Chapter 4

Biofuels 

Transportati on
131

Chapter 4: Biofuels Transportation 

Government ethanol policy began in the 1970’s. Since the beginning of the 21st Century, 

legislation, tax incentives,*

 and the switch from MTBE† to ethanol have been among the major 

drivers in the increased production and use of biofuels in the United States. Biofuel use 

contributes to the broad policy goals of addressing climate change, assisting with domestic 

economic development, and decreasing the nation’s dependence on imported petroleum. In 

fact, by 2008, U.S. ethanol production reached 9.3 billion gallons—equivalent on an energy 

basis to approximately 36 percent of the gasoline produced from 

crude oil imported from Persian Gulf countries.57 The U.S. 

Government’s broad energy policy includes strong support and 

funding for the development of biofuels. 

The agricultural sector has played a critical role in the 

development of the biofuel infrastructure. The current system is 

sometimes referred to as “first-generation,” reflecting the fact 

that the system will be improved over time. It includes biofuel 

production facilities and distribution infrastructure, such as 

transportation, blending, and storage facilities. Many feedstock 

options are being explored in addition to corn for the next 

generation of biofuels. Factors that are likely to influence future 

transportation needs include location of feedstocks and 

production facilities, the lifecycle greenhouse gas (GHG) 

emissions associated with biofuel production, and the extent to 

which the next generation biofuels can use existing distribution 

infrastructure. 

The United States is implementing the Energy Independence and 

Security Act of 2007 (EISA 2007) through the Renewable Fuels 

Standard (RFS2). On February 3, 2010, the Environmental Protection Agency (EPA) finalized 

regulations for the National Renewable Fuel Standard Program (RFS2) for 2010 and beyond. 

EPA’s detailed analysis of transportation for feedstocks and renewable fuels are included in the 

Renewable Fuel Standard Program Regulatory Impact Analysis.58 EPA analyzed transportation 

issues ranging from feedstock logistics for cellulosic ethanol and distillate fuels to biofuel 

distribution solutions. It found that, to reach the RFS targets by 2022, more unit train receipt 

facilities and storage tanks would be needed, E-85‡ use must increase substantially, and large 

volumes of ethanol imports would be needed. 

 

*

 Volumetric Ethanol Excise Tax Credit (VEETC) of 45 cents per gallon to petroleum blenders for blending ethanol 

with gasoline. 

†

 Methyl tert-butyl ether (MTBE) is a gasoline additive that pollutes groundwater when gasoline containing it is 

spilled or leaked at gas stations. In spring 2006, the petroleum industry began to switch from MTBE to ethanol. ‡

 Each gallon of E-85 consists of 85 percent denatured ethanol and 15 percent gasoline. 

Recent U.S. Biofuels-related 

Legislation: 

• 2002: Farm Security and 

Rural Investment Act 

• 2005: Energy Policy Act 

• (EPAct 2005, RFS-1) 

• 2007: Energy 

Independence and 

Security Act of 2007 

(EISA 2007, RFS-2) 

• 2008: Food, Conservation, 

and Energy Act of 2008 
132

Energy independence, climate change, and economic development issues are expected to 

dominate the U.S. energy policy objectives in the foreseeable future. To fulfill these policy 

goals, the biofuel industry will continue to depend on transportation services for reliable and 

efficient distributing of feedstocks to biorefineries, and for transporting biofuels and their coproducts to end-user markets. 

This chapter provides: 

• An overview of the current distribution system for fuels, biofuels, and co-products. 

• EPA’s biofuel distribution analysis and conclusions. 

• The current status of ethanol and co-product transportation. 

o Potential phases of biofuels expansion from the transportation infrastructure 

perspective. 

• Factors widely believed to influence uncertainty in biofuel supply and demand and their 

implications for infrastructure investment. 

