There's trouble brewing between automakers and the ethanol industry, which has thrown some sharp elbows around Washington to bolster its struggling business

After an industry shakeout via dozens of bankruptcies, ethanol makers want a bigger market. They’ve petitioned federal regulators to allow more ethanol to be mixed into regular gasoline — up to 15%, from the current limit of 10%. They also have endorsed bills that would let the government require automakers to build more vehicles capable of running on E85, a blend of 85% ethanol and 15% gasoline.

Advertisement

Automakers unanimously oppose both steps. The industry warns that adding more ethanol to gasoline could damage some of the 250 million older vehicles on the road and is asking federal regulators to wait for more testing before allowing a change. It also contends mandating flex-fuel models forces customers to pay more for a feature they may never use.

The battle could decide what kind of fuel will power most engines across the country, from Detroit’s latest models down to motorboats and chainsaws, and will test the Obama administration’s ability to forge compromises among business and environmental interests.

Ethanol makers underdogs

Despite unqualified support from President Barack Obama and much of Congress, U.S. ethanol producers have been fighting like underdogs for their cause.

In recent weeks, ethanol supporters have called limits on their product in gasoline arbitrary rules “standing in the way of new green jobs, jeopardizing progress toward advanced biofuels and putting energy security at risk.” The Renewable Fuels Association said earlier this month that the U.S. Environmental Protection Agency had used a scientific review board with an anti-ethanol bias.

And while applauding the $2-billion extension of cash for clunkers, ethanol backers urged Congress to restore the money it took for the extension to an energy loan program that would benefit ethanol makers working on new forms of the fuel.

The lobbying efforts come at a turbulent time for ethanol. After a building boom during the run-up in gas prices, dozens of ethanol makers filed for bankruptcy over the past year due to wild price swings in oil and the corn used for most ethanol. That’s left the remaining players with a glut of capacity, keeping profits slim.

Demand for ethanol continues to rise thanks to federal laws requiring an ever-growing amount of biofuels, towards a goal of 36 billion gallons by 2022. Almost all of the ethanol sold today goes into gasoline, thanks to state rules requiring mixes of up to 10% ethanol.

But that 10% limit has put what the industry calls a “blend wall” around its market of about 12.5 billion to 13 billion gallons a year. With the industry on track to sell more than 10 billion gallons this year, and its own statistics showing enough capacity coming online for another 2.5 billion, that wall looks closer by the day.

Tom Buis, the CEO of ethanol advocacy group Growth Energy, said investors in advanced ethanol from sources other than corn had been put in a holding pattern until the size of the market became clearer.

“None of them have pulled the trigger on commercialization because they’re not sure there’s going to be a marketplace,” he said.

The industry has pressed the EPA to approve adding up to 15% ethanol to regular gasoline by Dec. 1, citing studies showing no short-term damage to vehicles from the blend. Matt Hartwig, a spokesman for RFA, said the EPA had the power to allow 12% ethanol immediately, and that the request would give consumers more choices.

“What we’re trying to do now is address the issue before we hit the blend wall,” he said. “We very well may be there in a couple of years.”

Such limits were supposed to be solved by E85, the mix of 85% ethanol and 15% gasoline for flex-fuel vehicles. Yet E85 has been a bust so far, due to a lack of pumps, few vehicles able to use it and price swings over the past year that frequently made it more expensive to use than regular gasoline.

The result: Federal estimates suggest U.S. drivers will buy nearly 50% less E85 this year than last, with a total of 6.6 million gallons — literally a cup in the ocean of 139 billion gallons of gasoline that will pour into U.S. vehicles.

To boost that market, the greenhouse gas regulations passed in June would let federal officials force automakers to offer E85-capable models. While Detroit automakers have committed to making half their models flex-fuel capable by 2012, foreign automakers offer few E85 vehicles.

But automakers and a bevy of small-engine firms such as boat companies contend more research needs to be done, that older vehicles could suffer breakdowns and that the ethanol industry hasn’t done enough homework. Many of the government tests on 15% ethanol fuel are set to continue through 2010.

Automakers estimate the cost for the flex-fuel mandate at about $140 per vehicle.

Charles Territo, a spokesman for the Alliance of Automobile Manufacturers, said the group does not support “policies that mandate a specific technology.”

Announcement from our Chairman, David C BarclayThe World Renewable Energy Association are delighted to announce the launch of a brand-new initiative exclusively for its members. The Renewable Energy Finance Hub has been launched following the largest survey undertaken with UK businesses conducted by WoREA in conjunction with the UK Government and its partners. Reduce your businesses carbon footprint today and begin your journey towards net zero!