Ethanol Free Gasoline Will Probably Disappear

There is a chilling comment in the E15 waiver process that is now before the EPA that indicates that it is likely that ethanol free gasoline will essentially disappear as we know it.  Maybe there will be small amounts available in drums just as leaded and special racing fuel is now but it will be prohibitively expensive.

This is what the Director of the Division of Air Resources, New York State Department of Environmental Conservation stated in his comment:      (Comments in italics are my comments)

“E10 is not simply ethanol added to finished gasoline.  Since most gasoline at retail contains ethanol, the industry factors the addition of ethanol into the formulation of the petroleum-based portion of the final blend.  The chemical properties of ethanol and its dilution impact allow refiners to produce a petroleum-based blendstock which when combined with a specified amount of ethanol (or other oxygenate) results in a final blend with the desired legal and market properties.  The petroleum-based blendstock, in most cases, would not qualify as gasoline or be legal to sell as gasoline.  For RFG (Reformulated Gasoline, the really clean stuff required in certain areas) this blendstock is RBOB.  For conventional gasoline it is CBOB, (this is what is coming down the Olympic pipeline to Washington and Oregon) and for California RFG it is CaRBOB.”

What this means is that not only will 91+ AKI premium unleaded disappear as we knew that it would, but 89 AKI CBOB used for making 91+ AKI premium E10 cannot be used for aircraft with the EAA STCs, low compression Petersen STCs, nor the 85 HP Rotax engines because it is not “legal” gasoline.  Essentially nobody will be able to order any ethanol free gasoline product.  Neither will the marine industry be able to find any legal ethanol free gasoline.

Please realize that the ethanol blendstock is cheaper to make for the refineries and results in more gasoline product because the AKI is lower, so they have a huge incentive to make this stuff.  We also know from the testimony of WSPA in the Washington state public hearings, for a marine protection bill, that CBOB is the only gasoline product that is going to be available at the terminals in short order in Washington.  It is already the only product delivered to Oregon since we are a mandatory E10 state.  We know that the only ethanol free product coming into Oregon is by barge from somewhere else, other than the Washington refineries.

Where Are The “Renewable Fuel” Cars?

Flex-Fuel Car Is An Oxymoron

“Renewable Fuel” is definde as E85 in the federal RFS mandate, EISA 2007.  So why doesn’t anyone make a “Renewable Fuel” car?  All we have are these bastardized Flex-Fuel vehicles that try to live in two worlds and don’t do either very well.  It all started out so car companies could get around the CAFE standards because flex-fuel vehicles had huge CAFE credits and big federal tax incentives, and when ethanol was $1 / gallon cheaper than gasoline, E85 was attractively priced even after your Yukon took a 30% mileage dive because it was just a regular gasoline engine with a big computer and bigger fuel injection rails.

Those days are gone.  But the ethanol quotas in EISA 2007 are hard coded, in ever increasing amounts, year after year until 2022.  The only way the ethanol is going to be used after about 2013 is if we have lots of cars that use E85.  So why isn’t anyone working of the design of engines that can efficiently use just E85, an engine with the high compression ratio that E85 allows and a computer that can figure the timing for that fuel.  If these engines were available for the car bodies people want, they should sell just as well as today’s cars that have engines that were never designed for ethanol.

Instead of raising the blending limit for non flex-fuel cars, why isn’t the ethanol industry demanding the solution that EISA 2007 was designed to do, E85 cars and the fuel delivery infrastructure to support them.  God knows that they got an incredible number of tax incentives in EISA 2007 to do just that.  So why are they putting their money on cramming E15 down our throats for cars and engines that were never designed for “Renewable Fuel”?  With all the negative publicity, property damage, lawsuits and possible deaths when public safety devices that have engines that were never designed to run on ethanol blended gasoline fail?

