By Keith Reid

 

We live in a new age of abundant fossil fuels from the fracking process that remains buffeted by a range of forces that continue to push even higher fuel efficiency, carbon reduction and the inclusion of biofuels to power transportation. For many drivers, particularly those in the United States, there is an often conflicting desire for cheap fuel, larger vehicles and more powerful engines and performance. Carbon reduction and efficiency do not seem to be as important in vehicle purchasing behavior. Is there a single solution that can satisfy all of these desires?

A suggestion that I first started to seriously explore when exposed to it in detail at a 2015 Fuels Institute meeting seems, on the surface, to go a long way toward providing such a solution—a single high-octane fuel mated with engines specifically designed to provide optimal performance on that fuel. Higher octane ratings allow for higher compression (typically in smaller turbocharged engines) that generates more power, torque and efficiency per gallon. Further, a primary source of octane is ethanol, and with this solution comes the promise of ethanol volumes that should exceed Renewable Fuel Standard ethanol volume requirements.

A highly active roundtable discussion at the 2015 meeting involving representatives from the California Air Resources Board, oil companies, biofuels organizations, automakers, fuel retailers and marketers identified a range of likely parameters that would have to be met for any new super fuel solution. Specifically, in addition to any mileage or carbon benefits the new fuel would have to provide no loss in performance, no significant increase in cost to the customer or retailer and have backward compatibility to existing engines at introduction (or still have legacy fuels in circulation during a transition period).

Several concerns were raised with this approach as applied to a high octane solution, a primary one being price. This would essentially be a super-premium, and as we know premium involves a premium price that is generated by both market and production factors. The market factor would eventually be solved as over time it would become the majority dispensed fuel, but there would be a notable transition period. The production process should also see some room for price improvement, but would it ever get down to the cost of regular? And if not, would the efficiency and performance gains equal out the higher costs? The answers are still out on those questions but the current conventional wisdom is “not quite.” However, in retrospect few expected fracking production costs to be as low as they are today.

The second issue with the proposed solution was the actual ethanol content. This new fuel provides the possibility of ethanol content well beyond the RFS. We are currently at a point where somewhat over 10 percent ethanol content (E10) is supported. There is a push from the ethanol lobby and some marketer/retailer sectors for E15. This new fuel would likely fall into the 95-100 octane range, and likely involve E20-E30 or even E40.

For the ethanol industry more is always better as long as supply can keep up. For retailers and marketers E25 has the least issues with compatibility and warranties. The oil industry would be happy with E0.

 

Ethanol Industry Was More Than On Board

As noted, the high octane fuel approach potentially has a lot of appeal to ethanol producers who want to push volumes beyond E10-E15, as the lowest initial considerations easily doubled those volumes. This was exemplified by the publication in March 2017 of a standard for the proposed high-octane fuel: ASTM D8076 – 17, Standard Specification for 100 Research Octane Number Test Fuel for Automotive Spark-Ignition Engines. There was particular excitement throughout the ethanol industry over blends as high as E50, though such extreme blends would likely be problematic for retailers and marketers.

“While the CAFE-GHG program has resulted in meaningful progress with respect to fuel efficiency and GHG emissions, this progress will plateau unless EPA increases the octane rating of fuel used in future engines,” said Brian Jennings, who was American Coalition for Ethanol Executive Vice President at the time and who now is the organization’s CEO.  “With a blending-octane rating of 113, American-made ethanol is the lowest-cost, low-carbon source of octane on the planet.”

The excitement continued with presentations at a range of industry conferences and as new opportunities materialized. For example, in April 2018 the Trump administration announced a likely revision of the aggressive Obama-era CAFE mileage standards, the high-octane approach was presented as an alternative that must be considered in any revision.

