Robert l.

Greco, Ill
Group Director
Downstream ft Industry Operations
1220 L Street, NW
Washington, DC 20005-4070

USA
Telephone

Fax

June 18, 2014

Email
www.api.org

202-682-8167
202-682-8051
greco@api.org

The Honorable Gina McCarthy

Administrator
U.S. Environmental Protection Agency
1200 Pennsylvania Ave.
Washington, DC 20460

Re:

Final Volumes for the 2014 Renewable Fuel Standard

Dear Administrator McCarthy,

API continues to urge the U.S. Environmental Protection Agency to promulgate Renewable Fuel
Standard requirements that reflect the realities of the ethanol blend wall. The RFS volume standards for
2014 must protect U.S. consumers and be based on sound science, considering all vehicle, fuel, and
infrastructure issues. EPA should resist pressure to increase the volumes beyond the ethanol blend wall
and should act now to finalize the 2014 RFS regulations. The continuing delays are unacceptable,
fundamentally unfair, and show a continued disregard for congressionally mandated deadlines.
On April 29th I wrote to you explaining our concerns with basing the annual standard on revised EIA
demand projections. As we reach EPA's announced release of the 2014 standards this month, API
recently arranged a meeting with senior administration officials to discuss our RFS concerns. We are
encouraged that there is broad recognition that EPA's use of its waiver authority is necessary to address
the ethanol blend wall. However, we again urge EPA and the Administration to avoid pushing the
minimum biofuel requirements up to the maximum amount that could potentially be blended into
transportation fuels. This approach fails to provide necessary flexibility in the marketplace and
threatens our economic security. The negative consequences for the U.S. economy and consumers from
hitting the ethanol blend wall could be severe, and EPA needs to provide an adequate "buffer" to
safeguard against this unnecessary risk. The standards should be set below the equivalent of 9.7 volume
percent ethanol in the gasoline pool.

Vehicle and refueling infrastructure compatibility constraints are a fundamental dilemma with the RFS,
and create a practical limit to the amount of ethanol that can be consumed in E85, ElS or intermediate
ethanol blends. The investment decisions necessary to address these issues are made by independent
retail gasoline station owners and operators, automakers, and ultimately the driving public. The cost to
install retail infrastructure that can handle ethanol flex fuel (i.e. E85) can be significant. The National

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Association of Convenience Stores estimated that the cost could be upwards of $200,000 for an
individual store owner who operates two underground storage tanks and four dispensers; and in 2012,
1

the average single convenience store reported approximately $48,000 in pre-tax profits. Over 95
percent of all retail gasoline stations are independently owned and operated -- not by the RFS obligated
parties. 2 These independent franchisees ultimately choose the brand they wish to carry (if any) and the
products they wish to offer. This market reality contradicts the incorrect assertion that refiners are in
some way responsible for the 1.ack of retail E85 pumps and infrastructure. In fact, data on E85 pump
3

availability show that 1,500 retail stations branded by API member companies offer E85 and, DOE data
4

shows that virtually every major refiner has branded retail stations offering E85. Yet, only about 2,400
retail stations offer E85, which is about 1.5 percent of the total retail station count.
Stakeholders in the ethanol industry have asserted 5 that the law requires obligated parties -- refiners
and importers -- to invest in retail infrastructure to offer higher ethanol blends even though such
obligated parties do not own the vast majority of retail gasoline stations. Such assertions are false. The
law does not require any party to invest in retail infrastructure. The law limits the amount of gasoline
and diesel that can be supplied to the United States by the amount of renewable fuel consumed in U.S.
transportation fuels. If consumption of biofuels cannot meet the percentage required by regulation, the
domestic supply of gasoline and diesel is constrained. The reduction in transportation fuel resulting
from this infeasible law jeopardizes our ability to move people and goods around the country and puts
the U.S. economy at risk.

