EPA DENIES RFS WAIVER

FULL SPEED AHEAD INTO THE BLENDING WALL!

On Friday, November 16, 2012, the EPA denied the waiver petition made by several states to drop mandatory ethanol blending as required by EISA 2007 for one year.  You can find the denial as quoted here, “Based on the entire record before it, EPA has determined that each of the petitions and requests should be denied.” in the EPA document.

This is what the waiver denial portends.  Even with the carry forward RINS, which are delaying the blending wall by maybe 20 billion gallons of E10 / year, by 2014, at the latest, the ethanol quota, cast in stone table, in EISA 2007 will swamp the gasoline pool and there will be nowhere to put the ever increasing ethanol quotas after that and the ludicrous E15 waiver will not delay this fact.

It was clear that the quota table in EISA 2007 was designed to produce Renewable Fuel, which is only defined as E85 in the act. OK, in one place in the act it is defined as E11 – E85, but it is NEVER defined as E10.  However, we produce a minuscule amount of E85 and that will not increase enough in the next few years to avoid the blending wall because of the massive infrastructure that would be demanded to distribute and sell it.  The fact that all of the gasoline in the U.S. is becoming E10 is an unintended consequence of EISA 2007 since E10 is NOT Renewable Fuel as defined by the act.

So here is a suggestion for the states that were denied the waiver.  Any state can prohibit the blending of ethanol in all of the gasoline in their state, except for those few mandatory oxygenate areas that are still left, which are a few big urban areas and most of Southern California.  There is no mandatory federal E10 law.  EISA 2007 certainly isn’t a mandatory E10 law, it is a Renewable Fuel law, and E10 is NOT Renewable Fuel as defined in the act.  So if a state can pass a mandatory E10 law, like my home state of Oregon did, useless as it is now, any state can clearly pass a law prohibiting E10 being sold in the state.  This would certainly accelerate hitting the blending wall thus exposing what a farce and sham the federal Renewable Fuel Standard really is.

Of course until such time as the congress critters repeal the federal RFS in EISA 2007, which they might do if they finally wake up and understand that it can’t possibly fulfill its intended purpose, the gasoline producers will have to deal with ever increasing quotas of ethanol with nowhere to blend it.  If the EPA is as obstinate as it is now with the cellulosic ethanol quotas that the gasoline producers must pay waiver penalties for a product they can’t buy, then the gasoline producers will have to do something with the ethanol they can’t blend.  I have a suggestion.  Start constructing large tank farms in Illinois, as near to ADM headquarters as possible, and the Iowa home of Senator Chuck Grassley, the champion of the RFS and the water boy for ADM.  Just store the billions of gallons of ethanol in their back yards, by 2022 you are going to have to be able to store about 15 billion gallons of the stuff every year that you can’t use.  You can just pass along the costs to us consumers just as you do with the millions of dollars in penalties for the cellulosic ethanol waiver credits.  I’m sure we won’t mind, because we certainly don’t mind that you must pay for a product you can’t even buy, and you are passing along the costs to us right now.

Oh, and by the way, the whole EPA waiver review was a complete farce.  Look on page 79 of the Notice, “The commenter failed to acknowledge that EPA is not required to issue a waiver when severe economic harm to a state, region or the United States is demonstrated. The statute provides that EPA “may” do so in that situation.”  Bazinga!  There was never the remotest chance in Hell that the EPA was going to grant the waiver.  I hope the states wake up and take matters into their own hands.  They have every opportunity to as outlined above, just ban E10 in your state.

Drought, Mythical Blending Wall, Gasoline Price / Demand

The drought affecting the Midwest is causing some strange soul searching over the federal RFS mandate in EISA 2007.  Numerous articles are appearing in the media that report widespread criticism of the ethanol mandate, here, here, here and here.  That last article reported on two state governor’s official petitions to waive the RFS mandate for the duration of the drought.  Since these are official petitions governed by the EPA’s statutes, they must be answered within 90 days by the EPA after a public comment period as discussed here.

What is ironic is that theoretically the U.S. will hit the ethanol “blending wall” next year … maybe, but then again maybe not.

