Blended Benefits

State incentives – sometimes in partnership with federal HBIIP and other infrastructure programs – significantly increase sales of ethanol blend volumes, as retailers recognize their competitive advantage.

Retailers like Bosselman Enterprises are expecting seven-figure values in the coming years through Nebraska’s ethanol blend tax credit.

“If you embrace higher blends as a retailer, you drive gallon sales and take market share,” says Randy Gard, chief operations officer for Bosselman Enterprises, based in Grand Island, Nebraska, and managing multiple brands throughout the country. “If you look at the tax credit at the state level, it’s significant. We’re not talking a little bit of money — we’re talking about a lot of money.”

In addition to Nebraska, Iowa, California, Illinois, Missouri and South Dakota have their own tax incentives, along with low-carbon fuel standards in California, New Mexico, Washington and Oregon. All these programs, in partnership with federal and state infrastructure support, benefit retailers, consumers, the ethanol industry and the environment.

“We’ve seen California’s E85 volumes explode over the past five or so years,” says Jeff Wilkerson, government policy and regulatory affairs manager for Pearson Fuels in California. The state sold around 40 million gallons of E85 before 2020, and in 2023, reached about 118 million gallons, Wilkerson cites. He attributes that growth to two factors: The high price of gasoline in California; and expansion of stations offering the fuel, supported significantly through the Higher Blends Infrastructure Incentive Program (HBIIP) and corn grower organizations.

“If you look at where the volume is growing for higher blends, it’s primarily Iowa and Nebraska for E15, and E85 in California,” says Ron Lamberty, chief marketing officer for the American Coalition for Ethanol. “The things that those all have in common is they have higher blend incentive programs.”

Structures By State

Gard says he wears many hats: retailer and wholesaler with Bosselman, Nebraska Ethanol Board secretary, and he serves on the Government Affairs Council for the National Truck Stop Owners Association. He helped develop the Nebraska ethanol blend tax incentive, LB 596, and testified in Washington D.C. earlier this year on its merits.

“When I look at fuel at the retail level, I look at how we can drive down the retail price of gasoline,” Gard says. “And the best way to do that is by adding ethanol to it, whether it’s E15, E20, E30 or E85. Then I put my Nebraska Ethanol Board hat on and say how can we as an ethanol board drive the increased sales of higher blends? That's where the higher blends legislation that we helped write came into play.”

Nebraska’s tax incentive runs through 2028 with designated per-gallon amounts each year for blends E15 and above: 2024: 8 cents; 2025: 9 cents; 2026: 8 cents; 2027: 7 cents; and 2028: 5 cents.

In mid-June, E15 in Nebraska was hovering about 5 cents below gasoline, and E20 was about 7 cents below E10. Offering the blends is a competitive advantage but also drives economies, Gard says. “We can sell a lower retail price fuel than our competitors, we help consumers save money, and that allows consumers to reallocate that savings … If the entire state of Nebraska went from E10 to E15, every gallon costs a nickel less, then go to E20, and you’re driving the state’s economy. It’s self-perpetuating.”

In Iowa, sales of ethanol blends have increased substantially, says Nathan Hohnstein, policy director for the Iowa Renewable Fuels Association. IRFA data shows that E15 sales made up 13% of fuel sales in Iowa in 2023. “That’s drastically climbing,” he says. “Just five years ago, E15 sales were in the low single digits and now we’re in double digits and continuing to grow.” One retailer in particular reported that E15 made up more than 50% of its fuel sales, Hohnstein says. “You’re also seeing other retailers in the state replacing E10 with E15. It’s an exciting time.”

Competitive Advantage: Rising prices of gasoline in California have helped drive retailers to offer E85 as a means of lowering prices for consumers.

CREDIT: PEARSON FUELS

The 20- to 30-cent discount compared with unblended gasoline is a strong demand driver with consumers, Hohnstein says, and retailers in the state benefit from two ethanol blend tax credits. The state offers retailers 9 cents per gallon for E15 and 16 cents per gallon for E85.

Iowa routinely sees E15 selling about 15 cents lower than E10 and significantly lower than gasoline. “It really is something that has driven demand,” Hohnstein says.

Wilkerson says the spread between gasoline and E85 for Pearson has reached $2.50 in California. Being able to offer that discount to consumers pads the existing benefits for higher blends in the state’s Low Carbon Fuel Standard, cap and trade exemption, and Advanced Clean Cars II (ACCII) amendments.

“Those programs are where we see a lot of why E85 is successful, relative to gasoline,” Wilkerson says.

The LCFS is administered by the California Air Resources Board (CARB) and is structured in a way that generates a credit for fuels below a certain carbon intensity target, and a deficit for fuels above it. “Because we’re below the target, it can mean a few cents where credit prices are right now, but it is unfortunately not incredibly impactful at the moment,” he says, adding it has been more impactful in the past. “A few years ago, credit prices were so high that CARB imposed a ceiling.”

In cap and trade, the state charges a 30-cent-per-gallon penalty on gasoline, exempting fuels with biogenic emissions, such as ethanol.

“LCFS and cap and trade are good examples of how cleaner fuels can be more affordable than fossil fuels,” he adds. “We repeatedly make the point that E85 is available right now at a pretty steep discount related to their fossil fuel counterparts.”

