Posted April 15, 2013
Sometimes a good chart is better than a whole boatload of words. The one below, from the Minnesota Department of Commerce’s Division of Energy Resources, has a lot to say about one important facet of the current debate over ethanol mandates contained in the Renewable Fuel Standard:
The dotted line represents monthly numbers of service stations in Minnesota offering E85 – fuel containing up to 83 percent ethanol. The other line reflects monthly sales of E85 in Minnesota, which ranks number five in the nation in ethanol production.
What we see is that despite an aggressive push with promotions and massive state investment, the state has gone from recorded E85 sales of just under 18 million gallons in 2006, when there were 287 stations selling the fuel, to less than 15 million gallons of E85 sales in 2012 – even though there were 343 stations selling the fuel. We also see below that demand for E85 has fallen even further in Minnesota in the early part of this year, from monthly station average sales of 3,492 gallons in 2012 to 2,080 so far in 2013. So, though there are more stations offering E85 for sale in Minnesota now than a few years ago, significantly less of it is being bought by consumers.
Iowa, another ethanol-friendly state, has experienced a similar trend, showing a 15 percent decline in E85 sales from 2011 to 2012 (from 10.7 million gallons to 9.1 million gallons), despite adding 23 stations (from 171 to 194). While fuel consumption as a whole slowed between 2011 and 2012, 26 percent and 15 percent decreases in E85 sales from 2011 to 2012 in Minnesota and Iowa, respectively, are stunning when compared to a minuscule 0.6 percent decrease in gasoline sales over the same period.
Why? In the marketplace the merits of products are judged by consumers. What’s being seen nationally is weak consumer demand for both E85 fuel and flex-fuel vehicles (FFVs) that can use E85. No doubt, reduced fuel economy on E85 is a leading cause. It appears that consumers realize that while E85 is often priced lower than gasoline per gallon, E85 can cost more to go the same number of miles. As the example below shows (using DOE data for the average fuel economy of E85), a consumer’s fuel economy could go from 20 miles per gallon to nearly 15 mpg and they would have to fill up 32 percent more often.
This dynamic undermines an argument by ethanol supporters in the RFS debate (discussed in this post) – that federal ethanol mandates could be reached if refiners simply made more gasoline with higher than 10 percent ethanol content, E85 or E15 (up to 15 percent ethanol). The marketplace (with Minnesota and Iowa as snapshots) appears to be signaling pretty clearly how it feels about E85. Making more of it in the face of weak consumer demand would not address issues with the RFS.
Meanwhile, research shows E15 could damage engines and/or fuel systems in millions of cars on the road today. Making more E15 to help satisfy the RFS mandate could put consumers at risk for vehicle breakdowns and expensive repairs – noted recently by AAA. Further, there are potential hurdles to the owners of gasoline stations who have to weigh the economics of installing new equipment to sell E15 with the potential for damaging their customers’ vehicles.
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