Is EPA At War With The Ethanol Industry?

Following my recent series of ethanol articles, I engaged in a substantive discussion with Douglas A. Durante, who is the Executive Director of the Clean Fuels Development Coalition, a pro-ethanol advocacy group. I am publishing our exchange in two articles.

In Part 1, we discussed the origins of the Renewable Fuel Standard (RFS), and whether a different approach is needed (my position).

I argue that a national approach that pits powerful interests against each other will always be subject to national politics, and that adds a lot of unpredictability to the ethanol industry. I believe that a better approach is for Midwest states to be more proactive in driving Midwest demand, where political power will always favor pro-ethanol policies. There are many ways to accomplish this, some of which I have described in previous articles.

Today, in Part 2, we discuss Doug’s argument that EPA has engaged in an ongoing battle that has hurt the ethanol industry.

Doug: Your notion of flex fuel vehicles (FFVs) and E85 [RR: A blend of 85% ethanol and 15% gasoline] is not the answer, although it could be part of the answer. E85 is the lowest value of ethanol, it should be used in 20-30% blends to maximize its octane and displace toxics.”

Robert: Why is E85 the lowest value of ethanol? If E85 was consistently cheaper than gasoline or E10 based on dollars per mile driven, wouldn’t it become a much more valuable (and much bigger) market?

Doug: It’s a technical reality that despite ethanol’s many advantages like octane, it has less BTUs and FFVs will get less mileage. So, it must be priced accordingly. When it is, it works. But ethanol price tracks gasoline and there are certain price points where E85 can’t sell.  With $3 gasoline for example, that could be a $0.60/gallon discount.  Why would you want to sell at that price when you can replace toxic additives like toluene at $3?  And sure, you can show me E85 sales in California but that is due to the very government intervention you oppose due to the low carbon credits the state issues. If it works in that particular application, then great.

EPA has phased out any incentives for automakers to make FFVs, so that is simply not practical to go that route nationwide.  As noted, it can be part of the answer but with 20 million FFVs on the road and 260 million conventional vehicles, it has flat-lined.

Automakers don’t like FFVs, they say they are not going to make them, and have done little to promote them or increase availability. I know, we had a FFV Awareness Campaign for years and gave up when we opened a station in D.C. and none of the local Chevy dealers had a FFV to bring to the event. Try going to a dealer and ask for a FlexFuel Vehicle — they do not know what you are talking about. They used to put yellow gas caps on FFVs to help inform consumers they had this option and then got rid of them too.

So look at it from an ethanol standpoint: I have a low-cost, low-carbon product that will increase octane, which will allow automakers to increase compression and get much better mileage, allowing them to cost effectively meet ever increasing fuel economy/greenhouse gas (ghg) requirements and I can go head to head with my competition which is anything coming out of the oil barrel. I replace the most carbon intensive, harmful parts of gasoline at a better price. Now that’s a high value market.”

Robert: If all these things are true, then why would a mandate even be needed? Refiners are interested in making money. They must buy oil just like they could buy ethanol. If you can supply ethanol at a better price (without RIN costs hanging over them), then I think they would be pushing as much ethanol into gasoline as they can.

Doug:  Agree, but how does that concept meet reality when EPA says E15 is gasoline but E20, 30, etc. is not? I think we will get into the details later but if we had full access to the market through regulatory relief, mandates wouldn’t be needed.”

Robert: But if the Midwest has incentives to boost E85 usage, and those sales start to climb, automakers are going to respond to that demand. At present there are plenty of FFVs in the Midwest to soak up all the ethanol the industry could produce — if the price is right. I would also like to correct something you said earlier. I am not against government intervention. In fact, I am calling for more state-level government intervention in the Midwest. I think intervention there versus more intervention at a national level will be more stable over time.

Doug: I am not aware of much in the way of state incentives to boost E85 (other than California’s carbon credits), but if all cars were allowed to run on any blend of ethanol you wouldn’t need any. After decades doing this, I am absolutely convinced that this is not a question of chicken or egg when it comes to E85 and FFVs — the cars simply have to come first. If cars are approved to run on a fuel—any fuel—then the fuel will follow. It just can’t work the other way around. Sure, a bump in sales will get some attention but there is no way the autos will start making FFVs without some reward. Just ask them. At a time when they are getting pounded with market-altering electric vehicle (EV) requirements, why would they even consider that? It’s for that reason we are focusing on mid-level blends in conventional vehicles.”

Robert: But there are already far more FFVs on the roads today than there is demand for E85. So the cars are there – at least enough to kick things off. Further, aren’t there blender pumps in many places in the Midwest? I have had plenty of people tell me that they use E30 in their vehicles. You seem to imply that this is illegal. Could you clarify? I am arguing for state-level incentives to make this a bigger market.

Doug: Quite the contrary, we argue that since ethanol is part of what we would call the base fuel in the U.S., defined by the fact that E10 is the certification fuel for emissions and mileage, it should be clarified that it is legal. The issue is now the legality of dispensing it. Yes, before the autos completely turned away from FFVs, blender pumps seemed to be the answer to allow for regional economics, FFV availability, state incentives, etc. and they still are. Blends of E30 show little if any mileage loss and are a high octane, economic force that checks all the boxes. Even DOE has acknowledged E30 as an optimum blend.

The new problem we face, and another example of how EPA is littering the pathway with sand, mud, potholes and land mines is the recent rule allowing E15 in which EPA has defined a blender pump dispensing anything other than E15 or E85 as a fuel manufacturer and subject to the same regulations as a refinery.  Since they have only approved volumes of 15% or 85%, anything else would be illegal.”

Robert: I think as long as environmental specifications are being met, people should have the freedom to put what they want in their tanks, whether that’s 100% gasoline, E30, or E85. But my objection to the current system is that it puts the ethanol industry in this position of having to lobby the federal government to keep pushing the RFS volumes higher. That wouldn’t be the case if the Midwest instead focused on its own backyard. Even if it’s E30 – that fine. There’s more than enough potential E30 demand in the Midwest to soak up all the country’s ethanol production, and to do so in a way that renders you immune to national politics.

Doug: We are legally capped in the legislation at 15 billion gallons of starch-based corn ethanol so we aren’t pushing for higher volumes. I think that is a biodiesel issue which I am not involved in, so you are correct in that sense.  And while I suppose you are right in that we are fighting for the status quo, when the federal government says we have a program that guarantees a home for 15 billion gallons of corn ethanol for example, industry uses its own money and builds that much capacity, but then the same government cuts that market with the waivers, that is a clear example of moving the goalposts.