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ACE's comments to the EPA on the proposed RFS for 2015 and 2016

The full comments from the American Coalition for Ethanol as they were submitted to the Environmental Protection Agency on the EPA's proposed RVOs for 2015 and 2016.

July 27, 2015

 

 

The Honorable Gina McCarthy

Administrator

U.S. Environmental Protection Agency

1200 Pennsylvania Avenue, NW

Washington, DC 20460

 

Docket ID No. EPA–HQ– OAR–2015-0111

 

Sent via email to: a-and-r-docket@epa.gov

 

RE: Request for comment on Renewable Fuel Standard Program: Standards for 2014, 2015, and 2016

 

Dear Administrator McCarthy:

 

On behalf of the members of the American Coalition for Ethanol (ACE), I appreciate the opportunity to comment on the proposed renewable volume obligations (RVOs) for the 2014, 2015, and 2016 Renewable Fuel Standard program.

 

ACE was the first organization to support enactment of the Renewable Fuel Standard (RFS) in Congress.  We are powered by people who have built an innovative industry that sustainably delivers clean fuel and valuable food for a growing world.  These farmers, ranchers, Main Street businesses, scientists, investors, and renewable fuel producers have worked hard to help EPA succeed in fulfilling the goals of the RFS, and are disappointed with the Agency’s proposal.

 

Most acts of Congress are not sweeping or extraordinary.  The RFS is a rare exception to that rule.  The RFS has deep economic and political significance because Congress intended for it to dramatically transform the way we produce and use motor fuels in the U.S.  We urge EPA to better appreciate the magnitude of your responsibility to implement the RFS in the manner intended by Congress.  A bipartisan majority of Republicans and Democrats in Congress believe that left to their own devices, oil companies will not reduce the carbon intensity of motor fuel or make alternatives such as E15 and flex fuels available to consumers.  This can be explained by the fact that just two years after enactment of the original RFS, Congress in 2007 considerably increased the volumes to require upwards of 36 billion gallons of renewable fuel use by 2022.  Congress expected the RFS to result in long-lasting cuts to U.S. petroleum consumption and sustained reductions in greenhouse gas (GHG) emissions as ethanol and other renewable fuels displaced gasoline.  EPA’s hand-wringing over the so-called E10 “blend wall” and passive compliance approach with the law’s obligated parties makes it clear that the Agency does not recognize the significance of the RFS, so our comments focus on how to improve its implementation and follow the intent of Congress.

 

EPA needs to accept that Congress struck “…or inadequate distribution capacity” from the statute

Because of the deep economic and political value of the RFS, Congress set out specific criteria and a straightforward process that EPA must follow while considering a general waiver under the program.  This criterion is clear and very narrowly crafted under Section 211(o)(7) of the Clean Air Act to ensure that it would not be manipulated by obligated parties to render the RFS useless.  The statutory text of the general waiver authority is as follows (emphasis added):

 

The Administrator, in consultation with the Secretary of Agriculture and the Secretary of Energy, may waive the requirements of paragraph (2) in whole or in part on petition by one or more States, by any person subject to the requirements of this subsection, or by the Administrator on his own motion by reducing the national quantity of renewable fuel required under paragraph (2)—

(i) based on a determination by the Administrator, after public notice and opportunity for comment, that implementation of the requirement would severely harm the economy or environment of a State, a region, or the United States; or

(ii) based on a determination by the Administrator, after public notice and opportunity for comment, that there is an inadequate domestic supply.

(B) Petitions for waivers

The Administrator, in consultation with the Secretary of Agriculture and the Secretary of Energy, shall approve or disapprove a petition for a waiver of the requirements of paragraph (2) within 90 days after the date on which the petition is received by the Administrator.

(C) Termination of waivers

A waiver granted under subparagraph (A) shall terminate after 1 year, but may be renewed by the Administrator after consultation with the Secretary of Agriculture and the Secretary of Energy.

 

As Congress was considering the original RFS as part of the Energy Policy Act of 2005, the House and Senate debated competing versions of the general waiver language.  The House legislation allowed EPA to issue a waiver based on “inadequate domestic supply or distribution capacity”(emphasis added) to meet the requirement.[1]  The Senate version did not permit a waiver based on inadequate distribution capacity, instead allowing EPA to waive the program only due to inadequate domestic supply or if it is proven the RFS causes severe harm to the economy or environment.  The Senate language prevailed in the final legislation enacted by Congress and transmitted to the President for his signature.[2]

 

Congress struck the phrase “or distribution capacity” from the general waiver provision because it understood oil companies would exploit those words to confine ethanol blending at ten percent of gasoline demand.  EPA needs to accept this.  Moreover, the fact that Congress substantially increased the RFS volume requirements in 2007 to 36 billion gallons of biofuel use in 2022 (and an implied conventional biofuel level of 15 billion gallons by 2015) proves it did not intend for inadequate distribution capacity or the so-called E10 blend wall to be a regulatory prerequisite for EPA to use in making adjustments to the RVOs.

