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Clash Over Corn-based Fuel Intensifies as Release Of Mandate Looms

By Amanda Peterka

With the release of U.S. EPA’s proposal setting renewable fuel mandates expected, a key question has continued to separate the ethanol and oil industries: How much more ethanol can the country handle?

The ethanol industry has argued that billions more gallons could be added to the fueling system in the form of E15 and E85, or gasoline that contains up to 15 percent and 85 percent ethanol, respectively. But the oil industry has doubled down on its stance that there is a “blend wall” preventing more ethanol from entering the fuel market — and that there just isn’t much public demand for more of the corn-based fuel.

“The gasoline supply is currently saturated with the maximum amount of ethanol that can safely be blended without posing risks to the vehicle fleet, refueling infrastructure and vehicle warranties,” the American Petroleum Institute and American Fuel & Petrochemical Manufacturers wrote in a recent letter to EPA Administrator Gina McCarthy.

EPA today is likely to release its proposal setting renewable fuel mandates for 2014, 2015 and 2016. How EPA treats the blend wall issue in the proposal will set the stage for a months-long battle leading up to the agency’s final rule in November and could become the precedent for the rest of the life of the RFS program.

Congress added the renewable fuel standard to the Clean Air Act in 2007 to boost conventional ethanol and to promote the development of non-food advanced biofuels. At the time of its passage, supporters said it would increase energy independence and reduce the carbon footprint of the transportation fuel sector.

While Congress wrote into the law certain amounts of biofuels that must be blended into petroleum fuel each year until 2022, it gave EPA certain authorities to waive the mandates on a yearly basis.

EPA’s proposal comes after a long delay in setting the 2014 mandates; by law, the agency was supposed to have finalized most renewable fuel targets by Nov. 30, 2013. The agency is working on three years’ worth of targets in a bid to get the RFS program “back on track.” It agreed to release a proposal by June 1 in a tentative settlement agreement with oil groups.

As the June 1 deadline has neared, ethanol producers and their champions in Congress have increased their efforts to press EPA to set the renewable fuel standard mandates at the levels that Congress intended. For conventional ethanol, Congress mandated that 14.4 billion gallons be used in petroleum gasoline in 2014 and then capped the amount at 15 billion gallons for 2015 and beyond.

But oil refiners — which have also been vocal in the last few weeks about the issue — point to declining gasoline demand compared to 2007 and say EPA should set a standard at no higher than 9.7 percent of the total gasoline pool, or 13.26 billion gallons in 2014 based on data from the U.S. Energy Information Administration.

The vast majority of gasoline in the country contains about 10 percent ethanol, and refiners say technical limitations and lax consumer demand prevent them from adding more ethanol. The 9.7 percent level would provide a buffer to protect against varying conditions in the market and to keep ethanol consumption below the 10 percent “blend wall,” the American Petroleum Institute representatives said yesterday during a lunch briefing with reporters.

The oil group has also recently argued that demand for ethanol-free gasoline is strong and should be taken into account (E&ENews PM, May 20).

‘Plenty of room to absorb more ethanol’

Both sides agree that increasing the amount of ethanol used in the country will depend on the extent to which E15 and E85 are taken up by gasoline retailers and sold to the American public. EPA has approved E15 for use in vehicles with model years 2001 and newer, while E85 can be used in flex-fuel cars and pickup trucks.

But both fuels have so far been slow to enter the market. According to the latest information from ethanol industry group Growth Energy, E15 is currently sold at around 120 gas stations in 18 states. While E85 is sold at about 3,000 gas stations in the country, there’s yet a disconnect between where the fuel is sold and where flex-fuel vehicles are located.

According to the Renewable Fuels Association, another ethanol trade group, the potential for both fuels is huge.

If E15 was offered at three-quarters of the gas pumps across the nation, the amount of ethanol consumed in the United States would increase to between 18.5 billion and 19 billion gallons, RFA said in an email yesterday. If the 18 million flex-fuel vehicles on the road today filled up with E85, the trade group estimates, that would add another 9 billion to 9.5 billion gallons of ethanol consumption.

“The current fleet has plenty of room to absorb more ethanol,” the Renewable Fuels Association said.

But in a conference call last week, API Downstream Director Bob Greco called E85 an unworkable solution to getting over the blend wall, arguing that motorists have “largely rejected” the fuel because it is less energy-dense than gasoline.

“That means lower miles per gallon — a tank of E85 won’t get you as far as a tank of gasoline,” he said.

Oil industry opponents of the RFS have also raised concerns about the cost of installing fueling equipment capable of handling higher blends of ethanol at gas stations.

In a letter earlier this year to leaders of the House Energy and Commerce Committee, the Petroleum Marketers Association of America said individual gas stations would need to shell out $200,000 to retrofit with equipment compatible with higher blends of ethanol.

“Such compliance costs would be staggering for small business retailers and would undoubtedly force many, particularly in those rural areas, to close,” PMAA wrote.

Yesterday, ethanol trade organizations pushed back against the cost concerns, touting a study by the National Renewable Energy Laboratory in Colorado that found the majority of installed gas station tanks in the country are already compatible with E15. The study was funded by the Blend Your Own Ethanol campaign, a joint campaign of the Renewable Fuels Association and the American Coalition for Ethanol.

“Rumors of E15’s impossibility and high equipment cost have been greatly exaggerated,” said ACE Senior Vice President Ron Lamberty.

The ethanol groups allege that big oil companies are instead preventing their branded stations from selling higher blends through contractual agreements. Ethanol producers also have pushed back against oil industry-funded testing that has found E15 damages car engines and fuel systems.

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