Friday, December 19, 2008

Open Fuel Standard

One of the energy-related email lists to which I'm subscribed recently alerted me to an interesting piece of pending legislation in the US Congress, the "Open Fuel Standard Act of 2008", S.3303. The bill would require automakers to increase the proportion of their cars that are able to run on non-petroleum fuels to 50% by 2012 and 80% by 2015. Its title might be intended to conjure up analogies to high tech software standards, and its supporters may cite national security considerations, but its main purpose is to plug a gaping hole left by previous Congressional energy legislation. And while it mentions other fuels such as methanol and biodiesel, it is first and foremost about ensuring the future market share of ethanol.

The main focus of the "OFS Act" is Flexible Fuel Vehicles, cars that are factory-equipped to consume fuel containing high proportions of alcohol, which might otherwise damage their fuel systems and other components. Most of the 240 million cars in the US are only certified for alcohol blends of up to 10%. The few million FFVs already on the road were produced under a provision of the Corporate Average Fuel Economy regulations that allowed carmakers to offset them against low-mpg conventional cars, such as large SUVs. Considering that most FFVs burn gasoline most of the time, instead of the alternative fuels they were credited with enabling, this actually reduced the real-world fuel economy of the US new car fleet and increased US petroleum imports, a fact that was recognized and rectified when Congress passed the Energy Independence and Security Act of 2007. That bill established the new, higher national Renewable Fuel Standard (RFS), while progressively phasing out the CAFE benefit from FFVs by 2020. In the process, it set carmakers and fuel suppliers on a collision course, with the wreck now likely to happen several years sooner than it otherwise would have, because gasoline demand is falling.

Until this year, US gasoline demand was growing by about 1% per year. Starting from its 2006 volume of 141.8 billion gallons per year (GPY), the gasoline pool could have been expected to accommodate the quantities of ethanol required under the new RFS until at least 2014 without exceeding the maximum 10% blending rate (E10) for standard cars or requiring significant sales of E85, the 85% ethanol/15% gasoline blend that is the closest thing to pure ethanol that seems to be compatible with our fuels distribution system. But instead of growing by 2% since 2006, US gasoline demand in 2008 has dropped by around 3.5%. A similar decline next year would shrink gasoline sales to about 132 billion GPY and cause the RFS to bump into the E10 ceiling in 2012. That would require either selling E85 to large numbers of FFVs, or delaying the ethanol ramp-up until the fleet's flex-fuel capabilities caught up. Even bumping up the E10 limit to 11 or 12%, which is currently under consideration, would only buy us another year or two.

The Flexible Fuel Vehicle Club of America--who knew?--claims there are 7 million FFVs today. If every last one of them used nothing but E85, they would consume about 5 billion gallons per year. But that would require something like 7,000 retail locations selling at least 60,000 gallons per month of the fuel, instead of the current 1,600 stations selling a few thousand gallons per month each, totaling perhaps 150 million gallons per year. It would also probably require a much bigger discount for E85 vs. regular gasoline than the $0.17/gal reported by AAA currently. (Their calculation suggests E85 costs motorists $0.30/gal more than gasoline at today's prices, after adjusting for mileage effects.)

My long-time readers know that it wouldn't break my heart if the ethanol build-up came to a screeching halt. Ethanol is an inferior fuel in many respects, with an energy density a third lower than gasoline, translating into reduced vehicle range and fuel economy. This is confirmed by the government's own fuel economy ratings. Its environmental attributes are a distinctly mixed bag, and that extends to lifecycle greenhouse gas emissions that may be no better than gasoline's, when global land-use changes are included. Nor does it seem likely that ethanol from non-food sources, including cellulosic plant matter and waste, will be available in large quantities for some time, embedding fuel-vs-food competition into the economy for years to come. Its main selling point is that it is mostly home-grown--never mind the greater efficiency and environmental benefits of sugar-based ethanol from Brazil and the Caribbean. Because of its importance to US agriculture, it is highly unlikely that any US government, Democratic or Republican, would choose to back away from it without compelling evidence of harm--or unless it started to pile up at ethanol plants because there weren't enough FFVs to consume it.

So if Congress remains committed to increasing ethanol use and to denying carmakers the CAFE credits they formerly earned for selling cars that could burn E85, they must pass the Open Fuel Standard act or something like it, far enough in advance of the impending train wreck in 2012 or 2013, to get sufficient FFVs on the road to absorb the surplus ethanol beyond E10. Given the Big Three's other problems, it's hard to imagine the $100 or so in extra expense per car becoming the straw that breaks Detroit's back, but I wouldn't be surprised if they asked for a tax credit to cover the cost.

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