By John Eichberger
Very soon, the Environmental Protection Agency (EPA) will authorize the sale and use of E15 (gasoline containing 15 percent ethanol). And while many retailers will be approached to increase the ethanol volume of the gasoline they sell — and be very tempted — it’s not so easy a decision. Critical technical, legal and marketing challenges complicate entering this new marketplace.
Today, consumers can purchase gasoline with up to 10 percent ethanol in almost every single city and county. Yet, even with full penetration of the market, 10 percent ethanol will still not satisfy federal mandates, which call for an increasing volume of renewable fuels each year to reach 36 billion gallons by 2022.
Full use of ethanol at 10 percent will only yield 14.5 billion gallons to the U.S. motor fuels market — far short of the federal mandate for 2022. In fact, without an increase in the volumetric blend threshold for ethanol, the market will be unable to meet the 15.2 billion gallons mandated for 2012.
To overcome this hurdle, the ethanol industry has petitioned EPA to approve the use of E15. But EPA is authorized to approve this request only if it can determine that the use of this higher blend will not result in increased emissions or impair the performance of the engines in which it’s used. As a result, EPA is working with a variety of stakeholders and the Department of Energy to conduct E15 performance and emissions testing in a variety of engines. But the testing has been time consuming and political pressures are mounting for EPA to act.
Most reports indicate that EPA may issue a partial waiver this fall authorizing the use of E15 in vehicles manufactured in model year 2007 or later. An extension of the partial waiver to include vehicles manufactured in 2001 or later may be issued early next year. This pending decision puts retailers in a difficult situation fraught with challenges.
The ethanol community is vigorously advocating that retailers install blender pumps at their locations to facilitate the sale of mid-level ethanol blends. Dispenser manufacturers have also extended warranties to cover blends up to E25. What these advocates fail to recognize in their marketing campaigns, however, is that these practices flat-out violate federal law.
Retail equipment that stores or dispenses motor fuels products must be listed as compatible with that particular fuel by a nationally recognized testing laboratory. Currently, the only laboratory testing and listing such equipment is Underwriters Laboratories (UL).
Until early this year, UL had not listed any dispenser as compatible with any fuel containing more than 10 percent ethanol. Right now, only two units are UL-listed as compatible with E25 and two as compatible with E85. That’s right — until this year, there were no dispensers legally listed as compatible with E85.
You might have figured out then, that those retailers that have been selling E85 — or even E25 — are violating federal law. The regulations of the Occupational Safety and Health Administration (OSHA) require that all retail petroleum equipment be listed as compatible with the fuel being sold.
Tank insurance policies and bank loan covenants also require that retailers comply with all applicable laws and regulations, and local fire codes and other regulations require listed equipment. In addition, failure to use listed equipment exposes the retailer to lawsuits of gross negligence, which lead to exemplary damages that can quickly put a company out of business.
Unfortunately, the majority of retailers lack the means to have their existing equipment evaluated and relisted as compatible with new fuels. UL policy stipulates its listings apply only to those particular units that were manufactured after the date of certification. Consequently, under existing law, retailers who want to increase the ethanol volume in the gasoline they sell must purchase all new equipment. In addition, that retailer must take special care to ensure that their underground equipment is also listed as compatible or replace the entire system — an obviously expensive undertaking and one that wouldn’t be necessary, if it were not for pesky federal law.
On February 19, 2009, UL announced that dispensers listed as E10 compatible were indeed safe to sell up to 15 percent ethanol. At the time, UL said it supported the decision of local fire marshals to provide retailers with waivers to sell this higher-ethanol product. However, UL didn’t change the listing specifications of those dispensers, so they remained legally authorized to sell only E10.
Further, local fire marshals do not have the authority to waive federal law or limit the ability of an individual to claim gross negligence against a retailer for using non-listed equipment. So while retailers may have equipment experts considersafeandcompatiblewith15percent ethanol, they are unable to gain the legal cover to sell this product.
The pending announcement by EPA raises a new problem: How will you prevent a consumer with a non-authorized engine (for example, a pre-2007 vehicle, boat or lawn mower) from misfueling with E15? No barriers currently exist to prevent these non-approved engines from filling up, yet if you do not prevent such misfueling you could be held liable for violating the Clean Air Act (carrying a fine of up to $37,500 per violation) and could be sued for any engine damage that may occur.
