This week the Environmental Protection Agency (EPA) approved the use of 15% ethanol fuel blends (E15) for 2011-2006 model year cars:

EPA Grants E15 Fuel Waiver for Model Years 2001 – 2006 Cars and Light Trucks

WASHINGTON – The U.S. Environmental Protection Agency (EPA) today waived a limitation on selling gasoline that contains more than 10 percent ethanol for model year (MY) 2001 through 2006 passenger vehicles, including cars, SUVs, and light pickup trucks. The waiver applies to fuel that contains up to 15 percent ethanol – known as E15. EPA Administrator Lisa P. Jackson made the decision after a review of the Department of Energy’s thorough testing and other available data on E15’s effect on emissions from MY 2001 through 2006 cars and light trucks.

“Recently completed testing and data analysis show that E15 does not harm emissions control equipment in newer cars and light trucks,” said EPA Administrator Lisa P. Jackson. “Wherever sound science and the law support steps to allow more home-grown fuels in America’s vehicles, this administration takes those steps.”

So what does this mean? I think the same thing I thought when the EPA granted the first partial waiver. It will be a logistical nightmare to only allow E15 in certain vehicles, and retailers are not going to take the liability risk of someone putting E15 in the wrong vehicle. Because the press release also stated:

The Agency also announced that no waiver is being granted this year for E15 use in any motorcycles, heavy-duty vehicles, or non-road engines because current testing data does not support such a waiver.

So now imagine that someone in a non-approved vehicle puts E15 in their vehicle and later has a problem. Do you think they will sue? In a land where a woman sues because she carelessly walked into a fountain while texting, of course people will sue. So I don’t expect any significant growth in E15 sales as a result of the EPA decision.

However, this does move the ethanol industry one step closer to what they really want, and that is an E15 mandate. The ethanol industry has been falsely claiming for quite some time that without increasing the standard fuel blend beyond 10% ethanol “the U.S. won’t be able to meet a congressional mandate requiring some 36 billion gallons of renewable fuel to be blended into the domestic fuel supply by 2022.” The reason this is false was explained in Thoughts on an Ethanol Pipeline, where I calculated that there is a potential 37 billion gallon ethanol market in the Midwest alone if the industry can develop the E85 market.

But one thing I have concluded is that the ethanol industry isn’t really about choice. They talk a lot about consumer choice, but at the end of the day they pursue mandates and legal decisions over aggressively developing an E85 market. So what happens if E15 sales don’t increase as a result of this ruling? I think the ethanol lobby will come back and say “the U.S. won’t be able to meet a congressional mandate requiring some 36 billion gallons of renewable fuel to be blended into the domestic fuel supply by 2022unless an E15 mandate is implemented.” They will pursue the strategy that forces everyone to use a blend of E15, just as we are currently forced to use E10.

The other development that I think will begin to play out is that cellulosic ethanol will continue the trend of failing to deliver commercial quantities of fuel. As it becomes more obvious that cellulosic ethanol won’t make a meaningful contribution to the 36 billion gallon ethanol mandate for 2022, there are two courses of action we can take. The first is simply to abolish that mandate. But the one that will be pursued by the ethanol lobby is to say “We can produce a lot more corn ethanol than we produce now, so don’t change the mandate. Just allow corn ethanol to contribute to the total.”

This is how I expect the VEETC debate to play out this year. The ethanol industry may offer to give it up in exchange for an E15 mandate and an expansion of the corn ethanol contribution to the 36 billion gallon mandate. I guess if I am realistic, based on last year’s debate what they will probably say is they want to keep the VEETC, keep the tariff in place, AND get an E15 mandate — otherwise hundreds of thousands of jobs are at risk and economic calamity awaits. And as we have seen, the ethanol industry generally gets what they want.