Independent retailers have largely recognized the lack of consumer demand for E85 when weighing the
potential costs and benefits associated with offering the fuel. Only about 6 percent of vehicles can use
E85, and incentives for making more ethanol flex fuel compatible vehicles (i.e. FFVs) in the future are
7

phasing out as a result of the new NHTSA/EPA CAFE/tailpipe GHG requirements. Even owners and
operators of FFVs have largely rejected E85; the reduced economy inherent with E85 use results in a
shorter driving range and more frequent refueling stops. Some retailers made the investments to sell
8

E85, only to revert the infrastructure back to gasoline. According to EIA, energy adjusted ethanol prices
have been and remain higher than gasoline blendstock; adjusted for energy, E85 prices are higher than
1

Anderson, P. National Association of Convenience Stores, "E85" Message to Searles, P. June 10, 2014 Email
Gilligan, Dan. Statement to U.S. Senate, Energy and Natural Resources Committee, To explore the effects of ongoing changes in domestic oil
production refining and distribution on U.S. gasoline and fuel prices, Hearing, July 16, 2013
3
http://www.api.org/oil-and-natural-gas-overview/consumer-information/-/media/Files/Oil-and-Natural-Gas/Service%20Station/RetailOutlet-2012-data.ashx
4
Alternative Fuels Data Center found at: http://www.afdc.energy.gov/fuels/ethanol_locations.html
5
http://www.ethanolrfa.org/pages/big-oil-builds-the-blend-wall,
2

NERA Economic Consulting, "Economic Impacts Resulting from Implementation of RF52 Program," October, 2012.
CAFE credits phase out in 2019, and other CAFE, GHG and Tier 3 requirements reduce or eliminate automaker incentives to produce FFVs.
8
October 14, 2013, 2013 NACS Show Panel, "Biofuels: A Look Ahead," statement by the owner of Echols Oil Company
7

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ElO. And according to AAA, E85 has cost consumers more, when accounting for fuel economy loss, for
as long as the organization has been tracking E85 retail prices.

EPA has acknowledged that FFV owners

who have been purchasing E85 have been doing so for reasons other than the economic benefit.

10

As a

result, EIA data show very low demand for E85 (approximately 45 million gallons/year), and no demand
growth between 2010 and 2013.

11

Lack of demand growth is also evidenced by data collected by

Minnesota and Iowa that show combined E85 consumption in 2013 was less than in 2008 and 2011 and
has remained within a range of 20-30 million gallons since 2006.

12

The overwhelming majority of vehicles have not been certified or warranted for ethanol blends above
10 volume percent, and every automaker has declined to extend warranty coverage if its legacy vehicles
are operated on ElS.

13

E15 is only compatible with flexible fueled vehicles and some newer model year

cars specifically designed to accommodate E15. E85 is only compatible with flexible fueled vehicles.
Together, ethanol blends exceeding 10 volume percent are only compatible with approximately 8-9
percent of vehicles on the road.

14

Tests conducted by the Coordinating Research Council showed that

ethanol concentrations in gasoline that exceed 10 percent can lead to engine and fuel system damage. 15
In addition, as much as half of the retail gasoline infrastructure may not be compatible with ethanol
blends above 10 percent.

16

The RFS mandate must allow for consumer demand for EO - clear gasoline
In the 2014 RFS standards proposal, EPA requested information to determine the demand for gasoline
with no ethanol (i.e. EO), and the appropriateness of incorporating the latter into the final standards.

17

Our industry provided the requested data in comments to the proposal, and we noted that, according to
EIA data, about 97 percent of gasoline currently supplied is ElO. EPA should set final ethanol standards
sufficiently below 9.7 percent to allow consumers who demand EO for boats, small engines, etc. to
continue having access to this product. Contrary to assertions by some, gasoline used in boats and
other non-highway uses is subject to the RFS requirements, and these consumers have expressed

AAA Daily Fuel Gauge Report

Federal Register/ Vol. 78, No. 158 /Thursday, August 15, 2013 page 49821
EIA 2014 Annual Energy Outlook
12
Minnesota Dept. of Commerce and Iowa Dept. of Revenue. Found at: http://www.iowa.gov/tax/forms/motor.html and
http://mn.gov/commerce/energy/topics/clean-energy/Vehicles-Fuels/Ethanol.jsp
13
http://sensenbrenner.house.gov/UploadedFiles/E15_Auto_Responses.pdf
14
Estimate was based on data from IHS powered by POLK, http://www.hybridcars.com, and http://www.cnbc.com/id/101078494
10

