Ethanol Popularity Grows After Gulf Oil Spill

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". . .ethanol remains the most successful oil substitute in the U.S. market."

The implications for the oil industry from the ongoing Gulf of Mexico gusher are already taking shape, with the administration calling for a Challenger-style investigation and rewriting the playbook for oil and gas leasing and issuing safety and environmental permits for offshore drilling.

It would be ironic if a problem perceived to have arisen from a "cozy relationship" between oil companies and regulators resulted in an even cozier relationship between the government and the ethanol industry, which depends on it for both financial support and rules mandates. Yet that's exactly what could happen as the administration decides whether to increase the allowable percentage of ethanol in gasoline.

Perhaps you've seen the new ads from Growth Energy, an ethanol trade association: "No beaches have been closed due to spills," with the word "ethanol" fading slowly into view. Then there's "We won't have to wait millions of years to replenish our reserves," statement emphasizing ethanol's employment and energy security benefits. It's a clever campaign, and well timed.

Using more ethanol in gasoline seems an obvious response to concerns about our oil dependence. For all its shortcomings, ethanol remains the most successful oil substitute in the U.S. market, thanks to the combination of a $0.45 per gallon blenders' tax credit and the steady ratcheting up of the annual federal renewable fuels standard.

The problem is that the market penetration of ethanol is rapidly approaching the 10% blending limit that's been approved for use in engines that haven't been modified to run on higher-percentage ethanol blends, such as E85.

Under the circumstances, it's natural for the ethanol industry to request a waiver to blend more than 10% ethanol into each gallon of gas. The EPA's mid-2010 deadline is nearly upon us, and with more oil spilling into the Gulf every day, the pressure on EPA must be mounting.

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