The People of America's Oil and Natural Gas Indusry

Consumers, Small Businesses and the RFS

Mark Green

Mark Green
Posted September 2, 2015

Finalized federal requirements for ethanol use in 2014, 2015 and 2016 under the Renewable Fuel Standard (RFS) are scheduled to come out later this year. As EPA completes work on them, the interests of American consumers should be put ahead of special ethanol interests. At the same time, policymakers should recognize that the RFS is broken, out of date and should be repealed.

Ethanol supporters argue that RFS mandates can be met by pushing out more E15 and E85 fuel, which contain higher levels of ethanol than E10 gasoline that’s standard across the country. But this would disregard potential risks to consumers and small businesses. A number of organizations argue that point in official comments to EPA on the RFS, which can be found here.

First up, AAA. The venerable motoring organization is concerned because its analysis shows only about 10 percent of vehicles on the road today can operate safely on E15. That concern is backed by studies that have shown vehicle engines and fuel systems could be damaged by using E15, as well as manufacturers’ warnings against using E15 in vehicles that weren’t designed for it – reflected in this chart:

warranty

AAA:

AAA continues to believe that E15 is not ready for primetime – the proper protections have yet to be met to prevent misfueling and more consumer engagement and awareness is needed as E15 continues to enter the marketplace. … Without the appropriate consumer safeguards being put in place, as the availability of higher blends of ethanol enter the market, AAA asserts that many motorists are being put at risk of misfueling their vehicle. … We recognize (ethanol’s) benefits, but strongly believe that these fuels should be incorporated into the market in a manner that does not put consumers and their vehicles at risk.

Joint comments by the Society of Independent Gasoline Marketers of America (SIGMA) and the National Association of Convenience Stores (NACS) – whose members represent about 80 percent of retail fuel sales in the U.S. – say that government policy should reflect market realities:

Fuel retailers’ customers do not purchase products because members of SIGMA and NACS sell them; members of SIGMA and NACS sell products because their customers purchase them. To date, very few retailers that sell mid-high ethanol-gasoline blends such as E15 or E85 have seen substantial sales of these products. Quite the opposite, most retailers that sell E15 or E85 have yet to see substantial sales of these products. Indeed, even consumers with flex-fuel vehicles that are compatible with E85 tend to purchase E10.

SIGMA and NACS say that while E85 fuel generally can be sold at a lower price than E10, E85 provides vehicles fewer miles per gallon than E10 and would need to be significantly cheaper than E10 to attract more consumer interest. SIGMA/NACS:

It is important to keep in mind that of the various mandates contained in the RFS, there is no mandate for consumers to purchase anything. Unless there is a substantial increase in consumer demand for higher fuel blends, retailers will naturally be reluctant to make the investments that are necessary in order to sell them.

The Petroleum Marketers Association of America (PMAA) represents 8,000 independent petroleum marketing companies, the majority of which are small businesses. PMAA’s members are the independent retailers who own 94 percent of U.S. gas stations. A number of these could incur significant costs and/or potential liability issues because of the RFS and its ethanol mandates. PMAA:

PMAA firmly maintains there are too many infrastructure, liability and marketplace issues related to E15 that prevents significant expansion of national ethanol blending volumes in the short run. Neither existing fueling infrastructure nor consumer demand and acceptance are compatible with the introduction of E-15 at this time.

smallerPMAA cites the lack of official certification of dispensers, piping and underground storage tanks for E15, which the organization says could put its members at odds with federal, state and local requirements, as well as those of insurers and lending institutions. If a retailer decides to sell E15, PMAA says, they could be held responsible for cleanup costs if a leak occurs because of increased ethanol blend fuels. PMAA estimates that the average cost to retrofit a retail gasoline station with E15-compliant equipment at $375,000 to $425,000 per site. PMAA says consumer demand for E85 is insufficient for retailers to market it:

While a number of PMAA member companies continue to market E85, consumer demand remains weak. Consumer demand has not kept pace with the number of E-85 vehicles on the road today. Owners of these vehicles are overwhelmingly filling up with E-10 rather than E-85 blends.  E85 must be priced at least 25 to 30 percent lower than conventional gasoline for motorists to receive similar energy content at a competitive price given that ethanol has a lower BTU energy content compared to conventional gasoline. This is an impossible price point to meet without renewal of the ethanol blender’s credit that expired in 2011. As a result, E-85 sales do not justify the capital costs for infrastructure even with generous grants from federal and state governments.

As the comments above indicate, the RFS is a deeply flawed program – an example of failed central planning that has tried to dictate market and consumer behavior. The interests of American consumers and small businesses outrank those of special ethanol interests – interests that don’t bear the potential risks or costs associated with the real-world impacts of the RFS.

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.