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Will E85 Vanish from the Market?

End of subsidy likely to further weaken demand.

by on Jun.17, 2011

If the House approves a measure already passed by the Senate, U.S. taxpayers will no longer subsidize ethanol fuels.

Members of the Republican-controlled House of Representatives will now get their chance to prove how serious they are about cutting the budget deficit – even at the expense of political sacred cows – when they consider a proposed measure eliminating nearly $6 billion a year in subsidies for ethanol  production.

The Senate has already approved its version of the bill, by a lopsided 73 – 27 vote that found even some farm state lawmakers agreeing to end the giveaway.  That measure would also lift a 54-cent a gallon tariff on biofuel from Brazil that had helped hold prices on ethanol and E85 fuels above what the market might have otherwise allowed.

Unless the measure falls flat in the House or receives an unlikely White House veto, ethanol-based fuels, such as E85, will likely become significantly more expensive. In turn, that could effectively kill its use as an automotive alternative fuel. But the cost to the nation’s farmers could be significant.

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While both of Michigan’s senators voted to maintain the subsidy for U.S.-made ethanol — reflecting the state’s large corn farm lobby — the mood has been clearly shifting in recent times.  Only a few years ago, General Motors had funded an elaborate “Go Yellow” marketing campaign designed to build support for E85, a fuel made up of 85% ethanol and 15% gasoline.  But industry insiders say GM and other makers had supported the use of the biofuel primarily because it let them slip through loopholes in federal fuel economy standards.