Interesting Reuters piece last week on the Renewable Fuel Standard (RFS) and very tardy 2014 ethanol-use requirements, now more than 10 months overdue from EPA. Reuters reports:
The Obama administration is trying to balance its support for renewable fuels with awareness of infrastructure constraints at gas stations as it finalizes targets for 2014 biofuel use, agency officials said on Tuesday. But with only 11 weeks left in the year, the administration also needs to weigh oil refiners’ ability to comply with the long-delayed requirements, one official told the Reuters Global Climate Change Summit.
The article goes on to quote Janet McCabe, who leads EPA’s division overseeing the biofuels program:
(McCabe) acknowledged that delays in setting the targets, formally called the Renewable Fuel Standard (RFS), should be taken into account. “We need to be mindful of where we are in the year,” McCabe said …
Reuters reports that EPA had proposed lowering ethanol mandates for 2014 because the U.S. was on a collision course with the 10 percent blend wall – the point where RFS mandates will require ethanol to be blended into gasoline at levels higher than the 10 percent fuel (E10) for which most of today’s vehicles were designed. Lately, the administration has hinted it would back off that plan. Reuters:
EPA’s proposal to cut 2014 targets roiled biofuel products. The industry has been lobbying for the EPA to change course, arguing that the agency’s proposal would encourage oil refiners to limit the use of renewable fuels simply by not investing in new fuel pumps. McCabe said the agency is trying to figure out how best to achieve the biofuels goals in light of lower gasoline use. Because gasoline use is less than anticipated when Congress passed the law government the biofuels requirements, “those numbers just don’t quite fit any more,” she said.
Let’s point out some facts on infrastructure. First, the difficulties the administration finds itself in with the RFS aren’t because industry is constraining service stations in the selling higher ethanol blend fuels like E85.
Of the country’s retail gasoline stations, 95 percent are independently owned and operated. Decisions on the types of fuels sold at those stations are made by lots of independent small business owners. They in turn are responding to weak consumer demand – E85 is about 0.15 percent of total gasoline demand compared to more than 5 percent for ethanol-free E0 – which they must weigh against the costs of refitting a station with tanks, fuel lines and dispensers compatible with gasoline containing more than 10 percent ethanol. Such costs could run from the tens of thousands of dollars up to $100,000. E85 is being judged by the market and found wanting, particularly as consumers discover that E85 has less energy than conventional gasoline.
Now, about the RFS calendar. As McCabe says, the reality is that EPA is nearly 11 months late issuing ethanol-use levels for 2014 – which were supposed to be issued in November 2013. It’s an understatement indeed to say that the agency needs to be “mindful of where we are in the year” – which is to say, 2014 is nearly over and gone, a year in which refiners have had to guess what would be required of them under the RFS.
Lastly, McCabe’s comment about “numbers that just don’t quite fit any more.” This is another acknowledgment from EPA that the blend wall indeed exists, and it is making the RFS unworkable. Running into the blend wall could mean bad outcomes:
- More higher ethanol-blend fuels, like E85 and E15, being pushed into the nation’s supply. In the case of E15, this could risk damage to engines and fuel systems in vehicles that weren’t designed to use it – which automakers have warned could void warranties.
- Decisions to comply with the RFS by decreasing the volume of transportation fuel to the market – either by reducing production or through fuel exports, which aren’t subject to the RFS. A study by NERA Economic Consulting cautions that if the domestic fuel supply decreases, higher transportation fuel costs could ripple throughout the economy.
No, the numbers under the RFS for ever-increasing ethanol use don’t fit, and the RFS doesn’t work. Whatever usefulness the program was supposed to have in terms of reducing imports has been superseded by increased domestic oil production, which is lowering imports to the point where the government says the U.S. could reach zero net imports as a share of domestic consumption in the foreseeable future.
The RFS is broken, politicized and could end up harming the economy and consumers – a recipe for repeal if ever there was one.
By Mark Green
Originally posted October 20, 2014
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