The U.S. Environmental Protection Agency announced it now will allow up to 15% ethanol to be blended with gasoline in motor fuel — but only for use in cars and trucks built since 2007.

Engine valve damaged by carbon buildup from fuel with 20% ethanol. The blend created resin in a fiberglass boat fuel tank and the resulting gunk coated the valve.

The current allowable limit is 10%, and remains so for older vehicles, all motorcycles, heavy-duty vehicles and non-road engines (everything from leaf blowers to motorboats).

That sets up potential confusion at the gas pump. Buyers could have to choose not only among octane ratings but also between E-10 and E-15. And while E-10 now is fairly common, stations are not required to offer it or the new E-15 — and some already say they are going to sit out E-15 for now.

The move does not affect special E-85 fuel — an 85% ethanol/gas blend not considered gasoline at all — already allowed by the EPA. E-85, sold mostly in the Midwest, only can be used in vehicles designed as “flex fuel” machines, to take the higher concentration of more-corrosive ethanol without damage.

EPA says thorough testing has shown E-15 won’t cause problems in the newer vehicles.

Even though the E-15 blend is intended for cars and trucks — indeed, it’s technically illegal to use it in other engines — the small-engine lobby figures it’ll nevertheless wind up in the hundreds of millions of chainsaws, leaf blowers, law mowing equipment, boats, all-terrain vehicles and the like.

It’s unlikely that a station would sell both E-10 and E-15, and even more unlikely that a motorist would fill up the car at at E-15 station (where the higher blend of ethanol will make the fuel a little cheaper), then search out an E-10 or straight-gasoline station to fill the lawn mower gas can, says Kris Kiser, executive vice president of the Outdoor Power Equipment Institute.

E-15 “will get into products it shouldn’t, and there’ll be lawsuits,” he predicts.

“The new ethanol blends, known as E-15, come with serious risks for our engines, wildlife, water, and the air we all breathe,” warns Nathanael Greene at the Natural Resources Defense Council, an environmental activist group.

“A broad coalition of environmentalists, public health advocates, livestock ranchers, and automakers have long opposed EPA’s move,” he says. “Burning ethanol can cause toxic air pollutants to be emitted from vehicle tailpipes, especially at higher blend levels like E-15. The chemistry is fairly straightforward: ethanol burns hotter than gasoline, causing catalytic converters to break down faster.”

The government hinted that the E-15 rule will be broadened. EPA Administrator Lisa Jackson said Wednesday’s action was “the first of a number of actions that are needed from federal, state and industry toward commercialization of E-15 gasoline blends.” She noted that “a decision on the use of E-15 in model year 2001 to 2006 vehicles will be made after EPA receives the results of additional DOE testing, which is expected to be completed in November.”

Kiser, of the Outdoor Equipment group, says it won’t stop there: “We’ll have the same conversation six months from now about E-20. E-15 doesn’t get you anywhere near the flex-fuel mandate set by Congress; E-15 only buys you a little time.”

EPA is under a rural-state-promoted congressional mandate to increase ethanol use. Congress required fuel refiners to blend 36 billion gallons of biofuels, mostly ethanol, into auto fuel by 2022 and the EPA says it can’t be done without allowing at least an E-15 blend.

Most ethanol is made from corn in this country, and farm states have strongly pushed for the government to promote more use of it. 

Beyond possible damage to engines, opponents say E-15 is a bad idea because: 

– Growing more corn and using it for ethanol instead of animal feed will make feed (and thus meat) costly and inflate supermarket prices for the wide range of foods containing corn products.

– It can be seen as bad use of land and a promotion of wasteful, energy-intensive agriculture.

Roland Hwang of the NRDC says: “We strongly support ethanol, as long as it comes from sustainable feedstock and it’s used in a manner that doesn’t undermine air quality. Unfortunately, corn ethanol used as E-15 fails on both counts.

“Corn ethanol is clearly not sustainable and the E-15 (rule) will increase air pollution due to misfueling.”

Ethanol industry group Growth Energy petitioned the EPA earlier this year to allow E-15. The decision has been delayed twice as the EPA and Energy Department did more testing.

The Obama administration’s decision to allow E-15 is a win for the ethanol industry as it faces losing its generous government subsidies. A key tax credit is to expire Dec. 31 and there’s been opposition in Congress to renewing it.

– Fred Meier/Drive On

SOURCE: USA TODAY

SAO PAULO (Reuters) – Royal Dutch Shell plans to form an ethanol and fuel distribution joint venture worth up to $12 billion with Brazilian sugar and biofuel giant Cosan, becoming the latest global energy company to buy into one of Brazil’s fastest-growing industries.

The deal, announced on Monday, marks Shell’s first foray into ethanol production and follows moves by British oil company BP, which in 2008 took a stake in a big Brazilian biofuel project and unveiled $1 billion in investments.