Ethanol Industry Is Its Own Worst Enemy

On March 26, 2009, I testified before the Oregon Legislature on four ethanol related bills.  Another person testified that government has been giving taxpayer money to the ethanol industry for more than 20 years and the only result is the proof that the ethanol industry couldn’t survive without subsidies.  There were several ethanol industry representatives there begging for Oregon to stay the course with its mandatory E10 law, and even embrace the coming E15 waiver that is before the EPA so that the ethanol industry in Oregon could continue to “prosper”.  Of course they didn’t mention that the biggest ethanol plant west of the Rockies, the Cascade Grain Products 113 MGY plant in Clatskenie, OR was in Chapter 11 proceedings with a plant that never worked reliably in the 6 months it was in business.  And most interestingly they didn’t mention that even if Oregon repealed its ethanol mandate, nothing would change, because the federal RFS mandate, EISA 2007, is driving all ethanol blending in the country and there would be no reason for the gasoline distributors to change their blending habits in Oregon.  Why would they?  They are taking the federal blending tax credit to help pay for the infrastructure that they were forced to install by the state and they just pass along the higher cost of ethanol, now that it costs more than gasoline.  Oregon has the highest average gas price in the Northwest.  Plus, nobody mentions that the gasoline refiners are shipping “sub-octane” blending product into Oregon because all of our gasoline is E10, thus saving them production cost.  They are not interested in changing this gold mine, especially when so many cars get much worse mileage on E10.  Nobody knows if the gasoline producers are actually selling more gasoline now than before the mandatory E10 law went into effect.  The science has never been done.

But the stupidest thing that the Ethanol industry does is to completely ignore the property damage that ethanol blended gasoline does.  More than 80% of the public testimony was about the problems that E10 is causing to average citizens in Oregon every day.  You would think that the ethanol and gasoline distributors would want to avoid negative publicity and lawsuits.  But apparently that is just “the cost of doing business.”  The most telling testimony was from one of the representatives on the committee who said that her husband traveled some distance over to Washington to get ethanol free gasoline for his boat.

I wonder what it is going to take to get the ethanol lobby to recognize that they should only be selling their product to modern, computerized fuel injected cars.  By insuring that ethanol free fuel is universally available to everyone who really needs to have it they could save themselves a lot of grief.  If all premium unleaded gasoline was ethanol free, that would make it possible for those who need it to survive.  And lest you think this isn’t a serious problem, businesses are being ruined by the unintended consequences of EISA 2007.

I also wonder when we are going to read the first article where a generator or pump or portable power tool stopped working during an emergency because of ethanol, with serious consequences.  It is going to happen.  But it doesn’t have too if only the ethanol and gasoline industry would do the ethical thing and insure that all premium unleaded fuel was ethanol free.

EISA 2007 = E85 Corporate Welfare, So Why Are We Getting E10?

EISA 2007 Is Explicit:  Renewable Fuel Is E85

In Section 241 of EISA 2007, the term Renewable Fuel is defined as: “The term ‘renewable fuel’ means any fuel—‘‘(A) at least 85 percent of the volume of which consists of ethanol; or” (goes on to define the bio-diesel renewable fuel). The renewable fuel described is commonly known as E85.

There is no mention of E10 in the act.  So, why are the hard production quotas in the act turning all of the gasoline in the United States into E10?  The unintended consequences of this act are causing economic havoc for the people who have engines that should not use ethanol blended gasoline.  It is even putting some people out of business.

Stop the madness.  Write your congress critters and explain to them what is happening because of EISA 2007 and ask them to repeal the ethanol mandates in the RFS section and to pass a law banning the blending of ethanol in premium unleaded gasoline and accurately label pumps that have ethanol.  This is a matter of public safety.

Ethanol Mandates, A Black Swan?

Nassim Taleb defines The Black Swan as “The Impact of the Highly Improbable.”  It has led me to the conclusion that the ethanol mandates of the states and especially the federal RFS mandate of EISA 2007 are a Black Swan.  Who could have predicted the negative economic impacts that are being caused by the misguided government manipulation of the gasoline market by forcing ethanol blending.

First, everyone should understand that ethanol blended gasoline on a mass scale should only be allowed in computer controlled, fuel injected cars.  It has no place in fixed jet, carbuerated engines, especially in humid environments.  This is why every state that passed a mandatory ethnol fuel law provided for the availability of ethanol free gasoline for certain engine applications, most notably marine and aviation use, antique and classic cars and motorcycles, snowmobiles and like recreational vehicles, and small engines used in stationary applications like generators and pumps and 2 cycle engines used in tools.  None of the states, except Missouri, made ethanol free gasoline easy to get, but all of the statutes have exemptions.  Missouri did the right thing and prohibited the blending of ethanol in premium unleaded gasoline so it was widely and easily available for everyone that needed it.  Be advised that there are only five states with active mandatory E10 laws, the rest of you have no exemptions and no protection.

