By Robert Gough
Are biofuels good or bad for America?
It’s becoming harder to find a unanimous opinion.
In the past five years, social movements have defined often-opposing roles of biodiesel and ethanol in the petroleum sector. Simultaneously, as federal and state governments have ramped up mandates, public opinion about the worthiness of biofuels as petroleum substitutes has slid.
And while popular sentiment against oil grows with each new headline of environmental disaster or Middle Eastern conflict, motorists grow increasingly disinterested in purchasing ethanol and biodiesel blends. Questions about biofuels’ quality and mileage impacts — real or imagined — remain fixed in some drivers’ minds.
It’s easy to understand how fuel retailers feel caught in the middle between government regulations and consumer backlash. Integrating ethanol and biodiesel into a retail motor fuels offer is by no means an easy or affordable task.
In general, the petroleum marketplace has responded to the policy-driven biofuels push with a mixture of support and concern — embracing some changes while opposing others.
One success story has been the growing use of E10 (10 percent ethanol, 90 percent gasoline). Until 2006, reformulated gasoline included an oxygenate called methyl tertiary-butyl ether (MTBE), which made for cleaner exhaust fumes but was making its way into groundwater from leaking underground storage tanks. Because MTBE is a suspected carcinogen, tank leaks spawned a flurry of lawsuits. In 2006, when Congress declined to shield MTBE makers from these lawsuits, the marketplace switched almost overnight to ethanol.
Ethanol suddenly shot up in value in the summer of 2006, as blenders scrambled to find supply and prepare storage and delivery infrastructure for E10. Since then, however, E10 has consistently sold for less than gasoline, especially after figuring in the blending tax credit of 45 cents per gallon.
Blending E10 was also popular among marketers on a discretionary basis when the economics were favorable. This all could change by year’s end when the tax credit — the Volumetric Ethanol Excise Tax Credit — may expire without renewal or with a severe 9 cents per gallon reduction.
Since the U.S. Environmental Protection Agency (EPA) issued the renewable fuels standard (RFS) in 2007, ethanol blending has been mandated. This year, obligated parties must blend 12 billion gallons of ethanol. Failure to do so could result in fines of up to $37,500 per day, per violation.
The rapid rise in E10 usage has prompted an increase in the availability of CBOB (conventional blendstock for oxygenate blending), a lower octane gasoline that can’t be sold on its own unless “blended up” with ethanol. CBOB is now regularly shipped on large pipeline systems, but not ethanol, which cannot be shipped through the existing system given its tendency to attract water and promote corrosion. An ethanol pipeline project to bring the biofuel from the Midwest to the East Coast is being planned.
An even lower-octane blendstock may soon be required to accommodate higher than E10 blends. Because most passenger vehicles can only burn blends of up to 10 percent ethanol without fear of voiding warranties, demand is limited to a maximum of one-tenth of total gasoline demand. Currently, only flexible-fuel vehicles designed to run on blends up to E85 can burn blends higher than E10 under EPA regulations.
As soon as this fall, EPA may okay E15 for use in model year 2007 and newer passenger vehicles and, early in 2011, may extend that approved list to include passenger vehicles of model year 2001 and newer.
Retailers worry that making E15 legal for some cars and not for others will result in misfueling by motorists who won’t know which fuel to use or will simply choose the cheapest fuel. That could leave retailers on the hook for any damage done to misfueled customer cars. NACS supports legislation, H.R. 5778, the Renewable Fuels Marketing Act, to free retailers from liability arising from EPA approval of E15.
Whether the federal government, the courts or angry motorists will hold retailers responsible for misfueling is a big concern.
“It’s a big obstacle,” said Dick Mills, vice president of supply and distribution for Minneapolis-based Holiday Station-stores. “I’m a big ethanol proponent, but there are huge impediments to implementing this change.” Located in the heart of corn ethanol country, Holiday Stationstores has been selling E10 since 1985 and automobile manuals have been somewhat silent on the 10 percent blend, Mills said.
EPA estimates that 37.6 percent — 86 million vehicles in the current fleet — are model year 2000 or older and will remain a large part of the fleet for several years. Drivability issues, such as hard-starts and stalling, could occur if those cars are fueled with anything over E10. Higher blends could also damage fuel systems, resulting in leaks and possible voiding of a manufacturer’s warranty.
