USDA aims to boost sales of high-blend ethanol

WASHINGTON Fri Apr 8, 2011 3:45pm EDT

E85 ethanol fuel is shown being pumped into a vehicle at a gas station selling alternative fuels in the town of Nevada, Iowa, December 6, 2007. REUTERS/Jason Reed

E85 ethanol fuel is shown being pumped into a vehicle at a gas station selling alternative fuels in the town of Nevada, Iowa, December 6, 2007.

Credit: Reuters/Jason Reed

WASHINGTON (Reuters) - The Obama administration said on Friday it will provide incentives to gasoline stations to install more pumps with a higher blend of ethanol in an effort to boost consumption of the renewable fuel.

Agriculture Secretary Tom Vilsack said the administration hoped to install 10,000 flexible fuel pumps nationwide in the next five years.

The units, also known as blender pumps, allow consumers to blend motor fuel with up to 85 percent ethanol (E85) for cars that can run on the higher mixes.

The Environmental Protection Agency in January approved raising the amount of ethanol in gasoline to 15 percent for newer cars and trucks from 10 percent, a ruling welcomed by the industry and farmers who supply the corn to make the fuel.

Most gasoline sold in the United States is a mix of 10 percent ethanol. Currently, only about 2,350 of the nation's 167,800 gas stations offer E85.

"The question will be if that higher blend of ethanol is readily available, immediately available," Vilsack told reporters. "We still have a great deal of work to do."

The funding will come through grants and loans from the USDA's Rural Energy for America Program. Vilsack said it costs an average of $120,000 to install a flex fuel distribution system, pumping system and tank at a gas station.

The funding could help gas station owners trim their overall cost to install systems to handle the higher blends, or lower borrowing costs by reducing interest rate or easing a bank's reluctance to finance the project.

But a lower energy content of ethanol means many cars do not go as far on E85 as on gasoline, so not every fuel seller has embraced the pumps, said John Eichenberg, vice president for government relations at the Association for Convenience & Petroleum Retailing.

The adjusted price for E85 on Friday, after taking into account the lower energy content, was nearly $4.14 per gallon, compared with $4.00 a gallon for premium gasoline, travel group AAA said.

"E85 has done well in many communities that are committed to the agriculture industry, such as in Colorado," said Eichenberg. "But most consumers are concerned about prices."

Still, a broader distribution of blender pumps could help companies like closely held Poet, Archer Daniels Midland Co, and Green Plains Renewable Energy Inc sell more ethanol.

Nearly 40 percent of this year's 12.447-billion-bushel corn crop will be used to make ethanol. Corn-based ethanol has been touted by the struggling ethanol industry and American farmers who supply corn as a way to reduce U.S. dependence on imported oil, create jobs and boost income for rural communities.

But critics contend the subsidies do more harm than good.

Grain farmers like high corn prices, but livestock farmers and food companies say ethanol leads to food inflation by driving up the cost of meat and poultry.

(Additional reporting by Timothy Gardner; Editing by David Gregorio and Jeffrey Benkoe)