 

Congress understood that absent the RFS, oil companies would block market access to alternative fuels such as ethanol.  Former U.S. Senator Richard Lugar (R-IN), a cosponsor of the original RFS legislation, provided evidence Congress intended for the RFS to disrupt the status-quo and overcome oil company market restrictions.  “My intent here is not to punish the oil companies.  As a Senator who has favored new drilling and other initiatives designed to help the oil companies produce more domestic oil, I am suggesting that they need to alter their thinking.  In the best circumstances, they would embrace ethanol and work hard to diversify their investments and operations - partly for the good will they would receive from Congress and the public - but also to prepare for the coming decades of greater American prosperity and security.  If the mandate can be effectively linked to the increasing availability of ethanol, so much the better.  But to achieve our larger goal, we must be prepared to tolerate a certain level of disconnect between cars, pumps, and ethanol in the early stages of this effort.  Some pumps may be underutilized at first, but this cannot be an excuse not to move forward.”[3]

 

U.S. Senator Chuck Schumer (D-NY) underscores Senator Lugar’s comments about congressional intent, pointing out oil companies have a responsibility to comply with the RFS whether they find it convenient or not. “Such a mandate is necessary to push major oil companies that own many gas stations to install ethanol pumps. We believe we have to push the country into alternative fuels whether oil companies like it or not.”[4]

 

Further evidence EPA is operating far beyond its legal bounds and not appreciating the economic and political significance of the RFS can be found in an April 23, 2015 letter to EPA in which thirty-seven bipartisan Senators wrote “with its harmful 2014 proposed rule, EPA limited biofuels volume requirements based on available existing infrastructure, a condition that falls outside of the EPA’s clearly defined waiver authority provided by Congress in the RFS.”[5]

 

We understand that obligated parties would like to continue to exist in a world where ethanol is artificially constrained at ten percent of the market even though it is less expensive and cleaner than gasoline.  The oil lobby fought to prevent ethanol from comprising even ten percent of gasoline demand when the original RFS was enacted by Congress in 2005, and they’ve existed in a state of self denial that they would need to blend more than that when the law was expanded in 2007.  The blend wall is not a justification for triggering the waiver authority under the RFS.  To the contrary, if Congress wanted “inadequate distribution capacity” to determine the levels of ethanol and other renewable fuels used under the RFS, it would have also capped the program’s overall targets at or below ten percent of gasoline demand.

 

The definition of “inadequate domestic supply” is not ambiguous

While it is troubling EPA wants to apply waiver language that Congress struck from the statute, it is absurd that the Agency is also claiming throughout the NPRM that the definition of “inadequate domestic supply” under the general waiver is ambiguous (emphasis added).  Repeating it over and over does not make it true.  The definition of “inadequate domestic supply” clearly refers to renewable fuel supply.  Evidently EPA believes it should get deference to interpret the definition of “inadequate domestic supply” using the so-called Chevron test.[6]  Under the Chevron deference, when statutory language is clear, EPA must adhere to the statute, but when the statute is ambiguous, EPA is given broad discretion to interpret it.

 

Questions about EPA’s interpretation of RFS waiver provisions and definitions have been examined by Jonathon Coppess of the University of Illinois at Urbana-Champaign.  He indicates “EPA has included the blend wall in its reading of the term supply.  This interpretation appears to contradict the statute and Congressional intent.”[7]  Coppess analyzed recent King v. Burwell and Michigan v. EPA Supreme Court decisions in the context of how EPA is proposing to set the annual RVOs.

 

“The decision in King reinforces the power of Congress in matters of law and regulation.  It cautions against too easily presuming Congressional delegation of authority to the Executive branch.  This is especially when a ‘question of deep economic and political significance that is central to th[e] statutory scheme’ is involved.  The judiciary’s job is to ‘construe statutes, not isolated provisions’ of statutes because the meaning of words and phrases ‘may only become evident when placed in context’ and ‘their place in an overall statutory scheme.’  Thus, the ‘broader structure of the Act’ should be used ‘to determine the meaning’ of the statutory phrases.  A ‘provision that may seem ambiguous (emphasis added) in isolation is often clarified by the remainder of the statutory scheme…because only one of the permissible meanings produces a substantive effect that is compatible with the rest of the law.’  For the RFS, the EPA is clearly expanding its authority to adjust the statutory scheme; it is arguably doing so in a direction that does not align with Congressional intent.”

 

Coppess also outlines how Whitman v. American Trucking Assn. and the Supreme Court’s Michigan v. EPA decision impacts EPA’s implementation of the RFS.  “…an agency’s discretion ‘does not license interpretive gerrymanders under which an agency keeps parts of statutory context it likes while throwing away parts it does not.’  The statutory context for the RFS, including the waiver authority, appears to be the more limited because it applies only to refiners and blenders, whereas the other fuel provisions apply more broadly to the ultimate consumer.  EPA, however, appears to be using the broad waiver authority in the other fuel provisions to expand its authority under the more limited RFS.  Moreover, Congress was clear when delegating the authority to consider the ultimate consumer’s use of the fuel by explicitly providing for it – that it did not do so in the RFS would appear problematic for EPA. Combining the decisions in American Trucking and Michigan v. EPA would seem to spell trouble for EPA’s reading of the RFS waiver.”

 

When Congress crafted the general waiver provision of the RFS it clearly, plainly, and narrowly intended for EPA to hold obligated parties harmless if there is an inadequate supply of renewable fuel.  However, with U.S. ethanol production capacity exceeding 15 billion gallons, actual production in 2015 expected to be at least 14.5 billion gallons, and ample Renewable Identification Number (RIN) stocks available to help meet the standards, domestic supply is more than sufficient to meet statutory blending targets.  EPA need not waive or reduce the RFS.

