The demand for E85: Geographical location and retail capacity constraints

Consumption of high-ethanol gasoline blends must increase if United States renewable biofuel mandates are to rise above current levels as envisioned by the Renewable Fuel Standard. One such blend is E85 which contains no more than 85% ethanol and no less than 15% gasoline. We derive the demand for E85 based on a model of motorists' preferences for motor fuel blends and calibrate the demand for E85 using data on the location of flex vehicles and fuel stations that sell E85 in the United States. We also show how limits on the capacity of fuel stations to sell E85 affect demand and explore the potential future demand for E85 by increasing the number of fuel stations offering E85 and the number of flex vehicles. We show that the existing fleet of flex vehicles is sufficient to accommodate more than 15billiongallons of ethanol without a large price discount on E85 only if the number of stations that sell E85 increases substantially. Provided with fast enough installation of new E85 pumps, this level of consumption would be sufficient to meet the mandates envisioned for conventional ethanol by 2015.