Oil industry supports E15 legislation, though EPA regulations still present hurdles
Once again, an emergency waiver kept E15 available this summer in the U.S., and in the Midwest, governors from eight states succeeded in their petition. In March, the U.S. EPA published a proposed rule to suspend regulations which will open the door for year-round E15 in those states starting next year.
The pending eight-state approval doesn’t solve the issue for the rest of the country, however, but it did add momentum to the effort to get a permanent nationwide solution through Congress in a turn that brought the American Petroleum Institute on board in supporting the legislation.
“We were fortunate to secure the emergency waivers for 2023,” says Brian Jennings, the American Coalition for Ethanol’s CEO. “But we cannot continue to depend upon emergency conditions to get E15 year-round.”
The EPA’s proposed rule to allow E15 year-round is a positive development for South Dakota, Nebraska, Missouri, Minnesota, Iowa, Wisconsin, Illinois and Ohio, he says. “It’s only eight states, but those eight have half the locations selling E15.” That ruling has also changed the prospects of getting legislation adopted in Congress that would apply nationwide. “That’s what we need,” Jennings says, “and I believe the wind is at our back.”
Abbreviated History of E15
It’s been more than a decade since EPA first granted a partial waiver allowing E15 use. In 2010, they allowed its use in model year (MY) 2007 and new light-duty vehicles, which was expanded the following year to include MY2001 and newer vehicles. But the EPA ruled E15 couldn’t be used during the summer driving season, June 1 through September 15, because they couldn’t extend the 1-psi RVP given to E10 to the higher blend. The ethanol industry protested, saying the vapor pressure peaked at E10 and was actually lower for E15, adding EPA was interpreting the statute incorrectly and they did have the authority to extend the waiver.
In 2019, EPA extended the 1-psi RVP waiver to E15, opening the way for year-round sales. Oil groups challenged that, and two years later in July, the D.C. Circuit Court of Appeals overturned the approval. In January, the supreme court declined an ethanol industry petition seeking a review of that decision. The court’s reversal of EPA’s ruling didn’t impact 2021 summer E15 sales, and emergency waivers to mitigate fuel disruptions from the Ukraine war kept the blend available nationwide last summer and this year.
After the court decision, eight Midwestern states tried a different tack, petitioning the EPA under a clause of the Clean Air Act allowing governors to request an exclusion from the 1-psi waiver for E10, with the intent of being able to use E15 through the summer. The EPA published its proposed rule granting that petition this spring, with the comment period closing on April 20.
The governors’ petition to EPA came just before the agency finalized the 2022 renewable volume obligations (RVOs) for the Renewable Fuel Standard, says Rod Snyder, EPA senior advisor for agriculture.
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“This is the first time governors have submitted this type of request — it’s novel in terms of approach and it took a little more time to work through the process than we were anticipating.”
The same team working on this ruling have also handled the two emergency waivers for the summer of 2022 and 2023 and the RVOs released in June for RFS compliance years 2023, ’24 and ’25.
Snyder says the goal is to finalize the rule before the end of 2023, well ahead of the April 2024 effective date.
Snyder points to the RVOs finalized in June — the largest in the history of the program and the first time the agency could address three years ahead — alongside the emergency waivers and the action around the governors’ request. “All of these actions are demonstrating the administration’s commitment to biofuels as part of our low carbon transportation future as a key strategy.”
API support
The probable impact of the governors’ petition should it be finalized prompted the American Petroleum Institute to change its position on a permanent legislative fix for E15. The association representing all aspects of the oil industry had opposed the Consumer and Fuel Retailer Choice Act in 2017, but in late November sent a letter to congressional leaders saying it supports the recently reintroduced legislation.
The change in API’s position is directly related to the governors’ petition. “API approached the ethanol industry in order to find a compromise that would address some of the negative impacts should the governors’ request be finalized,” says Will Hupman, vice president, downstream policy. The governors’ request, if finalized, is not the same as the emergency waivers, but instead would remove the 1 psi RVP waiver for E10, putting E10 and E15 on the same playing field. Refiners would have to make and ship a special 8 psi fuel for those states, while continuing to supply conventional 9 psi gasoline blendstock (CBOB) to the rest of their customers.
Some in the ethanol industry argue that refiners could use the reformulated blend stock (RBOB) already supplied to the nation’s urban areas. While RBOB has a low RVP of 7.4 psi, Hupman explains it actually is an entirely different fuel. It also doesn’t solve the issues around shipping a special blend stock to the eight states. “There are problems with fungibility with pipelines and associated infrastructures and requirements that would take time to meet. Then, if you’re talking about a special grade of fuel for a special area, there are likely to be increased price impacts.”
Ron Lamberty, ACE’s chief marketing officer, agrees making a specialized 8 psi “Midwest BOB" for 15 weeks in those eight states could be expensive but argues refiners have no reason to create one, since they already make a billion barrels a year of 7.4 psi RBOB. RBOB is the blendstock for 30 percent of US gas, including the largest cities in three of the eight Midwestern states petitioning EPA. Lamberty points out although RBOB costs a few cents more than CBOB, its RVP is well below the maximum allowed, and increasing RBOB production by a small percentage would likely cost less than creating an entirely new 8.0 psi blendstock for Midwest summer E15.