And we can take a lesson from history. When the market transitioned from leaded to unleaded fuel, smaller nozzles dispensed unleaded fuel in smaller fill pipes on cars to prevent larger leaded nozzles from misfueling unleaded-only cars. However, unleaded fuel was typically more expensive and to save a few bucks, consumers took extraordinary measures to bypass the misfueling countermeasures. This included filing out the fill pipe in their vehicles or inserting a funnel into their gas tank to accommodate the leaded nozzle.
These actions destroyed the catalytic converter in unleaded vehicles and triggered a Clean Air Act violation. EPA then penalized the retailer for not preventing the consumer from bypassing the misfueling countermeasures.
Unlike the transition to unleaded, there are no physical impediments to head off E15 misfueling. And again, consumers could be economically incentivized to misfuel their engines. Others may not believe any problems will come from using higher ethanol blends in older engines. Whether the individual is looking for a lower price or simply ignoring expert advice and official warnings, those who misfuel will leave the retailer holding the bag.
EPA is developing regulations to ensure proper labeling of E15 dispensers to educate the consumer, but the agency is not entertaining our requests to absolve the compliant retailer from Clean Air Act violations in the event a consumer ignores those warnings.
According to EPA, it will not go after the innocent retailer. Keep in mind though, that’s what they said 30 years ago and the law has not changed. Furthermore, there exists a private right of action in the Clean Air Act that enables individuals, or groups like the Sierra Club, to sue retailers for Clean Air Act violations.
Marketing more renewable fuels provides a retailer with some public relations advantages, but retailers must also be wary of potential backlash.
The legal consequences of misfueling are real, but they require the legal action of an aggrieved person. However, it’s very possible that a consumer who purchases E15 from a retailer and uses that product in his 1957 Corvette, lawn mower, snowmobile or speed boat may not sue the retailer — but if the E15 results in performance problems, will he associate those problems with the ethanol or will he just assume the retailer sold him “bad gas”?
Potential legal liability is critical issue, but so too is your reputation.
The emergence of new fuels in the market is a guaranteed certainty, whether we’re talking E15 or some other formulation yet to be developed, which may not even include ethanol. The challenges facing retailers who sell E15 are likely the same challenges of new fuel blends. This is why NACS is supporting legislation that will smooth the path for retailers to take advantage of new fuel opportunities in a safe and legal manner.
H.R. 5778, the Renewable Fuels Marketing Act of 2010, introduced by Representatives Mike Ross (D-AR) and John Shimkus (R-IL), will direct the EPA to issue guidelines by which retail petroleum equipment can be determined compatible with specific fuels. Once EPA issues the guidelines, retailers can have their existing equipment evaluated for compatibility with whatever new fuel comes on the market. Once determined compatible according to these guidelines, the retailer will be considered compliant with all applicable laws and regulations, including tank insurance policies and bank loan covenants. Further, equipment manufacturers will have an expedited system through which new equipment can be authorized for commerce, eliminating a bottleneck that has stifled innovation.
Second, Representatives Ross and Shimkus want to ensure that compliant retailers are protected from misfueling legal action. H.R. 5778 states that if the retailer complies with the labeling requirements issued by EPA and a self-service consumer disregards the labels and misfuels, the retailer cannot be held liable for Clean Air Act violations or for the voiding of the consumer’s engine warranty. This provision essentially places personal responsibility on the consumer — if you ignore our warnings, you are responsible for the consequences.
On the final challenge, once new fuels are authorized for sale in the market, NACS will serve as a conduit between the experts engaged in marketing these fuels successfully, legally and profitably, and retailers who wish to enter these new markets. Also, once EPA issues the regulations and H.R. 5778 is signed into law, NACS will work with the ethanol industry to provide retailers with tips to maximize the opportunities and minimize the risks associated with selling E15.
The future of renewable fuels is here, but it comes with a lot of baggage. NACS is working hard to eliminate some of the legal hurdles that stand between you and the next generation of transportation fuels, but you must pay careful attention to the issues at play.
If EPA does approve E15 for use in certain engines, this opens up some real opportunities for certain retailers, but these do not come free. Pay careful attention. If someone tries to convince you that a new fuel product can only provide benefits, take some time to find out what they are not telling you.
John Eichberger is the vice president of government relations at NACS. He can be reached at (703) 518-4247 or jeichberger@nacsonline.com.