incentives to develop a major Midwest corridor where E85 — a blend of 85% ethanol and 15% gasoline — is the primary fuel of choice for consumers. There is enough potential demand in the Midwest to consume nearly five times current U.S. ethanol production. This would shift control of ethanol demand from federal government decrees — where support is mixed — to the state governments that strongly benefit from the ethanol industry. (I have actually proposed such a solution for about a decade).
I received a tremendous amount of mostly positive feedback in response to the recent ethanol columns. There were two consistent objections raised, which I will address.
Objection 1: Not Enough Flex Fuel Vehicles
The first was that there aren’t enough flex-fuel vehicles (FFVs) on the roads to consume that much E85. While it is true that more would have to be eventually built, there are far more E85 vehicles on the roads today — predominantly in the Midwest — than there is demand for E85.
In 2017, there were more than 22 million FFVs on the roads. That represents nearly 10% of the entire automobile fleet. In 2018, General Motors had the most FFVs with 13 models. Ford followed with 11, and Fiat Chrysler had seven.