Former RFA President and CEO Bob Dinneen offered the following statement: “For too long, our light-duty vehicle fuel economy and GHG emission regulations have focused exclusively on the vehicle. We have repeatedly encouraged EPA, NHTSA and the California Air Resources Board (CARB) to also consider the important impact of fuels on fuel economy and emissions. Fuels and engines work as integrated systems, and we have provided mounds of evidence that high-octane, low-carbon ethanol blends in optimized engines would be the lowest-cost means of achieving compliance with future fuel economy standards. We are glad to see EPA took notice of that information, and we again urge EPA and NHTSA to use the upcoming rulemaking to establish the roadmap to broad commercialization of high-octane fuels in optimized internal combustion engines. As we pointed out in previous submissions to the agencies, higher octane fuel would unleash and enable a wide pallet of low-cost engine technologies that offer proven fuel efficiency and GHG emission improvements at a low cost for consumers.”

 

 

The Ethanol Industry Not So Onboard, Now

On November 21, 2018, the concept of a unified high octane solution made inroads into the legislative process. Congressman Bill Flores (Texas-17) and Congressman John Shimkus (Illinois-15) released a discussion draft of the 21st Century Transportation Fuels Act.

“Much has changed in the markets for vehicles and fuels since the Renewable Fuel Standard (RFS) was established in 2005, and subsequently expanded in 2007. We have learned from robust stakeholder input through hearings, roundtables and meetings, that higher octane fuels can bring increased fuel economy and performance for next generation engines. Since ethanol is one of the lowest-cost sources of octane in many areas of the country, a transition from the RFS beginning in 2023 to a national octane specification creates new market opportunities for biofuel producers and gives certainty to refining stakeholders. Most importantly, the draft legislation preserves consumer choice and optimum fuel and vehicle costs for more efficient transportation for future decades,” Flores said in a release.

On December 11 the act was discussed in a public subcommittee meeting. Support from agribusiness and the ethanol industry was far more subdued with this specific proposal. The overarching component was basically replacing the RFS with a high octane fuel standard based on 95 RON and adjustments by fuel retailers/marketers and automakers to make that possible. It would cap out at a fueling industry favorable maximum of E20 with appropriate RVP waivers.

Between 2020 and 2022 conventional biofuel (primarily corn ethanol) would be capped at 15 billion gallons to meet RFS volume obligations. That would sunset in 2023 and advanced biofuels like biodiesel, cellulosic biofuels and biomass diesel would be plateaued at 2022 levels until 2033 when those provisions would sunset. States would not be able to go their own way in setting different standards for the fuel.

In addition, there are a range of requirements to prevent misfueling that would have an impact on retailers (nozzles and labeling) and automakers (fill ports). Automakers would have to produce vehicles compatible (and warrantied for) this fuel in 2023. Fuel Retailers would not be forced to upgrade their fueling infrastructure except as done voluntarily to carry the fuel.

A PDF file of the full rule can be found HERE, and a summary HERE.

While capping the fuel at E20, twice as high as the ubiquitous E10 and a good step above the increasingly popular E15 would seem to be a notable win for ethanol producers, from a market perspective that is certainly not the case with the draft proposal. As the new RFA President and CEO Geoff Cooper noted in a response to the proposal, “…the draft bill would destabilize the considerable progress our nation has made toward greater energy security, economic vitality, and environmental health. We simply cannot support eliminating the RFS program, as the draft envisions, without a much stronger signal to the market that ethanol’s role in our fuel supply will continue to grow.

“Even though ethanol is far superior to other octane boosters in terms of cost, greenhouse gas emissions, air quality, health effects, and other factors, a 95 RON standard—when paired with elimination of the RFS conventional renewable fuel requirements—would not result in increased market opportunities for ethanol. RFA strongly believes a high octane fuel standard can work in concert with—not in conflict with—the RFS.”

Growth Energy CEO Emily Skor expressed similar concerns during the meeting: “Only by coupling a stable RFS with a significant boost in octane from a mid-level ethanol blend, can consumers realize significant cost savings, increased engine efficiency, and substantial environmental benefits. Unfortunately, this draft as proposed will lead to reduced blending of cleaner biofuel and it will raise costs significantly for American drivers.”