The American Petroleum Institute (API) warns that the amount of intentional misfueling could be significant, especially if cheaper ethanol makes E15 more affordable at the pump. Although color-coded nozzles, talking pumps and public relations campaigns might help deter accidental use of E15, only expensive nozzle gear changes or a clerk at the pump to monitor fueling would stop it completely.
And although some storage tanks can handle up to 100 percent ethanol, many are two to three decades old and weren’t designed to handle blends above E10. Leak detectors would also be taxed to keep up with the amount of water attracted to E15, API said.
In addition to auto manufacturers, the small engine and marine engine industries are particularly concerned since their systems aren’t set up to handle anything other than gasoline. Small engines can suffer damage from ethanol blends because these blends attract water, are corrosive to soft materials such as lines and fiberglass tanks and act as a detergent, loosening particles and dirt in lines and sending them into filters, which can rapidly plug.
As if motor vehicle liability weren’t enough, there’s the additional cost of new dispensing equipment to consider. Pump makers Gilbarco and Dresser Wayne can supply new dispensers designed for the higher ethanol blends — at a cost of $5,000 to $6,000 over current prices.
Until recently, Underwriters Laboratories (UL) — the leading authority on electrical device safety referred to by many insurers — did not certify pumps for dispensing higher than E10 blends. Now, Gilbarco and Dresser Wayne have both received UL certification for pumps that dispense E85, but legacy dispensers are not certified for higher than E10 blends.
Any blend above E10 will require a blendstock with an octane rating lower than CBOB, since greater concentrations of ethanol raise octane levels. No blender will want to give away octane by using feedstocks that bump the octane rating above what’s necessary. Also, any ethanol blend above E10 will offer a lower Reid vapor pressure (RVP) — a measure of the fuel’s volatility calculated in pounds per square inch or psi — but will no longer qualify for EPA’s one-pound RVP waiver, putting it in violation of federal Clean Air Act regulations. E10 requires state and federal authorities to grant a one-pound psi waiver for the blended fuel. Any retailer blending his or her own CBOB with ethanol in concentrations above 10 percent will be violating federal air pollution rules and will be subject to fines of up to $37,500 per day per violation.
Any mixture of ethanol requires tank owners to take precautions against corrosion and water accumulation. Although biodiesel moves more easily through existing infrastructure, it also has its own handling requirements, including heated lines to prevent gelling in cold weather.
The Federal Trade Commission in 2009 issued regulations requiring labeling of tanks and dispensers that supply
biodiesel blends of greater than 5 percent. However, since B5 blends and lower are called ultra low sulfur diesel (ULSD), biodiesel percentages could accumulate when ULSD loads are mixed, since both could contain B5.
To top it off, the $1.00 per gallon blending credit expired January 1 this year and efforts to revive it have failed. In the wake of its expiration, U.S. biodiesel production has been near zero. Despite the lapse of the credit, biodiesel mandates in some states and at the federal level have continued, while others have been pared back over cost and supply concerns. The RFS calls for 1.15 billion gallons of biodiesel to be blended during a combined 2009-2010 compliance period and 800 million gallons next year.
By enacting revisions of the RFS in 2007, Congress and then-President George W. Bush wanted the EPA to require obligated parties to blend a certain percentage of cellulosic fuel and advanced biofuels. To date, however, no commercial volume of cellulosic fuel has been produced, and EPA has, in the past two years of RFS2, revised its cellulosic blending target to just 6.5 million gallons in 2010 (down from 100 million gallons originally required) and between 5 and 17.1 million gallons in 2011 (down from 250 million).
Biofuels’ history is inextricably tied to the policies of the governments and interest groups promoting its use. Mandates and incentives, many of which are in flux and subject to political pressure, have made it difficult for traditional market forces of supply and demand to hold sway. That has fostered a deep sense of uncertainty about the long-term future of ethanol and biodiesel and made many retailers uncertain of their role in selling biofuel blends.
Robert Gough is the executive editor-renewables at the Oil Price Information Service (OPIS).