The Current Distribution System 

The biofuels commonly used in the United States include ethanol and biodiesel. The primary 

feedstock for ethanol is corn. Most biodiesel is made from soybean oil, but some is made from 

other plant and animal fats and recycled greases. Both ethanol and biodiesel are blended with 

gasoline and diesel at petroleum blending terminals. Currently, the distribution infrastructure 

for ethanol and biodiesel in the United States is not compatible with the pipeline-based 

petroleum distribution system. This chapter focuses on the ethanol and multi-modal portions 

because: 

• Much more ethanol is 

produced than biodiesel. In 

2008, over 9 billion gallons of 

ethanol and less than 500 

million gallons of biodiesel 

were produced. 

• Because ethanol use is 

projected to more than triple 

by 2022, distribution 

infrastructure issues will 

affect ethanol much more 

than biodiesel. 

• Production areas for ethanol 

are more concentrated than 

those of biodiesel. 

o Both, ethanol and biodiesel have blending characteristics that may have an impact 

on pipeline integrity. DOT and the petroleum pipeline industry are conducting 

research into mitigating strategies for both ethanol and biodiesel. 

Figure 4-1: Ethanol being loaded into rail tank cars.

Source: USDA
133

The U.S. ethanol industry started before 1980 and has grown rapidly since 2002 (Figure 4-2). It 

utilizes all modes of transportation—truck, rail, barge, and, in one case, an existing pipeline*

—

to distribute its products and co-products. Almost all ethanol production is concentrated in the 

Midwest—mostly west of the Mississippi River—but most gasoline and E-10† is consumed in 

areas with high population densities, the East Coast, the West Coast, and along the Gulf Coast 

(Figure 4-3 and 4-4). 

Figure 4-2: U.S. ethanol production, 1981-2008 

Source: Energy Information Administration 

 

*

 In December 2008, for the first time, a commercial pipeline company successfully sent batches of ethanol 

between Orlando and Tampa, FL, in its pre-existing petroleum pipeline. 

†

 E-10 fuel consists of 10 percent denatured ethanol and 90 percent gasoline. 

Crude Oil Imports 

U.S. Crude Oil Imports from Persian Gulf Countries reached 856 million barrels, or 36 

billion gallons in 2008. Approximately 17 billion gallons of gasoline can be produced from 

this amount of crude oil. 

U.S. Crude Oil Imports from Saudi Arabia in 2008 reached 550 million barrels, or 23 billion 

gallons. Approximately 11 billion gallons of gasoline can be produced from this amount of 

crude oil. 
134

Figure 4-3: The U.S. ethanol market landscape in 2007Source: DOE, Biomass Programs, 2007 Ethanol Review 
135

Figure 4-4: Ethanol Distribution 

Legend

(1) Feedstocks via truck or rail to the biorefinery. 

(2) Ethanol, which is denatured at the biorefinery, is shipped via truck, rail, or barge to a storage hub, petroleum 

or blending terminal, or rail-to-truck transloading (truck-to-rail, and truck- or rail-to-barge are intermediate 

moves.) 

 (a) Ethanol via truck, rail, barge, or pipeline from storage to blending terminal. 

 (b) Ethanol imports via ocean tanker vessel to storage or blending terminals. 

 (c) Ethanol via truck from rail-to-truck transloading to storage or blending. 

(3) Ethanol and gasoline are blended at the meter and shipped via gasoline trucks from blending terminal to 

service stations. 

(4) E85 blends are currently typically blended at the service stations serving E85, implying that ethanol is also 

delivered via truck to the service stations. 

Source: AMS, with data from National Bioenergy Center, National Renewable Energy Laboratory, and Energy 

Information Administration 
136

The distribution system for U.S. transportation fuels evolved over many decades. Fuels are 

distributed from the major refining areas in the U.S. Gulf and, to a lesser extent, from ports to 

consumer markets. Petroleum fuels are transported by pipeline, ship, barge, and truck from 

petroleum refineries to petroleum terminals. For analysis purposes, the U.S. Energy 

Information Administration (EIA) reports fuel data by Petroleum Administration for Defense 

Districts or PADDs (Figure 4-5). Almost 70 percent of U.S. gasoline is consumed in the East 

Coast, West Coast and the Gulf States (PADDs 1, 3, and 5). Future demand for biofuels can 

reasonably be expected to be in the same geographical areas. In 2009, almost 500 petroleum 

terminals had storage for ethanol, but only 88 of those had access to rail—the mode that 

transports most ethanol today.59 

Figure 4-5: The Petroleum Administration for Defense Districts (PADD) and their typical share 

of consumption of all U.S. motor gasoline consumption 

Source: National Commission on Energy Policy’s Task Force on Biofuels Infrastructure. 

