Thursday, August 8, 2013

Renewable Fuel Standards Hits the Wall

from USDA
The Environmental Protection Agency, EPA, has finalized the Renewable Fuel Standard, RFS, for 2013 and indicated that they will propose to cut the RFS for 2014. This is a response to the fixed volume of ethanol that the RFS requires as the gasoline use in the United States has fallen and the hearings that the U.S. House Committee on Energy and Commerce Subcommittee on Energy and Power have been holding to examine the RFS. Annual U.S. gasoline use has declined from its 142-billion-gallon peak in 2007 to about 133 billion gallons in 2012 and ethanol now represents 9.74% of gasoline. There appears to be a pratical limit of 10% of ethanol in gasoline. The so called "blend wall," as the point at which the U.S. gasoline infrastructure can no longer absorb additional ethanol is known, is the result of the pipelines, pumps and service station infrastructure not being able to handle gasoline with higher amounts of ethanol. There is also some question about the ability of a large number of automobiles to handle 15% ethanol in gasoline.

The EPA was first petitioned in 2009 to allow the sale of 15% ethanol gasoline, E15 and subsequently have approved the use of the fuel in about half of the cars on the road, automakers have approved less than 5% of cars on the road to use E15. It was thought that the percentage of ethanol in gasoline could simply increase to 15% to meet the RFS. The Renewable Fuel Association, RFA, “E15 Retailer Handbook,” outlines potential issues with the fuel. The handbook advises gasoline retailers that “some Underground Storage Tank systems and related underground equipment may not be compatible with E15 blends” and cites the Underwriters Laboratories’ warning that “some equipment, both new and used… demonstrated limited ability to safely accommodate exposure to fuels such as E15.”

The U.S. House Committee on Energy and Commerce Subcommittee on Energy and Power have been holding hearings examining the merits and shortcomings of the RFS. AAA in its role of representing consumer interests urged the Committee to consider whether adjustments to the target volumes of ethanol need to be made to avoid putting consumers and their automobiles at risk. In his testimony before the Committee Robert L. Darbelnet President and CEO of AAA stated “If the only way to meet the RFS requirement is to introduce E15 before agreement has been reached on which vehicles can safely use it and the consumer has been adequately educated, then the RFS requirement should be modified.”

The Energy Independence and Security Act (EISA) established the Renewable Fuel Standard, RFS, program. The RFS program was created in 2005, and established the first renewable fuel volume mandate in the United States. The original RFS program required 7.5 billion gallons of renewable fuel (primarily ethanol) to be blended into gasoline by 2012. Under the Energy Independence and Security Act (EISA) of 2007, the RFS program was expanded to include diesel, in addition to gasoline; increase the volume of renewable fuel required to be blended from 9 billion gallons in 2008 to 36 billion gallons by 2022; and established new categories of renewable fuel, and set separate volume requirements for each one. In addition, it was required that the blended fuel emit fewer greenhouse gases than the original petroleum fuel.

Compliance with the RFS is implemented through the use of tradable credits called Renewable Identification Numbers (RINs), each of which corresponds to a gallon of renewable fuel produced in or imported into the United States each year. This program was developed to encourage the production of renewable fuel and lessen the nation’s dependence on foreign oil. Things change, in the past few years there has been a domestic boom in oil production, the growth in fuel used for transportation has not met projections, and for the past few years drought has significantly impacted the corn crop in the United States.Last year the subsidized ethanol production took half the corn crop.

EPA has continued to enforce the increases in the RFS, though they have received many requests for waivers, and objections. EPA has determined for the most part that the objections raised did not warrant a reconsideration of the RFS requirements; however, a January 2013 ruling by the U.S. Court of Appeals required the agency to reevaluate projections for biofuel to reflect market conditions. In addition, it became clear that the mandate for renewable fuel was going to exceed 10% of all fuel sold. Gasoline (and other fuels) would hit the “E10 blend wall” in 2014.

Most gasoline sold in the U.S. today is E10, it contains 10% ethanol. The “E10 blend wall” refers to the difficulty in incorporating ethanol into the fuel supply at volumes exceeding 10% and since the demand for gasoline has not grown as expected by the EPA due to reduced driving and increased mileage in the cars on the road (see mileage emission standards). The industry cannot practically incorporate more than 10% ethanol into gasoline. So, on Tuesday the EPA announced that it will propose to use “flexibilities” in the RFS statute to reduce both the advanced biofuel and total renewable volume requirement 2014. The EPA is going to adjust the mandate to not exceed the 10% practical limit on fuel blends.

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