 

EPA’s consideration of domestic supply needs to include RINs.  Renewable fuel producers generate RINs on most physical gallons of renewable fuel made in the U.S. and until they are retired by obligated parties, these RINs unquestionably contribute to supply.  Many obligated parties over-complied with the program in the early years of the RFS and have amassed significant RIN stocks that EPA allows them to carry from one year to the next for compliance with future blending targets.  By definition carryover RINs constitute domestic supply and must be included in the Agency’s calculation of domestic supply.

 

EPA is conflating 211(o)(7)(D)(i) Cellulosic Waiver authority with 211(o)(7) General Waiver authority

As noted by Coppess and others who have examined EPA’s interpretation of the waiver provisions and definition of inadequate domestic supply, the legal authority EPA is relying upon to reduce renewable volume obligations for 2014, 2015, and 2016 does not exist.  It appears EPA is mistakenly and unlawfully conflating the cellulosic waiver authority with the general waiver authority to try and justify its proposed reductions.

 

The general waiver authority is clear.  EPA may only waive or reduce RVOs if 1) implementation of the RFS would severely harm the economy or environment of a State, a region, or the U.S., or, 2) if there is an inadequate domestic supply of renewable fuel.  Neither of those two conditions has been met. 

 

Conversely, the cellulosic waiver authority in section 211(o)(7)(D)(i) is not as narrowly crafted.  If cellulosic biofuel production is less than the applicable volume provided in the statute, this waiver authority compels EPA to reduce the cellulosic biofuel RVO to the projected volume available during the calendar year.  The cellulosic waiver authority also permits (but does not require) EPA to reduce the applicable volume of renewable fuel and advanced biofuels by the same or a lesser volume.  For the 2013 RFS rule, the U.S. Court of Appeals for the District of Columbia Circuit determined that EPA had reasonably declined to use the cellulosic waiver authority to reduce the total and advanced biofuel volumes, but that under the cellulosic waiver provision, EPA enjoys broad discretion regarding whether and in what circumstances to reduce those volumes.

 

Unfortunately, the Agency has a short memory and apparently didn’t learn any lessons from the original (and now withdrawn) 2014 proposed RVO.  Nearly two years ago EPA arbitrarily proposed to depart from the Clean Air Act and set the 2014 RVO based on “inadequate distribution capacity.”  This proposal was met with widespread opposition from biofuel stakeholders and Members of Congress because it weakened the RFS program and violated the statute.  After more than 300,000 comments, many which were in opposition to the unusual methodology for setting the RVOs on the E10 blend wall, EPA was pressured by the White House to retract its approach.

 

More RINs are available for compliance in 2014 due to an accounting error regarding ethanol exports

Under the RFS, in order to generate a RIN and qualify as renewable fuel, a batch of ethanol must be denatured.  Some exports of U.S. ethanol go undenatured for various reasons.  These exports do not generate RINs.  However, EPA has made an accounting error by assuming RINs will be retired on all ethanol exports in 2014, approximately 836 million gallons.  In fact, nearly 400 million gallons of exported ethanol in 2014 did not generate RINs and therefore should not be subtracted from the calculation of net supply of RINs available for compliance with the 2014 RVO.  As a result, net supply of RINs available for compliance in 2014 should be closer to 13.7 billion gallons than the EPA’s estimate of 13.25 billion gallons.  Because obligated parties can carryover RINs from one year to the next, this accounting error impacts the net supply of RINs available for compliance in 2015 and 2016 as well.  We urge the Agency to make a correction to the final rule.

 

EPA is allowing obligated parties to stockpile RINs and avoid blending E15 and flex fuels

Obligated parties have dishonestly complained that EPA’s proposal “breaks the blend wall” in 2016 but the Agency needs to separate the signal from the noise.  The truth is obligated parties can barely contain their delight that EPA continues to side with them by using the E10 blend wall as an excuse to reduce the RVOs, and allows obligated parties to stockpile carryover RINs to avoid blending E15 and flex fuels. 

 

The proposed 2014 and 2015 RVOs do not exceed the E10 blend wall – meaning obligated parties can meet the proposed requirements by making no changes whatsoever.  The proposed 2016 RVO does constitute an increase directionally from 2014 and 2015, but in 2016 obligated parties will have approximately 2 billion gallons worth of carryover RINs stockpiled and ready to use for compliance instead of blending ethanol to expand E15 and flex fuel use. 

 

Bruce Babcock of Iowa State University indicates that obligated parties control 80 percent of refined-product terminals.  In other words, obligated parties decide the level of ethanol blending that will, or will not, occur.  According to reporting by the Oil Price Information Service, Babcock believes obligated parties will not strain to meet the compliance target in 2016 because they will have ample carryover RINs from the prior year to meet the obligation.[8]

 

Several market watchers reported the collapse in D6 RIN prices shortly after EPA’s NPRM was released on May 29, 2015.  “Spot D6 RIN prices, as tracked daily by OPIS, fell to 37.75 cents on Friday, June 5, from 73.25 cents on Friday, May 1.”[9]  The same OPIS report quoted Tristan R. Brown, assistant professor of Energy Resource Economics at The State University of New York’s College of Environmental Science and Forestry. “There were early signs in the industry that convenience store operators, particularly large chains, were responding to the higher profits they were earning from their ethanol blending operations by increasing their output of E15 and E85.  I don’t believe that the blend wall will be overcome in the presence of low D6 RIN prices, since convenience store operators will no longer have a financial incentive to make it available to drivers.”

 

As long as the Agency continues to allow obligated parties to hoard carryover RINs, refuses to consider RIN stocks in your calculation of available supplies, and doesn’t compel obligated parties to do what they are required to do under the Clean Air Act, you are not allowing the program to work as intended by Congress.