<http://www.bipartisanpolicy.org/ht/a/GetDocumentAction/i/10238> (PDF) 

 

3.5%

PADD 4

Percentage of US Fuel Demand

PADD 5

17.5% PADD 3

15.4%

PADD 2

28%

PADD 1

35.7%
137

Ethanol production is expected to remain concentrated in the Midwest (PADD 2) even as 

cellulosic production expands. The Renewable Fuels Association (RFA) estimates that cellulosic 

production is currently under development in 26 places in the United States, with total 

production capacity of potentially 456 million gallons.60 Cellulosic feedstocks may come from a 

variety of locations and sources, but EPA and the ethanol industry believe that the initial 

cellulosic ethanol is likely to appear from agricultural residues near current corn-based ethanol 

biorefineries and near papermills. Additionally, cellulosic and advanced biodiesel plants may be 

located near major cities where high levels of refuse, recycled oils, and greases can be collected 

(see Figure 4-6). EPA’s expects that agricultural residue such as corn stover will make up a large 

portion of the cellulosic feedstocks used for biofuel production by 2022.61 EPA estimates that 

by 2022, 7.8 billion gallons per year (bgy) of the projected 16 bgy cellulosic biofuel production 

will come from corn stover; 3.8 bgy from forestry biomass; 2.2 bgy from urban waste; and, the 

rest from other agricultural residues (1.3 bgy) and dedicated energy crops (.9 bgy).

62

Figure 4-6: Corn stover being collected for ethanol production. 

Source: National Renewable Energy Lab 

 
138

Expanding production of ethanol will increase the demand for transportation services for 

feedstocks, biofuel, and co-products. In addition, feedstocks such as corn stover and woody 

biomass that have a lower density than corn may require different transportation than corn, 

with associated higher costs. EPA notes several alternative methods that could be developed to 

reduce the cost of biomass collection systems. Further discussion of feedstocks logistics can be 

found in EPA’s FRIA.63 

Figure 4-7: Projected U.S. cellulosic ethanol facilities 

Source: EPA, FRIA, p. 198 

EPA’s Biofuel Distribution Analysis 

In its FRIA report, EPA published the results of a study recently completed for EPA by Oakridge 

National Laboratories (ORNL), which modeled the transportation of ethanol from 

production/import facilities to petroleum terminals. The ORNL model optimizes freight flows 

over rail, marine, and road distribution networks, and addresses the use of multiple shipping 

modes. The following section summarizes the EPA analysis and integrates USDA’s analysis of 

the current status. 
139

Projected Biofuel Consumption 

EISA 2007 requires a fairly rapid increase in use of biofuels in the transportation fuel mix, 

reaching 36 billion gallons per year by 2022. In the Final Regulatory Impact Analysis, issued in 

February 2010, EPA developed a control case – a likely scenario of annual biofuel use projected 

to 2022 (Figure 4-8 and Tables 4-1 and 4-2). In this scenario: 

• Corn-based ethanol use can grow to a capped-15 billion-gallon level by 2015. 

• The cellulosic biofuels can consist of either ethanol or cellulosic biodiesel and are set to 

increase to 16 billion gallons by 2022. 

• The remainder of the RFS2 required biofuel consumption is expected to come from 

imported ethanol and other biodiesel. 

