Fuels for the Future In Brief

Fuels for the Future: Biofuels and Ethanol
Given the current and projected worldwide energy demand, America needs all sources of commercially viable energy, as well as a greater commitment to energy efficiency and energy conservation. Ethanol is one of those resources and is an important part of our nation’s gasoline pool. Today approximately 90 percent of all gasoline produced in the United States includes ethanol. The petroleum industry has long been a pioneer in developing alternatives and expanding our utilization of existing sources of energy. From 2000 to 2007, the U.S. oil and natural gas industry invested an estimated $121 billion in North America alone in emerging energy technologies, including renewables, frontier hydrocarbons such as shale and oil sands, and end-use technologies such as fuel cell vehicles. This represents 65 percent of the total $188 billion spent nationally in that period on emerging energy technologies. Looking ahead, we need to develop all economically viable energy sources, including fossil and renewable sources. By relying, to the greatest extent possible, on market forces, understanding consumer impacts and preferences, encouraging development of new technologies, and addressing secondary impacts of expanded renewable fuel usage, our industry and the nation will meet the energy challenges in the years ahead. What are biofuels? Biofuels are typically gas or liquid fuels and blending components produced from biomass (plant) feedstocks. Ethanol: Ethanol is an alcohol-based alternative fuel produced by fermenting and distilling starch crops that have been converted into simple sugars. In North America, feedstocks for this fuel include corn, barley, and wheat. In Brazil, sugarcane is used as a low cost feedstock for making ethanol. Sugarcane is more easily and less expensively processed into ethanol. Cellulosic ethanol is not yet mass produced. It can be made from biomass including wood chips, switchgrass, and other agricultural and forestry sources. A scientific breakthrough will be needed to enable cellulosic ethanol to be made more easily and cheaply. There are a number of benefits to using ethanol, and the petroleum industry has been blending ethanol into gasoline for many years. Ethanol contains higher octane and contributes directionally to reduce petroleum imports. It is important to know that ethanol contains about 70 percent of the energy per unit volume of gasoline. Consumers receive less miles per gallon with products containing ethanol than gasoline alone. Renewable Fuels Standard (RFS): The RFS was included as part of the Energy Policy Act of 2005 (EPACT). API was an original partner in developing the RFS, along with the Renewable Fuels Association, the American Farm Bureau Federation, corn growers and others. The Energy Independence and Security Act of 2007 (EISA) builds on the provisions of EPACT. EISA includes a significantly increased RFS with four inter-related parts consisting of an overall mandate as well as set-asides for “advanced,” “cellulosic” and “bio-based diesel,” each of which incorporates lifecycle greenhouse gas reduction requirements. API supports a realistic and workable RFS. The oil industry is the nation’s largest user of ethanol and is increasing the volume of renewable fuels in America’s transportation fuel portfolio. The industry used about 13 billion gallons of ethanol in 2010, which is nearly double the ethanol consumption in 2007. E-10: The most economical and practical use of ethanol is as a 10 percent blend in gasoline—E-10. It requires no modifications to vehicles, no major changes to service station pumps and storage tanks, and has a long history of successful use by consumers.

E-15: In October 2010, the Environmental Protection Agency (EPA) approved a Clean Air Act waiver allowing use of ethanol blends of up to 15% in 2007 and newer light duty cars and trucks. EPA is considering extending the waiver to 2001 and newer light duty vehicles. Significant state and federal regulatory hurdles remain before the E15 can be introduced in the marketplace. API is concerned that the EPA approval was premature. The EPA approval was based on limited testing where only catalyst durability was considered. EPA did not take into account the broader, still ongoing vehicle and engine testing performed by the government-industry collaborative Coordinating Research Council on a wide range of vehicle attributes, including the durability of engines, fuel systems and emission control systems, including On-Board Diagnostics. Any issues with these systems are a great concern to our customers and more comprehensive testing should not be ignored. E-85: E-85, a transportation fuel containing 85 percent ethanol and 15 percent gasoline, is an alternative fuel that faces significant technological and economic hurdles. E-85 requires specially built “flexible fuel vehicles” (FFVs) which comprise only 3 percent of the existing vehicle fleet. EIA estimates that FFV penetration will not reach 20 percent until 2022. A national emphasis on increasing ethanol volumes through E-85 can prove unnecessarily expensive and risky. One must consider that more than 90 percent of the 160,000 retail gasoline stations nationwide are owned or operated by independent entrepreneurs, typically small businessmen and women. These station owners will decide whether or not to offer E-85 to consumers, balancing customer demand with investment and conversion costs that can range from $10,000 to as high as $200,000 per station for specialized or new equipment needed for E-85 fuel. Biodiesel: Biodiesel is a domestic, renewable fuel for diesel engines derived from natural oils like soybean oil. Up to 5 percent biodiesel can be used with petroleum based diesel fuel in existing diesel engines without modification. Reliance on the Marketplace: It is essential that ethanol and the entire biofuels industry become strong, vital and self sufficient. These characteristics are critical for long-term success in the highly volatile motor fuels business. There is far less uncertainty in today’s ethanol market and an attractive future lies ahead. The ethanol industry is now strong enough to stand on its own and compete in a free market. Because mandates and subsidies distort markets, allowing market forces and consumer preferences to determine where and how ethanol is consumed is the most effective and least costly way to integrate ethanol into the nation’s transportation fuels pool. In the early years of consumer exposure to biofuels, the petroleum industry does not want to “over-promise and under-perform.” We must be realistic in our pronouncements about the merits of various alternative energy sources. Recommendations for proposed legislation: • Based on only a narrow set of data, the E15 waiver over-steps EPA’s Clean Air Act authority by only applying to a fraction of the vehicle fleet. EPA’s actions should be questioned and challenged. • States (and political subdivisions) should be preempted from setting state alternative or renewable fuel mandates. • EPA should be provided with additional authority to grant temporary waivers during supply emergencies. • Any mandates for low carbon or renewable fuel usage should be accompanied by periodic technology/ feasibility reviews to allow for appropriate adjustments. EPA is required to perform such a review for the RFS, but continues to set unrealistic cellulosic mandates. Any such adjustments should be based on actual demonstrated production, and not press releases. January 2011