The public comment period on the EPA’s proposed rule change to the 2014 renewable fuel standard (RFS) – which would reduce oil refinery biofuels volume blending requirements by roughly 3 billion gallons – closed last Tuesday. Understandably, the biofuels industry has been aggressive in its campaign against the proposal. From the beginning of the public comment period in late November 2013 to its end, more than 15,500 comments have been filed, the majority by biofuels industry stakeholders. The RFS covers a number of biofuels and the EPA has proposed cuts to all – with conventional ethanol taking a cut of 1.4 billion gallons from the original 14.4 billion gallon target.
The crux of the EPA’s rule-making hinges on the agency’s estimate of what is realistic in terms of biofuels supply and demand given certain limitations; the most significant limitation being the E10 blend wall. Given the recent plateau in annual U.S. gasoline consumption and anticipated declines in gasoline consumption as fuel economy rises and more alternative fuel vehicles are sold, the EPA estimates demand for ethanol will not meet the original 2014 14.4 billion gallon target set by the RFS.
Although the EPA’s reasoning makes sense, ethanol industry advocates point to higher ethanol blend levels of E15 and E85 as possible avenues by which the original mandate could still be achieved. E15 has been slow to emerge, as automakers have been hesitant to announce vehicle compatibility with any vehicle of model year 2012 or earlier. As such, few refueling sites have been installed and E15 is unlikely to drive ethanol demand in 2014.
E85, however, has been around since the beginning of the 2000s. There are nearly 2,400 E85 refueling sites in the United States, and in the report Biofuels for Transportation Markets, Navigant Research forecasts that the number of flex-fuel vehicles (FFVs) on U.S. roads will grow to about 13 million in 2014. However, E85 has failed to make significant contributions to ethanol demand, as data on historic FFV fleet size and E85 consumption in the United States indicate that E85 fuels less than 4% of the addressable market, which will be more than 7 billion gallons in 2014.
Gas Up, Ethanol Down
Given the existing U.S. vehicle fleet size and characteristics, Navigant Research forecasts that ethanol consumption from the road transportation sector will reach 13.9 billion gallons in 2014, with E85 accounting for about 1.5%. To meet the original 2014 RFS volumetric requirement, E85 consumption would have to grow to account for over 14.5% of its 7 billion gallon addressable market, which would be more than 900 million gallons.
Some analysis indicates that E85 is likely to show a marked increase in consumption this year due to falling prices of ethanol against gasoline on a per-gallon basis. Though E85 should be compared to premium gasoline blends due to its high octane rating, E85’s market acceptance has long been stunted by the fact that it is not significantly cheaper and has been more expensive than regular unleaded gasoline on a per-mile basis. A marked price drop in E85 against gasoline would drive greater consumer awareness and acceptance. However, even with a significant price drop, it is unlikely that E85 will reach the levels necessary to meet the original 2014 RFS. While it’s apparent that some reduction to the conventional ethanol requirement is necessary, cutting the original target by 1.4 billion gallons is an over-correction that will hinder the ethanol supply chain.
Tags: Alternative Fuel Vehicles, Clean Transportation, Ethanol, Policy & Regulation, Smart Transportation Program
| No Comments »