e15

Post image for EPA Doubles Down on E15 — Literally

The Soviet-style production quota for ethanol, pompously titled the Renewable Fuel Standard (RFS), is in trouble. The RFS requires more ethanol to be sold than can actually be blended into the nation’s motor fuel supply. This “blend wall” problem will get worse as RFS production quota and federal fuel economy standards ratchet up, forcing refiners to blend more and more ethanol into a shrinking motor fuel market.

Here’s the math. Total domestic U.S. motor fuel sales in 2011 stood at 134 billion gallons. Although the U.S. population is increasing, overall motor gasoline consumption is projected to decline by 14% as fuel economy standards tighten between now and 2025. Already, the 2013 blending target for “conventional” (corn-based) biofuel – 13.8 billion gallons — exceeds the 13.4 billion gallons that can be blended as E10 (a fuel mixture containing 10% ethanol).

By 2022, the RFS requires that 36 billion gallons of biofuel be sold in the domestic market, including 21 billion gallons of “advanced” (low-carbon) biofuel, of which 16 billion gallons are to be “cellulosic” (ethanol derived from non-edible plant material such as corn stover, wood chips, and prairie grasses). Because commercial-scale cellulosic plants still do not exist, the EPA repeatedly has had to dumb down the cellulosic blending targets.

Eventually, though, the EPA will have to mandate the sale of at least a few billion gallons of advanced biofuel, just to keep up the pretense that the RFS is something more than corporate welfare for corn farmers. In any event, by 2015, refiners will have to sell 15 billion gallons of corn-ethanol — roughly 1.6 billion gallons more than can be blended as E10.

A side effect of the blend wall is the recent “RINsanity” of skyrocketing biofuel credit prices. The EPA assigns a unique Renewable Identification Number (RIN) to every gallon of ethanol produced and a credit for each gallon sold as motor fuel. Refiners who cannot blend enough ethanol to meet their quota can use surplus credits accumulated during previous years or purchased from other refiners.

Because the blend wall makes the annually increasing quota more and more difficult to meet, RIN credits are suddenly in high demand. Credits that cost only 2-3 cents a gallon last year now sell for about 70 cents. Consumers ultimately pay the cost — an extra 7 cents for each gallon of E10 sold, or an additional $11.7 billion in motor fuel spending in 2013, according to commodity analysts Bill Lapp and Dave Juday. Ouch! Ethanol was supposed to reduce pain at the pump, not increase it.

The ethanol lobby offers two fixes for the blend wall. Neither is workable. The EPA thinks it has another card up its sleeve. [click to continue…]

Post image for Hill Briefing Shreds Renewable Fuel Standard

This morning I attended a briefing on “The Renewable Fuel Standard: Pitfalls, Challenges, and the Need for Congressional Action in 2013.” Steve Ellis of Taxpayers for Common Sense moderated a panel of six experts. Although each expert spotlighted a different set of harms arising from the RFS, reflecting the core concern of his or her organization, this was a team effort, with panelists frequently affirming each other’s key points. Collectively, they made a strong case that the RFS is a “costly failure.” The briefing’s purpose was to demonstrate the need for reform rather than outline a specific reform agenda. Panelists nonetheless agreed that, at a minimum, Congress should scale back the RFS blending targets for corn ethanol.

Kristin Sundell of ActionAid explained how the RFS exacerbates world hunger, undermining U.S. foreign aid and international security objectives. The RFS diverts 15% of the world corn supply from food to fuel, putting upward pressure on food prices. A recent Tufts University study estimates that U.S. ethanol expansion during the past 6 years cost developing countries more than $5.5 billion in higher prices for corn imports. In Guatemala, the additional expense ($28 million) in 2011 effectively cancelled out all U.S. food aid and agricultural assistance for that year. Food price spikes, partly due to the RFS, were a factor in the recent turmoil in the Middle East. ”Congress can’t control the weather, but they can control misguided energy policies that could cause a global food crisis,” Sundell said.

