The Battle of the Ethanol Bulge

by Jim Lane (Biofuels Digest) ... The Iowa Renewable Fuels Association summed it up thus: “The EPA’s action means that E10 and E15 will have the same volatility limit for the summer driving season that runs from June 1 to September 30. With the same volatility limit, the same gasoline blendstock can be used for both 10 and 15 percent ethanol blends. This prevents oil refiners from gaming the system by supplying only the E10 blendstock and, thereby, freezing E15 out of the market.”

As IRFA explains, “EPA has the authority to issue emergency provisions based on the supply of fuel. Recently, gasoline stocks have fallen below 2022 levels when a similar emergency action was taken. In addition to restrictions on Russian oil and the impact of the war in Ukraine, this year OPEC also recently enacted supply reductions that have spiked fuel prices.”

It’s good news for the environment, POET observed in a statement lauding EPA’s move. “E15 is effectively blocked from the marketplace during the summer months because of an unintended wrinkle in federal law, despite having lower evaporative emissions than standard summertime gasoline. Just last year, research by the University of California Riverside reaffirmed that E15 reduces volatile organic compounds, carbon monoxide, and particulate matter that contribute to smog formation.”

So, where’s the growth? Chemicals and SAF, that’s where. Let’s look at alcohol-to-jet again, today.

Pivoting to SAF

One of the challenges is making a gallon of SAF from ethanol that’s worth more than the 2.1 gallons of ethanol needed to make it. The Natural Law of Alternative Commodity Markets states that no producer will make a second product if the market value of the intermediates is higher.

So, right now, Jet-A is selling for $2.27 a gallon and ethanol is selling for $2.16, says here. Sounds like a NLACM problem. The difference has to be made up in carbon prices or by a trip to Lourdes to pray for an assistive change in market price structures. The more perplexing problem is how to move jet fuel towards a price somewhere around $5 a gallon. Therein lies a more realistic long-term opportunity for sustainable aviation fuels.

Is that possible? Right now, says here – US airlines get 58 miles per gallon per passenger. So, a 600 mile flight (that’s around the average length, says here) should cost the average passenger $52 for the fuel, if fuel were priced at $5 per gallon. That doesn’t seem outrageous. It’s roughly $30 per ticket more than today’s market price.

A better federal SAF tax credit

In the near term, voluntary airline commitments help. What I suspect will be the long term solution is to charge passengers for the carbon, in the form of a permanent refundable tax credit, to create a stable market for SAF and incentivizes airlines to adopt low-carbon fuels in order to gain market share. The aim should be to bridge that $30 per ticket gap. The tax credit should go to the airline, not the producer. The credit should entirely relate to carbon.

Such a tax credit incentivizes growers who take carbon out of their process, since their fuels will have higher value by having less carbon. It decarbonizes food, too. Airlines that decarbonize become stronger competitors — and can offer lower ticket prices. READ MORE