Ethanol Mandates Cast Cloud Over Gasoline Retailing


WASHINGTON -- Gasoline marketers are looking ahead to the Environmental Protection Agency (EPA) authorizing intermediate ethanol blends - - and wondering just how much the decision is going to cost them.

Nearly three years after President George W. Bush signed into law the Energy Independence and Security Act, requiring at least 36 billion gallons of renewable fuel be used by 2022, the convenience store/gas industry is waiting for the EPA to announce how that ambitious goal will be realized -- and hoping it won't mean huge investments in new compatible pumps, tanks and lines.

At issue: If every gallon of gasoline were blended with 10-percent ethanol (E10), the country would consume only 14 billion gallons of renewable fuel. The only solution in sight is to increase the ethanol content. The EPA is considering a request to authorize the use of E15, while ethanol advocates are calling for the immediate approval of E12 and longer-term, even higher ethanol blends (E25, etc.) However, the vast majority of existing equipment is not UL-certified to sell E15 or higher blended fuels.

In July, three major ethanol groups called on the EPA to formally approve the use of E12 in the nation's gasoline supply. The American Coalition for Ethanol, National Corn Growers Association and the Renewable Fuels Association wrote, "based on the EPA's delay in acting upon the full E15 waiver and on our concerns that the agency will restrict the use of E15 to cars made in 2001 and thereafter, we encourage the EPA to formally approve the use of E12 for all motor vehicles as an immediate interim step pending any ongoing additional testing on E15."

The groups pointed to President Obama's stated goal of reducing reliance on oil imports and reiterated that expanded use of domestically produced ethanol will help accomplish that goal. According to the letter: "Decreasing dependence on foreign oil is a key to this country's environmental, energy and security policy, and the EPA must provide a practical and workable solution to the ethanol blend wall issue and do so soon. Allowing E12 for all motor vehicles as an interim step to a full waiver for E15 is a reasonable and defensible first step to solve the immediate problem."

The groups' letter reviewed previous EPA findings, policy positions and research to demonstrate the reasonableness of approving E12 for use in the nation's automobile and light truck fleet.

"The EPA has a clear basis and the authority to approve E12," the letter said. "While we think delay on E15 is unnecessary and will slow progress on expanding the use of ethanol, we all agree that approval of E12 is a vital interim step that the EPA can and should take."

The EPA is required by law to base its decision on intermediate blends on the effect the fuels would have on the performance and safety of engines using the fuel and the effect on air pollution emissions, explained John Eichberger, NACS' vice president, government relations, noting a decision is expected this fall and will likely give a thumbs up for E15 for use in vehicles manufactured in model year 2007 or later only.

As it stands, the only alternative fuels, beyond E10, currently permitted for use are E85 (approved for flex fuel vehicles only) and biodiesel. If EPA approves the sale and use of E15, retailers will face a number of problems -- including equipment issues and liability risks, Eichberger said.

Using the existing petroleum marketing equipment certified by Underwriters Laboratories or other nationally recognized testing labs, it is unlawful for retailers to store and sell any fuel with greater than 10-percent ethanol or more than 5-percent biodiesel using existing equipment," he said. "Retailers must use equipment certified as compatible with the fuel they are selling."

But existing retail fueling equipment has been already tested for use up to 15-percent ethanol blends, countered to Matt Hartwig of the Renewable Fuels Association. The test fuel used in the long-time Underwriters Laboratory (UL) certification process was a highly corrosive test fuel that necessitates very robust fuel dispensing equipment materials of construction, he noted.

Indeed, in February, UL announced all listed dispensers in the market were safe to sell up to 15-percent ethanol, but would not change their official certification of those dispensers, leaving retailers who sell E15 with noncertified equipment exposed, Eichberger said. If EPA approves E15 for only a subset of engines, retailers also may be held liable if a consumer accidently or intentionally misfuels an unapproved engine with E15.

