One head scratcher from Brooke Coleman on the call was the contention that the oil industry is noncompetitive upstream, with the shots called by a monopolistic OPEC. Therefore, renewables are required to keep the market on its toes and competitive. The recent Saudi price war was cited as proof of this (dictating low prices for “various reason”), while in fact it’s actually proof of just how competitive oil supply is today compared to just a few years ago. Those various reasons involve U.S. production being seen as an existential threat to OPEC and the Saudi’s actions are part preservation of market share and part the destruction of U.S. competition.
In my estimation, while the huge increase in domestic fossil fuel production and corresponding decrease in fuel prices is clearly a risk to the political and public support of alternative fuels, there is a silver lining. The fossil fuel revolution should be embraced by the ethanol side, if perhaps grudgingly.
Ethanol formally lost the environmental message when CARB turned against it while finalizing California’s Low-Carbon Fuel Standard in 2009 (though cracks were already apparent before that time) over indirect land use issues. While the ethanol industry has not accepted CARB’s findings and determinations, that struggle (at least with corn ethanol) has seen additional breaks and dropping support from the though leader press such as the New York Times, a news outlet that would be difficult to peg as editorially supportive of fossil fuels.* The fallback, second-pillar position has been reducing our dependence on foreign oil, but that was a difficult message to accept before our fossil fuel revolution when the marginal offsets from biofuels offered no practical leverage to sway our heavy dependence on foreign oil. With fracking and the approach of energy independence, every little bit now adds up to get us closer to that goal and would seemingly be a positive and proactive message from the ethanol side. I can thank our columnist Joe Petrowski for that insight as he outlined in this column and further in this one.
Of particular note from the call was the acknowledgment that the announced media campaign in Washington was focused specifically on the Obama administration and not the public, legislators or even the EPA administrator or staff except as a collateral benefit. As we have pointed out in previous policy briefs such as this one, the current administration largely dictates its aggressive environmental policy directly through EPA. The administration is willing to bend political and process norms to achieve its goals. It has is acted in a largely unilateral fashion during both terms, and has seen little or no resistance of note even as the Republicans gained control of the House and Senate.
Ethanol does not seem to be a favored child in the administration’s environmental policy. The announced media campaign is an effort to break through that wall, but this administration can be incredibly stubborn about backtracking once things are in motion. This is one area where the fossil fuel industry and ethanol producers certainly experience common ground.
* Note: Modified since publication to provide more detail.
API/AFPM Letter
May 1, 2015
The Honorable Gina McCarthy Administrator
U.S. Environmental Protection Agency
1200 Pennsylvania Ave. NW Washington, DC 20460
The American Petroleum Institute’ (API) and the American Fuel & Petrochemical Manufacturers (AFPM) support the methodology that EPA originally proposed for the 2014 RFS, which is consistent with statute and the intent of Congress, and urge you to maintain this reasonable approach when promulgating the RFS requirements for 2014, 2015, and beyond.
The U.S. refining industry supports regulations and policies for reliable, affordable transportation fuels that meet consumer needs consistent with automobile and engine manufacturers’ recommendations, and are compatible with transportation fuel infrastructure. The U.S. has reached the E10 blendwall and 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. E85 is not a solution to the ethanol blendwall as it can only be used by flex-fuel vehicles, comprising just 6% of the vehicle fleet, and because fewer than 2% of retail stations offer the fuel. E15 is not a solution because vehicle manufacturers do not recommend its use in most vehicles on the road, and may not provide warranty coverage for damage resulting from E15 use (see attachment). E15 is also limited by fueling infrastructure incompatibility concerns. Because the ethanol blendwall is such a critically important issue to the refining industry, fuel retailers, engine manufacturers and fuel consumers, EPA must acknowledge these realities in the upcoming rulemakings.
When the Energy Independence and Security Act (EISA) was enacted in 2007, the Department of Energy’s Energy Information Administration (EIA) forecasted that gasoline demand would continue to increase to 156 billion gallons in 2015 and 172 billion gallons in 2022. Against this backdrop of increasing demand, the statutory volumes of conventional renewable fuels and ethanol could have been accommodated without encountering the ethanol blendwall. Reality is much different – EIA’s most recent gasoline demand prediction is 11% lower for 2015 and 26% lower in 2022.3 Fortunately, Congress provided a waiver mechanism enabling EPA to adjust the schedule of increasing volume standards to address unforeseen situations like the ethanol blendwall. It is necessary that EPA recognize that the statutory schedule of renewable fuel volume increases is unsustainable. EPA should utilize the waiver authority to protect consumers and our economy. Reversing course on the RFS implementation methodology during 2015, 2016 and beyond would create significant uncertainty in the marketplace and risk widespread economic harm.
It is important to note that API and AFPM support the use of ethanol as a gasoline additive in concentrations up to 10 percent. Ethanol provides octane, extends gasoline supplies, and has blending characteristics that allow for efficient production of Reformulated Gasoline (RFG). Meanwhile, it should be acknowledged that most first generation biofuels do not provide lifecycle greenhouse gas emissions reduction benefits, and may actually have deleterious impacts on air quality, water, and food. These facts show there is little risk in erring on the low side when setting the renewable fuel volumes, but substantial risk in setting them too high. For this reason, EPA must recognize in its upcoming rulemakings that exceeding the ethanol blendwall could restrict the availability of domestic transportation fuels and threatens to negatively impact our economy.
Regarding biomass based diesel, the 2014, 2015, and 2016 volume standards should be finalized at the 2013 level of 1.28 billion gallons per year. The statute states that “The Administrator shall promulgate rules establishing the applicable volumes under this clause no later than 14 months before the first year for which such applicable volume will apply.”6 The earliest compliance year for which the EPA could establish an increased volume of biomass based diesel would be 2017, assuming that the final standard is issued by November 1, 2015.
