Friday, July 9, 2010

More E15 News

The EPA confirmed in a status update, hidden on their website on Friday afternoon before a three-day weekend, (brave bureaucrats) that an E15 waiver for 2007 model cars and younger would be decided on in late September. For automobiles in the 2001-2006 model years, a decision will be issued in November. Assuming that, at some point in the future, some portion of the automobile fleet in the US will be able to use E15, let’s consider the confusion at the pump for the average consumer. The consumer will approach a fuel dispenser and be faced with a big ugly label indicating that it is unsafe to use E15 in cars in the appropriate model years. The consumer will then think that if E15 is unsafe for some cars, why take the risk and will decide not to use E15, even if the car in question is actually compatible with E15. The price differential will be minimal at best, so an economic incentive will not exist to motivate the consumer to make the choice of filling up with E15. A bifurcated E10/E15 gasoline market will not work. With no economic incentive to purchase E15 while E10 sits next to E15 at the same gasoline pump, E15 is going nowhere. As we suggested in last week’s newsletter, getting full E10 penetration in the gasoline market and pushing FFV’s, along with E85, is going to be the route to expanding ethanol demand. E85 will work for the consumer when he sees the lower cpg price, even though, on a miles per gallon basis, it won’t be any better; consumer self-interest will kick in. The FFV/E85 strategy faces a density of demand issue, with FFV’s scattered across the US and not concentrated enough in one area to support numerous E85 station conversions. Look for lobbying to kick into high gear to expand FFV production, as well as government (federal and state) monetary support to install E85 dispensers.

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