Figure 4-8: Energy Independence and Security Act 2007, Renewable Fuel Standard (RFS-2), EPA 

 

Source: EPA, Table 1.2-1. Control Case Projected Renweable Fuel Volumes (billion gallons) Final Regulatory 

Impact Analysis, <http://www.epa.gov/otaq/renewablefuels/420r10006.pdf> (PDF), page 69 

 
140

Table 4-1: EPA projected renewable fuel volumes (billion gallons) 

Source: EPA, Table 1.2-1. Primary Control Case Projected Renweable Fuel Volumes (billion gallons) Regulatory 

Impact Analysis, <http://www.epa.gov/otaq/renewablefuels/420r10006.pdf> (PDF), page 71 

Table 4-2: Summary of EPA-projected renewable fuel volumes (billion gallons) 

Source: EPA, FRIA, page 69 <http://www.epa.gov/otaq/renewablefuels/420d09001.pdf> (PDF)
141

Based on the ORNL model, EPA projects that 40 unit train rail receipt facilities will be needed to 

achieve this goal.64 Additional unit-train destinations would likely create more ethanol 

corridors on the rail network, possibly alleviating congestion points that could develop with 

increased biofuel shipments. In addition to unit trains, EPA expects manifest rail cars 

(shipments of less than 80–100 railcar unit trains) will continue to be used to ship ethanol and 

cellulosic biofuels. EPA estimates a total ethanol distribution infrastructure capital costs to 

total $12.066 billion.65 When amortized, this translates to 6.9 cents per gallon of additional 

ethanol attributed to the RFS standards.66 Developing unit train destinations is a timeconsuming process, usually taking 3 to 5 years. The industry has responded to this challenge by 

developing rail-to-truck transloading facilities for smaller-than-unit train shipments of ethanol 

(see Text Box Schematic). Almost every Class I railroad is developing these facilities, but the 

number in existence today is difficult to determine. 

In 2006, rail movements of ethanol and co-products were mainly along several distinct 

corridors, with fewer than the current 13 unit train destinations (Figure 4-9). To achieve EPA’s 

objective of 40 unit train destinations in the next 13 years, the industry will need to determine 

future locations, permitting and financing availability, and increase the pace of building these 

unit train terminals. While these are not insurmountable challenges, the timeframe is short for 

development of this capital-intensive infrastructure. Terminals must be developed in tandem 

with other biofuel infrastructure expansion—more Flex Fuel Vehicles (FFV’s), more retail 

stations offering higher blends, and more blending and storage capacity. 

Figure 4-9: Key rail corridors for shipping ethanol and DDGS 
142

Ethanol and Co-product Transportation 

The primary feedstock for U.S. ethanol is corn, which is shipped to local biorefineries by truck—

usually about 50 miles (Figure 4-9). Prior to the rapid growth of the ethanol industry, most 

ethanol plants produced 50 million gallons per year (mgy) or less. Most of the plants that have 

come online since 2005 have had a greater production capacity—typically 100 mgy or more. 

Larger plants now comprise almost 50 percent of total U.S. production capacity (Table 4-3). 

They use more corn, expanding the draw area for many plants well beyond the 50-mile radius 

normal with older plants. According to an article in the April 2009 issue of Ethanol Producer 

Magazine, this has provided an opportunity for railroad service that is still short-haul in nature 

and is suitable for the regional (shortline) railroads and, at times, Class I railroads. Analysis of 

the 2006 Waybill Sample showed that both regional and Class I railroads shipped corn to 

several of the large ethanol plants. According to the Renewable Fuels Association, a 100-mgy 

ethanol plant can expect to receive 60 percent of its corn by rail, or 17 railcars per day. It 

produces enough to ship 10 tank cars of ethanol and nine hopper cars of distillers dried grains 

with solubles (DDGS) per day. 

Table 4-3: Ethanol capacity distribution, March 2008 

Category by 

mgy Capacity 

Number of 

Plants 

Total 

Capacity 

Percent of 

Total 

Average 

Capacity 

100+ 53 6,409 49.8% 121 

56-99 32 2,271 17.6% 71 

5-55 101 4,192 32.6% 42 

Total 186 12,872 100% 69 

Source: Developed by AMS, based on data from the RFA and Ethanol Producer Magazine, April 2009

After ethanol is produced, it is denatured at the biorefinery with up to 5 percent natural 

gasoline and then is moved to storage or blending terminals via rail, trucks, or barges (step 2 (a) 

in Figure 4-4). As can be seen in Figure 4-10, Class I railroads are the predominant mode of 

moving ethanol to distant markets; 66 percent of the ethanol produced in 2006 was moved by 

rail. Barges moving on the Mississippi River can ship some (about 5 percent in 2006) to the U.S. 