 

RINs enable the RFS to work – If EPA allows RINs to work

Based on memos recently issued by EPA as part of the docket, it appears the Agency has finally demonstrated an understanding of the role that RINs can play in helping incentivize E15 and flex fuel consumption.  However, much like it has since EPA approved E15 as safe for all cars and light trucks built in model year 2001 and newer, the Agency seems to be ignoring its own science in favor of a constant barrage of oil industry misinformation.

 

In previous comments, ACE cited studies by Informa (Analysis of whether higher prices of RFS RINs affected gasoline prices in 2013. Informa Economics. January 2014) and Iowa State University (Impact of increased ethanol mandates on prices at the pump. CARD Policy Brief 14-PB18. January 2014. http://www.card.iastate.edu/publications/synopsis.aspx?id=1218), which concluded RIN prices not only did not increase retail gasoline prices, they led to greater ethanol use due to lower pump prices for flex fuels like E85.  That data continues to be relevant to the RVO discussion for 2015 and 2016.

 

We urge EPA to trust its own findings as the Agency decides the final RVOs.  In the May 14, 2015 memo to the docket entitled “A Preliminary Assessment of RIN Market Dynamics, RIN Prices, and Their Effects,” Dallas Burkholder of EPA’s Office of Transportation and Air Quality confirms the findings of Informa and CARD by concluding “If fuel prices are fully flexible, markets are perfectly competitive, and we assume no changes to the price of renewable or petroleum based fuels, these two price impacts, the discounting of renewable fuels enabled by the sale of the RINs and the higher petroleum prices that result from the cost of purchasing RINs, are expected to offset each other, resulting in the RIN price having no net impact across the entire fuel pool.”

 

In other words, RINs don’t determine fuel prices - gasoline and ethanol prices determine gasoline and ethanol prices.  We agree wholeheartedly.  While some will argue the point above is moot because prices are not “fully flexible,” and markets are not “perfectly competitive,” we would argue that where that is the case, it is due at least in part by actions taken (or not taken) by EPA.  In other words, remedies to those non-flexible and un-competitive conditions are readily available to EPA, should they choose their own analysis over oil industry publicity.

 

Markets cannot be “flexible” or “competitive” if EPA allows the RIN market to decompress and nonsensical restrictions against E15 continue to exist.  EPA could remove a major restriction by simply treating E15 the same way it treats E10 with respect to summer Reid Vapor Pressure (RVP).  Well over 90 percent of the gasoline sold during the low RVP season is E10, and although E15 has a lower RVP, EPA prevents marketers in most of the country from selling it during the busiest time of the year.  More than 30 years ago, a one-pound RVP waiver was granted to E10.  E10 was specified by lawmakers so the incentive only applied to the maximum allowable amount of ethanol in gasoline.  That maximum amount of ethanol allowable in gasoline is now 15 percent for most vehicles, and as a bonus, the evaporative emissions of E15 are lower than those of E10.  As long as the Agency continues to deny the one pound RVP waiver  to E15, when marketers ask to sell a cleaner fuel during the busiest time of the year, EPA is telling them “No.  You must pollute more.”

 

RINs, however, are being recognized more frequently by retailers as a potential solution for adding volume and income; income that will help pay for equipment needed for a station that wants to sell flex fuels.  While E15 can be added to a station at very little additional cost, E85 can increase equipment prices significantly - nowhere near the hundreds of thousands often quoted by ethanol opponents, but for a station with four dispensers (national average is 4.5 dispensers) E85 can cost $50,000 more than E10 or E25 compatible equipment.

 

When ACE commented on the now-withdrawn 2014 proposed RVO, we demonstrated how the South Dakota-based Midway Service station used the majority of its RIN profits to lower the prices of ethanol blends, which led to more volume and more RINs.  Midway Service’s sales have more than tripled over the past seven years, and his use of RINs is the primary factor Midway Service owner Bruce Vollan credits for the dramatic sales and profit growth of his station.

 

A recent report by the National Association of Convenience Stores’ Fuels Institute -“E85–A Market Performance Analysis and Forecast,” contains a study of Minnesota’s E85 stations that seems to confirm Midway’s strategy.  Among other findings, the report showed that discounts greater than 50 cents per gallon generated additional E85 sales.  During the period of the study, the only way stations could have offered discounts that high would be if they were either separating and selling RINs themselves, or, buying pre-blended E85 that was discounted to reflect at least some portion of the RIN value.  Quoting from the report:

 

“The profitability of E85 during the summer of 2013 can largely be attributed to the dramatic increase in the value of RINS (renewable identification numbers) that are used to demonstrate compliance with the Renewable Fuel Standard (RFS). (See Figure 26) When the value of RINS increased to a peak of $1.46 on July 18, 2013, the ability of retailers who were selling E85 to offer a more competitive price and increase overall profitability per gallon likewise increased. Once the RINS values retreated in the fall, E85 margins followed suit and then returned as RINS values climbed in early 2014. Since RINS values increased in the spring of 2013, the NACS-CSX data indicates E85 has delivered an average margin of $0.497 compared with $0.144 for regular unleaded.”[10]

 

For more information on the Fuels Institute E85 market forecast and analysis, see Appendix 1.

 

Infrastructure and vehicles are compatible with E15 and flex fuels

The term “blend wall” is nowhere to be found in the Clean Air Act, but EPA uses it 34 times in the NPRM, indicating “The ability to go beyond the E10 blend wall is a function of actions taken by various fuel market participants, including obligated parties, renewable fuel producers, distributors and marketers, gasoline and diesel retailers, and consumers.”