Having said that, one must wonder what the federal politicians were thinking when they passed EISA 2007.  It contains a massive production quota that does not take into account what the annual gasoline consumption in the US might be.  Of course the entire RFS portion of the bill is predicated on a massive build up of Flex-Fuel cars and fueling infrastructure to support them.  But there was no guarantee when the bill went into effect in 2008 that the auto industry was going to embrace Flex-Fuel cars on a massive scale and gasoline dealers were going to install the expensive infrastructure to support them, especially considering that this created a chicken and egg scenario.  The gasoline distributors and stations would only add infrastructure if there were cars to buy E85, and Detroit would only build cars if there was demand created by the availability of cheap E85 pumped at omnipresent gas stations.  None of that is going to happen in this crumbling economy.  But the inflexibility in the federal statute is forcing the gasoline distributors to put the ethanol in every bit of gasoline that they can find, even though in a couple of more years they will crash into the “blending wall“.

The blending wall is truly a Black Swan.  But there are so many others.  One of the most ironic is the battle over the blender pumps which is causing states to be sued by the American Petroleum Institute for putting into effect laws governing the delivery of ethanol that they believed would economically benefit their citizens.  Now the citizens get to pay for the lawsuits.

The most  unfortunate Black Swans are the economic damage caused by pigheaded greed that could have been avoided had people in the ethanol and gasoline industry recognized that ethanol blended gasoline can cause property damage and should have only been allowed for computerized fuel injected cars.  But it appears that greed and the politicians ignorance got the best of them and now ethanol will be in all of the gasoline, and the only remedy for those who suffer damages is to sue.  The saddest Black Swans are the people put out of business who don’t have the economic clout to sue.  The problems with ethanol and boats and airplanes and 2 cycle engines, etc. have been known for a decade, yet nothing has been done to avoid the negative publicity and lawsuits.  This particular Black Swan could have been avoided by prohibiting the blending of ethanol in premium unleaded gasoline and labeling all gas pumps accurately as to ethanol content.  But then that is what a Black Swan is, the impact of the highly improbable.  I am indebted to Mr. Taleb for helping me understand the world I live in.

Are You Ready For E15?

Minnesota was the pioneer in mandatory ethanol laws, the first state in the US to have a mandatory E10 law.  They want to be the first in the country with a mandatory E20 law.  According to 239.791, Minnesota Statutes 2007:

“Except as provided in subdivisions 10 to 14, on August 30, 2013, and thereafter, a person responsible for the product shall ensure that all gasoline sold or offered for sale in Minnesota must contain at least 20 percent denatured ethanol by volume.”

There are a couple of caveats in this law:

“(1) the commissioner of agriculture certifies and publishes the certification in the State Register that at least 20 percent of the volume of gasoline sold in the state is denatured ethanol; or”

Which means if E85 takes off big time in Minnesota, then this law would not trigger … not likely to happen.

“(2) federal approval has not been granted for the use of E20 as gasoline.”

There has to be an EPA air quality study to satisfy this requirement and car manufacturers must warrant their non flex-fuel cars to be able to use E20.

Federal approval is not proceeding smoothly.

Turns out that UL has given its blessing for regular gas pumps to vend E15, with caveats, but it appears E20 will need new approval.

Notwithstanding Minnesota’s bold leadership, there is another reason that higher ethanol blending will be coming to a service station near you in the foreseeable future, the dreaded “Blending Wall“, so others are pushing for raising the blending limit for non flex-fuel cars.  It was even discussed during the stimulus bill debate so recently signed.

Of course nobody is talking about the unitended consequences of raising the blending limit for non flex-fuel vehicles, and there is the crux of the matter.  All anyone ever talks about is cars.  But what about all of the other engine applications that use auto gasoline, like boats, airplanes, antique and classic cars and motorcycles, snowmobiles, ATVs, small engines both 2 cycle and 4 cycle, that are used in all kinds of tools and stationary applications.  How are they going to do on E15 or E20?