“There’s nothing preventing use of lower RVP blendstock than required in the eight states, so refiners would use RBOB unless they could make a special Midwest BOB that costs less than RBOB,” Lamberty adds, “And we already switch fuels every summer, so I’m not sure where the fungibility and infrastructure concerns come from, but whether this change becomes reality or not, message to refiners is the eight-state petition shows ethanol opponents these corn growing states are going to do what they have to do to sell E15.”
Hupman says the findings of a study conducted by Baker & O’Brien support the industry’s concerns. “The cost to produce, store and distribute a unique Midwestern fuel that must be segregated from other fuels is expected to range from 8 to 12 cents per gallon, according to the study,” he says. “And because fewer refineries will be capable of supplying this Midwestern summertime gasoline, the study found these system constraints would result in 125,000 fewer barrels per day of gasoline and 33,000 fewer barrels per day of diesel during the summer in the Midwest.” That could result in supply disruptions and a higher risk of price spikes and shortages.
“Not wanting to realize some of those overall negative consequences of implementation of the Midwest governors’ petition, we reached out to partners in the ethanol industry associations, corn growers, as well as retail marketers to work with them on a compromise which is reflected in the legislation the Consumer and Fuel Retailer Choice Act,” Hupman says.
The bill would preserve the 1-psi waiver for E10, nullify the governors’ request and allow for the sale of E15 nationwide, year-round.
“We’re proud to support this approach,” he says. “We think it’s a better approach in that a federal solution is superior to a state-by-state approach which would negatively impact consumers in these states.” API is working with its allies on the ethanol and refining side, he says, looking for cosponsors and Congressional support.
Jennings is grateful for API’s support, and explains the hope is to build bipartisan, wide geographic support. Although the bill is not likely to be considered as a standalone measure, wide support should make it possible to attach the measure to a “must pass” bill at the end of the year.
Remaining work
Removing the uncertainty of year-round E15 will help, but isn’t a panacea, Lamberty says. The uncertainty kept many retailers from offering E15, not wanting to confuse consumers nor hassle with changing pump labeling for the summer months. But it doesn’t remove the second biggest issue surrounding EPA tank and dispenser requirements.
“EPA’s rules on what’s compatible — applying to E15 and not to other fuels — sound pretty ominous,” Lamberty says, “and it looks like more work than switching to any other fuel.” A big part of his job at ACE is to answer retailer questions and work with those showing interest in E15. ACE also offers the flexfuelforward.com website, which covers frequently asked questions and provides multiple resources on EPA requirements as well as how to source ethanol directly and capture the RIN value — the renewable identification number used by obligated parties to demonstrate compliance to the EPA. Recently, ethanol RINS have been worth over $1.50 per gallon, which is passed along to consumers while improving retailer margins.
Getting someone who’s bought into all the negativity to consider E15 is a challenge that’s often best addressed by retailers who’ve had success with the blend, Lamberty says.
“By and large, retailers selling E15 will tell you they gained an advantage, and their volumes and profits went up. We’ve got retailers who sell more E15 than any other grade of fuel.”
He points to Pump & Pantry as one good example.
“People will turn one way or another for a penny,” says Randy Gard, chief operations officer at Bosselman Enterprises. The company operates 48 Pump & Pantry stations across the state of Nebraska. They got serious about higher blends in 2016 when the company took control of its fuel supply chain, Gard says.
“We did the economics with selling E15 and trying to monetize the RIN connected to the ethanol. We could sell E15 for 5 cents less than E10 and what we found out is it attracted more customers. It didn’t hurt our E10 sales — we saw very little, if any, loss in E10 gallon sales.”
When USDA began offering higher blend infrastructure grants in 2018, Bosselman began applying for multiple sites each year to help pay for tanks and dispensers, cement work and pipes, Gard says. They now have 40 stores with blender pumps or dedicated tanks. Having experienced exponential growth since 2018, Gard says they’ll continue until they get all stores done.
As a member of the ACE board and the Nebraska Ethanol Board, he often talks about his experience. “I’ve told other fuel retailers, don’t be afraid of higher blends. There’s a lot of misinformation that it will hurt tanks or piping, or that the fire marshal or weights and measures will get mad. They need to find a resource to help them understand the advantages of higher blends and what they need to do,” he says.
As a state agency, the Nebraska Ethanol Board helps interested retailers get the information they need, and he points to ACE’s flexfuelforward.com website for those in other states. And while many small and mid-sized operators may not want to handle RINs themselves, there are several organizations that manage RINs for others. That includes Bosselman’s wholesale division Boss Fuels, which manages RINs for the Pump & Pantry stations and other retailers.
“I tell retailers, don’t be afraid. It’s coming in a hurry. To me, the tipping point is the minute they get this summer waiver resolved at the federal level, you will a significant shift from E10 to E15,” Gard says.
