• The blend limit remains at 10 percent (E10), and all biofuel is ethanol.
  • The blend limit is increased to 15 percent (E15), and all biofuel is ethanol.
  • The blend limit is 10 percent (E10), and all cellulosic biofuel is thermochemically produced biogasoline or equivalent. The physical properties of thermochemical biofuels are identical with gasoline, and thus, it can be blended with gasoline at any percentage.
  • The blend limit is 15 percent (E15), and all cellulosic biofuel is thermochemically produced biogasoline or equivalent.
  • The blend limit is 10 percent (E10), and cellulosic technology is so expensive that EPA waives the cellulosic part of RFS.
  • The blend limit is 15 percent (E15), and cellulosic technology is so expensive that EPA waives the cellulosic part of RFS.
  • A regional strategy is used to emphasize use of E85 in the Midwest where most of the ethanol is produced.

For each of the scenarios, the total net present value (NPV) of installing the flex-fuel vehicles (FFVs) and pumps was calculated using a real social discount rate of 10 percent and an average inflation of 3 percent per year. The cost of installing E85 fuel dispensers depends on the type of tank installed (new underground tank or conversion of existing tank). Between 30 to 60 percent of the E85 installations involve new tanks, while the others convert a current tank (Moriarty et al., 2009). The typical gas station has 3.3 tanks, one for regular, midgrade, and premium. If a tank is converted, the station loses the revenue stream from one blend. However, some stations, especially at convenience stores, lack the space to add a new tank (Moriarty et al., 2009). Cost estimates for new tanks range from $50,000 to $200,000, with a mean at $74,418. The average cost of a tank retrofit is about $21,244. Thus, the weighted average cost of installing a tank is $45,000. In addition, it costs an additional $100 per vehicle to produce a FFV instead of a standard vehicle (Corts, 2010). Other infrastructure costs are not included so that the cost estimates provided here are clearly underestimates of total cost.

The first alternative of maintaining the blending limit at 10 percent and producing only ethanol as a biofuel is clearly out of question. It would require massive increases in E85, with accompanying huge increases in FFVs (Tyner and Viteri, 2010). Annual sales of FFVs would need to be at least 8.7 million cars per year compared with a cumulative total of 7.9 million on the road today. The total FFVs needed by 2022 would be 121.5 million. It would also require installation of 24,277 E85 fueling pumps per year compared with a cumulative total of 2,100 operating today. A cumulative total of 158,000 stations would need to add flex-fuel pumps. The total cost of E85 pump installation and FFVs around the whole United States have a NPV of $11.13 billion for this scenario. Furthermore, E85 would have to be priced no more than 78 percent of E10 blend gasoline because of the mileage difference. (See the discussion of the regional strategy below for more on E85 pricing.) The bottom line is that this scenario is not likely to be feasible, and EPA would be forced to waive RFS2 at some point. The time profile of E10 and E85 for this scenario is illustrated in Figure N-2.

The second alternative of a 15-percent blend limit with only ethanol as biofuel is less restrictive than the first but suffers similar problems over the longer term. The higher blend limit essentially extends the time before the blend wall is reached but does not solve the problem. E15 consumption would grow from 13.1 billion gallons per year in 2010 to 17.5 billion gallons per year in 2022, as the continued growth in E85 once again crowds out the use of the lower blend fuel (Figure N-2). By 2022, there needs to be about 90.4 million FFVs on the roads, served by 236,208 E85 gas dispensers. The total NPV value cost



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