In order to understand the ramifications of the “blending wall” one must understand the unintended consequences of the federal RFS mandate.  EISA 2007 was supposed to be a Renewable Fuel Standard.  If one were actually to read the act one would assume that “Renewable Fuel” would be defined.  It is sort of in a couple of places.  It is usually defined as E85 and in one place it is defined as any blend that exceeds 10%, i.e. E11 – E85.  Nowhere in the act is Renewable Fuel defined as E10, because E10 is actually gasoline with 10% ethanol in it, but it is still just plain gasoline, not Renewable Fuel as defined by the act.

E10 is never mentioned in EISA 2007 and there is a good reason for that. There is a cast in stone blending quota table in the act that requires ever increasing amounts of ethanol to be blended into our gasoline through 2022 when 36 billion gallons of ethanol and advanced bio-fuel of some type is supposed to be blended into gasoline.  Since the U.S. only uses about 135 – 140 billion gallons of gasoline / yr. one could see from the math that we would only need about 14 billion gallons of ethanol, at the most, to take every gallon of gasoline in the country E10.  It should be crystal clear that the table was designed around the production of Renewable Fuel as defined in the act, which is E85.   Of course it is not helping the RFS that the demand for gasoline in the U.S. is declining … precipitously as it turns out,  because a lot of people are buying much more efficient cars and the price of gasoline only rises thus driving down demand.  (So much for the law of supply and demand as it is supposed to affect pricing.)

Since the ethanol quota defined in the table in EISA 2007 is 13.8 billion gallons next year, we should be at the “blending wall” after which more and more ethanol will be required by the table, but there will be no place to put it.  But we actually aren’t at the blending wall, due to a gimmick in the law, which is alluded to here:

“… excess ethanol production over the past two years enabled obligated parties—refiners, blenders and importers—to save or bank enough tradable compliance credits, otherwise known as Renewable Identification Numbers or RINs.

About 20% of those RINs were carried forward to this year and can be used to meet RFS requirements this year and next year, Cooper said.”

So it appears we may be as much as 20% under the blending wall going into next year, or as much as 2.6 billion gallons of ethanol, enough to result in 26 billion gallons E10, or about 18% of all gasoline produced if we needed 140 billion gallons of gasoline next year, not a sure bet.  Clearly these shenanigans will delay the blending wall for at least another year and is one of the reasons that we still see a lot of E0 in rural areas where the cost of upgrading the terminal infrastructure for blending ethanol has been strung out as long as possible.  (As of last spring there were still 9 terminals in very rural parts of the U.S. that had no ethanol blending capability.)

So all of this has resulted in a bureaucratic dance that even you can participate in.  The governors of NC and AR have made their move and now you can add your comments to the discussion by using this link at the EPA. Please be mindful that you are commenting on the governor’s petitions, not on the validity of the RFS mandate per se. But remember that none of this charade will really resolve the built in catastrophic failure of the federal RFS mandate, which is that without massive Renewable Fuel (E85) production the quotas hard coded into the act can never be met.  So there is a good chance the EPA might even grant the one year waiver requested so it can get some breathing room before the looming train wreck that is inherent in the act. After all when doom looms, all good bureaucracies delay, delay, delay. (By any chance does that remind you of our Fed policy?)

ETHANOL SET TO RAISE THE COST OF GASOLINE

When the ethanol lobby testified for the mandatory E10 law here in Oregon, they told the legislators that we had to have a mandatory statute because ethanol would improve air quality and “… reduce the price of gasoline.”  After Oregon passed its mandatory E10 law, the federal government passed EISA 2007 with an RFS quota table embedded in stone in the act, which requires gasoline producers to put more ethanol in gasoline every year through 2022. The law was supposed to spur the production and consumption of E85 and flex-fuel vehicles.  That never happened and now the gasoline producers meet their ethanol quotas by making E10.

However, there is a limit to how much ethanol you can use making E10 before you have turned every drop of gasoline in the country into E10.  We are hitting that “blending wall” this year and next year the ethanol quotas will rise for the gasoline producers, yet they will have nowhere to put the ethanol.

