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Business Costs & Regulation

More Ethanol Coming to Your Gas

The EPA approval will please growers and others in the industry. Drivers, less so.

The Environmental Protection Agency will give a thumbs-up for a 50% increase in the amount of ethanol that can be blended into the fuel supply, but don’t expect it to have much effect on gasoline prices.

The agency will approve the increase for cars built after 2007 as early as September and for all cars built after 2001 in November -- as more test results come in -- so the full effect of the move won’t be felt until 2011. That will give service stations plenty of time to adapt. Most states will likely offer E15 -- 15% ethanol and 85% gasoline -- in addition to the ubiquitous E10. Also available in more places is E85, which is specially blended for flexfuel vehicles that can use any blend up to that level.

The increase is being pushed by Growth Energy and other ethanol lobbying groups, which say the industry is already confronting the “blend wall” -- the point at which ethanol blending is at the 10% level. In 2009, ethanol accounted for 8.8% of the fuel supply in the U.S. This year, for the first time, ethanol companies have begun to export ethanol in significant quantities because not all of the product can be used domestically.

Ethanol currently sells for about $1.55 per gallon on the spot market, 47¢ under the price of gasoline with which it is blended. Plus blenders receive a federal tax credit of 45¢ per gallon. But since ethanol produces about 30% less energy than gasoline does, the price differential is unlikely to have a big effect on gasoline prices at the pump.