The numbers don’t lie
Source: By Bob Dinneen, The Hill • Posted: Friday, November 11, 2016
In May, EPA proposed total RFS blending requirements for 2017 of 18.8 billion gallons, including 14.8 billion gallons of conventional renewable fuels – that’s 200 million gallons below the 15-billion-gallon level Congress established. EPA has inexplicitly adopted the oil companies’ narrative that there is neither demand nor enough blending capacity for higher ethanol blends like E15 or E85, and that the so-called E10 “blend wall” will continue to limit the amount of renewable fuels that can be blended into the nation’s fuel supply. But numbers are stubborn.
The so-called “blend wall” has crumbled. Data from the Department of Energy (DOE) shows the U.S. gasoline supply has recently been blended with an average of 10.4% ethanol. DOE state data shows 24 states averaged better than 10.0% ethanol, with Minnesota having 12.2% market penetration. The reason the average is climbing, of course, is that more consumers are utilizing higher blends like E15 and E85.
Moreover, since EPA published its proposed RVO rule, gasoline consumption has risen and the volume of ethanol that could be blended has risen commensurately. In the May proposal, EPA assumed the market would consume 14.2 bg of conventional ethanol. That estimate was premised on EIA’s 2017 gasoline consumption projection of 142.26 bg. EPA also assumed the market would consume 400 million gallons of conventional (non-advanced) biodiesel and renewable diesel. Because biodiesel and renewable diesel contain more energy per gallon than ethanol, one gallon of these fuels counts more toward meeting RFS volumes (e.g., one physical gallon of biodiesel counts as 1.5 gallons toward compliance, and one gallon of renewable diesel counts as much as 1.7 gallons). EPA assumed these 400 million gallons would count as 600 million compliance gallons, for an average “equivalency value” of 1.5 compliance gallons per physical gallon.
Thus, EPA’s decision to set the conventional ethanol RVO at 14.8 bg was based on 14.2 bg of conventional ethanol and 0.6 bg of conventional biodiesel and renewable diesel.
But things have changed since EPA published the proposal. EIA’s October Short-term Energy Outlook now projects 2017 gasoline consumption of 143.95 bg, a 1.69 bg increase over the April estimate. If we conservatively assume 98% of this additional gasoline consumption is E10 (and 2% is E0), then an extra 166 mg of ethanol will be blended over and above the volume assumed by the EPA proposal. In other words, the latest EIA projections — which EPA is required to use — effectively compel the Agency to raise its assumption of 2017 conventional ethanol consumption to at least 14.37 bg.
Additionally, consumption of conventional renewable diesel is outpacing consumption of biodiesel by a factor of nearly 2-to-1. This matters because renewable diesel has a higher compliance equivalency value than biodiesel. Thus, it is not accurate to simply assume each physical gallon of biodiesel and renewable diesel will contribute just 1.5 gallons toward compliance. In reality, the weighted average equivalency factor for these fuels has averaged 1.65 over the past several years and stands at 1.63 so far this year. Therefore, the 400 mg of conventional biodiesel and renewable diesel EPA expects will be consumed in 2017 will actually count as approximately 660 mg toward compliance.
Adding 14.37 bg of conventional ethanol to 660 mg of conventional biodiesel and renewable diesel nets you 15.03 bg! Obviously, that is a number above the 15 bg statutory requirement.
The numbers don’t lie. There is no longer even a patina of rationale for promulgating a conventional biofuels RVO below the statutory level. EPA should finalize a rule that demonstrates fidelity to the statute and reflects today’s marketplace. Ethanol and the other renewable fuels being used in this program are providing the consumer cost savings, carbon reduction, and energy security benefits envisioned by Congress. It is time for the Agency to put the RFS back on track and send the signal to the marketplace that it will support this program so that further investment in renewable fuel technology can continue and the carbon reduction goals of the program can be realized.
Bob Dinneen is President & CEO of the Renewable Fuels Association.