“Fueled for Thought,” By Joe O’Brien, Source North America

The U.S. Environmental Agency’s EPA’s approval of E15 is about more than offering motorists a higher-octane lower-priced gasoline. Much more. The approval of E15 illustrates a fundamental flaw in U.S. policy-making that prevents federally guided initiatives from achieving long-term goals. Sure, fuel site operators need to stay abreast of the latest station management tools, products and regulations. But it is equally important they fully understand that this flawed approach to policy-making exists, and how it will continue to hinder true advancement in agriculture, environmental protection and retail fuel.

Without question, E15 is the single most important issue in retail fuel right now. The consequences of its approval will impact the U.S. fueling mix for at least the next two decades, while the consequences of misguided efforts by our leaders may linger much longer. To bring the bigger picture into focus, let’s break the situation down by untangling the issues one by one.

 

Q: Let’s remind ourselves, what is the purpose of the Renewable Fuel Standard (RFS)?

A: According to the EPA’s RFS webpage, “Congress created the renewable fuel standard (RFS) program to reduce greenhouse gas emissions and expand the nation’s renewable fuels sector while reducing reliance on imported oil.”

Q: What is the difference between conventional biofuels and advanced biofuels?

A: Conventional biofuels such as corn-starch ethanol, which are known as first-generation biofuels, are made from the sugars and vegetable oils found in traditional food crops. Advanced biofuels, known as second-generation biofuels, can be manufactured from animal waste and non-food plant materials. These materials consist of the residual non-food parts of food crops (such as stems, leaves and husks that are left behind once the food crop has been harvested) and other crops that are not used for food purposes and byproducts that result from industry waste.

Q: Has the RFS achieved its goals?

A: Dependence on foreign oil has been reduced and the nation’s renewable fuels sector has expanded, but not to a degree that it is having a positive impact on the environment. A recent report from the U.S. Government Accountability Office (GOA) found that the RFS has “likely had a limited effect, if any, on greenhouse gas emissions.” The RFS has, to date, primarily required the blending of a conventional biofuel – corn-starch ethanol – that isn’t particularly effective at reducing greenhouse gas emissions. Advanced biofuels achieve greater greenhouse gas reductions than corn-starch ethanol, but progress in the production of advanced fuels has been significantly stymied by technical challenges and changing economics that have led to high production costs.

The RFS has contributed to an outcome that is not expressly included in the scope of the renewable fuels program: it has created a market for American-grown corn. The science of corn production has enabled corn farmers to increase their yield, and they rely on ethanol as a market for their crops. Growth Energy reports that the U.S. ethanol industry purchased over $23 billion worth of corn in 2018 alone.

Q: What changes should be considered for future renewable fuels programs?

A: The reason the RFS has failed is because the administrative leadership that directed its development reverse-engineered a rationale to support the politically-expedient result they desired, with little regard for outcomes influenced by scientific or economic factors. To achieve results, policymakers need to take one of two approaches:

  • Set a goal for the nation in which all the economic players have a stake. This requires rewards for reaching a target and penalties for not hitting the target.
  • Allow the market to decide, and encourage investments in new technology through tax policy.

Q: How could E15, and consequently the retail fuel industry, be impacted by a flawed approach to policymaking?

A: Although E15 is being ushered in through a different group of leaders than those who established the RFS, E15 could suffer a similar fate because the same flawed approach to policy-making is being applied. And retail fuel will likely be caught in the middle.

Consider this: With its attractive price-point, E15 has indeed grown sales for marketers who have added the fuel to its product mix. That notwithstanding, the public isn’t exactly clamoring for it. The largest expansions of E15 are currently clustered in the Midwest, the Mid-Atlantic and Florida. The proximity of terminals supplying E15 to these clusters is proportionate.

Not only has the supply network not been tested by a nationwide demand for E15, the requirements for the maintenance of infrastructure storing and distributing E15 for the next 20-some years is not 100% clear. A recent bulletin from the Petroleum Marketers Association of America cautions that although most underground storage tanks currently installed are shown to be compatible with E15, many UST components may not be compatible. That distinction will require ongoing efforts to evaluate and maintain materials, such as polymers and elastomers, that may be vulnerable to damage in gasoline blends higher than 10% ethanol.

Another important consideration: the RFS program in its current form will establish volume requirements only through 2022. The EPA itself reports that advanced biofuels provide 30% more reduction in greenhouse gases compared to conventional renewable fuels such as ethanol. With this in mind, what the future holds for the RFS – and ethanol as a way to reduce greenhouse gases – beyond the 2022 volume requirements is extremely uncertain.

If the RFS is extended, and if reducing greenhouse gases remains an authentic driver of the program, and if the status quo continues to linger, conventional renewable fuels such as E15 will not be able to achieve greenhouse gas reduction goals. On the other hand, if the next incarnation of a national renewable fuel program successfully accelerates the production of advanced biofuels, the fuel industry will (again) need to reevaluate its entire supply chain and associated infrastructure – from the terminal to the dispenser nozzle.

 

Conclusion

The RFS crossroads approaches at a time when campaigns from ethanol groups are heralding the revenue E15 will generate for fuel retailers (several industry oil companies and C-store chains are moving forward with plans to sell and promote E15 year-round). Unfortunately, the promotional E15 messages may be overshadowing, and likely obscuring, the longer-term public policy issues at hand.

Agriculture is part of the fabric of this country. But the federal administration stepping to favor ethanol doesn’t encourage innovation in farming. It is unfortunate that U.S. election cycles now seem to mirror the short-term fiscal structure of publicly traded corporations. This renders us  incapable of truly committing to – and achieving – any forward-looking plans that serve to “promote the general welfare,” something the preamble to the constitution instructs our leaders to do.

Joe O’Brien is Vice President of Marketing at Source North America Corporation. He has more than 20 years of experience in the petroleum equipment fuel industry. Contact him at jobrien@sourcena.com or visit sourcena.com to learn more.