THE UNREALISTIC AND UNWORKABLE MANDATE: - The Ethanol Blendwall - E15 Hurdles and Uncertainties. Patrick Kelly, API

Transcription

1 THE UNREALISTIC AND UNWORKABLE MANDATE: - The Ethanol Blendwall - E15 Hurdles and Uncertainties Patrick Kelly, API February 24, 2014

2 Billion Gallons Renewable Fuel Standard Advanced Cellulosic Biofuel Non-cellulosic Advanced: Sugar Ethanol Co-processed Renewable Diesel Biomass Based Diesel: Biodiesel - Ester Standalone Renewable Diesel RFS1 Conventional Renewable Fuel Corn Ethanol 50% GHG Reduction 50% GHG Reduction 60% GHG Reduction 20% GHG Reduction (For new construction only. Existing corn facilities grandfathered.) 2

3 Nested RFS Mandates Cellulosic and biomass based diesel are two separate sub-categories nested within the advanced biofuels category The advanced category is nested within the total renewable mandate; the remainder is conventional fuels If cellulosic volumes are not available, EPA can issue cellulosic waivers and may also reduce the advanced and total renewable mandate in proportion to the cellulosic volume waived Total Renewable Mandate Cellulosic Biomass- Based Diesel Advanced Biofuels

4 Gasoline Demand (Billions of Gallons per year) Challenges Unforeseen at Inception AEO % in % in 2022 AEO 2012 AEO Source: EIA/AEO Table 11 - Editions 2007, 2012 & EISA07 was based on significantly greater gasoline demand projections Cellulosic technologies were expected to develop within a few years of EISA07 No commercial plants to-date E10 Blendwall and E85 issues not fully comprehended at the time Significant infrastructure and cost challenges New Supply Picture: Energy Independence and Security mean something different today Significant increases in domestic oil and gas production Resulting in decreased crude imports

5 Billion Gallons The E10 Blendwall Declining gasoline demand accelerates and exacerbates the blendwall EIA demand projections for gasoline, E85, and combined ethanol consumption indicate RFS targets will not be met Ethanol* required for RFS (E10) Ethanol Above RFS Ethanol in Gasoline (E10) Hydorcarbons in Gasoline Total Gasoline Demand (EIA) E10 Blend Wall Chart data based on AEO 2013 and RFS2 volume mandates for conventional and advanced biofuel (less biomass-based biodiesel). *Does not include cellulosic.

6 NERA Report: Economic Impacts of the RFS2 Program NERA found that once companies primary compliance options are exhausted, the RFS requirements limit the volume of transportation fuel that can be supplied Primary compliance options: E85, E15, increased biodiesel As each option approaches its practical limit, companies could be forced to reduce their compliance obligation by reducing domestic supply Volume of RINs obtained by blending E10+ and biodiesel effectively determines how much gasoline and diesel that company can supply As sufficient volumes of biofuels cannot be incorporated into the transportation fuel market: Number of RINs available for purchase decreases, and is soon depleted NERA finds that the RFS2 program will eventually fail Negative economic impacts begin in 2012 Full program collapse occurs in 2015 or 2016

7 RIN Price Escalation Has Occurred Daily Ethanol RIN Credits Price increase reinforces the NERA conclusion that RIN demand will exceed RIN supply RINs increase the cost of producing gasoline and diesel fuel

8 Suggested solutions to the E10 Blendwall None of the suggested solutions are viable: Gasoline with higher ethanol content E15 (15% ethanol)? E85 (85% ethanol)? Reduction of obligated volumes? Reduced production Increased exports of gasoline and/or diesel Further pressure on refinery economics Loss of outlets for refinery petroleum products

9 Issues with E85 Fuel E85 fuel is allowed for flexible fuel vehicle (FFV) use only About 6% of vehicles in the U.S. today are FFVs Low consumer acceptance E85 fuel economy and driving range are reduced by 25-30% vs. gasoline FFV owners use E85 less than 1% of the time Limited use today and low projected E85 growth according to EIA Limited E85 infrastructure Fewer than 2,300 or less than 1.5% of retail outlets nationwide offer E85 High installation costs: $25,000 (dispensing equipment) to $200,000+ (tanks) Retailers, most of whom are small business owners, are reluctant to install due to difficulty recouping investments Only about 3% of retail outlets owned, operated by major oil companies

10 E-15 Background Ethanol producers association requested E15 waiver (March 2009) EPA issued E15 partial waiver for model year 2001 and newer, bifurcating fleet (January 2011) EPA approval based primarily on results from DOE vehicle emission testing EPA Administrator Jackson: E15 does not harm emissions control equipment in newer cars and light trucks Industry research not completed at time of approval Numerous issues associated with marketing fuel Warning to small engines owners Retail Equipment and Vehicle Compatibility Impact on car warranties remains an issue Additional industry concerns with E15 Misfueling Potential Litigation 10