The EPA is solely mandated with overseeing the RFS in EISA 2007. Part of the RFS includes an ever increasing blending quota for advanced bio-fuels, which means primarily cellulosic ethanol.  In fact corn ethanol quotas are capped in 2015 and all of the huge increases in ethanol blending quotas must be made up of an ever increasing production of cellulosic ethanol through 2022. There is one big problem though, nobody makes commercial quantities of cellulosic ethanol, despite your tax dollars being thrown at the problem for the past three decades. Even though there are about 30 companies trying to make cellulosic ethanol today, they can’t even produce 6 million gallons of the stuff this year, when the gasoline producers are supposed to be blending about 500 million gallons of the stuff into gasoline. What is ironic is that the EPA gave the ethanol industry a waiver on the production, but did NOT give the gasoline producers a waiver on consumption, they must pay a penalty to the EPA for not blending cellulosic ethanol in our gasoline, http://www.dtnprogressivefarmer.com/dtnag/common/link.do?symbolicName=/free/news/template1&product=/ag/news/renewablefuels/news&vendorReference=0702BAC7&paneContentId=35&paneParentId=0

So this should be the clue about how future ethanol quotas will be handled by the EPA.  Every year the quota will rise and gasoline producers will have to pay ever increasing penalties for not being able to blend the ethanol into our gasoline supply.  Gasoline producers will simply pass along the costs to the consumer, just as they are now passing along the $7.5 million costs of the phantom cellulosic ethanol that they can’t get.

ETHANOL INDUSTRY ADMITS E15 WILL CAUSE DAMAGE

You have to love the irony.  Congressman John Shimkus (R-Collinsville, IL) has introduced legislation “…  to prevent lawsuits related to problems with E15 …”.

Hmmmmm, isn’t the headquarters of ADM in Illinois?  Ah yes, Corporate Headquarters. Archer Daniels Midland Company 4666 Faries Parkway Decatur, IL 62526.  Now it all makes sense.

OK, perhaps it is a bit more complicated.  It is true that ADM has donated to congressman Shimkus, but what is more interesting is who congressman Shimkus’ major donors are, the oil and gas industries.  Keep in mind that the gasoline producers have stated publicly that they will not produce E15 unless they are immune from damage lawsuits, but they are required to blend more and more ethanol every year until 2022 so it would behoove them to produce E15 to meet their ever increasing quotas.  Thus this new legislation will benefit both ADM and big oil.  Of course the consumer will continue to get screwed by both big ethanol and big oil.

Luckily you don’t have to buy any E15.  The whole silly project is voluntary from start to finish.  So why would you buy a product that will decrease your mileage, void your warranty and damage your car?  Really makes you wonder what they are smoking over at the ethanol lobby and the EPA.

E15 IS LEGAL, LET THE PRODUCTION BEGIN … OR NOT

On April 2, 2012 the EPA finally announced approval of the first applications for registration of ethanol for use in producing E15 and the ethanol lobby jumped on the announcement to trumpet the arrival of E15 at your local service station.  Announcement here includes positive statements from ethanol lobbyists.  But the announcement here points out a few of the hurdles remaining:

1.  There is still a lawsuit in federal court against the EPA about legality of the bifurcated waiver.

2.  Many states have statutes that limit ethanol blending to 10% for non flex-fuel cars, like California the largest gasoline market in the U.S.

3.  The waiver is voluntary and the gasoline producers have stated publicly they will not make E15 unless they are granted immunity from damage claims.

4.  Many gasoline station chains have made it clear they will not pump E15 unless they are given immunity from damage claims, especially from misfueling.  In fact there is a lawsuit over the mandatory E15 pump label which warns about misfueling.

5.  There are no cars with E15 warranties and the car manufacturers have pretty much said they are not going to warrant their vehicles for a voluntary product.  Why would they considering the costs associated with testing that will have to be passed on to the consumer.

6.  It appears that the only way to make E15 economically viable is to create legislation that just prohibits any damage liability which is exactly what a congress critter from IL has just done.  This appears to be an admission that E15 is going to cause damage.

