The RFS and Real Consumer Choice
Posted June 10, 2016
We often hear proponents of the federal Renewable Fuel Standard (RFS) argue that mandating increasing use of ethanol in the nation’s fuel supply is about consumer choice. This view is reflected in some of the news coverage of this week’s RFS public hearing in Kansas City.
Yet, when you look at the marketplace and the fuels consumers actually want, the RFS represents restricting choice, not expanding it.
The U.S. Energy Information Administration says that standard E10 gasoline accounts for more than 95 percent of the fuel used in U.S. motor vehicles with gasoline engines. With overall fuel demand declining in recent years, RFS mandates for more and more ethanol use risk a breach of the “blend wall,” the point where more ethanol must be blended into the fuel supply than can be safely absorbed as E10.
Some claim that pushing more higher-ethanol fuels, such as E15 and E85, into the marketplace is the solution. But consumers aren’t buying it – the argument or the fuels.
Testifying in Kansas City for the Society of Independent Gasoline Marketers of America (SIGMA) and the National Association of Convenience Stores (NACS), R. Timothy Columbus said customer demand determines the kind of fuels offered by retailers, not the other way around. Columbus:
“[M]embers of SIGMA and NACS sell products because their customers purchase them. To date, very few retailers selling mid to high level ethanol-gasoline blends such as E15 or E85 have seen substantial sales of these products. Quite the opposite, most retailers that sell E15 or E85 have seen minimal sales of these products. Indeed, retailers have found that even consumers with E85-compatible flex-fuel vehicles tend to purchase E10.”
Indeed, EIA says that last fall EPA estimated that 320 million gallons of E15 and 200 million gallons of E85 would be used this year, together representing just 0.4 percent of the total 142 billion gallons of fuel used by vehicles and other equipment. In contrast, EIA says consumers used 5.3 billion gallons of unblended E0 fuel in 2015 – supplies of which could be impacted by foisting more higher-ethanol blends on consumers. Further, a recent Iowa Department of Revenue report says 14 percent of the gasoline bought in 2015 didn’t have any ethanol, while blends of gasoline above 10 percent ethanol only made up 1.5 percent of sales.
Some key factors are at work. There’s concern about the potential risk E15 could pose to engines and fuel systems in vehicles not designed to use it. Retailers could face significant costs to install infrastructure that’s compatible with higher-content ethanol fuel. Owners of power boats, motorcycles and outdoor power equipment are wary of misfueling that could damage engines. BoatUS President Margaret Podlich:
“Boaters can’t assume that every fuel sold at gas stations will work in marine engines. Boats can only run on 10 percent or less ethanol content (E10) fuel – and we know many boaters prefer to use ethanol-free (E0) when possible. … Unfortunately, as a result of the federal ethanol fuel mandates, boaters may face a much harder time this summer finding the E0 fuel they want. And with more E15 forced into the fuel supply by the RFS, the threat of accidental misfueling – especially at gas stations with blender pumps – is growing.”
“Even though the total (RFS) obligations are lower than the statutory requirements, the EPA is creating an untenable situation for the marketplace and raising the risk to motorcyclists and ATV owners. The country is not on track to meet the 2016 standards, and the distribution network can't absorb any more ethanol. The consumer demand simply is not there.”
Pressure to manufacture and sell more E15 to satisfy RFS mandates could significantly impact retailers. The vast majority of the country’s retail outlets cannot legally store and dispense blends of gasoline with greater than 10 percent ethanol content, according to the Petroleum Marketers Association of America (PMAA). Infrastructure compatible with higher ethanol blends can cost in the tens of thousands of dollars, PMAA said in prepared remarks, citing a farmer-owned cooperative in North Dakota that invested more than $178,000 in higher-blend infrastructure only to average a total of 92 gallons a day of gasoline blends over E10:
“A few years ago, the North Dakota Department of Commerce had a Blender Pump Program. A follow up survey was conducted by the North Dakota Petroleum Marketers Association which found that after the ‘commitment to offer higher blends’ conditions were met, that 64 percent of respondents had discontinued or planned on discontinuing the sale of E85 and other higher blends. The fallacy of the claim that new installations of blender pumps equates huge numbers of higher blend gallons sold is pretty plain to see.”
E15 and E85 aren’t the answers to the blend wall risk posed by the RFS. API’s Patrick Kelly also testified in Kansas City:
“EPA presumes demand for these blends will drive total ethanol volumes to exceed 10 percent of gasoline supply in 2017. History demonstrates that motorists have largely rejected E85 because – according to AAA data – the fuel economy penalty ends up costing consumers more money in the long run. It is not reasonable for EPA to assume any significant near-term ethanol volume increases from E15 or E85. EPA’s unrealistic market scenarios fail to account for the significant retail investments that are needed, particularly when only 7 percent of vehicles on the road were designed to use E85, and just more than 10 percent (including FFVs) were designed to use E15.”
As for E85, because of ethanol’s lower energy content, flex-fuel vehicles designed to use it get 15 percent to 27 percent fewer miles per gallon than when operating on conventional gasoline, according to the Energy Department.
The RFS is broken and needs to be repealed or significantly reformed by Congress. It’s a program that attempts to shape consumer and market behavior, and consumers stand to be the losers – potentially shouldering repair costs even as E0, a fuel that’s in demand, is put at risk of being crowded out of the marketplace in Washington’s push for higher-ethanol fuels.
About The Author
Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Previously, Mark was a reporter, copy editor and sports editor at an assortment of newspapers. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela have two grown children and six grandchildren.