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Big Corn finds unlikely allies in U.S. biofuel push: carmakers and drivers
March 23, 2016 / 6:00 AM / in 2 years

Big Corn finds unlikely allies in U.S. biofuel push: carmakers and drivers

NEW YORK (Reuters) - U.S. corn producers may have found two unlikely allies in their decade-long battle with big oil to get ethanol into the nation’s fuel stream: automobile manufacturers and American drivers.

A gas pump displays the price for E15, a gasoline with 15 percent of ethanol, and various other ethanol blends at a gas station in Nevada, Iowa, in this May 17, 2015 file photo. REUTERS/Jim Young/Files

The auto industry’s slow, somewhat grudging acceptance of government policy on renewable fuels and bumper car sales will ultimately challenge the petroleum industry’s concept of a “blend wall” - a 10 percent saturation point for ethanol in motor fuel if there is no overhaul in vehicles and at the pump.

Reuters’ analysis of vehicle sales and government data shows that almost a fifth of the vehicles on U.S. roads can safely handle E-15 fuel, a gasoline with 15 percent ethanol content, or 50 percent more than the typical U.S. blend.

That is considerably above the 14 percent estimate from June 2015 from the American Automobile Association (AAA) and that share could climb to nearly a quarter by the end of the year if brisk auto sales continue.

At stake is about $10 billion oil firms would lose to ethanol producers if the higher ethanol blend became the new norm in a U.S. gasoline market worth about $290 billion, based on average retail prices and gasoline demand of about 142 billion gallons.

Analysts say the trend marks a significant victory for U.S. ethanol manufacturers, such as Archer Daniels Midland Co and Pacific Ethanol Inc and the entire biofuel industry.

The U.S. renewable fuels policy promoted by two presidential administrations and efforts to boost ethanol use have been subject of court battles with oil associations representing Exxon Mobil Corp and Royal Dutch Shell Plc’s U.S. unit as well as automaker groups representing Detroit’s “Big Three,” Toyota Motor Corp and others. Washington sets annual targets for the amounts of renewable fuels - in the United States mainly corn-made ethanol - that should be blended with gasoline and diesel.

In 2015, for the first time the majority of new vehicles sold were approved for E15 by manufacturers. This year, Fiat Chrysler Automobiles, which represents over 10 percent of the U.S. market, became the last of the “Detroit Three” to approve the higher ethanol blend for use in its 2016 models.

CHICKEN AND EGG

A full conversion of the nation’s fleet to E15 could still take over a decade, experts say.

But with more and more E15-friendly cars on the road, gas stations are likely to install new pumps and storage tanks needed to sell the fuel, removing the last major hurdle to its widespread acceptance. Only a few hundred of the nation’s more than 100,000 gas stations are estimated to offer E15 now.

“It’s a chicken and egg thing,” said John O‘Dell, an independent automotive industry specialist in Orange County, California. “The manufacturers are starting to come around to redesigning fuel systems to handle E15 and that will slowly but surely see a growth of pumps that handle it.”

The data also undermines the oil industry’s long standing argument that there is no room for mainstream acceptance of E15 because it would require major redesigns by vehicle manufacturers and its greater take-up by gas retailers.

What is remarkable is that the steady shift to E15 cars is happening without the endorsement of most automakers. They say they are adopting new models to run on higher ethanol fuel in response to regulatory pressure rather than demand from consumers.

General Motors Co and Ford Motor Co led the move towards E15 by adopting materials capable of withstanding ethanol’s corrosiveness for model years 2012 and 2013 respectively after the Environmental Protection Agency (EPA) approved E15 in all vehicles.

“If anybody had any sense, they looked at (targets) and said: ‘We’re not going to get there with 10-percent ethanol. Something has to change,” said Ford’s Environmental Policy & Fuel Quality Manager Dominic DiCicco.

That means using more E15 and E85, a fuel with as much as 85-percent ethanol content that can be used in flexible fuel vehicles.

FCA tweaked its cars because it expects a “a potential proliferation of the fuel being available,” company spokesman said.

HYBRIDS AND HOLDOUTS

The EPA has said the 15-percent ethanol blend has been safe for all vehicles since model year 2001, but that failed to dispel drivers’ concerns they might void their warranties by filling up with the new fuel. Carmakers’ quiet embrace of E15 may start to ease such fears.

“It certainly could transform the conversation,” said University of Illinois economist and biofuels expert Scott Irwin.

The renewable fuels program, launched in 2005 as part of the government’s efforts to reduce U.S. dependence on foreign oil and move to cleaner energy sources, is not without controversy.

The ethanol provides less energy than gasoline and requires more frequent refueling, which reduces a car’s efficiency.

Environmentalists question the benefits of corn-based ethanol and some carmakers argue it is better to focus on environment-friendly technologies, with many, such as Daimler AG and BMW Group plowing money into hybrid engines, fully electric vehicles and other technologies.

A spokesman for Nissan Motor Co, one of the holdouts, said the company did not foresee making the change in the near-term but was monitoring regulatory and marketplace changes.

Daimler AG, the manufacturer of Mercedez-Benz, is more heavily investing in research around hybrids and fully electric vehicles, its spokeswoman said. The company has also not approved E15 for use in its cars.

Editing by Josephine Mason and Tomasz Janowski

Our Standards:The Thomson Reuters Trust Principles.
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