Accounting for Aversion: Costs of the Renewable Fuel Standard after Reaching the Blend Wall

Abstract

In response to escalating renewable requirements in the U.S., the EPA has approved the use of E15, a 15% ethanol blend, to eventually replace E10. Since a minimum of 10% of vehicles cannot use E15, both E10 and E15 must remain available. Due to EPA and car manufacturers’ disagreements about the safety of E15 in cars made between 2001-2012, a substantial portion of consumers will have a choice laden with uncertainty. Using a regionally-calibrated model we discuss the potential for consumer aversion to E15 and assess the change in consumer expenditures from that aversion if the mandate is met by moving consumers to E15. We find that consumer burden would amount to nearly $230 million dollars per month in our most conservative of estimates, and upwards of $929 million dollars per month if there is a modest amount of ethanol aversion. We also discuss consumer burden costs regionally for each of the eight Petroleum Administration Defense Districts. In light of this consumer burden, we discuss policy prescriptions to help mitigate such costs should the EPA choose to increase the amount of conventional biofuels that are blended into the fuel supply.