When is it going to dawn on the ethanol and gasoline industry that ethanol blended fuels should only be used in autos with computerized fuel injection systems.  It should not be used in any engine with a fixed jet carburetor.  That is why all of these other engines are exempted in states with mandatory ethanol laws.  The other problem is any vehicle with a fiberglass fuel tank.  There are already class action lawsuits for damage to boats with fiberglass fuel tanks and I have heard of damage in motorcycles and ultralight aircraft that had fiberglass fuel tanks.

You would think that the ethanol and gasoline industry would want to avoid the negative publicity from property damage that their products cause.  There is a simple answer.  Don’t blend ethanol in premium unleaded gasoline and label all of the pumps that have ethanol gasoline.  So far though, greed has triumphed over logic and the lawsuits and negative publicity will continue.

To get a sense of the urgency, google general clark e15 The ethanol industry has hired General Wesley Clark to be their poster boy.

The Battle Over The Blender Pump Is Coming

How Unintended Consequences Can Really Go Awry

The Energy Independence And Security Act of 2007 (EISA 2007) is 310 pages long and addresses a number of measures to reduce energy use.  The Renewable Fuel Standard portion is only 30 pages,  Sections 201 – 248, and deals primarily with E85 and bio-diesel.  It provides very generous incentives to make E85, market E85 and produce and sell Flex-Fuel vehicles, which are the only kind of vehicles that can use ethanol blends above 10% at the present time.  However, now that ethanol is more costly to produce than gasoline, there is no economic benefit to owning a Flex-Fuel vehicle, since it takes a 25% or more mileage hit when burning E85.  The car is a dinosaur and there are rumors that Detroit is not interested in making them.  On top of that it will take a huge infrastructure investment to distribute and vend E85, since it requires a special pump with all stainless steel hardware, as in expensive.

Unfortunately the act designates hard ethanol production quotas that are based on the rapid deployment of Flex-Fuel vehicles and the rapid ramp up of E85 distribution.  Now that the overall economy is tanking and there really is no economic reality for E85, the ethanol has to go somewhere, and so it is going into all of the gasoline for non flex-fuel cars as E10.  Only problem is that by the end of 2010 or sometime in 2011 there will be more ethanol produced than is needed to take all of the gasoline in the US E10.  This is known as the “blending wall.”  What to do?

When In Doubt Just Increase The Ethanol Blending Level

So the ethanol producers answer to this limitation is just ask Congress to mandate an ethanol blending level at E15 at least, higher would be even better.  That will use up a large amount of ethanol and move the blending wall out a few years.  After all Minnesota, the first mandatory E10 state in the country, already has a law that recommends that all of the gasoline in Minnesota be taken E20 by 2013, if certain changes obtain.  These are the same changes being proposed to Congress to allow all of the gasoline to be take E15.  Get the EPA to find that if E15 or higher is used in non flex-fuel vehicles it will not increase air pollution.   Get the auto manufacturers to warranty non flex-fuel cars for E15+, no small matter.  And is the warranty going to be retroactive, or will it only apply to new cars?  Finally get lots of gas stations to upgrade their infrastructure to be able to sell higher blends.  See how simple this is.

The Blender Pump Will Solve All Problems, Big And Small

It is the last  problem discussed above that brings us to the truly ironic unintended consequence of EISA 2007, that battle over the blender pump.  If gas stations are going to have to deliver E15 to get beyond the blending wall, should they also be able to deliver E20 and above as is going to be required by Minnesota?  If the car manufacturers cannot warrant old cars above E10 then gas stations are going to have to be able to select the level of ethanol blending to be delivered to the customer and this brings us to the blender pump, which is, possibly, where we should have been all along.

It appears very straightforward in this age of computers.  Why not have a tank of ethanol free gasoline and a tank of E85, or even pure ethanol.  Tell the computer what level of ethanol blending you want and the blender pump mixes the ethanol, or E85,  and clear gasoline at any level between E0 and E85, or even E100, whatever the customer wants.

Sorry!  This turns out to be a BIG PROBLEM!  In fact, it is a huge problem and it is economic and political.

Because of the way the ethanol blending mandate is implemented blender pumps are resulting in litigation filed by oil companies against states.  The American Petroleum Institute (API) and the National Petrochemicals and Refiners Association (NPRA) have sued North Carolina and API and BP Products North America, Inc. have sued South Carolina.  Georgia is proposing a similar law, and if it passes they will get sued too.  All of this litigation results from the way EPA mandates quotas for ethanol blending and who gets the blender’s credit, and greed plays no small part in it.

