Ethanol Organizations Pushing for Mid-Range Blends; Blending Pumps for Retailers

Posted on November 1, 2008. Filed under: Advanced Biofuel, Blender's Tax Credit, Rural Development | Tags: , , , , |

The following article appeared on the Green Car Congress website (www.greencarcongress.com) on October 31, 2008.

Ethanol Organizations Pushing for Mid-Range Blends; Splash-Blending Pumps for Retailers

31 October 2008

Splashblend
A splash-blending pump. Click to enlarge. Source: EPIC/ACE

The American Coalition for Ethanol (ACE) and The Ethanol Promotion and Information Council (EPIC) are pushing for wider deployment of mid-range ethanol blends via the use of splash-blending pumps at retail sites. Mid-range ethanol blends (e.g., E15, E20, E30, etc.) can legally be used in flexible-fuel vehicles (FFVs) in the US. Use in non-FFVs is not currently legal, although it is under focused study. (Earlier post.)

In a webinar primarily targeted to petroleum marketers (e.g., fuel station owners) Ron Lamberty from ACE outlined the organization’s immediate rationale for opposing universal E10 blends, which is derived from the current structure of financial incentives around ethanol provision and use in the US, and its focus on preserving splash blending.

Under the current policy, the volumetric ethanol excise tax credit (VEETC) of $0.51 per gallon of ethanol goes to the blender of record. In creating a gallon of E85, for example, a blender can theoretically receive a tax credit of about $0.43 (85% of $0.51) per gallon, depending upon the actual ethanol content of the gallon.

ACE’s opposition to a universal E10 delivery is based on the assumption that the benefit of VEETC at that blend level would not be passed on to consumers, or to the retailer—i.e., the oil companies would incorporate the ethanol, take the VEETC credit (about $0.051 per gallon), and sell the product to the retailers without passing on the VEETC credit in the form of a price break. A number of oil companies, Lamberty charged, have gone to mandate an E10-only product slate, and are pushing terminals to allow only E10.

Two states (North Carolina and South Carolina) have passed laws requiring terminals to offer an un-blended petroleum product that is suitable for later blending with ethanol—i.e., by the retailer. Sixteen other states are considering similar legislation, Lamberty said.

Midrange
Stations currently equipped with blender pumps and offering mid-range blends, as of 24 October 2008. Click to enlarge. Source: American Coalition for Ethanol (ACE)

The ability to deliver a range of splash-blended ethanol mixtures would provide the retailer with some flexibility in being able to recoup their costs of expanding their offerings. In the splash-blending pump scenario, two tanks—one with ethanol or E85, the other with straight unleaded gasoline) are connected to the pump, which in turn, given appropriate consumer labelling, creates the blend on-the-fly for the consumer.

If the retailer opts for straight ethanol in the tank, then he or she will end up taking the tax credit directly. If the retailer uses E85 as the blending agent, the original E85 blender will have benefitted from the credit—but presumably the price break (or a portion thereof) would still be passed to the retailer in the cost of the E85. Ethanol plants, Lamberty said, will sell E85 direct, bypassing the “big oil markup”. Lamberty recommends the E85 route for those retailers that don’t have the experience of the desire to go through the requisite tracking and paperwork to file for the blend credit.

In assessing the market opportunity for mid-range ethanol blends above 10%, Lamberty noted that without some sort of accommodation for mid-range ethanol blends, the E10 blend wall, even with aggressive adoption of full E85 flex-fuel vehicles, will result in a “blend gap”—a gulf between the amount of ethanol produced to meet the Renewable Fuel Standard, and the amount that can actually be used in the fleet.

All cars in the US can legally run on blends of up to E10—a nationwide E10 policy would create a “blend wall”—i.e., maximum legal utilization—of about 14 billion gallons per year for non-flex-fuel vehicles. Even with a new fleet that is 50% flex-fuel capable, and assuming that the E85 infrastructure was present to provide the fuel, the combination of E85 and E10 vehicles is still insufficient to use the ethanol that will be produced to meet the RFS, Lamberty said. That’s the blend gap. Shifting to a universal E15, for example, would close the gap.

Ace18 Ace19
The E10 blend wall and blend gap. Click to enlarge. The E15 blend wall and blend gap. Click to enlarge.

There are some cost challenges for the blender pumps, and there are some potential liability issues with offering mid-range blends. While it is legal for a station to offer a mid-range blend, station owners may be liable for misfueling—i.e., fueling a conventional car with a mid-range blend—just as they may be liable for misfueling with diesel.

However, Lamberty noted, the stations that are currently selling mid-range blends (ACE has a list of 84 so far) have yet to receive a complaint or damage claim. Lamberty was optimistic about the studies underway evaluating the affect of mid-range blends in conventional vehicles, and described anecdotal evidence about cars running on E30 with no problem.

In that view, the ethanol supporters may be more sanguine that the automakers (and the EPA), who look at the same data but see potential issues such as higher exhaust temperatures affecting catalyst lifetime and performance. The study series on mid-range blends is due to go through 2010.

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    Renergie created “field-to-pump," a unique strategy to locally produce and market advanced biofuel (“non-corn fuel ethanol”) via a network of small advanced biofuel manufacturing facilities. The purpose of “field-to-pump” is to maximize rural development and job creation while minimizing feedstock supply risk and the burden on local water supplies.

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