U.S. Postpones Decision on Ethanol Blend in Gasoline (Update1)

By Daniel Whitten and Mario Parker
Dec. 1 (Bloomberg) -- U.S. regulators postponed a decision on raising the percentage of ethanol allowed in gasoline until mid-2010 to allow more time to assess effects on engines.
The Environmental Protection Agency said it would keep the blend at 10 percent and could expand it based on a study on higher ethanol mixes in engines for cars and equipment such as lawn mowers. GrowthEnergy, an ethanol industry trade group, had asked that the agency permit 15 percent, also known as E15.
“While not all tests have been completed, the results of two tests indicate that engines in newer cars likely can handle an ethanol blend higher than the current 10 percent limit,” the EPA said today in a statement. The agency “expects to make a final determination in mid-2010 regarding whether to increase the allowable ethanol content in fuel.”
Raising the so-called blend ratio would increase demand for the fuel, benefiting producers battered by volatile corn and fuel prices. At least 10 ethanol companies have sought bankruptcy protection since last year, including VeraSun Energy Corp. and Aventine Renewable Holdings Inc. Automakers and refiners have opposed a change, saying added ethanol would damage engines.
Growth Energy said in a statement today that increasing the allowable ethanol blend would create U.S. jobs, a contention the Washington-based Environmental Working Group disputed in a study posted on its Web site yesterday.
‘Strong Signal’
“This announcement is a strong signal that we are preparing to move to E15, a measure that will create 136,000 new U.S. jobs, cut greenhouse gas emissions and lessen America’s dependence on imported oil,” retired Army General Wesley Clark, Growth Energy’s co-chairman, said in a statement today.
The U.S. Energy Independence and Security Act of 2007 calls for the nation to use 12 billion gallons of renewable fuels such as ethanol next year, up from 10.5 billion in 2009. The law requires the U.S. to use 15 billion gallons of the biofuel by 2015.
EPA said in a letter to Growth Energy dated Nov. 30 that in order to meet that standard “it is clear that ethanol will need to be blended into gasoline at levels greater than the current 10 percent.”
The letter said that the Energy Department is testing 19 vehicles and expects to have complete data on 12 vehicles by the end of May, which will provide “a significant amount” of data.
Poet LLC, Archer Daniels Midland Co., Valero Energy Corp. and Green Plains Renewable Energy Inc. are the largest ethanol producers.
ADM, Monsanto, Deere
ADM, the second-biggest U.S. ethanol producer, and agricultural companies such as Monsanto Co. and Deere & Co. stand to gain if the EPA eventually allows a 15 percent formula, Morgan Stanley analysts led by Vincent Andrews in New York said in a report yesterday.
“If we are going to show investors and the international community that we are serious about developing alternatives to petroleum, this is a good way to do it,” Matt Hartwig, a spokesman for the Renewable Fuels Association in Washington, said of raising the standard. “You have to change what people put in their gas tanks.”
To contact the reporters on this story: Daniel Whitten in Washington at dwhitten2@bloomberg.net; Mario Parker in Chicago at 5927 or mparker22@bloomberg.net. Last Updated: December 1, 2009 10:50 EST