11

15

Coordinating Research Council, "Intermediate-level Ethanol Blends Engine Durability Study," April 2012; Coordinating Research Council,
"Durability of Fuel Pumps and Fuel Level Senders in Neat and Aggressive 15."
16
Larry Gregory Consulting, LLC. "A Comprehensive Analysis of Current Research on E15 Dispensing Component Compatibility" March 2012.
Found at http://www.api.org/news-and-media/news/newsitems/2012/aug-2012/~ /media/Files/PolicyI Alternatives/E 15-1 nfrastructu reCom prehensive-Ana lysis.ashx
17
Proposed Rule at 71759.

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particular concern with the impact of ethanol on their engines, in part due to the fact these engines
remain in storage for long periods of time. While this known demand for EO (gasoline with no ethanol)
is only about 3.4 percent of the gasoline supply, it vastly exceeds the volume of E85 demand which
accounts for a mere 0.15 percent of total gasoline supply.

18

As such, shifts in EO consumption will have a

far greater impact on the ethanol blend wall than shifts in demand for E85. This relationship further
illustrates the need for EPA to finalize standards with an adequate buffer below the ethanol blend wall.
Diesel Deficit Dilemma
An analysis by NERA Economic Consulting19 shows that as the ethanol blend wall is hit, obligated parties
will exhaust all compliance options, and individual companies acting independently could be forced to
reduce their RIN obligation by reducing the supply of transportation fuel. As a result of decreased
domestic fuel supplies and large increases in transportation fuel costs in NERA's analysis, our economy
experiences widespread harm. It is important to note that NERA's estimates of economic harm are
driven largely by the impact of the ethanol blend wall on the diesel markets.
RFS obligations are based on companies' total transportation fuel (i.e. gasoline+ diesel) refined and
imported and as such diesel fuel provided incurs an obligation for "ethanol RINs" under the RFS.
Ethanol is incompatible with diesel vehicles, so the necessary volume of RINs cannot be obtained by
physically blending ethanol into the diesel fuel supply. Total ethanol blending has historically exceeded
the minimum percentage required by the RFS for various reasons; one of which is to generate surplus
RINs from ethanol blending to offset the deficit created by providing diesel fuel. As the renewable
volume obligations increase, this ability to generate surplus ethanol RINs evaporates. NERA predicted
that obligated parties' RIN deficits created by providing diesel fuel would significantly reduce diesel
supply, and the reduction would become so large that it would lead to such severe rationing of diesel so
as to cause extreme disruption in the commercial transportation sector. Diesel fuel costs impact our
economy broadly as the cost to move goods and provide services are impacted by diesel fuel. NERA
found that that the impact on the diesel market would impose significant costs on society that ripple
adversely throughout the economy, affecting employment, income, consumption, and GDP.
Conclusion
EPA has taken an important first step by proposing to exercise its waiver authority, which is necessary to
provide a clear signal to the market for 2014 and beyond that EPA will take appropriate action to avert
the ethanol blend wall and its potential ramifications on U.S. consumers, domestic product supply
18
19

EIA 2014 Annual Energy Outlook derived from data in Table 11

NERA Economic Consulting, "Economic Impacts Resulting from Implementation of RFS2 Program," October, 2012.

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availability, and the economy. The 2014 Final Rule is once again being issued very late and will once
again be applied retroactively. We urge the agency to take these considerations into account and
finalize the 2014 RFS standards now so that ethanol volumes remain below 9.7 percent of EIA's
projected gasoline demand.
Thank you for your consideration of these comments.
Sincerely,

Robert L. Greco, Ill

Group Director, Downstream & Industry Operations

cc:

Jeffrey Zients, Director of the National Economic Council

Howard Shelanski, Administrator of the Office of Information and Regulatory Affairs
John Podesta, Counselor to the President

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