 

Having apparently accepted refiners’ arguments that everyone has to pitch in to get past the blend wall, EPA seems to be ignoring the fact that everyone else already has.  The only “fuel market participants” that have refused to take a single step to get over the blend wall are the obligated parties – who are, by definition, the only ones required by law to do so.

 

Renewable fuel producers have reliably produced sufficient volumes of conventional renewable fuel to meet standards under the statute.  Ethanol producers applied for a waiver for E15 to provide an option motorists could use in existing vehicles, and fuel marketers could blend and sell using existing equipment.  The ethanol industry has spent millions on promotional and educational programs, all the while battling oil-industry misinformation campaigns and efforts to take away incentives that would help marketers help oil companies meet the statutory RVOs.  The ethanol industry is also investing tens of millions of dollars in infrastructure to get retailers past the phony concerns that have been placed in their way by oil companies and EPA.

 

Auto manufacturers have produced vehicles capable of using up to E85 for almost 20 years, and are going on year four of cars and light trucks that specifically approve E15 as a fuel.  All in all, cars and light trucks built and warranted for E15 outnumber “premium only” vehicles about three to one, and exceed diesel cars and light trucks by nearly six to one.  Even if EPA doesn’t trust its own numbers, manufacturer-approved “E15 vehicles” are more widely available than all the premium and diesel vehicles on the road.

 

With those numbers in mind, obligated parties still require branded stations to sell premium gasoline, and diesel fuel is widely available, while oil company supply agreements specifically prevent station owners from offering E15.  Oil companies have also sued EPA every year to avoid complying with the RFS.  Those are the actions taken by obligated parties to get past the blend wall.  The real problem is that the obligated parties know they aren’t really obligated, they simply need to read EPA’s last two proposed rules to know Agency doesn’t want to follow Congressional intent.

 

At EPA’s December 5, 2013 hearing, Bruce Vollan of Midway Service said this of the blend wall:  “The best way to get over the blend wall is to try to get over the blend wall.”  His station’s sales were about 6 percent above the so-called E10 blend wall from time he equipped the station to sell E15 and flex fuels, and sales have expanded as he gains customers who want to have a choice at the pump.  This year, Midway Service’s sales were 45 percent E10, 21 percent E15, 9 percent E30, 2 percent E50, and 23 percent E85.  The total renewable portion of his fuel is more than three times the “blend wall” – 30.9 percent ethanol overall.

 

During EPA’s June 25 RFS hearing in Kansas City, Charlie Good, owner of Good & Quick convenience store in Nevada, Iowa, also testified against the notion of a blend wall.  Good reported that 21 percent of his station’s sales were fuels with more than 10 percent ethanol, and that about 18 percent of his overall fuel volume is renewable fuels.  Actually, Good & Quick also offers B20, so 27 percent of the station’s fuel sales are higher renewable blends.

 

While there might be a temptation to look at Good’s numbers and location and conclude the volumes are skewed based on higher sales of ethanol products, that assumption would be wildly inaccurate.  Charlie Good is not in the ethanol advocacy business.  He’s in business to sell as much fuel as he can, regardless of what that fuel contains.  As a result, Good & Quick provides an interesting example of what overall fuel sales can be when artificial oil company restrictions do not exist, and customers are allowed to choose whatever fuel they want to buy.

 

In addition to E10, E15, and E85, Good & Quick offers ethanol-free premium to for customers who just want gasoline.  In fact, four of its six fueling positions offer E0 premium, while E15 and E85 are offered at only two fueling positions each.  Good said he did that because he believed the petroleum industry rhetoric about demand for “clear” fuels versus biofuels.  Yet even with two times as many hoses offering premium, it accounts for only 2 percent of Good & Quick’s fuel sales, while E85 amounts to 9.6 percent and E15 is almost 13 percent - even while being sold only for FFVs during the busiest summer ozone months of the year. 

 

Despite those relatively modest sales, Good & Quick’s volumes obliterate the notion that any blend wall exists.  The charts below show the actual percentage breakdowns for Good & Quick sales volume, first with B20 included, then with only gas powered vehicle fuels.

 

 

 

These volumes debunk the petroleum industry mantra that “nobody wants E15.”  In fact, these sales numbers prove almost nobody wants premium, while six times as much E15 is being sold from half as many fueling positions.  The figures also demonstrate concerns over E15 misfueling are misplaced.  The “fear” is if E15 is priced below E10, customers will suddenly lose their ability to distinguish between the two fuels, and will “mistakenly” purchase E15.  If that were true, E15 would be the highest selling fuel at Good & Quick.  In reality, by making E15 available, consumers are still choosing E10 most of the time, and they are selecting to buy E15 more often than premium.  Perhaps oil companies know this is what will occur and that’s why they support the way EPA is abandoning its responsibility to properly implement the RFS.

 

The sales at this Iowa convenience store also very closely correlate with the national light duty vehicle fleet profile.  Approximately 3 percent of cars and light trucks on the road use diesel fuel, while the rest use gasoline or gasoline-ethanol blends.  Within the gasoline vehicle fleet, all can use regular E10, approximately 7 percent are “required” to use premium gasoline, about 8 percent are flex fuel vehicles, and nearly 11 percent are now approved by manufacturers and warranted for use of E15.  In Good & Quick’s case, premium sales are much lower than the number of vehicles that are required by their  manufacturers to use that fuel, and E15 and E85 sales exceed what one would expect based on national vehicle availability.