Gulf region but, since most ethanol plants are not near a navigable waterway, ethanol moved 

by barge is first shipped by truck or rail from a biorefinery and is then transloaded to a tank 

barge to be shipped to the terminal for storage or blending. Rail’s share of ethanol movements 

is expected to increase as ethanol penetrates markets farther from producing regions.

 
143

Figure 4-10: Ethanol modal shares in 2006 

Sources: Freight Commodity Statistics, Escalation Consultants; Surface Transportation Board, Waybill Sample, 

2006; U.S. Army Corps of Engineers, Waterborne Statistics, 2006 

Current Status of Ethanol Transportation 

Despite the turbulent economic conditions that have recently dampened the ethanol industry, 

railroads continue to play a major role in the ethanol supply chain and have been able to keep 

up with rapid ethanol production increases. According to the Freight Commodities Statistics 

(FCS), railroads moved almost 260,000 carloads of alcohols in 2008–almost 70,000 carloads or 

36 percent more than in 2007, while U.S. ethanol production increased by over 40 percent. The 

railroads also shipped almost 61,000 carloads of DDGS for feed in the United States and abroad. 

According to the most recent FCS data, during first quarter of 2009, major railroads in the 

United States delivered over 70 thousand carloads of alcohols (over 2 billion gallons) to their 

final destinations—20 percent higher than the first quarter of 2008 and 173 percent higher 

than the fourth quarter of 2003. (Ethanol accounts for over 80 percent of alcohols shipped by 

rail.) This implies that over 70 percent of ethanol produced in the first quarter 2009 was 

shipped by rail, slightly higher than in 2006 (the last available annual modal share data). 

Railroads also have increased their shipments of DDGS, a major co-product of ethanol 

production that is used as animal feed. During the first quarter, railroads terminated over 15 

thousand carloads of DDGS—about 20 percent of the estimated quarterly distillers grains 

production (on a dried basis). This is up 12 percent from first quarter of 2008 and 209 percent 

higher than in the fourth quarter of 2003, the first available quarterly data (Figure 4-11). 

Class I railroads (UP, BNSF, NS, and CSX) have been involved in developing more unit train and 

transloading receiving facilities, as well as investing in more track and improving interchanges 

at critical locations. This investment is necessary for their overall networks and helpful for 

moving the increasing quantities of ethanol expected in the near future. 
144

Figure 4-11: Quarterly carloads of alcohol and co-products terminated by major railroads in 

the United States, 4th quarter 2003–1st quarter 2009 

Source: Railratechecker.com, based on Quarterly Freight Commodity Statistics. First Available Data is the 4th Q 

2003

According to the Association of American Railroads, the vast majority of ethanol is carried in 

30,000 gallon all-purpose rail tank cars. In 2008, more than 50,000 of these cars were in 

service, but it is not clear what percentage of the cars are used to move ethanol, versus those 

used to move petroleum products and other chemicals. The EPA estimates that by 2022, 

43,398 railcars will be needed solely for moving biofuels.67 The EPA estimate is based on their 

assumption that 70 percent of the ethanol rail movements will be moved by unit trains, 

reducing cycle times, and increasing the utilization rates of existing rail cars. The remaining 30 

percent will move in single car shipments, possibly requiring additional tanker cars. If unit train 

destinations do not materialize as quickly as EPA projects, it is possible that even more railcars 

and network capacity will be needed to move ethanol to all the needed market destinations. 
145

Transportation of DDGS 

About a third of every bushel of corn used to manufacture ethanol 

becomes DDGS, which contributes to the profitability of the 

biorefinery and reduces the impact of ethanol production on feed 

supplies. Railroads, trucks, and barges move this product to 

domestic feedlots, and to ports for export. The ethanol industry 

has successfully marketed DDGS overseas and exports have been 

growing in tandem with ethanol production (Figure 4-13). Figure 

4-14 shows that the main destinations for exported DDGS are 

across our borders to Mexico and Canada. These movements are 

primarily land-based, by rail or truck. Ocean vessels ship the 

product in bulk or in containers to overseas destinations, including 

Korea, Thailand, Turkey, Japan, and other countries. 

