Regulation of Fuels and Fuel Additives: Renewable Fuel Standard ...

4. Expected Growth in Ethanol Consumption
As mentioned above, ethanol demand is expected to increase well beyond the
levels contained in the renewable fuels standard (RFS) under the Act. With the removal
of the oxygenate mandate for reformulated gasoline (RFG) 49 , all U.S. refiners are
expected to eliminate the use of MTBE in gasoline as soon as possible. In order to
accomplish this transition quickly (by 2006 or 2007 at the latest) while maintaining
gasoline volume, octane, and mobile source air toxics emission performance standards,
refiners are electing to blend ethanol into virtually all of their RFG. 50 This has caused a
dramatic increase in demand for ethanol which, in 2006 is being met by temporarily
shifting large volumes of ethanol out of conventional gasoline and into RFG areas. By
2012, however, ethanol production will have grown to accommodate the removal of
MTBE without the need for such a shift from conventional gasoline. More important
than the removal of MTBE over the long term, however, is the impact that the dramatic
rise in the price of crude oil is having on demand for renewable fuels, both ethanol and
biodiesel. This has dramatically improved the economics for renewable fuel use, leading
to a surge in demand that is expected to continue. In the Annual Energy Outlook (AEO)
2006, EIA forecasted that by 2012, total ethanol use (corn, cellulosic, and imports) would
be about 9.6 billion gallons 51 and biodiesel use would be about 0.3 billion gallons at a
crude oil price forecast of $47 per barrel. This ethanol projection was not based on what
amount the market would demand (which could be higher), but rather on the amount that
could be produced by 2012. Others are making similar predictions, and as discussed
above in VI.A.2, production capacity would be sufficient. Therefore, in assessing the
impacts of expanded use of renewable fuels, we have chosen to evaluate two different
future ethanol consumption levels, one reflecting the statutory required minimum, and
one reflecting the higher levels projected by EIA. For the statutory consumption scenario
we assumed 7.2 billion gallons of ethanol (0.25 of which was assumed to be cellulosic)
and 0.3 billion gallons of biodiesel. For the higher projected renewable fuel consumption
scenario, we assumed 9.6 billion gallons of ethanol (0.25 of which is once again assumed
to be cellulosic) and 0.3 billion gallons of biodiesel. Although the actual renewable fuel
volumes consumed in 2012 may differ from both the required and projected volumes, we
believe that these two scenarios provide a reasonable range for analysis purposes. 52
In addition to modeling two different future 2012 ethanol consumption levels, two
scenarios were considered based on how refineries could potentially respond to the recent
removal of the RFG oxygenate mandate. In both cases, the impacted RFG areas did not
49 Energy Act Section 1504, promulgated on May 8, 2006 at 71 FR 26691
50 Based on discussions with the refining industry.
51 AEO 2006 Table 17 Renewable Energy Consumption by Sector and Source shows 0.80 quadrillion
BTUs of energy coming from ethanol in 2012. A parallel spreadsheet provided to EPA shows 2012 total
ethanol use as 628.7 thousand bbls/day (which works out to be 9.64 billion gallons/yr).
52 As a comparison point for cost and emissions analyses, a 2012 reference case of 3.9 billion gallons of
ethanol was also considered. The reference case is described in Section II.A.1 (above) and a complete
derivation is contained in DRIA Section 2.1.3.
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