Brattle economists have authored a report that analyzes the role that higher ethanol blends of gasoline (E85) could play in meeting the proposed 2017 renewable volume obligations (RVOs) under the Renewable Fuel Standards (RFS) program.
Prepared for Growth Energy, the Brattle report reviews the Environmental Protection Agency’s (EPA) approach to analyzing the potential for E85 market expansion to determine whether pricing mechanisms would incentivize further E85 sales if the EPA increased the RVOs further past the E10 “blendwall” (when the average concentration of ethanol in gasoline exceeds the typical ten percent level).
Overall, the Brattle study finds that the “constraints” that the EPA associates with the pricing mechanism for stimulating increased E85 sales are themselves a product of a backward-looking analysis approach, which assumes that historic market outcomes and pricing relationships reflect actual limits on sales. The authors describe shortcomings in the EPA analysis and explain why the EPA’s conclusions are not a reliable prediction of future market dynamics. The report peeks over the blendwall by describing the price dynamics and consumer reactions that would accompany a transition to an E85 market and RVO well beyond the blendwall. Additionally, the authors describe how a new long-run equilibrium would emerge with minimal disruptive effects on fuel prices and much higher use of E85 in existing flex-fuel vehicles.
The report, “Peeking over the Blendwall: An Analysis of the Proposed 2017 Renewable Volume Obligations,” is authored by Brattle Principal Marc Chupka, Associate Michael Hagerty, Senior Associate Nicholas Powers, and Research Analyst Sarah Germain. It is available for download below.