Minnesota Corn Growers Publishes "The Economics of Eco-Performance Fuel" Study

by Dean Drake (Minnesota Corn Growers Association) Inexpensive high‐octane gasoline disappeared when emission regulations forced leaded gasoline out of the market in the early 1970s. This in turn led to reduced engine compression ratios and diminished engine efficiency. In spite of nearly a half century of research, the only environmentally safe way to boost the octane rating of gasoline economically is by blending it with ethanol. More recently, concerns about greenhouse gases such as carbon dioxide (CO2) have led to interest in expanding the use of renewable fuels such as ethanol.

The Renewable Fuel Standard (RFS) was established by Congress in 2005 and expanded in 2007 to address the country’s nearly total dependence on oil as a transportation fuel (at the time, oil products such as gasoline, diesel and jet fuel accounted for nearly 100 percent of motor and air transportation). The major argument for the RFS then and now is to overcome the classic “chicken‐and‐egg” problem: there is no demand for ethanol without the refueling infrastructure, and there will be no infrastructure built without the demand.

 Regular grade gasoline in a blend called E‐10 (for 10 percent ethanol and 90 percent gasoline). Classified in Clean Air Act terms as “substantially similar” to gasoline by the U.S. Environmental Protection Agency (EPA), this mixture has been sold for decades and can be used in gasoline engines without any need to modify the engine or fuel system.

 E‐85, a mixture of up to 85 percent ethanol used by Flex Fueled Vehicles (FFVs). These are vehicles designed and built to burn any mixture of gasoline and ethanol up to 85 volume percent ethanol. Vehicle manufacturers accrue fuel economy credits by making and selling FFVs.

 E‐15, a 15 percent mixture of ethanol and gasoline approved for use in vehicles made since MY 2000.

While the RFS was intended to provide a cost‐effective means to increase energy security and reduce GHG emissions, it was not expected to actually lower the cost of transportation to consumers. Since the end of 2011, however, the market for the primary biofuel – ethanol – has undergone a fundamental change which turned the RFS from being cost‐effective (meaning that it costs less than alternative policies that achieve the same goals) to cost‐beneficial (meaning that consumers actually save money). Ethanol at the time of this study cost $0.40 to $0.50 less a gallon than gasoline on a volumetric basis, which provides significant consumer benefits.

All current technology vehicles, designed to operate on regular grade fuel with an 87 AKI octane rating, can use E‐10. If vehicles were optimized to use a high‐octane regular grade gasoline with more ethanol (e.g., 30 percent, or E‐30)1 , the blend wall could be extended to 30 percent.

At the time of this study, E‐10 was $0.058 per gallon less expensive than a pure 87 AKI gasoline on an energy‐equivalent basis. Thus, adding 10% ethanol to gasoline saved consumers an estimated $8 billion in 2013.

Adding an additional 20 percent ethanol to this 10 percent mixture to create eco‐performance fuel (EPF) would result in a gasoline with an octane rating equivalent to today’s premium grade gasoline (93 AKI) but cost about $0.09 a gallon less than today’s regular grade gasoline based on the level of ethanol production and fuel prices at the time of this study. Assessments by others of future ethanol prices indicate that EPF should be even less expensive in the future. It also appears that this should hold true even at the larger volumes of ethanol required for EPF, although this needs to be further studied. Testing has indicated that by boosting the compression ratio of a spark ignition engine, the resulting fuel economy on EPF would be equal to or greater than a conventional engine run on regular gasoline and have 7 to 11 percent lower greenhouse gas tailpipe emissions.

Only when ethanol is used in higher blends as a gasoline substitute in vehicles such as flex‐fueled vehicles is there a positive cost to using ethanol over gasoline. But even the highest marginal cost use of ethanol (to completely replace gasoline) is 1/12 the cost of the highest marginal cost means of improving fuel economy (electric vehicles).

In addition to direct consumer benefits, the use of ethanol blends strengthens the nation’s energy security. The first threat to energy security is the chronic drain on our economy that results from inflated energy prices due to monopoly pricing power. Biofuels are uniquely positioned to diminish OPEC’s global pricing power because, unlike fuel conservation, biofuels provide auto consumers the ability to quickly switch to alternative fuels when gasoline prices rise. It can be estimated that the value per gallon of conventional fuel displaced is $0.46 per gallon in 2014. A second threat to energy security occurs when a sudden surge in oil prices resulting from worldwide instability impacts the US economy adversely. The best estimate of this value perhaps is found in NHTSA’s recent Final Regulatory Impact Analysis regarding the “2017 and Later Model Year Light‐Duty Vehicle Greenhouse Gas Emissions and Corporate Average Fuel Economy Standards”, which estimates a value of $0.20 per gallon.

Overall, this study concludes that the greatest positive impact to the economy using ethanol‐gasoline blends would be to transition from E‐10 to EPF in the same manner as the nation converted from leaded to unleaded gasoline in the 1970s. This study estimates that the resulting lower tailpipe CO2 emissions from vehicles optimized to use EPF would in 2025 reduce the average cost of a new vehicle by $500 and lifetime fuel costs by $900, with the potential to increase direct employment by over 170,000. Further research in 2014 will examine many of the assumptions made in this analysis in greater detail.

1 This fuel is referred to in this report as Ecologically Sustainable, Performance Enabling Vehicle Fuel, or Eco‐Performance Fuel (EPF). While additional research is necessary to determine the optimal concentration of ethanol in EPF, this report uses 30% as an approximation for analytical purposes.