The mandates were passed in an era before the deep financial crisis and improvements in fuel efficiency. At the time, gasoline demand was expected in the neighborhood of 160 billion gallons annually. It’s far from that today.
“It was never supposed to be ’130 billion gallons and falling.’ And it will continue to fall because of the CAFE standards,” which require in years ahead more miles per gallon from automobile manufacturers, said Kevin Book, an energy analyst for researcher ClearView Energy Partners. “The actual pool (of gasoline) is getting smaller as requirements (for ethanol use) are getting larger.”
This contradiction is called the “blend wall,” akin to a perfect storm on ethanol producers right as the next-generation product is about to come to market. By 2022, at least half of the nation’s ethanol must come from non-corn sources, and that depends on next-generation cellulosic ethanol.
“We’re in the age of cellulosic. The key question still is going to be increased volume and a competitive price,” said Daniel Yergin, the Pulitzer Prize-winning oil historian and author of “The Prize: The Epic Quest for Oil, Money & Power,” and its recent sequel, “The Quest: Energy, Security, and the Remaking of the Modern World.”
Oil companies, which sell less product when ethanol is blended, want to roll back the blending requirements. Ethanol producers, who consume about 40 percent of the nation’s corn crop, argue that the solution is raising the amount of ethanol required to be blended into fuel, somewhere in the ballpark of, say, 15 percent or 20 percent. The Environmental Protection Agency has approved sale of gasoline composed of 15 percent ethanol, or E15, for use in newer cars. It is not required, however.
President Barack Obama has made ethanol a key part of his “all of the above” strategy for energy production. Campaign rival Mitt Romney, the former governor of Massachusetts, released a white paper on agriculture on Oct. 9, also supporting the existing Renewable Fuel Standard.