Kristin Wilcox of the American Frozen Food Institute discussed the RFS’s impact on food consumers. Corn is both the chief animal feed and an ingredient in about 75% of all frozen foods. Consequently, RFS-induced increases in corn prices drive up “the cost of producing a wide range of foods and leads to higher food bills for consumers.” In addition, when corn prices go up, so do the prices of other commodities that compete with corn such as wheat and soybeans. ”Our position is very simple,” Wilcox said: “food should be used to fuel bodies, not vehicle engines.” She concluded: “Trying to change the price at the pump should not burden consumers with increased prices in the grocery check out aisle.” [click to continue…]

Post image for Ethanol Litigation: Another Powerful Dissent by Judge Kavanaugh

On Tuesday, the D.C. Circuit Court of Appeals denied by 7-1 a petition for a full-court re-hearing of its 2-1 decision last summer to dismiss litigation challenging EPA’s approval of the sale of E15 at retail motor fuel pumps. E15 is a blend of 85% gasoline and 15% ethanol.

In both decisions, Judge Brett Kavanaugh was the sole dissenter, and both times he trounces the majority on the facts and statutory logic.

In a previous post, I reviewed Kavanaugh’s dissent in the August 2012 decision. Herewith a brief recap:

  • The 2-1 majority held that petitioners – refiners and livestock producers — would not be injured by the EPA’s grant of a waiver authorizing the sale of E15 and thus lack standing to challenge the agency. The majority somehow missed the obvious.
  • There being no commercial substitute for ethanol to meet the ever-increasing production quota established by the Renewable Fuel Standard (RFS), EPA approval of E15 is a de facto mandate on refiners to increase the blend from E10 to E15 — a roughly 50% increase from about 14 billion gallons to 21 billion gallons annually. That will necessarily impose a cost on refiners. 
  • In addition, because virtually all U.S. ethanol is made from corn, approving E15 will increase the demand for and price of corn, imposing a cost on livestock producers, who purchase billions of bushels annually to feed their hogs, cattle, and poultry.
  • Clearly, EPA approval of E15 injures both petitioner groups, so the Court should have reviewed the petitions on the merits.
  • Section 211(f) of the Clean Air Act (CAA) prohibits the EPA from approving the sale of any fuel additive that causes or contributes to the failure of emission control systems in any vehicle manufactured after 1974. 
  • By the EPA’s own admission, E15 can contribute to emission control failures in vehicles manufactured during model years 1975 through 2000.
  • Therefore, the EPA lacks authority to approve the sale of E15.

Kavanaugh’s dissent in Tuesday’s decision reiterates those points but also adds some illuminating refinements. [click to continue…]

Post image for U.S. Court of Appeals: Food, Fuel Groups not Injured by EPA’s Approval of E15, Hence Lack Standing to Sue — Huh?

Today, the D.C. Circuit Court of Appeals found in a 2-1 decision that automakers, petroleum refiners, and food producers lack standing to challenge the Environmental Protection Agency’s (EPA’s) approval of E15 — a blend of gasoline and 15% ethanol — for motor vehicles manufactured after 2000.

Petitioners argued that the EPA acted illegally. Section 211(f) of the Clean Air Act (CAA) prohibits the introduction of new fuels and additives into the U.S. motor fuel supply unless the manufacturer demonstrates that such fuels or additives “will not cause or contribute to a failure of any emission control device or system” of any motor vehicle, motor vehicle engine, nonroad vehicle, or nonroad engine manufactured after model year 1974. By the EPA’s own admission, E15 can contribute to emission failures in vehicles manufactured between 1975 and 2000. Petitioners argued that CAA 211(f) gives the EPA no authority to grant a “partial waiver” for the sale of new fuels or additives to a subset of vehicles (e.g., model years 2001 and later).

Chief Justice David Sentelle and Judge David Tatel held that petitioners lack standing to sue. According to Sentelle and Tatel, petitioners could not show that the EPA’s approval of E15 would likely cause a ‘concrete’ and ‘imminent’ injury to any automaker, refiner, or food producer.

I’ll grant that the automakers’ asserted injury may be ‘speculative’ or ‘conjectural.’ However, it is hard to fathom how the EPA’s approval of E15 would not impose substantial costs on both petroleum refiners and food producers. The switch from E10 to E15 means a 50% increase in the quantity of ethanol blended into the nation’s motor fuel supply, potentially increasing ethanol sales from 14 billion gallons a year to 21 billion gallons. Since nearly all U.S. ethanol today comes from corn, the switch to E15 could substantially increase demand for corn, corn prices, and the quantity of corn diverted from feed and food production to motor fuel production.