The EPA sets quotas for the major gasoline distributors as to the amount of ethanol that they must blend into all of the gasoline that they distribute.  The distributors terminal then blends ethanol into the gasoline sent to service stations and does the accounting for the EPA, no small accounting matter.  If a distributor does not meet quota they can buy a cap and trade type credit, called a RIN, from a distributor that has distributed more ethanol than their EPA quota requires.  If a distributor does not meet quota or doesn’t buy RIN’s for missing quota they are subject to a fine by the EPA up to $32,500 per day.

So it behooves every major distributor to blend at the full E10 level to meet quota, and perhaps build up a RIN cushion.  The problem is that the blending terminal gets a $0.045 / gallon of E10 federal tax credit.  However if a lot of gas stations buy gasoline with no ethanol in it to use with blender pumps, not only does the terminal not get the tax credit, they might have trouble meeting their ethanol quota.  If the station uses E85 as the blending agent, then the terminal gets the tax credit and it counts towards their ethanol quota.  But if the station buys pure ethanol, it bypasses the terminal entirely and therein lies the bigger problem.  The major distributors are demanding that the gas stations with blender pumps buy E10 and E85 and then blend in between, so that the terminals get the full tax credit and the ethanol quota credit.  However, state politicians believe that this will result in higher gas prices for their citizens because the gasoline distributors will not pass along any of the savings from the $0.045 tax credit from blending E10.

And Why Doesn’t Anybody Mention Suboctane Blending?

There is another serious problem that the gasoline refiners never mention in this battle.  If all of the finished product that they make is E10 or above, they can produce a blending base product that has a lower AKI than today’s unblended gasoline.  For 87 AKI regular gasoline, they can produce 84 AKI blending product that when combined with at least 10% ethanol results in 87 AKI E10.  This “suboctane” blending product is cheaper to refine and results in more product out of the refinery process.  If the gasoline distributor has to deliver large amounts of 87 AKI clear product so that gas stations can sell anything from E0 to E100, the refineries won’t get this additional savings.  This is never mentioned in the lawsuits but will turn out to be a huge economic boon to the gasoline refiners as the whole country is taken E10 and above.  Of course the irony is that right now 45 states are not mandatory E10 states, so gasoline in those states can be ethanol free if the gas station wants to sell it, which is scaring the heck out of the gasoline distributors with EPA quotas and the ethanol industry.

A Few Remaining Minor Problems

Blender pumps will be very EXPENSIVE when they are finally available.  Currently there are no UL approved blender pumps so service stations in many parts of the country couldn’t install them even if they were able to pay for them.  The infrastructure upgrade costs will be very high.  Luckily the government is willing to take copious amounts of your tax dollars to make huge tax incentives available to those willing to make the subsidized investment.

It should be noted that ethanol fires require special firefighting equipment to be suppressed.  They cannot be put out with the equipment found at most municipal firehouses today.  It requires the type of foam apparatus that is common on airports.  It is going to be interesting when large amounts of pure ethanol are being delivered to lots of corner service stations.

It is not clear how this is going to play out but it certainly illustrates how unintended consequences of the government micro managing the energy economy in this country can go completely awry.

Why The Unbridled Greed?

Why Does Ethanol Have To Be In All Gasoline?

It is clear that EISA 2007 is a corporate welfare act for E85.  All of the tax incentives and brand restrictions are for E85 and Flex-Fuel vehicles.  E10 is never mentioned in the act.  So why are the ethanol companies adament that all of the gasoline in the country needs to be E10, and in fact E15+ would be better.   Maybe it is because Flex-Fuel vehicles are already dinosaurs?  So if you can’t sell E85, just screw the rest of the economy by causing huge unintended consequences with a fuel that cars weren’t designed for and that will damage other equipment that people own.

It is widely known that ethanol blended gasoline should not be used in the marine environment.  The number of articles written about the problem is huge, just google it!  And now the lawsuits are starting to fly.  It started with a class action lawsuit in California.   Now there is a lawsuit in Florida, and the Florida mandatory E10 law has an exemption for marine use.  How does this happen?  I’ll bet Washington state will be next.

