End of blender's credit likely to bump E85 prices upward
Consumers are likely to see the cost of E85 rise at the pump, but the end of the federal blender's credit for ethanol is otherwise not likely to send any major ripples through Minnesota's agriculture economy.
"No end-of-the-world scenario here,'' said Erik Osmon, general manager of Bushmills Ethanol near Atwater.
With the start of the new year, the federal government ended a 45-cents-per-gallon tax credit it provided refineries for blending ethanol with gasoline. The federal government estimates that the Volumetric Ethanol Excise Tax Credit was worth $6 billion annually.
For unleaded gasoline containing 10 percent ethanol, the end of the credit means that blenders will likely pass on the approximate 4.5 cents difference per gallon to consumers, according to national business journals.
The tax credit had been provided to refineries as an incentive to encourage the blending of ethanol, according to Timothy Rudnicki, director of the Minnesota Biofuels Association. The greatest share of the tax credit was claimed by large oil refineries where most blending occurs.
The exception has been E85. A number of ethanol producers have served as the blenders for E85 product delivered to regional markets.
With a greater share of ethanol in the blend -- ranging from 70 percent in winter to 85 percent in summer -- the blender's credit amounted to a larger price advantage per gallon at the pump.
Bushmills Ethanol provided the tax credit to its retailers so that consumers enjoyed lower prices at the pump. The price for E85 is likely to creep upward now that the credit is gone, likely by several cents per gallon.
"I think it is bound to,'' said Mike Jerke, general manager of Chippewa Valley Ethanol Company in Benson. "That has been my contention that is where we will see the impact, in E85. The blender's credit did such a nice job of decreasing the price to the consumer.''
Producers do not expect the loss of the blender's credit to adversely affect demand for ethanol. The 10 percent renewable energy standard, and ethanol's competitive price as a fuel oxygenate have created a strong market.
The spread in the cost between regular gasoline and ethanol has grown in the last year, and ethanol is very competitive in comparison to gasoline, noted Jerke.
In anticipation of the end of the blender's credit, many fuel suppliers had stocked up on E85 prior in November and early December. The increased demand temporarily boosted ethanol prices.
Perhaps the most telling evidence of the market for ethanol has been the lack of any change in corn prices attributed to the end of the blender's credit.
"At this point it has been a non-event,'' said Scott Dubbeldee, manager of the Hanley Falls Farmers Co-operative Elevator. Dubbeldee said a large number of factors influence corn prices, but at least at this point there has been no indication of a decrease in demand by ethanol producers.
Local producers pointed out that production remains strong and is predicted to continue so. "We're processing just like we were 30 days ago,'' said Jerke.
Along with the end of the blender's credit, the new year also brought the end of a federal import tariff on ethanol. The U.S. is currently an exporter of ethanol, and few analysts anticipate any changes as a result of the tariff's end, according to Rudnicki.
Minnesota has 21 ethanol plants producing over 1.1 billion gallons per year, according to the Minnesota Department of Agriculture. Minnesota's ethanol consumption was estimated at 239 million gallons in 2010, according to the Department