Cosan shares jumped 12 percent in Sao Paulo, compared with a 1.1 percent gain by the benchmark Bovespa index. Shell shares rose 1.1 percent in London, outperforming a 0.3 percent rise in the Dow Jones European oil and gas index.

“It’s a vote of confidence from an oil major for the Brazilian ethanol industry,” said Jonathan Kingsman, managing director of the Lausanne-based Kingsman SA ethanol and sugar consultancy. “I expect more interest from the oil companies in Brazilian ethanol, both in production and distribution.”

The 50-50 joint venture will be the third-largest fuel distributor in Latin America’s largest country, with almost 4,500 filling stations nationwide. By joining forces, Cosan and Shell will be better positioned to compete with the two top players in the market, state oil giant Petrobras and Ipiranga, a unit of Brazil’s Grupo Ultra.

Cosan first branched out into the fuel distribution business in 2008 when it acquired U.S.-based Exxon Mobil Corp’s Esso chain of service stations for nearly $1 billion. Cosan also agreed in December to buy a local chain of filling stations called Petrosul for an undisclosed sum.

While the deal will not immediately add to Cosan’s existing cane crushing capacity of about 60 million tonnes a year, it will give it a deep-pocketed partner at a time when some of its smaller rivals are vulnerable to takeovers.

The companies hope to more than double ethanol output to up to 5 billion liters a year from about 2 billion now, Shell’s downstream director, Mark Williams, said in London, without giving a time frame. The increase would come from takeovers and organic growth, he added.

The deal is another feather in the cap of Cosan Chairman Rubens Ometto, whose family has been in the sugar business since 1936. On Ometto’s watch, Cosan went on an acquisition spree and expanded into fuel distribution and port terminals.

Ometto hopes to capitalize on Shell’s global clout to make ethanol a widely traded commodity.

“Brazil’s aim is to become an ethanol exporter. Shell has distribution facilities throughout the world that we could use in a much more integrated way,” Ometto said in Sao Paulo.

“This step will be very important to consolidate ethanol as a clean and renewable fuel … and help it become a global commodity.”

Oil companies and major global investors have been searching for partnerships in Brazil’s promising ethanol sector, which is still largely dominated by family companies with complex ownership structures.

Shell has been looking for opportunities in Brazil’s ethanol industry for years. About 90 percent of all new cars in Brazil are flex-fuel, running on any mix of ethanol and gasoline, making the country a huge market for biofuels.

Other foreign companies have also been delving into Brazil. U.S. agribusiness giant Bunge Ltd struck a deal in December to buy sugar and ethanol producer Moema for $452 million, while French commodities company Louis Dreyfus said in October it would take over the Santelisa Vale mill for an undisclosed sum.

COSAN EYES OVERSEAS MARKETS, TECHNOLOGY

The combined entity will have about 40 billion reais ($21.4 billion) in annual sales, Cosan Chief Financial Officer Marcelo Martins said on a conference call with analysts and investors.

For Cosan, the world’s largest sugar and ethanol producer, teaming up with Shell could give it access to a vast overseas distribution network and new technologies in ethanol production, an area where Shell has been investing. Shell’s network may help Cosan export more ethanol as output grows.

“We’ll have a partner with an absolutely huge international presence in fuels sales,” Martins said.

The so-called second-generation in ethanol production has yet to reach commercial scale, but some companies are betting on the use of cellulosic material such as bagasse or cane stalks and grasses to make biofuels, in part to move away from making fuel from foodstuffs.

Cosan, which recently obtained a court injunction to remove its name from a government black list of companies with workers in slave-like conditions, said it had 180 days to discuss the nonbinding memorandum of understanding exclusively with Shell International Petroleum Co Ltd.

As part of the transaction, Cosan will transfer its sugar, ethanol, fuel distribution and energy generation business to the merged entity, with assets valued at $4.93 billion and debt of $2.52 billion.

Shell will contribute its retail fuel and aviation distribution business, valued at up to $3 billion, and inject $1.63 billion into the merged company in up to two years.

Brazilian investment bank BTG Pactual advised Cosan on the transaction, while JPMorgan Chase advised Shell.

Cosan and Shell will have the option of buying each other’s stake in the venture after 10 years, with the price to be determined at the time of purchase.

Earlier on Monday, Cosan released its quarterly earnings for the three months ended December 31. It posted net income of 167.1 million reais, up sharply from 5.2 million reais a year earlier. ($1=1.87 reais)

Reporting by Elzio Barreto and Inae Riveras; additional reporting by Reese Ewing in Sao Paulo and David Brough, Nigel Hunt and Tom Bergin in London; editing by Todd Benson, Dave Zimmerman and John Wallace.

Source:  Reuters