Figure 4-12: Loading a truck with DDGS in South Dakota.

Source: USDA 

DDGS as Animal Feed 

Historically, the mash 

remaining after distilling 

alcohol was divided into two 

products: distiller’s dried 

grains (the insoluble 

portion), and distiller’s dried 

solubles (the soluble portion 

with the water evaporated). 

Modern ethanol plants 

blend these dried products 

to make distiller’s dried 

grains with solubles (DDGS). 

Only the starch portion of 

the corn is used to make 

ethanol; the mash contains 

all the protein, oil, and fiber 

of the corn and the yeast 

used to distill the ethanol, 

and makes a nutritious feed. 

Eighty percent of DDGS 

used in the United States is 

fed to cattle. The remainder 

is fed to poultry and swine.* 

* University of Minnesota 

Department of Animal Science 
146

Figure 4-13: U.S. exports of DDGS, Jan 2006–Feb 2009 

Source: USDA/FAS/U.S. Trade Data 

Figure 4-14: Major destinations of U.S. DDGS exports, Jan–Feb, 2009 

Source: USDA/FAS/U.S. Trade Data 

Mexico

34%

Canada

Korea 14%

7%

Thailand

6%

Turkey

6%

Japan

6%

Cuba

5%

Taiwan

3%

Indonesia

3%

Philippines

3%

Other

13%
147

Potential Phases of Biofuels Expansion from the 

Transportation Demand Perspective 

The National Commission on Energy Policy (NCEP) convened a Task Force on Biofuels 

Infrastructure, consisting of representatives from the petroleum and ethanol industries, 

academia, and the Federal Government. After three all-day meetings over the course of 6 

months in 2008, a report was developed and released by the NCEP on April 16, 2009. The Task 

Force identified the need for infrastructure investments over 3 distinct phases: 

Phase I (by 2010) 

Ethanol production increases to 12 billion gallons per year. The existing multi-modal 

transportation network will be used to transport ethanol from production centers in the 

Midwest to demand centers on the coasts, with rail continuing to play a major role. 

Phase II (2011–2015) 

Corn ethanol use increases to 15 billion gallons per year. The additional 5.5 billion gallons of 

ethanol targeted to be produced from cellulosic feedstocks may not be commercially available. 

Assuming minimal imported ethanol, absorbing even the 15 billion gallons of corn-based 

ethanol would require 100 percent nationwide market penetration of E10 or a higher-ratio 

blend, with expanded use of E85. Transportation networks and receiving terminals may require 

additional infrastructure investment to prevent bottlenecks. Retail fueling infrastructure would 

probably need modification to accommodate higher-ratio ethanol blends. 

Phase III (after 2015) 

Ethanol and advanced biofuel production expands beyond 15 billion gallons per year. Further 

evolution of the associated transportation and distribution infrastructure will depend on 

several factors: 

• Geographic distribution of supply and demand centers. 

• Certainty in the RFS targets. 

• Flex-Fuel Vehicle (FFV) production. 

• Market penetration of E85 or higher-ratio fuels—especially when cellulosic ethanol 

production is brought to commercial scale. 

After 2015, non-ethanol biofuels—often referred to as bio- or renewable hydrocarbon, which 

are similar to existing gasoline and diesel fuel—could potentially be developed. These would 

satisfy the RFS-2 requirements and mitigate many of the distribution infrastructure challenges 

because they would be fully compatible with conventional fuels and existing auto engines and 

distribution infrastructure. 