In amendments to ACC II, Pearson submitted extensive comments to CARB pushing for an expanded role of E85 in reaching the program’s zero vehicle emissions goal. ACC II seeks to rapidly scale down light-duty car, pickup and SUV emissions model years 2026 through 2035, resulting in only zero-emission new passenger vehicles being sold in the state by 2035. Among other measures, Pearson encourages: incentivizing flex fuel vehicle (FFV) manufacturers to optimize for E85 rather than gasoline; prioritizing the deployment of technology that allows internal combustion engines to operate on E85; and rewarding an optimized E85 powertrain.

“We’re one of the largest marketers in California, and we’ve benefited, obviously, from the expansion of stations we work with, and we’ve benefited from the growth of E85 overall as gasoline has continued to get more expensive,” Wilkerson says.

Policy Push: Pearson Fuels in California is on the front lines of legislation development in California, pushing the state’s Air Resources Board to expand the role E85 plays in zero vehicle emissions goals.

CREDIT: PEARSON FUELS

Investing in Infrastructure

These state incentives are also designed to help offset the costs of installing infrastructure needed for blends, in partnership with programs like the United States Department of Agriculture (USDA) Higher Blends Infrastructure Incentive Program (HBIIP), which provides cost-share grants up to 75% of the total cost of ethanol or biodiesel blend upgrades, capped at $5 million per grantee.

Pearson helps retailers in California qualify for HBIIP, but also works with corn grower associations from the Midwest to secure infrastructure funding for California retailers. “Just like they’re doing in their own states — states that are sending a lot of ethanol out to California — plants in those states have done a lot of work to reduce their carbon intensity scores for their fuels, so I think it’s a pretty natural benefit to both of us for doing it.”

Iowa boasts its own Renewable Fuels Infrastructure Program, providing cost-share grants for E15, E85 and biodiesel infrastructure upgrades up to $75,000. Since 2006, RFIP has supported 346 E85 blender pumps and 177 E15 pumps, Hohnstein says.

“Overall, there was about $42 million to $50 million given through the state for that, so it’s been a successful program. We’ve been pushing for additional funding for RFIP to make sure retailers can get those grants. And for at least the past decade, in partnership with Iowa Corn Growers Association, we have paid a full-time contractor that goes out into communities and targets mom and pop locations.

“I personally think the infrastructure grants are a great way to educate retailers but also to help them get that infrastructure in there and help them actually start selling those gallons,” Hohnstein says.

Come 2026, all Iowa retailers must offer E15 from at least one dispenser, and new stations must offer E15 at 50% of their dispensers. Retailers can get a waiver if upgrading is cost prohibitive or if old tanks aren’t compatible. “What we’re seeing is there’s a lot of retailers that know E15 provides a competitive advantage and maybe they don't want to take that waiver and they want to upgrade their infrastructure,” Hohnstein says. “That’s exciting to see.”

Future-Proof Progress

Hohnstein says IRFA is now in the midst of future-proofing infrastructure, working with blender pump manufacturers to ensure capability up to E40 in all base models in the state by 2026. He hopes more states will implement ethanol blend incentives, which will help apply pressure on the petroleum industry to back a national solution.

“Going forward, we’re always open to trying to see what new ideas are out there and what we can do, and what to push,” Hohnstein says. “We’ve done what we can on E15 here at the state level, so now it’s just trying to focus on what we can do at the national level.”

President Joe Biden’s EPA in March approved year-round sales of E15 in eight Midwestern states: Illinois, Iowa, Minnesota, Missouri, Nebraska, Ohio, South Dakota and Wisconsin, beginning in the summer of 2025. And the bipartisan Nationwide Consumer and Fuel Retailer Choice Act calls on the Clean Air Act to extend the 1 psi Reid vapor pressure waiver, currently granted to E10, to E15. The bill was introduced in June 2023.

Gard says E20 is the next “no-brainer.” “What we’ve learned about E15, policy, incentives and how that drove infrastructure, you really just change the number and start over again. And E20 might be a bit easier because of what we learned on E15. So, I’m excited about taking a run at 5% more. The good part is, if you invest your money, apply for HBIIP funding, use your tax credits correctly in Nebraska, put your infrastructure in … There’s still a lot of tax credits to be had.”

Money Talks: E85 sales in California reached about 118 million gallons in 2023, bolstered by state incentives, as well as federal and grower association infrastructure funding programs.

CREDIT: CALIFORNIA AIR RESOURCES BOARD

The LCFS will continue to evolve, enforcing stronger penalties, Wilkerson anticipates. “What we do know is, over time, as those carbon intensity targets get more strict, anything with gasoline in it becomes more expensive. So, what we are looking at — and have done through about a third of our supply — is to replace the gas component of E85 with renewable naphtha. That’s how we are working to position ourselves for the future”

Leading the Way: State incentives are driving ethanol blend volumes, as more states explore options for similar programs.

CREDIT: AMERICAN COALITION FOR ETHANOL

CARB likely also will focus in the near future on ethanol denaturant, subjecting it to fossil fuel penalties. Wilkerson says Pearson will be submitting comments on the concept, suggesting CARB create two categories: one for fossil-based denaturant and one for non-fossil based. “As we look forward, we anticipate that ethanol producers will try to denature ethanol with something not fossil-based, like renewable naphtha, and therefore we would want that acceptance from cap and trade.”

Gard, Wilkerson, Hohnstein and Lamberty all agree that such incentives, whether cap and trade exemptions, tax credits, LCFS benefits or infrastructure funding, are strong drivers for retailers to offer ethanol blends. In fact, Gard says they’re crucial.

“From a 40,000-foot level — without incentives, as a retailer, we simply would not blend to the level we do today,” he says.