Sentelle and Tatal argued that refiners and food producers are not injured because the EPA is merely giving refiners the ‘option’ to blend and sell E15, not forcing them to do so. But this is a distinction without a difference. As the justices acknowledge, the Renewable Fuel Standard (RFS) will soon require refiners to sell more ethanol than can be blended as E10. Thus, if the EPA waiver is upheld, refiners will have no real choice but to blend and sell E15, and this will impose substantial, predictable costs on both refiners and food producers. Their injury is concrete and imminent. The Court, therefore, should have reviewed the case on the merits and struck down the waiver as exceeding the EPA’s authority under CAA Section 211.

Judge Brett Kavanaugh’s dissent is so powerful and convincing that I will be surprised if the case is not appealed and overturned. Excerpts from Kavanaugh’s dissent follow.   [click to continue…]

Post image for Fraudulent Renewable Fuel Credits Continue to Surface

When the government introduced the mandates for ethanol and related biofuels, they needed a way in which companies could verify that they were complying with the Energy Independence & Security Act of 2007. For whatever reason, the decided mechanism would require that companies purchase credits to demonstrate that they had complied with the mandate: a renewable identification number (RIN). Each RIN is theoretically tied to a gallon of ethanol, biodiesel, or similar renewable fuel. However, because the RINs can be sold and traded similar to stock, in practice the pairing of a RIN with a particular gallon of fuel is somewhat superficial.

Unfortunately, this government created market in RINs has created an opportunity for criminally-minded entrepreneurs to scam the companies who are attempting to comply with the law by creating fake RINs and selling them in the marketplace. Note that these oil companies are required by law to purchase these credits, and its often difficult to verify that they are genuine, leading oil companies to often completely bypass small producers and only purchase biofuels and credits from larger, recognizable producers, a somewhat unique barrier to entry for small firms (suspicion of fraud). The latest case in fraudulent RINs surfaced late last month involved the sale of 60 million credits worth roughly $84 million, the third big bust in recent years ($ub required):

According to the violation notice, EPA determined that the fake credits were generated between July 16, 2010, and July 15, 2011. The Clean Air Act allows the agency to assess a civil penalty of up to $37,500 a day for each violation.

“When fuel credits are generated or used that do not represent qualifying renewable fuel, it undermines Congress’ goals in creating the program, creates market uncertainty and is a violation of the standard,” EPA said in a statement emailed to Greenwire. “EPA enforcement of the standard deters fraud and abuse in the system, helps to restore certainty in the market and ensures that the goals of Congress are met.”

This is the third notice EPA has issued since November to companies allegedly producing fake credits, and it is likely not the last.

Last November, EPA accused a Maryland man of generating $9 million worth of fraudulent renewable identification numbers (RINs) on his computer. The 38-digit numbers represented 22 million gallons of biodiesel that was never produced at the man’s company, Clean Green Fuel LLC.

EPA issued another violation notice in February to Texas-based Absolute Fuels LLC for allegedly creating 48 million fake credits worth approximately $62 million. The agency said CEO Jeffrey Gunselman used the money to purchase an aircraft and a number of vehicles, including a 2010 Mercedes Benz and a 2011 Bentley.

Yes, creating markets that are easy to fraudulently manipulate would indeed seem to undercut the goal of the ethanol mandate. Thankfully, unlike in previous cases, the EPA is working constructively with the companies who have been subjected to these scams rather than fining them for getting caught up in a problem the government has created.

This is yet another reason why moving forward with increasing blends of ethanol is not a good idea. Freeze the mandate at 2012 levels if it can’t be scrapped completely. Yes, the short term capital losses from ethanol investments  will be realized, and this will hurt a lot, but the alternative is to continue investments into a fuel that is still more expensive than gasoline once you adjust for its lower energy content. Or we can continue pretending that whatever minute environmental benefits accrue from corn ethanol are worth the absurd push to encourage ethanol use beyond E10. We can also continue to pretend that cellulosic ethanol is around the corner, and won’t suffer from the same problems that have haunted corn ethanol: high prices and heavy land use.

 

Post image for Support for Ethanol is Still Unfortunately Bipartisan

The Washington Times today has an editorial chiding the U.S. Environmental Protection Agency for its decision to proceed with approval and support for higher blends of ethanol (E15) to be sold nationally. There are still a number of complications that seem likely to get in the way of (i.e., the lack of price competitiveness) of widespread use of E15, but recent decisions by the EPA are unfortunately steering the country down that path. However, the editorial makes one comment that doesn’t seem quite right:

This issue highlights the danger of allowing liberal zealots to set public policy. They are so obsessed with micromanaging the lives of others and fulfilling their environmental fantasies that they give no thought whatsoever to the real-world consequences of their schemes.