 

The chart below shows what U.S. renewable fuels sales would be if all cars used the fuel required in their owner’s manuals 50 percent of the time:

 

 

 

Under this scenario there is no blend wall.  While these numbers may be ambitious given E85 sales history (and premium sales history, since the majority of “premium only” vehicles use regular fuel, and most premium use is in standard vehicles) keep in mind that E15 is not limited to vehicles covered by the owner’s manual for E15.  Somewhat like premium, E15 can be used in the vast majority of standard vehicles.  However, E15 is likely to be offered at a discount to “regular,” as opposed to premium’s much higher pump price. 

 

If we generously assume half of the “premium only” cars will still buy premium, and only 5 percent of FFVs will use E85, while the 20 percent of light duty vehicles that can use E15 will operate on it because E15 is a less expensive, higher octane fuel, the volumes look like this:

 

 

 

Some may believe even this scenario above is ambitious.  EPA has estimated E15 sales nationally were only 40 million gallons in 2014.  While EPA’s memorandum outlining that projection was well-reasoned and mathematically correct, it failed to take into consideration historical ethanol marketing realities and how retail fuel markets actually function.

 

It would be more accurate to project E15 gallons based on the introduction of E10 in the last few non-ethanol markets in the southeastern U.S. dating back to 2008.  When RFS2 became law, the required ethanol volume for 2008 increased from 6.5 billion gallons to 9 billion gallons.  This increase was doable because refiners chose the path of least resistance and allowed E10 in the southeast.  In order to sell E10, petroleum terminals often had to build unloading facilities and ethanol marketing companies had to contract with or build rail assets to handle this new fuel that had never been in the southeast region of the country in such high volumes.  To adopt E15 today, suppliers simply have to blend more of one product – a product that is already in inventory.

 

It is also instructive to recall that shortly after E10 became a “national” fuel, refiners changed their fuel outputs to gain volume in the refining process while making it impossible for retailers in some markets to purchase fuel without ethanol.  Over a period of about two years, refiners replaced 87 octane “clear” regular in almost the entire country with “V-grade,” an 84 sub-octane fuel that requires the addition of ethanol or premium.  Doing so gave them greater control of ethanol blending and RINs, and at the time, they were convinced that EPA was going to enforce the law as Congress intended.  If EPA were to commit to enforcing the RFS, it is our opinion that refiners would do the same with E15, as it would be relatively simple and could increase renewable volumes dramatically over a short period of time.

 

Inaccurate estimates of the cost of equipment required to sell E15 at the retail level continue to be used as another roadblock to widespread adoption by retailers.  In previous comments, ACE cited the Petroleum Equipment Institute’s report to USDA that showed E15 could be added to most stations economically.  This year, a few days prior to EPA’s release of the proposed 2014, 2015, and 2016 RVOs, the National Renewable Energy Laboratory (NREL) released a much more in-depth study that concluded, among other things, “the majority of installed tanks can store blends above E10.”[11]

 

NREL’s  report also said “For many decades, underground storage tank (UST) manufacturers certified their USTs for blends up to E100, for example, all steel tanks and underground fiberglass tanks since the year 1990,” and “all existing pipe manufacturers have Underwriters Laboratories (UL) listing for E100.”  In an attempt to frighten and overwhelm retailers away from considering E15, some ethanol opponents have listed every possible part in a fueling system, and told station owners they would have to know the make and model of every part, or replace it.  “Pipe dope” is often mentioned because it is something few retailers would ever be able to identify.  The NREL report even refuted those scare mongers; “Manufacturers of pipe thread sealants (pipe dope) used in UST systems have stated that their products have been compatible with ethanol blends up to E20 for many years.”

 

EPA’s rule jeopardizes cellulosic and advanced biofuel projects linked to corn ethanol

There is a flurry of activity in the cellulosic and advanced biofuel space, as companies develop ways to make these promising fuels out of a variety of feedstocks deploying many technology innovations.  Yet, the most significant and promising cellulosic biofuel projects to-date are directly linked to existing corn ethanol production and the future success of conventional biofuel.

 

Nearly $1 billion has been invested in four facilities likely to make cellulosic biofuel from corn-based feedstocks in 2015.  Abengoa’s 25 million gallon facility in Kansas is set to open later this year and will make cellulosic biofuel from corn stover and other agricultural biomass.  DuPont is putting finishing touches on its 30 million gallon Iowa facility which will also convert corn stover to cellulosic biofuel.  Poet-DSM held a grand opening for its Iowa-based 25 million gallon “Project Liberty” in 2014.  Poet-DSM intends to convert corn cobs, leaves, husks, and stalks into cellulosic biofuel.  Finally, in 2013 ACE-member Quad County Corn Processors (QCCP) successfully developed a “bolt-on” technology to convert corn kernel fiber into cellulosic ethanol, additional corn oil, and a high-protein, low-fiber feed.  In 2014, QCCP became the very first cellulosic biofuel producer to generate RINs from corn kernel fiber.  In April of 2015, QCCP produced 1 million gallons of cellulosic biofuel and is on track to produce 2 million gallons annually.  QCCP’s technology, first named “Adding Cellulosic Ethanol” and now called “Cellerate” achieves GHG reductions of 126 percent compared to gasoline.