ETHANOL QUOTA UP – GASOLINE USAGE DOWN – TRAIN WRECK COMING

DOES ANYONE UNDERSTAND THE RFS MANDATE IN EISA 2007?

The federal RFS mandate in EISA 2007 is NOT A MANDATORY E10 LAW. E10 is never mentioned in the Act because E10 is NOT Renewable Fuel. E10 is gasoline with 10% ethanol in it, but it is still gasoline made to ASTM D4814. Is there anyone in the federal government or the EPA that understands this? If so then they should understand that there is a huge problem that will manifest itself this year.

There is a hard coded table in the RFS section of EISA 2007.  It is right there in Section 202.(a).(2) on page 31.  That table sets out the amount of ethanol that is supposed to be blended to make Renewable Fuel in each year through 2022. Renewable Fuel as implied in EISA 2007 is E85. It is actually defined as Renewable Fuel in a couple of places in the Act while E10 is never mentioned. Look at the ever increasing number of gallons of ethanol that are required to be blended in the table, year after year. Those numbers can only be satisfied by making E85 which is the whole point of the Act.  All of the corporate welfare created in the Act is for E85, nothing for E10.

So how much Renewable Fuel (E85) is produced in the country?  Not easy to find out, but according to this table, less than 1% of the ethanol blended in gasoline went to make E85 in 2009 and that has been pretty much the case since stats were kept back to 2000.  So 99% of the ethanol quota demanded by the EISA 2007 table is blended into gasoline to make E10.

Here’s the problem nobody is paying any attention to.  The table is hard coded.  The quota demand rises every year until 2022.  The table was predicated on the spread of E85, but that is not happening.  You can only blend so much ethanol at the 10% level until every drop of gasoline sold in the country is E10. When EISA 2007 was passed everyone believed that demand for gasoline would always increase absorbing the ethanol at the 10% blending level until E85 took over.  Only problem is E85 didn’t take off and now gasoline demand is declining … big time.

Look at this gasoline usage table from eia.  Note that the decline in usage between July 2011 and November 2011 is about 27% and that overall gasoline usage today is less now than in 1985.  No, not 2005, 1985, more than 20 years ago.

Big problem, gasoline demand is dropping like a rock.  Can you say “Blending Wall”?  Well it will be here this year.  So what are the gasoline producers going to do with all of the ethanol that can’t be blended into Renewable Fuel (E85) now? After all, essentially nobody has made Renewable Fuel (E85) at any time since the Renewable Fuel Standard was passed in 2008.  All the gasoline producers make is E10, which is NOT Renewable Fuel in the sense of EISA 2007. Are they going to eat the RINS like they are doing for the cellulosic ethanol that they can’t buy because nobody produces it?

This will have grave unintended consequences in the public safety arena, marine and aviation industry, for antique and classic cars and off road recreational vehicles like ATVs and snowmobiles and jet skis. There is no federal or state laws that require that some ethanol free gasoline be provided for these users.  In large sections of the country, especially along the seaboards, this is already the case. This will cause serious economic consequences including the possible loss of life if equipment in public safety does not work or fails because of E10. At least one state sees the handwriting on the wall. A state senator in Mississippi has introduced legislation to require every gas station sell ethanol free premium unleaded gasoline in the state.

Finally, Will Sanity Prevail? … NOT!

A state has finally introduced a state statute that would REQUIRE the sale of ethanol free premium unleaded gasoline at all retail outlets.

http://billstatus.ls.state.ms.us/documents/2012/pdf/SB/2100-2199/SB2137IN.pdf

Mississippi finally figured out that the only way to protect their marine industry, public safety, aviation and small engine industries is to require, by law, ethanol free premium be available universally. Nothing short of this will work. E10 is spreading everywhere and the ethanol quotas in EISA 2007 will swamp the gasoline pool of the entire country by the end of the year.

Of course not, the bill died in committee on 03/06.

