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

We calculated fixed and variable operating costs using percentages of direct labor and
total installed capital costs. Following this methodology, we estimate that producing a gallon
of ethanol using corn stover as a cellulosic feedstock would cost $1.65 in 2012 (2004
dollars).
c. Ethanol’s Blending Cost
Ethanol has a high octane value of 115 (R+M)/2 which contributes to its value as
a gasoline blendstock. As the volume of ethanol blended into gasoline increases from
2004 to 2012, refiners will account for the octane provided by ethanol when they plan
their gasoline production. This additional octane would allow them to back off of their
octane production from their other gasoline producing units resulting in a cost savings to
the refinery. For this cost analysis, the cost savings is expressed as a cost credit to
ethanol added to the production cost for producing ethanol.
We obtained gasoline blending costs on a PADD basis for octane from a
consultant who conducted a cost analysis for a renewable fuels program using an LP
refinery cost model. LP refinery models value the cost of octane based on the octane
producing capacity for the refinery’s existing units, by added capital and operating costs
for new octane producing capacity, and based on purchased gasoline blendstocks. The
value of octane is expressed as a per-gallon cost per octane value, and ranges from 0.38
cents per octane-gallon in PADD 2 where lots of ethanol is expected to be used, to 1.43
cents per octane-gallon in California. Octane is more costly in California because the
Phase 3 RFG standards restriction aromatics content which also reduces the use of a
gasoline blendstock named reformate - a relatively cheap source of octane. Also,
California’s Phase 3 RFG distillation restrictions tend to limit the volume of eight carbon
alkylate, another lower cost and moderately high octane blendstock.
Another blending factor for ethanol is its energy content. Ethanol contains a
lower heat content per gallon than gasoline. Since refiners blend up their gasoline based
on volume, they do not consider the energy content of its gasoline, only its price. Instead,
the consumer pay’s for a gasoline’s energy density based on the distance that the
consumer can achieve on a gallon of gasoline. Since we try to capture all the costs of
using ethanol, we consider this effect. Ethanol contains 76,000 British Thermal Units
(BTU) per gallon which is significantly lower than gasoline, which contains an average
of 115,000 BTUs per gallon. This lower energy density is accounted for below in the
discussion of the gasoline costs.
2. Biodiesel Production Costs
We based our cost to produce biodiesel fuel on a range estimated from the use of
USDA’s and NREL’s biodiesel computer models. Both of these models represent the
continuous transesterification process for converting vegetable soy oil to esters, along
with the ester finishing processes and glycerol recovery. The models estimate biodiesel
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