Denied at the Pump: Americans Paying More for Gas than they Should Be
(April 14, 2010) Washington – American drivers could be saving 12-19 cents per gallon if more ethanol were allowed in gasoline. Based on current wholesale prices, ethanol is selling for $0.70-$0.80 less than gasoline before the federal tax incentive for blenders is taken into account. This means gasoline blended with the statutory limit of 10% ethanol (E10) should cost at least 7-8 cents per gallon less at the pump than conventional gasoline without ethanol. However, if blenders were allowed to blend up to 15% (E15) ethanol in each gallon, drivers could be saving up to an additional nickel on every gallon.
The savings are even greater when the value of the $0.45 per gallon tax credit claimed by gasoline blenders is passed through to consumers. Gasoline blenders receive the tax credit for every gallon of ethanol they blend with gasoline. When the full value of the credit is passed through to the consumer on E15, the fuel would be a whopping 19 cents per gallon less expensive than conventional gasoline without ethanol at today’s prices. This translates to a savings of about $3 per fill-up for the average vehicle or approximately $150 per year for the average driver.
*Source: OPIS 4/12/10; Chicago
**The Volumetric Ethanol Excise Tax Credit is $0.45/gallon of ethanol blended with gasoline
“As gas prices soar this spring like every other before it, drivers are being forced to pay higher prices than they otherwise should be,” said Renewable Fuels Association President Bob Dinneen. “Based on the economics today, gasoline refiners and blenders would be clamoring to use more ethanol but are prevented from doing so by EPA. It’s time for EPA to update its fuel regulations and allow for the use of 15% ethanol blends for all vehicles, giving American consumers the break at the pump they deserve.”
Currently, EPA is considering a waiver request to increase the amount of ethanol allowed in a gallon of gasoline from 10 to 15%. This is not a mandate, but rather provides refiners and blenders flexibility to capitalize on good economics such as we are seeing today. Troublingly, EPA has indicated that any waiver it would grant would be limited to model year 2001 and newer vehicles. When pressed, EPA has yet to provide any scientific explanation for such a rationale.
“Any E15 decision that bifurcates the marketplace creates unnecessary and counterproductive confusion to the expanded use of ethanol,” said Dinneen. “Drivers could be saving significant money at the pump, were it not for the current antiquated regulations. EPA must avoid adding insult to injury by excluding up to half of U.S. drivers from utilizing cost-effective higher ethanol blends.”
Interestingly, American ethanol is also selling at a significant discount to imported Brazilian ethanol. According to current data, gasoline blended with domestic ethanol would be 6-7 cents cheaper than gasoline blended with imported Brazilian ethanol. This runs counter to claims made by Brazil’s new ad campaign aimed at raiding American taxpayer coffers.
About the RFA: Since 1981, the RFA has led the fight on behalf of American ethanol producers to open markets and create sound public policies allowing for the expanding production and use of fuel ethanol. Representing the majority of American ethanol production, the RFA believes sound analysis, credible statistics, an understanding of the industry rooted in history, and a willingness to work with other groups is the key to effective advocacy.