 

Other companies such as Edeniq and ICM have also developed technology to convert corn kernel fiber at existing plants to cellulosic biofuel.  Taking into consideration the corn feedstock that existing ethanol plants already purchase and process, corn kernel fiber could make 2 billion gallons of cellulosic biofuel annually, which is nearly half the statutory volume of cellulosic biofuel called for in 2016.

 

An emerging concern that has been brought to our attention by companies like QCCP is just as physical gallons of cellulosic biofuel are being produced (nearly 1 million D3 RINs have been generated for ethanol so far in 2015), obligated parties are opting to secure waiver credits issued by EPA instead of purchasing the cellulosic biofuel.  Waiver credits are only intended for use when physical gallons of cellulosic biofuel are not available.  EPA needs to address this problem because the status-quo could destabilize D3 RIN prices and harm the development of cellulosic biofuel projects.

 

EPA is either ignoring or not comprehending the link between the success of corn ethanol and the success, or failure, of the first-movers in cellulosic biofuel.  QCCP and others pursuing cellulosic and advanced biofuels require policy certainty to help drive investment.  EPA’s proposal will slow cellulosic technology innovations and investment which in turn will jeopardize the success of the RFS to drive commercialization of these fuels.  “By deviating from the statute and moving backwards on the RFS’ commitment to grain ethanol, it puts our project along with the billions of dollars of investment in other cellulosic and next generation biofuel at risk. It also jeopardizes the Agency’s goals for greenhouse gas reductions by continuing our dangerous dependence on fossil fuels.”[12]

 

Many advanced biofuel projects are also linked to the success and strength of the existing corn ethanol industry.  Several ACE-member companies, including Adkins Energy of Lena, Illinois, East Kansas Agri-Energy of Garnett, Kansas, and Prairie Horizon Agri-Energy of Phillipsburg, Kansas have invested in advanced biofuel projects at their existing corn-ethanol facilities.  In the case of Adkins Energy, corn oil is separated from the distillers grains to make 2 million gallons of biodiesel along with more than 50 million gallons of corn-based ethanol.  Prairie Horizon Agri-Energy is integrating a 3 million gallon renewable diesel facility into its existing 40 million gallon ethanol plant and East Kansas Agri-Energy (which was toured by EPA officials prior to the June 25 field hearing in Kansas City on this proposal) is also integrating a 3 million gallon renewable diesel facility into its existing 40 million gallon plant. 

 

The very definition of innovation is producing two renewable fuels from one feedstock.  If EPA wants the RFS to succeed in truly helping commercialize advanced and cellulosic biofuels, the Agency needs to come to grips with the fact that the primary way to produce advanced and cellulosic biofuels in the U.S. is from existing corn ethanol facilities, and RFS policy conditions need to support that integration and growth.

 

Quitting on the RFS is inconsistent with President Obama’s efforts to curb Climate Change

President Obama has vowed to tackle climate change as part of his legacy.  Earlier this year he pledged that the U.S. would reduce GHG emissions by at least 26 percent by 2025.  Issuance of the final rule for the 2014, 2015, and 2016 RFS in November has consequences far beyond simply trying to get the program back on track.  The decision will come at the same time the President prepares for climate talks in Paris where the Administration hopes to negotiate an international agreement to reduce GHG emissions.  What an embarrassment it will be for the President if EPA betrays the Administration’s commitment to curb climate change by restricting the production and use of low carbon biofuels here in the U.S.

 

The RFS reduced motor fuel GHG emissions by nearly 40 million metric tons in 2014 alone, that’s like removing more than 8 million cars from the road.  It is critical for EPA to recognize that ethanol production is becoming more efficient and sustainable as documented by many respected scientists.

 

Ron Alverson, the President of the ACE Board of Directors, has extensively documented work by the Argonne National Laboratory (ANL) and others regarding corn ethanol carbon intensity (CI) reductions.  He wrote a White Paper on the subject earlier this year and reports the following in that publication:  “ANL scientists recently determined (GREET version 2.0, 2013) that since 2008 average ethanol manufacturing energy use has decreased 25 percent, corn farming energy use decreased 24 percent, corn fertilizer and chemical use decreased by 3 percent, and that ethanol manufactures are extracting 3 percent more ethanol from each bushel of corn.  ANL affiliated scientists have also updated their land use change (LUC) calculations (Dunn et al. 2013) with recent data and now estimate that soil carbon emissions from LUC are 7.6 grams CI, a 75 reduction from the widely used estimate of 30 grams CI.  A significant portion of this reduction resulted from CENTURY (Kwon H-Y et al. 2013) and CCLUB (Carbon Calculator for Land Use Change from Biofuels Production) soil carbon modeling that predicts significant soil carbon sequestration from corn.”

 

Alverson goes on to write: “If GHG modeling of transportation fuels are to maintain integrity and achieve their desired outcome, it is essential that modeling is done consistently and that modeling assumptions are periodically reviewed and updated with the latest science.  U.S. corn ethanol fuel production has experienced significant energy use and greenhouse gas emission reductions over the course of the last few years.  Since 2008, innovation in energy use and conversion technology at ethanol production facilities, innovation in enhanced efficiency fertilizers and in corn production management, and improved accuracy of GHG modeling assumptions have reduced current corn ethanol fuel CI by more than 50 percent.  The future is bright for corn ethanol blends to provide significant reductions in U.S. transportation fuel CI.”