So, essentially, why settle for E20 and leave E30 or E50 or beyond on the table? And while E20 was presented as a maximum blend, it was not set as the exact requirement. The ethanol industry observed some not so obvious threats in the proposal, as outlined by ACE’s Jennings: “In fact, while the legislative draft implies support for E20 blends, a recent study commissioned by the Energy Information Agency (EIA) concluded refiners could easily meet a 95 RON standard using just 10 percent ethanol,” he noted during the meeting. “If the goal of the legislation is to increase the octane of motor gasoline, refiners cannot be allowed to insist on man-made limits just because they prefer not to use ethanol, which happens to be the lowest-cost and lowest-carbon source of octane on the planet. There may be ideas in the legislative draft which, in isolation, might seem appealing, but the net effect of the entire legislative package would be very harmful to the ethanol industry and farmers who need pro-growth policies.”

 

What Other Impacted Parties Think

Refiners generally supported the proposal with some caveats. In the response from American Fuel & Petrochemical Manufacturers the most notable points were that the standard must be limited to 95 RON and that Congress should provide liability protection for retailers and refiners that comply with misfuelling regulations. Congress should require EPA and FTC to evaluate and establish misfuelling and labeling regulations to prevent misfuelling of new vehicles with sub-octane fuel tied to a public education campaign.

For American Petroleum Institute, just about any press release on ethanol since the passage of the RFS expresses their position. Here is part of what they had to say on this proposal: We believe that the RFS program is outdated and broken, and we support bipartisan efforts in Congress to sunset the program. The key assumptions made in 2007 when the Energy Independence and Security Act (EISA) was enacted have since proven in conflict with commercial and technical realities. Congress expected 1) continued, significant growth in fuel demand, 2) increased reliance on imported petroleum, and 3) rapid development of next-generation advanced and cellulosic biofuel technologies. None of these three expectations came true, which is why the current RFS is incongruent with today’s reality. As a result of technological advances by the domestic oil and natural gas industry, U.S. energy security has meaningfully improved, and petroleum imports have declined. Ethanol and other biofuels have only marginally contributed to these goals. According to the Department of Energy’s Energy Information Administration (EIA), the RFS “played only a small part in reducing projected net import dependence.”

NACS and SIGMA presented a combined response that was primarily concerned with clarifying retail equipment issues involving nozzles to prevent misfueling and dispenser warranties and replacement. Price posting requirements were also discussed.

NATSO focused on the future of biodiesel and the associated volume issues with the sunset of the RFS. Understandable given that many of its members who are, of course, high volume diesel retailers have established business models centered on biodiesel blends. The same concerns were addressed by the National Biodiesel Board.

 

Same Old Song and Dance

This current battle is hardly a new situation. Since the disastrous gasohol efforts in the 1970s agribusiness has worked to get ethanol in the fuel supply at the maximum level politically and functionally possible. The oil industry has vehemently opposed ethanol at any significant level. Perceived wins have been undercut by loopholes of the type ethanol producers are wary of with these latest efforts. Take MTBE, for example, the first major issue I covered in the industry around 2000. It provided an eye-opening insight in to the realm of political combat on the regulatory and legislative fields of battle.

In a nutshell, the agricultural lobby helped push through an oxygenate mandate (requiring an additive with high oxygen content) in the 1990 Clean Air Act that would provide cleaner combustion to meet environmental goals. The supposition was that ethanol would be that oxygenate. The oil industry had other ideas, and introduced methyl tert-butyl ether as an in-house produced alternative.

All was fine until MTBE started showing up in groundwater from leaking underground storage tanks. While it was never scientifically proven to be a significant health concern, it could be tasted at very low levels which was sufficiently off-putting to the public that a phase out began shortly afterward with ethanol as its replacement. After all, many people already mix ethanol with water in a cocktail glass and then willingly consume the combination.

The blow up of the MTBE issue stunted the credibility of oil companies on such issues while providing momentum and a natural launching ramp to get even more ethanol in gasoline, and the RFS moved through congress shortly afterward to be signed by then-president George W. Bush. And so it goes.