 
148

Table 4-4: Renewable Fuels Standard-2 (as mandated by EISA 2007) and possible phases 

Year 

TOTAL 

RENEWABLE 

BIOFUELS 

 

Conventional* TOTAL 

ADVANCED 

BIOFUEL Cellulosic Unidentified 

Advanced 

Biomass-based 

Diesel 

Phase I 

2008 9 9 

2009 11.1 10.5 0.6 0.1 0.5

2010 12.95 12 0.95 0.1 0.2 0.65

Phase II 

2011 13.95 12.6 1.35 0.25 0.3 0.8

2012 15.2 13.2 2 0.5 0.5 1

2013 16.55 13.8 2.75 1 1.75 

2014 18.15 14.4 3.75 1.75 2 

2015 20.5 15 5.5 3 2.5 

Phase III 

2016 22.25 15 7.25 4.25 3 

2017 24 15 9 5.5 3.5 

2018 26 15 11 7 4 

2019 28 15 13 8.5 4.5 

2020 30 15 15 10.5 4.5 

2021 33 15 18 13.5 4.5 

2022 36 15 21 16 5 

*

Ethanol derived from starch feedstocks, such as U.S. yellow corn #2. 

Source: P.L. 110-140, Sec. 201, 202, and 205 (EISA, 2007) 

Market Uncertainty and its Implications for Infrastructure 

Investment 

EISA’s Renewable Fuels Standard mandates increased biofuel consumption levels, but several 

supply and demand factors create uncertainty for the market to reach the RFS levels. Resolving 

these uncertainties is important to stimulate further investment into the capital-intensive 

distribution infrastructure. As discussed above, the short time-frame for meeting the RFS-2 

targets will require coordination and collaboration between the petroleum industry, biofuel 

producers, and finance entities, as well as State and Federal Governments. Currently, the 

factors potentially limiting demand for biofuels—and the impact on biofuel producers and 

infrastructure developers—could be of greater concern than the factors influencing the supply 

of biofuels. 
149

Sources of Demand Uncertainty 

The long-term viability of the biofuels industry and the 

achievement of national energy policy goals require that market 

and policy signals work together to provide a stable environment 

for demand and supply growth. Resolving uncertainties on the 

demand side can help smooth the way for achieving the goals set 

by EISA. Market uncertainty about ethanol demand stems from: 

• The reduction in U.S. consumption of transportation fuels 

as a result of both the current economic downturn and 

because of increased fuel efficiency and production of 

hybrids. 

• The ability of the current blending infrastructure to reach 

nationwide use of E-10 and potentially higher ethanol 

blends—these are the “blend wall” issues. Recent trends in 

gasoline consumption suggest that the E10 blend wall will 

probably be reached by 2012, if not sooner, accelerating 

the need to modify existing policies and transportation 

infrastructure. 

• The expected reduction in consumption of total transportation fuels as fuel efficiency 

and production of hybrids is expected to increase. 

The recent economic crisis and high petroleum prices have reduced gasoline demand in the 

United States. The EIA is now forecasting that U.S. gasoline consumption in 2009 will reach 136 

billion gallons, down from a previous forecast of over 140 billion gallons. Projected decreases 

in long-term demand are also driven by increased vehicle efficiency standards and a projected 

increase in electric hybrids. The concept of a “blend wall” stems from the idea that only a 

certain quantity of ethanol can be absorbed into the existing gasoline demand at the E10 blend 

level—12 to 13 billion gallons (about 10 percent of all blenders are exempt from the RFS). 

Investments in receiving and blending infrastructure would improve the ability to reach 

nationwide use of E-10 and higher ethanol blends. Creating a market for the increased longterm biofuel target levels at the same time as expanding blending infrastructure are critical to 

achieving the RFS goals. DOE has developed the following timeline for market saturation (the 

blend wall) of ethanol. It expects that the E10 blend wall may occur as early as 2010, when the 

RFS target is 12.1 billion gallons of ethanol. In spring 2009, EPA received a request to increase 

the blend level from the current E10 maximum and is currently reviewing public comments to 

this request. From the blend wall issue perspective, if the EPA issues a waiver, allowing blend 

levels to go to 12 percent ethanol and 88 percent gasoline, the blend wall shifts to a 2011–2012 

timeframe. It moves to 2015–2016 with E15 and to 2018–2022 with an E20 blend. This 

timeline implies that the E85 distribution infrastructure would need to grow in order to help 

create a ready-made demand for ethanol even if EPA decides to approve higher blends of 

ethanol; it is currently considering approving ethanol blends up to E15. 