2011 Ends – No E15, 2012 Begins And We Are Hitting The Blending Wall

As we say goodbye to 2011 it is obvious that E15 has done nothing to prevent the blending wall.  Heck, “E15 is not registered with  EPA” so it cannot be sold yet, and none of the many states, including California that do not allow E15 to be sold for use in non flex-fuel vehicles, have changed their laws.

As we start 2012, the complete idiocy of the federal RFS mandate of EISA 2007 gets more absurd every day.

Actually the EIA suspects that we are hitting the blending wall right now, today, as outlined here.

The most absurd and outrageous result of the federal RFS mandate is that the price of your gasoline is rising because the gasoline producers must pay for “waiver credits” for cellulosic ethanol that is mandated but cannot be produced as pointed out by this article and this article.  What is ironic is that if 500 million gallons of cellulosic ethanol could be produced this year, as mandated by EISA 2007, at any price, say $100 / gallon, the gasoline producers would have to buy it and blend it.

So here is the looming debacle for the federal RFS mandate.  We will hit the blending wall this year and by the end of the year there will be hundreds of millions of gallons of ethanol with no gasoline to put it in, and next year there will be billions of gallons of ethanol with nowhere to blend it and on and on until 2022 when there will be tens of billions of gallons of ethanol with nowhere to put it.  Are the gasoline producers going to have to pay for “waiver credits” for all of that unusable ethanol?

So tell me again how ethanol is reducing our dependence on foreign oil and “reducing the cost of gasoline” as we were promised here in Oregon when the mandatory E10 law was being debated in the Oregon legislature.

Question for Ethanol Lobby: “How’s that E15 working out for you?”

So where are the E15 pumps?

It has been almost a year since the initial approval of a waiver for the use of E15 in non flex-fuel vehicles and about nine months since the waiver approval for cars going back to the 2001 model year.  So where is the E15?

Here is one recent summary of the status of E15 for non flex-fuel vehicles:

http://gbrccc.wordpress.com/2011/08/20/question-of-the-month-what-is-the-status-of-e15-implementation-now-that-the-u-s-environmental-protection-agency-epa-has-granted-the-recent-clean-air-act-caa-waivers/

Particular attention should be paid to the statement in the article that the EPA has not “registered” E15 as a legal fuel, http://www.epa.gov/otaq/regs/fuels/additive/e15/

Further, what is odd is what is not said in the article about the lawsuits concerning the E15 waiver.

There have been at least three lawsuits against the EPA over the legality of the bifurcated waiver:

http://americanfuels.blogspot.com/2010/11/api-files-lawsuit-against-epas-e15.html

http://latimesblogs.latimes.com/money_co/2010/11/epa-ethanol-grocery-lawsuit-e15-corn-fuel-commodities.html

https://plus.ibinews.com/article/XEGdFwKgzOM/2011/09/22/nmma_files_lawsuit_against_epa/

One of the ironies is that just creating the label for gas pumps took until June, and no E15 could be pumped until the label was approved, and now there is a lawsuit over the label:

http://www.tradeonlytoday.com/home/516355-nmma-joins-court-appeal-of-e15-ruling

I know of no resolutions for any of these lawsuits.

The other huge impediment to E15, which is casually mentioned in the summary, is that many states have laws prohibiting the sale of ethanol blends higher than 10% in non flex-fuel vehicles and California is one of them, the largest gasoline market in the U.S.  My state of Oregon also has a statute that limits the sale of ethanol blended gasoline to 10% for non flex-fuel cars and our legislative session for the year is over and although several bills were introduced to repeal our mandatory E10 law which is widely despised, not one of them would have changed the statute that limits non flex-fuel vehicles to E10, in fact our legislators don’t have a clue about the E15 waiver.  Apparently the ethanol lobby doesn’t care that E15 can’t be sold in many states … or they just don’t know that.

As I have said before, if you were waiting with baited breath for E15 to show up for use in your 2001 or newer vehicle, none of them warrantied for said fuel nor having a fuel map for the computerized fuel injection system, exhale now before you cause permanent brain damage from lack of oxygen.  Next year we will hit the blend wall and E15 will do nothing to avert it.  And then I wonder what the gasoline producers will do with all of the ethanol they will be swimming in with nowhere to put it.   (This is prophetic … just in:  http://green.autoblog.com/2011/09/27/u-s-gasoline-demand-hits-10-year-august-low/  the blending wall just keeps getting closer.)

