NACS Raises Concerns About Competing Fuels, Vehicle Requirements

ALEXANDRIA, Va. -- The requirements mandated by the Renewable Fuels Standard (RFS) and the proposed Corporate Average Fuel Economy (CAFE) standards are raising some eyebrows in the industry.

According to NACS, the Association for Convenience and Fuels Retailing, they are likely to create a situation in which one or both of the programs will fail unless some concerns are addressed.

"RFS and CAFE policies cannot coexist without substantial changes in the retail and vehicle markets to accommodate significantly higher concentrations of renewable fuels, an unlikely scenario given that we may not even meet current requirements as they stand in 2012," said John Eichberger, NACS vice president of government relations and the author of the new NACS whitepaper, "The Future of Fuels: An Analysis of Future Energy Trends and Potential Retail Market Opportunities."

The more than 120,000 convenience stores selling motor fuel -- an estimated 80 percent of the fuels purchased in the United States -- will face the brunt of the competing objectives of the RFS and CAFE standards, said Eichberger, noting that the two regulations cannot coexist without dramatic revisions.

"NACS members strongly support efforts to enhance the nation's energy security and don't oppose improving the fuel efficiency of the nation's vehicle fleet. However, we are very concerned that the policies being enacted and drafted are not effectively coordinated and could compromise each other. The result could force countless small businesses to examine whether they want to invest hundreds of thousands of dollars to retrofit their existing fueling equipment or exit the business. Either way, the consumer ultimately loses," he added.

Revised by Congress as part of the Energy Independence and Security Act of 2007 (EISA), RFS requires that increasing amounts of qualified renewable fuels be integrated into the motor fuels supply, culminating at a minimum of 36 billion gallons in 2022. This mandate was expected to increase renewables to approximately 20 percent to 25 percent of the overall gasoline market in 2022, about double the rate of 10.4 percent last year.

Then last year, the Obama administration proposed new CAFE standards that would increase the average fleet fuel efficiency to an equivalent of 54.5 miles per gallon by 2025. The proposal is expected to be finalized this summer.

The cumulative effect of the two mandates is that renewable fuels will be required to represent a significantly greater share of the market than originally anticipated. NACS estimates perhaps as much as 40 percent, or four times higher than today.

"This level of renewable fuels penetration in the market will impose significant economic burdens on the retail fuels market and consumers," Eichberger said. "To meet such a high renewable fuels concentration, it is likely that most retailers in the country will have to replace their underground storage tank systems and fuel dispensers. For the convenience industry alone, this will require a minimum infrastructure investment that will add nearly $22 billion to the cost of retailing fuels."

Aside from the cost to update the infrastructure, some in the industry contend it could be impossible to satisfy the RFS, considering that only one in six consumers will drive vehicles capable of running on the mandated fuels. The U.S. Energy Information Administration (EIA) projects only 16 percent of on-road vehicles in 2022 will be flexible fuel vehicles, according to NACS.

"Unless something dramatic happens, we will hit the 'blend wall' within the next two years and will not be able to meet RFS requirements. This will trigger massive fines throughout the petroleum distribution system that will increase the cost to sell motor fuels," Eichberger added.

He is urging Congress to initiate a comprehensive review of regulations affecting the motor fuels and passenger vehicle industries to determine their compatibility with one another and to develop a comprehensive national motor fuels policy.

"As the objectives of these requirements ramps up in the coming years, we are advising fuels retailers to exercise forethought when making infrastructure changes so that they help reduce the cost of converting to new energy technologies," Eichberger noted. "We are asking Congress to exercise that same forethought as members design long-term motor fuels policies."