11 Hurdles and Uncertainties - with Infrastructure Studies show over 50% of retail fueling equipment is not compatible with E15 1 Lack of listed E15 equipment presents litigation concerns EPA requires compatible equipment 2 Stage II vapor recovery equipment not compatible Banks, insurance, state fund, labeling Cost to upgrade equipment - thousands to hundreds of thousands of dollars per station 156,000 3 service stations in the U.S. about 97% owned by independent businesses 4 Sources: 1. A Comprehensive Analysis of Current Research on E15 Dispensing Component Compatibility, March 2012, Larry Gregory Consulting, /~/media/Files/Policy/Alternatives/E15-Infrastructure- Comprehensive-Analysis.ashx 2. Compatibility of Underground Storage Tank Systems With Biofuel Blends, Federal Register /Vol. 76, No. 128 /Tuesday, July 5, NPN Market Facts information/~/media/files/oil-and-natural-gas/service%20station/retail- Outlet-2012-data.ashx

12 Hurdles and Uncertainties EPA Unapproved Vehicles and Engines What Vehicles and Engines May Not Use E15? 1 All motorcycles All vehicles with heavy-duty engines, such as school buses, transit buses, and delivery trucks All off-road vehicles, such as boats and four-wheelers All engines in off-road equipment, such as lawnmowers and chain saws All MY2000 and older cars, light-duty trucks, and medium-duty passenger vehicles (SUVs) EPA can fine retailers for violations of the Clean Air Act if a consumer intentionally or unintentionally uses E15 in one of these engines (private suits are also possible) Additionally, there are risks and potential liabilities associated with a consumer using the fuel in an off-road engine or equipment not designed for higher blends. OPEI warns consumers that using E15 gasoline in outdoor power equipment is dangerous and, in fact, illegal. 2 Sources: 1. EPA,

13 Excerpts from Auto Responses E15 Warranty Excerpts from Sensenbrenner Response Chrysler No We are not confident that our vehicles will not be damaged by E15 Ford No Ford does not support the introduction of E15 into the marketplace for the legacy fleet General Motors No We are not confident that our vehicles will be undamaged by the use of E15. Mercedes-Benz No Any ethanol blend above E10, including E15, will harm emission control systems in M-B engines Honda No Vehicle engines were not designed or built to accommodate higher concentrations of ethanol Mazda No The record fails to demonstrate that motor vehicles would not be damaged Toyota No Toyota cannot recommend the use of fuel with greater than E10 for Toyota vehicles 1 Source: 3

14 Excerpts from Auto Responses E15 Warranty Excerpts from Sensenbrenner Response Nissan No We are not at all confident that there will not be damage to MY 2001 and later vehicles with E15 Volkswagen No Volkswagen agrees that EPA did not conduct an adequate test program when E15 was considered Volvo No The risks related to emissions are greater than the benefits in terms of CO2 when using low-blend E15 for variants that are designed to E10. BMW No The BMW Group engines and fuel supply systems can be damaged by misfueling with E15. Hyundai No The EPA tests failed to conclusively show that the vehicles will not be subject to damage or increased wear. Kia No EPA testing failed to determine that vehicles will not be subject to damage or increased wear. Automobile manufacturers do not warranty vehicles for E15 except for Ford (MY2013) and GM (MY 2012 and 2013), and FFVs Source: 1 4

15 CRC Research Intermediate level ethanol blends Part of a broad ongoing effort to understand the emissions, fuel system compatibility, engine durability and drivability impacts of intermediate-level ethanol blends for consumers $14.5MM towards research on E20 and E15 over past several years (DOE focused on effects of E20 and E15 on catalytic converters) Final Reports available free

16 CRC Fuel System Durability Testing Fuel pump and fuel level systems testing started in 2008 Employed established testing procedures widely used within the automotive industry to evaluate and predict new product life Tests were done on fuel pumps and fuel level systems on popular 2001 and newer gasoline light-duty vehicles with actual fleet penetration likely greater than 29 million vehicles in total Fuel Pump System testing protocols Soak (i.e., immersion) Endurance test (i.e., continuous operation)

17 CRC Fuel System Durability Results Some systems passed with no problems Fuel pump systems on popular 2001 and newer gasoline light-duty vehicles failed or exhibited other adverse effects during testing on E15 Intermediate blends of ethanol caused swelling in some pump impellers a key component of the fuel pump that moves fuel into the fuel line. The fuel pump impeller shows obvious loss of vanes as a result of jamming against its housing that caused flow to halt Example: Vanes actually broke off portions of the impeller

18 CRC Fuel System Durability Results Fuel level system test protocols included: Testing for changes in the electrical signals which indicate Fuel level in the gas tank which is shown on the on the gas gauge If there is a leak in the fuel system as determined by the onboard diagnostic system (check engine light) The fuel level system units must have a clean signal without spikes or open circuits. Dirty signals can interfere with both fuel gauge readings and on-board diagnostics (i.e., check engine lights). Examples: Acceptable signal Unacceptable dirty signal

19 CRC Engine Durability Testing Accelerated test program to simulate ~100k miles in 500 hours Test program used by OEM s for durability Test conditions milder than extreme driving conditions i.e. not representative of wide open throttle CRC Engine Durability testing commenced fall 2009 and completed Dec Multiple interim meetings held in Wash. DC with stakeholders Final Report available free