Ethanol blended gasoline should not be used in a number of other applications.  All seven of the states that have actually passed mandatory ethanol laws have made exemptions for these applications, like aircraft, antique and classic cars, small engines, watercraft, etc.

So why isn’t the ethanol industry making sure that ethanol is only used in cars that are designed for it?  Why aren’t the oil companies protecting their customers?  They are the ones blending the ethanol and getting sued.  They have known about the problems for years.  You would think that since most of the sheeple in this country don’t know that ethanol is being put in all of their gasoline, that these big companies would be trying to avoid the negative publicity that property damage and lawsuits bring when it is so easy to avoid.  Just don’t put ethanol in premium unleaded gasoline so there is a source for the people who can’t use ethanol blended gasoline.  Two states that passed mandatory ethanol laws actually did just that, Missouri and Montana.  But what is ironic is that the Montana law has never triggered, and probably won’t, and ethanol is now appearing in all of their gas because of the unintended consequences of the federal RFS mandate, so now they get to enjoy all of the ensuing problems.  Missouri was the other state, but their mandatory E10 law had an escape clause that triggered when ethanol got more expensive than gasoline, so ethanol blending has decreased markedly in the state … for now, but just like Ahnold in The Terminator, it will be back.

Why Would Anyone Buy A Flex-Fuel Vehicle Now?

The Absurd Economic Reality Of The Flex-Fuel Vehicle

It is clear that the federal RFS mandate, EISA 2007 is a corporate welfare program for Flex-Fuel vehicle production and E85, 85% ethanol / 15% gasoline, production.  There is even a push to include the requirement for even more Flex-Fuel vehicles in the federal economic stimulus package that will be coming up in congress soon.

However there is now a huge economic Catch-22 with the Flex-Fuel vehicle that nobody is addressing.  It is going to cost any consumer dumb enough to buy one a pile of money to run it, and in this economic cataclysm why would anyone want to buy a Flex-Fuel vehicle, which costs more to buy to begin with, that is then going to cost them much more to operate than the equivalent non Flex-Fuel car.

Here is the double edged problem.  A Flex-Fuel vehicle running on E-85 will see a mileage decline of 25 – 30% over running on regular gasoline without ethanol.  Ethanol now costs about $0.50 / gallon more than gasoline.  Under the present federal blending credit as of January 1, 2009, the blending terminal gets a $0.3825 / gallon of E85 credit which if passed along to the consumer only means that E85 should only cost $0.1175 per gallon more than gasoline.  According to the E85 pricing web site,  the average spread between E85 and gasoline is about 9%, i.e. E85 is about 9% cheaper than gasoline, usually caused by additional state tax credits.   Of course there are a number of states where the spread is negative already and they might surprise you which ones.   However if the mileage hit from E85 is 25% and you are only saving 9% on gasoline you are in a huge losing situation.  So, why would anyone buy one?

Ironically, according to this blog, nobody will because Detroit is walking away from the Flex-Fuel vehicle.

Apparently Renergie Brooks No Dissent In Blog Comments?

Renergie posts a ton of blogs on ethanol.  Most of them are very informative.  However it appears they will brook no dissent in comments made to their blogs.  I posted a comment to this blog:   http://renergie.wordpress.com/2009/01/03/economist-blending-wall-stands-in-way-of-ethanol-growth/

You can still see it there, if they haven’t taken it down.  That blog post is a timely  illustration of one of the key economic dislocations being caused by the federal RFS mandate, EISA 2007.  Renergie posted an absurd answer that addressed nothing in my comment.  I pointed it out to them.  They removed the comment within a few hours.  I didn’t keep a copy of the comment because I didn’t know how narrow minded they were.  So I posted the following comment:

“What does your response have to do with my comment?  While hydrous ethanol may be the cat’s meow of the next generation of renewable fuel, my point is do it on your dime if it is so promising.  All you need to do is convince ASTM to spec it for fuel usage, get the EPA to approve it and convince the car manufacturer’s to warrant it.  I reiterate, do it on your own dime.  Stop using my tax money as your investment source and creating huge economic dislocations in the marketplace which is exactly what your blog illustrates.”

Apparently Renergie will brook no dissent about the government welfare system for ethanol.