Blend Wall 

The blend wall is the limit of 

annual ethanol use that is 

constrained by the legal 

blending limit with gasoline 

(currently 10 percent for 

regular engines and 85 

percent for Flex Fuel 

engines). It is the volume of 

ethanol that can be expected 

to be marketed at current 

blending limits. 
150

Figure 4-15: DOE’s estimate of intermediate saturation points 

Source: Presentation by Joan Glickman, DOE, at the Transportation Research Board, 2009 Annual Meeting. 

<http://projects.battelle.org/trbhazmat/Presentations/TRB2009-JG.pdf> (PDF) 

Sources of Supply Uncertainty 

Sources of uncertainty that may affect ethanol supplies and impact the pace of transportation 

infrastructure development include the production location and timing of the commercial scale 

availability of new biofuels, including cellulosic ethanol. The EPA expects most of the new 

facilities will be able to benefit from the efficiency of unit train shipments; however, smaller 

scale biorefineries may depend on trucking as the best mode of transporting the biofuels to 

petroleum terminals. The EPA’s annual review of these supply factors will help clarify 

transportation demand and the need for further distribution infrastructure development. 

Current Transportation Infrastructure 

In addition to the additional unit train destinations that EPA estimates will be necessary by 

2022, all modes of transportation will need extra capacity to distribute the increased ethanol by 

the RFS timeline. Fuel markets tend to be a least-cost commodity business; the petroleum 

industry will seek the least expensive options in providing fuel to the market. Improving 

transportation efficiency could lead to better prices for consumers. However, the cost of 

improving the long-term capital assets of the distribution infrastructure may offset some of the 

benefits gained in transportation efficiencies. 
151

The Geographic Distribution of Biofuel Production 

U.S. ethanol production is concentrated in the Midwest Corn Belt. Proximity simplifies the 

logistics for transporting feedstock inputs, such as corn, and DDGS from ethanol distillation. 

Location criteria that are often cited are a maximum of 50 miles from corn supplies and the 

intersection of two class I railroads that can be used for transporting ethanol and DDGS. 

Depending on location, inbound and outbound transportation costs for biorefineries can 

amount to as much as 20 percent of operating costs, suggesting the critical nature of strategic 

siting near transportation. 

Location of future biorefineries and the successful deployment of the next generation ethanol 

will also rely on a structured cross-country transportation infrastructure. This infrastructure 

will be needed soon to integrate existing mid-continent biofuels facilities and the new cellulosic 

biorefineries with the existing petroleum industry facilities. Although co-products of future 

generation ethanol production are not known, the expansion of corn-based ethanol production 

to 15 billion gallons per year will create the need for a market for DDGS. Planning the location 

of feedlots capable of receiving unit trains of DDGS will benefit the industry by reducing 

transportation costs and improving the potential for profitability. 

Conclusions 

U.S. policies addressing climate change, supporting the domestic economy, and decreasing the 

nation’s dependence on imported petroleum have driven the increased production and use of 

biofuels. By 2008, U.S. ethanol production had reached 9.3 billion gallons—equivalent on an 

energy basis to approximately 36 percent of the gasoline produced from crude oil imported 

from Persian Gulf countries. EPA expects U.S. production of cellulosic ethanol to become 

commercially available in 2010. Renewable Fuel Standard goals project increasing biofuel 

production to 36 billion gallons by 2022—a very brief time in which to develop the distribution 

infrastructure. 

Collaboration between carriers, producers, marketers, and Federal and State governments will 

be needed for planning terminals capable of receiving unit trains of ethanol. In addition, 

expanding E85 infrastructure and increasing the number of Flex Fuel Vehicles will help increase 

the demand base for ethanol, which is needed to resolve the blend wall issues. Although the 

railroads have so far been able to handle ethanol production expansion, more destination 

terminals will have to be developed for the rail system to be able to accommodate continued 

rapid growth. 

The long-term viability of the biofuels industry and the achievement of national energy policy 

goals require that market and policy signals work together to provide a stable environment for 

demand and supply growth. Resolving uncertainties on the demand and supply sides can help 

smooth the way for achieving the goals set by EISA. 

 
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