20 Vehicles Selected for CRC Engine Durability Test Eight pairs of specific vehicle model years and models were selected 2001 Honda CR-V 2002 VW Jetta 2004 Scion xa 2005 Chevy Colorado 2007 Dodge Ram 2007 Ford Edge 2009 Dodge Caliber 2009 Chevy Aveo

21 CRC Engine Durability Test Results and Potential Consequences Vehicle engine durability may be compromised with E15 1 Vehicle numbers do not correspond to order of vehicles shown on previous slide. * Waived vehicles did not pass all specified criteria but were not tested on E15 or E0 after a detailed review of the data with the respective OEM and CRC concluded that fuel was not a factor. ** Failure was less severe than on E20 or E15. Models that failed represent about 5 million cars currently on the road Automobile manufacturers do not warranty vehicles for E15 except for Ford (MY2013) and GM (MY 2012 and 2013), and FFVs 1 Intermediate Level Ethanol Blends Engine Durability Study, April 2012, 21

22 Test Results and Potential Consequences Millions upon millions of popular 2001 and newer vehicles impacted Fuel Pump System Fuel pumps seized with E15 on both the soak test and the endurance. Consequence: Vehicle stops Fuel Level Sender System Sender signal was dirty Consequence: Vehicle tank shows full when empty, or shows empty when full Impacts proper operation of the onboard diagnostic system (check engine light) Engine Durability Valve and valve seat damage Consequence: Loss of compression, excess emissions, poor performance, engine repair 22

23 Other CRC Mid-Level Ethanol Blends Projects Evaporative Emissions Control Systems Durability on E20 2 of 10 vehicles showed increased evaporative emissions, but did not exceed certification standards On-Board Diagnostics (OBD) Continued investigation of potential for false check engine light illuminations Overview Report on the Entire CRC and Other Mid- Level Ethanol Blends Programs 23

24 Additional Hurdles and Uncertainties with Vehicles CARB and AAA statements on E15 CARB, Nov 6, 2012 Please be advised that E15 is not approved for sale in California, and if ARB chooses to allow E15 as a transportation fuel, it would take several years to complete the vehicle testing and rule development necessary to introduce a new transportation fuel into California s market. 1 AAA, Nov 30, 2012 A recent survey by AAA finds a strong likelihood of consumer confusion and the potential for voided warranties and vehicle damage as a result of the Environmental Protection Agency s (EPA) recent approval of E15 gasoline AAA is urging regulators and the industry to stop the sale of E15 until motorists are better protected. 2 Sources: 1. November 6, 2012 letter from Michael S. Waugh, Chief, Transportation Fuels Branch, California Air Resources Board, to Mr. Wayne Allard, Vice president, Government Relations, American Motorcyclist Association 2. November 30, 2012, AAA press release, 24

25 Additional Hurdles and Uncertainties Fuels Lack of 1-pound vapor pressure waiver for E15 during summer season could substantially impact supply of gasoline base stocks and may be infeasible in some areas Gasoline refiner/importers will need to register with EPA before supplying E15 Data are being developed by CRC to determine if changes are needed to the gasoline formula (ASTM) to ensure the vehicle performs properly in all temperatures and weather conditions 25

26 Hurdles and Uncertainties Fuel Supply Chain Faces Potential Litigation The entire fuel supply chain might face litigation for any vehicle repair costs (i.e., refiner, ethanol manufacturer, terminal, distributor, retailer) Potential Litigation/Enforcement Actions: Liability and fines for intentional or unintentional consumer misfueling Liability for not meeting tank and dispensing compatibility requirements 26

27 Renewable Fuel Standard: 2014 The RFS is fundamentally flawed and has become unworkable - EPA has the authority to temporarily address the problems year-by-year - We continue to call on congress to repeal the mandate 2014 RFS Standards Proposed November 29, EPA also published the industry waiver request and requested comment Blendwall - EPA uses its waiver authority to address the ethanol blendwall based on inadequate domestic supply - Ethanol industry is signaling litigation over EPA s use of the waiver Cellulosic Biofuel - 17 million gallons proposed for 2014 (0.5 million produced in 2013) - EPA projections continue to be optimistic and inconsistent with the D.C. Circuit Court decision 27

28 Renewable Fuel Standard: 2014 Biomass-Based Diesel billion gallons proposed for 2014 & EPA lacks the authority to increase the standard before 2016 Advanced and Total Standards - Waived to approximately 9.8% to 10.0% total ethanol in gasoline - Our comments urge EPA not to exceed 9.7% - To account for consumers that demand E0 (e.g. boaters) - 9.7% accounts for E85 volumes Rulemaking Timing - We urge EPA to get the annual rulemaking process back on track - Stressing the need for regulatory certainty 28

29 THE UNREALISTIC AND UNWORKABLE MANDATE: - QUESTIONS? Patrick Kelly, API (202) kellyp@api.org February 24, 2014