Is Ethanol's Acceptance A 'Can Of Corn?'

E15 could be the next big alternative fuel, but risks and political opposition remain

The biggest news this year regarding ethanol was clearly the U.S. Environmental Protection Agency's (EPA) June 18 decision to allow gas stations to sell E15 at the pump.

E15 is a blend of 15 percent ethanol and 85 percent gasoline. The previous limit had been a 10-percent ethanol, 90-percent gasoline blend, a fuel many gas stations sell today.

Although few gas stations have yet to take advantage of selling E15 at the pump, the EPA's decision is important because millions more vehicles can fuel up with E15 compared to E85.

"E15 continues to open up a larger market for convenience store operators and is beneficial to both consumers and retailers," said Mike O'Brien, vice president of market development for Growth Energy, a Washington D.C.-based trade organization that represents the producers and supporters of American ethanol.

On the other side of the coin, E85 contains a blend of 85 percent ethanol and 15 percent gasoline. Although E85 is cleaner burning and cheaper at the pump than its counterpart, it comes with flaws. Only flex-fuel hybrid vehicles can use E85 and it is possible consumers with non flex-fuel vehicles can harm their engines if they fill up using E85. Therefore, some gas station operators have been hesitant to sell E85 at their locations due to the potential public relations backlash or the legal actions customers who misfuel could take.

Scott Zaremba, owner of eight Zarco 66 convenience stores and gas stations, was the first in the United States to offer E15 at the pump at his Lawrence, Kan., store. That pump became operational in July, and Zaremba has since opened another E15 pump at a second store in Ottawa, Kan.

The Zarco 66 owner, whose company blends the E15 fuel itself, is not stopping there. He told CSNews that he expects to open E15 pumps at all eight of his stations.

Zaremba also sells E85, but he acknowledged E15 provides some advantages comparitively. Any vehicle made in the model year 2001 or later can accept E15. "E15 can be used in two-thirds of the vehicles on the road," he noted. "There are many vehicles available to use the product. It's much better than E85."

In addition, if a pre-2011 car owner fills their vehicle with E15 as a one-time accident, the result is likely to be less catastrophic than misfueling with E85, experts say.

"Most fuel here in the Midwest already contains 10 percent ethanol," Zaremba said. "Some say E15 contains 50 percent more ethanol. That's true, but it's only a difference of 5 percent. That's really very little."

Zaremba added that a consumer owning a pre-2001 vehicle would likely need to "blatantly" misfuel their car several times with E15 to cause engine or other damage. However, that doesn't prevent a consumer from suing a gas station he or she claims was the root cause of an engine breakdown.

In addition, convenience store and gas station owners who don't affix a warning label to an E15 pump and/or clearly identify the price difference between E15 and E10 face EPA fines of up to $37,500 per day.

And then there's the biggest challenge to selling E15. Despite the EPA ruling, 20 states still prohibit its sale. Hence, E15 is not yet even available as a fueling option for many gas stations. However, many experts believe that the 20 states that have yet to approve the fuel have already begun — or soon will begin — a regulatory process that is likely to lead to the approval of E15 for sale.

"The Environmental Protection Agency has provided federal approval for E15 in 2001 and newer passenger vehicles," said Chris Bliley, director of regulatory affairs for Growth Energy. "Several states are ready now for E15. Other states have their own unique regulations governing the sale of fuels, so these states are now in the process of reviewing their own regulations and the timeframe really depends on each particular state."

Speeding up that regulatory process may be helped along by an Aug. 17 ruling put forth by the U.S. Court of Appeals for the District of Columbia. The court dismissed a case brought forth by petroleum, food and engine groups against the EPA regarding its E15 approval. Specifically dismissed in the court ruling were engine group claims that E15 may harm engines and emission-control systems, and food group claims that the EPA's approval would increase demand for corn.

MURKY WATERS

Zaremba is no stranger to alternative fuels. He began blending ethanol and biodiesel in 2008. "I've been a strong advocate of renewable fuels," the Zarco 66 owner said. "I thought it provided another strong opportunity — especially in the Midwest — to help reduce our dependence on foreign oil and create jobs and keep jobs that are local."

Although it's simple to say natural gas and electric charging are cheaper than traditional petroleum fill-ups, ethanol resides in more murky waters. According to Zaremba, he tries to have E85 cost 20 percent less than E10 — the main fuel he sells for all vehicles.

E15 has sold for 2 to 5 cents less than E10 since Zarco 66 began selling it, he said. But he relayed that E15 could soon become the more expensive of the two fuels, at least for the short term. "The price of the two could be inverted for awhile. It depends on the commodity because we've had such severe droughts," he explained. "But we could have a bumper crop next year making E15 again the cheaper fuel."

Ryan Mossman, vice president and general manager of the fuel center for Houston-based FuelQuest, a fuel pricing technology provider for convenience stores and gas stations, said his fuel pricing models show that ethanol should remain cheaper than gasoline for at least the near term. "Even with the drought, E15 is still meaningfully cheaper than gasoline and diesel. An [inversion] certainly could happen, but we have no indication that will necessarily happen."

Despite pricing uncertainty, Zaremba believes E15 has a better short-term future than E85 simply due to sheer numbers, and he plans to offer E15 soon at all of his chain's stores. "I'm always enthusiastic about giving consumers a choice," he said.

But the owner of Zarco 66 c-stores stressed that in no way is E85 dead.

"As we move to the future, we're going to have a lot more flex-fuel vehicles produced in the next five to 10 years," Zaremba relayed. "So E85 can be a long-term product. [Manufacturers] are building more E85-[capable] vehicles every day. So, I think E85 will slowly be incorporated into the vehicle fleet that's out there."

Inver Grove Heights, Minn.-based CHS Inc. works with roughly 1,400 Cenex-branded, independently-operated stores and also operates the Zip Trip chain of c-stores. Many of these stores offer E85 and other alternative fuel blends, said Doug Dorfman, CHS' vice president of refined fuels marketing.

"Ethanol-blended fuels are simply one option we will need to meet our energy demands in this country," he said. "I don't think it's a cure-all."

Dorfman added that he still thinks there are many questions regarding E15. "As a branded supplier, our concern is to make sure the consumer gets the product they want, as well as the product they should be using without any misfueling issues at the retail facility…We definitely don't discourage any retailer from offering alternative fuel blends [though]."

If he had to choose the ethanol alternative of the future, Mossman said E15 will win vs. E85 by a landslide. "When you go from E10 to E15, there's only a little bit of drop in gas mileage," he relayed. "But when you go from E10 to E85, there is a significant [gas mileage] reduction. Considering the lower gas mileage of ethanol, I can see E85 becoming much less attractive as the difference between ethanol and gasoline prices compresses."

Mossman added that anecdotally speaking from his experience, E85 has yet to become popular among consumers. "People have not embraced E85," he said. "I can see people going to E15. But I don't see people 'running around' on E85 any time soon."

O'Brien of Growth Energy offered this assessment regarding E15 and E85.

"Early in 2012, Growth Energy commissioned a study with retailers already offering higher blends of ethanol to flex-fuel vehicles," he said. "The results clearly demonstrated that retailers offering higher blends (E15 to E85) were able to establish a price advantage in their market that led to higher overall fuel and retail sales. With E15 available in the market, there are approximately 150 million vehicles (2001 and newer and flex-fuel vehicles) that can use higher blends of ethanol. Additional research is indicating that higher blends of ethanol E20 and E30 are fuels that [would] help improve fuel efficiency while reducing costs to consumers."