FIGURE N-1 Economics of the ethanol blend wall.

NOTE: P* = market price with subsidy; Pm = market price without subsidy; PBW = price at the blend wall; Q* = quantity with subsidy; Qm = quantity without subsidy; QBW = quantity at the blend wall.

fourth quarter as more ethanol can be blended in winter months than summer months due to summer evaporative emissions constraints. However, in spring 2010, ethanol pricing returned to breakeven with corn. Given the fact that gasoline demand is expected to decrease because of higher fuel-economy standards, the blend wall becomes a severe constraint to future ethanol growth and a barrier to achieving the legislative mandates of the Energy Independence and Security Act (110 P.L. 104).

Ethanol production and use are facing two opposing realities: the Renewable Fuel Standard (RFS2) that mandates increasing consumption of biofuels each year from 2005 to 2022, and a physical blend wall that makes it difficult for ethanol consumption to grow beyond present levels. An ethanol industry support and lobby group called Growth Energy petitioned EPA to increase the blending limit from 10 to 15 percent. In October 2010, EPA approved the 15-percent limit for cars built in 2007 or later. In the following January, EPA extended the waiver to model year 2001 to 2006 light-duty vehicles. But even an increase of the blending limit to 15 percent only buys some time (about 4 years) before the blend wall is reached again and only so long as ethanol remains the primary biofuel.

In the following analysis, the consequences of seven alternative RFS2 pathways were analyzed:

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