US set to approve 15% ethanol fuels this week - analysts

11 October 2010 21:35  [Source: ICIS news]

New US ethanol fuel blend to be announcedWASHINGTON (ICIS)--The US Environmental Protection Agency (EPA) will announce approval this week for a 15% ethanol fuel blend for late-model automobiles, a leading investment bank predicted on Monday.

Analysts at Friedman Billings Ramsey (FBR) Capital Markets said the agency is expected to give approval this week to a petition from ethanol trade group Growth Energy and corn-ethanol producers to boost the US automotive fuels blend to 15% ethanol (E-15) from its current 10% level (E-10).

The petition for the elevated ethanol fuel mandate has been widely opposed by US refiners and a broad coalition of other manufacturers and environmental groups who argue that many automotive and off-road vehicle and equipment engines can not safely use the higher ethanol blend and that an E-15 mandate would not benefit the environment.

FBR Capital Markets said it expected the EPA would give immediate approval for E-15 use by automobiles manufactured in 2007 and later, and that the agency would expand the ruling before the end of this year to include cars made in 2001 through 2006.

However, FBR said that the expected approval of the higher E-15 ethanol blend might not have immediate impact on domestic ethanol production.

The analysts noted that a lack of widespread distribution and retail fuelling infrastructure may hamper adoption of E-15 fuel.

In addition, FBR said that the EPA was working on a fuel pump labelling system that retail gasoline stations would be obliged to adopt in order to prevent mis-fuelling.  The roll-out of that system along with needed infrastructure changes could take many months or even years.

The investment bankers also suggested that in order to achieve the distribution and retail pumping adjustments needed for widespread sale of E-15 fuels, public tax dollars might have to be allocated to subsidise the new infrastructure.

But FBR noted that “there are significant risks to this approach, including the competition for scarce funds” at a time of rising voter concerns about federal spending and the nation’s mounting debt load.

Further, while the US corn-ethanol industry would benefit from an E-15 approval, there is growing sentiment in Congress to reduce or even eliminate the current 45 cents/gal tax credit for E-10 ethanol blending.

The ethanol sector has been urging the EPA to approve the E-15 petition, arguing that the higher government mandate is essential to save the struggling corn-ethanol industry and stimulate funding for the hoped-for development of non-food ethanol feedstocks and commercial-scale production of cellulosic ethanol.

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By: Joe Kamalick
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