May 09, 2022

Biden Announces Emergency Summer Waiver for E15; Marginal Impact Expected


President Joe Biden announced plans to expand E15 (gasoline blended with 15% fuel ethanol by volume) use at an event in Iowa this Tuesday amid political pressure from rising fuel prices. However, this move is expected to have little effect on prices in the grand scheme of the US fuel market. The EPA plans to allow year-round E15 use, currently prohibited from RVP limits from June 1 to Sept 15. This plan attempted by the Trump Administration’s EPA but struck down by courts in 2019 with the decision saying the EPA overstepped its authority. The EPA is now planning to issue an emergency waiver this time given the political crisis surrounding fuel prices. However, this move is likely to have a very minute effect in the US fuel market and more political theatre and a nod to the corn and ethanol lobbies which have been repeatedly spurned by the Biden Administration in favor of refiners when faced with decisions around RFS blending obligations and compliance.

This move to E15 is likely to have little effect as E15 infrastructure is currently very limited in the US. The US has over 150,000 retail gasoline stations with virtually all providing E10 blends of gasoline, the most common blend. Only about 2,500 retail stations (less than 1.7% of total) currently provide E15 with a market share of about 2.5% of total gasoline demand. Allowing year-round use via a temporary emergency waiver is not expected to spur massive investment given the temporary and precarious legal basis. In addition, where E15 will be available it is only likely to save about ten cents per gallon vs the standard E10 blends for those three and a half summer months. Along with crude oil, gasoline, corn and other commodity prices, ethanol prices have risen precipitously, and ethanol has about 30% less energy than gasoline, reducing the slight cost savings of E15 vs E10 on an energy equivalent basis. At the RFS level, the extra sales of E15 are expected to reduce the RFS blending shortfall by only 2-3%, however, and thus the ability of this measure to lower RIN prices (and therefore fuel prices nationally) is fairly marginal.

If the Biden Administration’s EPA can promote E15 expansion and establish stronger legal footing as touted, there may be accelerated growth in its marginal market share and impact on the US fuel market. However, the EPA’s announcement of the next RVOs (blending obligations under the RFS program) and any potential changes or overhaul to the program are expected to be much more consequential and probably unfavorable to the US ethanol industry.

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