Wednesday, September 19, 2012

The "Four-Gallon Rule": Another Unintended Consequence of Ethanol Policy

The energy field is replete with unintended consequences, and US policy promoting ethanol fuels has had more than its share.  The growing competition  between food and fuel uses of corn, amplified by the current drought, is a prime example, along with the so-called "dead zone" in the Gulf of Mexico that has been exacerbated by the extra fertilizer used to boost corn yields enough to meet the rising demands of the federal Renewable Fuel Standard (RFS).  Most of these effects occur out of the sight of average consumers, but here's a new one that could start showing up at a gas station near you, very soon: the EPA's "four-gallon" rule.  As a result of EPA's decision to allow gasoline blenders to sell fuel containing up to 15% ethanol, and in recognition of the adverse consequences of high-ethanol blends for small engines, gas stations will be required to post signs enforcing a minimum purchase of four gallons from certain pumps.  This is yet another indication that the EPA has put expediency above prudence in giving its approval to a fuel that is not ready for mass-market distribution. 

A little background is necessary to understand how we reached this point.  In 2007 the Congress passed the Energy Independence and Security Act that included the RFS, mandating dramatic increases in the quantity of ethanol blended into gasoline.  Unfortunately, its passage coincided with a sea change in the gasoline market. Prior to the financial crisis and recession, US gasoline demand had been growing by 1-2% per year for decades, and on that pace there should have been ample future gasoline demand growth to accommodate all the additional ethanol that Congress was instructing the EPA to require refiners and gasoline blenders to add, by means of the standard blend of 90% gasoline and 10% ethanol.  Instead, gasoline sales fell by more than 3% in 2008 and still haven't recovered their 2007 peak, running about on par with 2002 this year.  When you do the arithmetic, that means that instead of being able to absorb over 15 billion gallons of ethanol this year, the market can only handle around 13 billion gallons--barely enough to satisfy the 2012 mandate level and 2 billion short of the amount required in just three years.  (This ignores cellulosic ethanol requirements, which have been revised downward each year as commercial production fails to appear.)

With sales of 85% ethanol E85 trickling along at levels too low to stave off the approaching "blend wall", the ethanol industry applied in 2009 to be allowed to increase the ethanol dosage in gasoline from 10% to 15%, requiring an EPA waiver of existing regulations.  That waiver was granted in 2010 for cars made after model-year 2006 and later extended for cars made after model year 2000, in spite of continuing concerns about its impact on the engines and fuel systems of all cars not labeled as "flexible fuel vehicles", as well as testing by UL indicating that some existing gasoline dispensers failed in dangerous ways when ethanol blends above 10% were introduced. 

The four-gallon rule is part of the EPA's ongoing contortions, in the form of gas pump labeling and "misfueling mitigation plans", to make sure that E15 doesn't get into the wrong vehicles, or worse yet, into small engines--lawn mowers, string trimmers, boats, etc.--where it has been found to cause potentially serious problems.  So in addition to labels indicating that E15 is only approved for 2001 and later automobiles, the EPA is instituting a minimum sales quantity rule to prevent someone from filling a gas can for use in a small engine with E10 from a "blender pump"--one that can dispense either E10 or E15 on demand.  That's because even after the pump is switched to E10, enough higher-ethanol fuel could remain in the hose to skew the ethanol content of the first few gallons delivered. (I'd suggest that this ought to be of concern to motorists, as well.)

I'm sure the EPA sees its new four-gallon rule as a sensible measure to protect the owners of small consumer or industrial engines from damaging their equipment. Yet from my perspective outside the bureaucracy it looks like another symptom of an E15 policy that falls short of the prudence necessary when dealing with the retail distribution of motor fuels and borders on regulatory malpractice.  At some point in the process someone in EPA should have held up his or her hand and pointed out that the obvious solution was not layering increasingly impractical and downright weird regulations onto already overburdened gas station operators, but to call for a fundamental reexamination of a Renewable Fuel Standard that has been overtaken by unforeseen events.  And that's without even considering that the lower energy content of the extra ethanol equates to a new $0.07 per gallon tax on gasoline at current prices. The publicity surrounding this issue provides an ideal opportunity for one or both presidential candidates to commit to suspending the E15 program, pending a thorough review of the RFS and its implementation. 

9 comments:

Jim Melendy said...

A bunch of people will drive up to a pump, fill their one gallon lawn mower jug, and then put the other three gallons, or more, into their pickup. If they reversed the order, there would be no problem, but a significant number of people will get it wrong. The "four gallon rule" is a typical government band-aid. It fixes maybe 75% of the cases, and ignores the residual.

Geoffrey Styles said...

It's also not clear how it would affect motorcycles that hold less than 4 gallons excluding reserve, or extended-range (plug-in) hybrid cars like the Volt that might not use 4 gal. in a couple of months, but need to be topped up occasionally for a longer trip. Initially, their owners would just need to find another station, but if E15 takes off to the extent the EPA needs it to, in order to fulfill the RFS quotas, that could become difficult.

donb said...

There are a lot of pre-2001 cars still on the road (I have one), so filling stations will need to allow a choice of E10 to accommodate those cars. So what is to prevent me from filling up my 2001 car with E10 instead of E15? The obvious solution from government would be to tax E10 more or tax E15 less. But this punishes those with older cars who need to buy E10. So then maybe yet another Band-aid will be applied, perhaps as a tax credit to the owners of older cars. But the owners of older cars are likely to be poorer, and may not pay income tax, so a tax credit does them no good. To fix this problem....

The above demonstrates the absurdity of it all. The Renewable Fuel Standard needs to be phased out. Start with reducing the mandate so that we don't need to go to E15, and continue decreasing the mandate down to zero at, say, 10 years out. Still allow ethanol in gasoline up to 10% so it can be used if competative with petroleum.

learn Rug Cleaning Wheaton said...

The unintended consequences of the policy, especially those influencing world food prices, far outweigh the intended benefits. How does it affect our daily live?

pelinoc said...

Donb has it right, I think. Since mid 2009, ethanol has traded below RBOB for all but a few months, and often at prices substantially below RBOB even on a btu adjusted basis. Moreover, ethanol is a source of oxygenate for gasoline blenders that would otherwise have to be provided. It's becoming clear that ethanol, at its current level of production, does not need a continued RFS. However, the ethanol industry wants to continue expanding, of course, and that's where the RFS, and all the other policy contortions discussed in the article come in...

Geoffrey Styles said...

donb,
At this point no one is forcing us to buy E15 instead of E10, which raises important questions: As long as the choice remains voluntary, why would anyone choose to buy a fuel with fewer BTUs (and thus fewer miles of range ), and minimial if any additional environmental benefits, unless it is offered at a discount commensurate with its lower quality? So as long as the current RFS remains in place, with steadily escalating annual quotas for blenders, how long can that choice remain voluntary in the absence of a discount?

Geoffrey Styles said...

One additional housekeeping item: I wasn't sure how it would look with the comments accumulating on the home page. Seems cluttered, so I'm thinking of putting them on their own page, as before.

ajay said...

great blog
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Giana Forzareli said...

This transition to a more efficient energy source has made me really excited. I would love to see shipping companies using ethanol fueled engines for their Vehicle Fleet.