New Hampshire May Ban Corn Ethanol Blending

The state of New Hampshire may have come to its senses and realized that it has the power to prohibit the blending of ethanol in gasoline. After all, five states have active mandatory E10 laws, so if a state can legally mandate ethanol in all gasoline sold in the state, a state surely has the right to prohibit ethanol blending in all gasoline sold in the state. There is NO mandatory federal E10 law.

Of course the ethanol lobby is not happy about this turn of events.  Bob Dineen, president and chief executive officer of RFA, wrote a letter to New Hampshire lawmakers calling for the rejection of HB 374.  He made the following ludicrous and untrue statement:

“Finally, there are serious questions relating to the legal authority of the state to undermine federal renewable energy policy and the Clean Air Act.”

This is the normal argument that ethanol and gasoline producer lobbyists make at public hearings when a state wants to prohibit the blending of ethanol in gasoline to protect their marine, aviation, off road recreational vehicle and public safety industries. They can repeat it over and over but it isn’t true. There is no mandatory federal E10 law, so banning ethanol blending in gasoline does not “… undermine federal renewable energy policy …”.

All that the legislators at the state public committee hearings need ask is, “What is the definition of Renewable Fuel?” and “Show me a federal statute that defines E10 as Renewable Fuel and mandates it as such.”  The fact is that Renewable Fuel is defined in the federal Renewable Fuel Standard section of H.R. 6 (2007), aka the Energy Independence and Security Act of 2007, or EISA 2007 (Section 201 – 210, pg. 28 – 41) as E85. Read the act. E10 is never mentioned in EISA 2007, because E10 is gasoline made to ASTM D4814 laced with ethanol, which is legal for use as an oxygenate additive.  The EPA and ASTM recognize E10 as gasoline. It is NOT Renewable Fuel. E85, or Fuel Ethanol, is made to ASTM D5798 and is defined in the federal RFS as Renewable Fuel. The only way a state could undermine federal renewable energy policy would be to ban the sale of E85. Ask the lobbyists to cite federal statute that defines Renewable Fuel as E10.

As to whether prohibiting the blending of ethanol in gasoline is undermining the Clean Air Act in New Hampshire, the ethanol lobby doesn’t have a leg to stand on, because the state of New Hampshire has no EPA mandate to oxygenate gasoline to meet air quality.

Finally, the argument that ethanol costs less than gasoline is specious.  There have been two long periods since EISA 2007 went into effect in January, 2008 that ethanol has been more expensive than gasoline, and has certainly directly increased the price of gasoline. The other problem is that ethanol has less energy than gasoline so cars buy fuel more often and if anecdotal evidence here in Oregon, a mandatory E10 state, is any indication, the mileage decrease for a large number of cars indicates that we are burning more gasoline, even with 10% of it replaced by ethanol, than we were before the law went into effect. The problem is that we have no way of knowing because nobody has ever done a large scale, statistically significant, independent scientific study of mileage before and after a mandatory E10 law. But one thing we do know is that no cars built before 2007 had a fuel map that knew what E10 was and how to adjust to it, other than dumping more gas into the cylinder until the oxygen sensor settles down … if it ever does. Who really knows since all of that technology is proprietary.

The fact of the matter is that the RFS section of EISA 2007 was supposed to increase the production, distribution and use of E85 through copious amounts of corporate welfare that was built into the act. However, because of the unintended consequences of the economic melt down and the fact nobody wants to buy a more expensive “Flex-Fuel” vehicle which gets terrible mileage on almost impossible to find E85, E10 is now spreading throughout the entire gasoline pool in the U.S. because of the hard coded ethanol quota in the act. However, there is no federal legal requirement that states must just stand by and watch these unintended consequences further harm their marine, aviation, off road recreational vehicle and public safety industries.

Update:  The New Hampshire senate killed this bill … of course.