As a fuel, ethanol is highly corrosive. The E15 gasoline blend reduces gas mileage by 6 percent compared to real gasoline. That adds up to about $150 a year for the average vehicle owner. This expense and the mechanical danger serve absolutely no purpose beyond filling the pockets of wealthy farming giants. Congress needs to repeal the ethanol mandate to protect American pocketbooks – and the car warranties of millions of motorists.

Assuming they are using ‘liberal’ in the liberal versus conservative sense,  ethanol has (both historically and to this day) been supported by both liberals and conservatives alike. Indeed, true market-oriented politicians oppose interventions in our energy markets. However, those politicians are few and far between as politicians from both sides rarely have issue with sacrificing their alleged principles in order to support local constituencies or interest groups. [click to continue…]

Post image for Ethanol Tax Credit More Likely to Expire

The ethanol compromise did not make it into any debt ceiling negotiations and its future is now looking bleaker than ever before. The Congressional ‘super-committee’ established by the debt ceiling negotiations will have to decide by November 23rd some manner to reduce the deficit by $1.5 trillion or face potentially unpopular automatic spending cuts to defense and discretionary spending (though USA Today writes that these “threats” have failed in the past). None of the rumored super-committee members seem to be from regions that would require their support of the ethanol industry

The ‘ethanol compromise’ had legs because it funneled money into the domestic ethanol industry while still maintaining a facade of deficit reduction. It would have collected $2 billion in revenue from the ending of the domestic tax credit as of July 21 and used a small amount less than that to spend on items near and dear to the ethanol industry (mainly ongoing support for cellulosic ethanol and money for the installation of blender pumps at fueling stations), hence their support.

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Post image for The Ethos of the Ethanol Industry

Bob Dineen, writing in Ethanol Producer Magazine:

This may seem a daunting task but the industry has no other choice than to do the hard work necessary to drive ethanol market expansion and accelerate this industry’s evolution.  As we have clearly seen, no one is going to do it for us.  The success of E15 and the future of this industry are firmly in our capable hands.

That about sums up their attitude. Wouldn’t it be easier if the government would do it for us? Because years of tax credits, foreign tariffs, loan guarantees, national mandates that require other companies to purchase your products, and state support have not been enough. No, they face the daunting task of actually having to convince consumers to buy more of their product than they’re already required to. Poor guys. After the EPA approved E15 for use in MY2001-present vehicles, the ethanol industry is charged with the difficult task of convincing gas stations to sell E15 (and for consumers to buy it) despite it providing lower fuel efficiency per dollar spent.

 

Post image for Ethanol Policy Updates: E15 and Tax Credits

The EPA has finalized label requirements for E15, backing down a bit from initial proposal which included the word ‘caution.’ The new label, as you can see, is a slightly less alarmist ‘attention.’ I will note that the new label does not point out in any form that ethanol will provide fewer miles per gallon for your vehicle. Adjusted for energy content, ethanol is more expensive than gasoline. However, if you do not adjust for energy content, ethanol costs less than gasoline. Being that the label doesn’t point this out, it seems that consumers might fill up with E15 as it will be slightly cheaper than E10, as few are aware that they will be reducing their fuel economy when moving from E10 to E15. I suspect that the government would be taking action if a private company were to do this.

The Corn Grower’s Association has weighed in, and they are unsurprisingly less than thrilled despite the fact that the EPA kowtowed to their demands:

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Post image for EPA Continues the E15 Push

Reuters is reporting that the White House has given its seal of approval to the EPA’s proposed label for E15 (85% gasoline, 15% ethanol). The picture above is of an earlier draft label, no actual images are public yet (to my knowledge) of what the final image ended up being. I suspect the label will be quite similar though it will change 2007MY to 2001MY.

Despite cheers from the ethanol industry, its not clear where the path goes from here. The EPA has suggested that E15 could be sold across the country by September, but a number of gasoline stations are in opposition. Here is a letter (.pdf) sent to Lisa Jackson from the National Association of Convenience Stores (NACS) and the Society of Independent Gasoline Marketers of America (SIGMA), whom together represent roughly 80% of retail fuel sales in the United States. In it they write:

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