 

ANL scientists also recently conducted a well-to-wheels (WTW) GHG analysis of high-octane, midlevel ethanol fuels.[13]  The study evaluated the impacts of producing high-octane fuels with a research octane number (RON) of 100, using a range of ethanol blending levels (E10, E25, and E40) on WTW petroleum use and GHG emissions.  “The WTW analysis shows that ethanol can be a major enabler in producing high-octane fuels and result in additional reductions in WTW GHG emissions when compared to regular E10 gasoline.  Beyond a miles-per-gallon-of-gasoline-equivalent (MPGGE) fuel economy gain of 5 percent for high-octane fuel vehicles relative to the baseline regular gasoline vehicles and a 10 percent MPGGE gain of 10 percent for E40 blends, the additional WTW GHG reductions when corn ethanol was used for blending were 5 percent for E25 and 10 percent for E40.  As a result, when corn ethanol was used, total WTW GHG emission reductions from using E10, E25, and E40 relative to baseline E10 gasoline were 5, 10, and 15 percent respectively, while using E40 achieved an 18 percent total WTW GHG emission reduction with a 10 percent MPGGE gain.”

 

The farmers and biofuel producers who are trying to help EPA succeed in fulfilling the goals of the RFS are mystified that the Agency is siding with oil companies who mock the President’s efforts to reduce GHG emissions.  If EPA is willing to take into consideration the newly-documented GHG benefits of ethanol production and use, and follow Congressional intent with respect to implementation of the RFS, the program can be an effective tool in the President’s efforts to tackle climate change.

 

As it stands, EPA’s approach to the RFS sets a dangerous precedent that puts enforcement of other Clean Air Act programs at risk.  If EPA is willing to let obligated parties disregard Clean Air Act RFS requirements to reduce the GHG emissions of motor fuel, how does the Agency expect to hold obligated parties legally accountable for new Clean Air Act Power Plant requirements to curb carbon pollution?

 

Close

The RFS is a unique law with deep economic and political significance because it is intended to reduce the GHG emissions of motor fuel, break petroleum’s control over the fuel market, and provide consumer access to renewable fuels which are less expensive and cleaner than gasoline.  These sweeping goals will not be realized if EPA continues to ride the brakes on the RFS.

 

To underscore what is at stake with the RFS as far as obligated parties are concerned, consider that since EPA issued the first rulemaking in March of 2010, they have lobbied Congress to repeal the program, taken EPA to court every year over its implementation, and threatened businesses who dare try to sell E15 and flex fuels.  EPA cannot take a passive approach with parties whose ultimate goal is to repeal the RFS.  Doing so turns a program designed to promote innovation and clean air into one that chokes innovation and increases pollution.

 

EPA should quit caving to oil company demands and start getting the RFS back on track by following the letter and spirit of what Congress intended.

 

Thank you for your time and consideration of these comments.  We stand ready to assist the Agency as it prepares to finalize the RVOs for 2014, 2015, and 2015.

 

                                                                                                Sincerely,

 

                                                                                                Brian Jennings, Executive Vice President

                                                                                                American Coalition for Ethanol



[1] H.R. 6 and S. 606 as reported by the Senate Environment and Public Works Committee.  http://www.gop.gov/fdsys/pkg/CRPT-109srpt74/html/CRPT-109srpt74.htm

 

[2] Testimony of Mr. Jonathon Lehman, former energy policy counsel to Senate Majority Leader Tom Daschle (D-SD), at EPA Public Hearing for the 2014 Standards for the Renewable Fuel Standard Program, December 5, 2013.

 

[3] The Honorable Richard Lugar.  Remarks on an expanded Renewable Fuel Standard at an Energy Security Summit at Purdue University.  August 29, 2006. 

 

[4] The Honorable Charles Schumer.  New York Times.  http://www.nytimes.com/2006/12/10/business/yourmoney/10energy.html&_r=0

 

[5] Letter to EPA Administrator Gina McCarthy, signed by 37 U.S. Senators, April 23, 2015.

 

[6] Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), was a landmark case in which the United States Supreme Court set forth the legal test for determining whether to grant deference to a government agency's interpretation of a statute which it administers.

 

[7] Coppess, J. “What the Obamacare and Power Plant Decisions Might Mean for the RFS Rule.”  Farmdoc daily (5):125, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, July 10, 2015.  http://farmdocdaily.illinois.edu/2015/07/obamacare-and-power-plant-rfs-rule.html

 

[8] How Ethanol RINs Prices Reflect RFS Policy.  Oil Price Information Service.  June 18, 2015.

 

[9] Falling RINs Are Small Short-Term Hit for Ethanol, but Long-Term Trouble.  Oil Price Information Service.  June 9, 2015.

[10] E85-A Market Performance Analysis and Forecast.  Fuels Institute.  November 12, 2014.

http://fuelsinstitute.org/ResearchArticles/E85_AMarketPerformanceAnalysisForecast.pdf

 

[11] E15 and Infrastructure.  K. Moriarty, National Renewable Energy Laboratory.  J. Yanowitz, Ecoengineering, Inc.  May 2015.  http://www.nrel.gov/docs/fy15osti/64156.pdf

[12] Mr. Delayne D. Johnson, CEO, Quad County Corn Processors Cooperative. Comments to EPA Docket EPA-HQOAR-2013-0479. January 2014.

[13] Well-to-Wheels Greenhouse Gas Emissions Analysis of High-Octane Fuels with Various Market Shares and Ethanol Blending Levels.  Jeongwoo Han, Amgad Elgwainy, and Michael Wang, Energy Systems Division, Argonne National Laboratory.  July 14, 2015.


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