Retailers may be fined for violating the Clean Air Act if they do not physically prevent such misfueling, Eichberger added, stating Clean Air Act violations carry fines of up to $37,500.

On the other end of the blend spectrum, retailers such as Valero continue to add E85 to their offer. As of July 15, there were only two certified dispensers to sell E85 and two certified dispensers to sell up to E25. Failure to use certified equipment exposes the retailer to claims of gross negligence liability, violation of local fire codes and OSHA regulations, violation of tank insurance and state tank fund policy requirements, and provisions contained in many business loan agreements, Eichberger said.

"If there is an accident involving a customer, the judge will want to know if the equipment is certified for the product sold," he said. "If the answer is no, that's all he'll want to hear."

No retailer is deliberately doing anything unlawful, Hartwig said. "As a matter of history, the rules of equipment 'certification' were changed by UL in the middle of the game," he told CSNews.

Retailers are working with local authorities having jurisdiction, their insurance companies, state and federal regulators and local fire departments to offer renewable fuels within the expectations of the regulations in the safest manner possible, he said. "RFA is doing everything within our power to support these retailers and any retailers looking to offer ethanol blended fuels."

To better address retailer liability and the greater use of ethanol, NACS and RFA support the passage of H.R. 5778, the Renewable Fuels Marketing Act of 2010, also endorsed by the Society of Independent Gasoline Marketers of America (SIGMA), Petroleum Marketers Association of America (PMAA), and NATSO, representing travel plazas and truck stops. Introduced in July by Rep. Mike Ross (D-Arkansas) and Rep. John Shimkus (R-Illinois), the bill would direct the EPA to issue guidelines to determine whether retail petroleum equipment is considered compatible and may be used to safely and lawfully sell authorized motor fuels.

"This would provide retailers a pathway to obtaining authorization to lawfully sell fuels like E85, B20 and E10+ gasolines through equipment currently in use at a majority of retail outlets," Eichberger said. "It will also expedite the certification of new devices as compatible with certain renewable fuel blends and increase the inventory of certified compatible equipment available to retailers for upgrades and conversions of outlets. Equipment approved under the guidelines will satisfy all applicable laws and regulations, as well as tank insurance requirements."

The bill also calls for the EPA to issue labeling regulations to inform consumers of the approved uses of fuels to prevent the misfueling of non-compatible vehicles. If a self-service customer ignores the labels and misfuels, the retailers who comply with the proposed regulations wouldn't be held responsible for Clean Air Act violations or for the voiding of an engine's warranty.

With the price of a new UL certified dispensers for higher ethanol blends exceeding $20,000, the passage of the Renewable Fuels Marketing Act is crucial, Eichberger said. "The typical convenience and petroleum retailer in 2009 reported an annual pre-tax income of only $33,000," he noted. "Requiring immediate upgrades of equipment would simply not be financially possible."

Plus, the dispenser is only one component of the retail system. Retailers would also have to acquire listed underground storage tanks, pipes, connectors, etc. The cost of cracking concrete and replacing such equipment easily exceeds $100,000, he said.

Finally, with only two certified dispensers available -- and more than 160,000 motor fuel retail outlets in the country with more than 600,000 dispensers that would need replacing -- the math just doesn't add up.

"Even if it were financially possible, [a large scale upgrade] simply could not occur before the country hits the blend wall," Eichberger said.

What's more, authorizing E12 or E15 will buy the country a few years, at most, in meeting the ethanol mandates, Eichberger said. Longer term, retailers must sell E20 or E25 to hit goals.

"But first, someone has to create a market sustainable for cellulose ethanol, because we're limited to 15 billion gallons of corn ethanol production here, and we won't even have enough product to blend," the NACS executive said. "Assuming we have the product to blend, to get to 36 billion gallons, we must have at least 20-percent ethanol in the gasoline. We have no cars to run on that, we have no equipment to sell it."

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