In the U.S., ethanol has become a "Whipping Boy" -- especially among Tea Party Types as yet another example of "Big Government" intrusion on free markets and personal liberties. But in Media reporting and debate, two key attributes of ethanol blending in gasoline are almost never mentioned (as if these realities don't exist):
- Octane Requirements;
- An Oxygenate for Cleaner Air.
Octane: Octane is an additive needed to reduce the reaction of gasoline to combust/ignite under pressure in a car's engine cylinder (called anti-knock). Without proper octane levels in gas we buy at the pump, automobile performance levels will decrease and cause engine damage. Un-blended gasoline (E-0 ethanol free) has an octane rating of ~84 and thus needs an octane enhancer to achieve a minimum rating of 87.
Ethanol has a high octane rating (~113), where the majority of gasoline today is blended with ~10% ethanol (called E-10) to achieve the needed regular grade octane rating level of 87 for proper engine performance:
|Clearly the Media is not presenting the significance of this ~10% ethanol blending level -- which is not a "Big-Government Mandate" but an automotive engineering requirement for a minimum 87 octane rating in gasoline.|
Octane's History: For decades, the principle source to meet minimum octane requirements in gasoline was lead. But according to every World Health Organization this results in severe health problems (e.g., central nervous system damage, neurological development in children, fertility problems, high blood pressure, kidney damage).
|In fact, there are now only 4 Countries in the entire World that have not taken action to eliminate lead in gasoline -- North Korea, Yemen, Afghanistan, and Burma.|
In the 1990's, the U.S. EPA began requiring that lead be phased out of gasoline. Initially, this was achieved by using the high octane and oxygenate additive MTBE (derived from fossil fuels). However in the early 2000's, research from numerous national and international Health Organizations found that high usage levels of MTBE was likely a cancer causing agent. While the EPA has not specifically banned MTBE, its use has been banned in about half of the U.S. by State Legislatures.
For all practical purposes however, the MTBE controversy was settled not by Regulation but by the Courts. MTBE Manufactures and Blenders were being hauled into Courts (in hundreds of lawsuits) and losing. In an attempt to address this lawsuit problem by Blenders/Manufacturers occurring at State and local levels, Tea Party Members in the U.S. Congress (e.g., Rep. Joe Barton of Texas, Chairman of the House Energy & Commerce Committee) attempted to protect the MTBE Industry through Federal indemnification legislation -- which was rejected by the U.S. Senate.
|Without Federal protection from environmental damage lawsuits (similar to what the Nuclear Power Industry receives for any accident)1, MTBE Manufacturers/Blenders decided it just wasn't worth the legal exposure and hassle.|
Energy Policy Act of 2005: This Federal legislation created the Renewable Fuel Standard (RFS) to collectively address the following issues -- issues which still exist today:
- Octane Requirements in Gasoline;
- Oxygenate Requirements in Gasoline;
- Foreign Oil Dependence;
- Economic Development for U.S. Farmers.
|The Ethanol Mandate: A perception is often presented that the RFS "mandates" that the ethanol production volume used by Gasoline Blenders must increase by pre-determined increases every year. The EPA has clearly stated that this is just untrue -- and that scheduled increases in the RFS are targets, and not mandates.2|
For 2015, the EPA proposed blending volumes of 2.9 billion gallons less than the RFS scheduled targets; which is also 1.34 billion gallons less than in 2014. According to EIA and EPA estimates, ethanol currently provides a little less than 10% (9.74%) of the total volume of finished motor gasoline consumed in the U.S.
(2) Under Section 211(o)(7) of the Clean Air Act, the EPA has the authority to reduce the renewable fuel standard requirements if implementing the standard could cause severe economic harm or if there is inadequate domestic supply to meet the requirements.
Ethanol Must Be Blended In All Gasoline: This myth is refuted by the fact that ethanol free gasoline is blended and marketed throughout the U.S. (e.g., Boat Marinas). The problem here is not "Big Government" Regulations -- its the lack of overall consumer volume demand for this pricier product (which has higher cost non-ethanol octane enhancers which we will discuss in a moment).
In fact, the RFS does exactly the opposite of what the Tea Party says. The RFS reduced/simplified a myriad of cumbersome Regulations for gasoline, giving Blenders much more flexibility including the blending of special niche (e.g., Watercraft) gasolines. While most notable was the removal of the 2% oxygenate blending requirement, other aspects included volatile organic compounds (VOCs) and Mobile Source Air Toxics (MSAT) regulations.
One question that anti-ethanol proponents never address is: If Congress just rescinds the RFS, what Regulations would the EPA then impose for clean air? The age old adage "Be Careful What You Wish For" could result in EPA Regulations more restrictive that what currently exist for Blenders.3
(3) This includes increased EPA focus on the health concerns (e.g., fine particulates) of any sizable increase in the use of aromatics for automotive octane requirements (benzene, toluene, xylene).
The U.S. Is No Longer Dependent on Foreign Oil: Another argument often repeated in the Media is that since the enactment of the RFS, circumstances have changed dramatically -- as foreign oil imports have decreased from ~60% to ~33% by 2013.4 The problem with citing this metric is that it's both irrelevant (to the octane and oxygenate requirements discussed above) and also highly misleading.
Arguments that the RFS is no longer needed are cherry-picking data -- citing U.S. Net Imports (i.e., Gross Petroleum Imports minus Exports). Using a dependency metric of Gross Imports reflects a very different story -- where the U.S. is importing a whopping ~50% of its Oil Demand.4
Data is also being cherry-picked as to where this Foreign Oil is coming from. While Spin Doctors can be technically correct that Canada now represents the largest single country importing oil to the U.S, this fails to reflect that a tremendous amount of oil is still being imported by OPEC countries (collectively exceeding that of Canada per EIA data).
Crude oil can come in numerous forms. It can be heavy or light, sour (high sulfur content) or sweet. The dramatic increase in recent U.S. Oil Production (from fracking) has primarily been in light oil.
But prior to this shale oil boom, many U.S. Gasoline Refiners spent billions of dollars to configure their plants for heavier and sour foreign oils -- from places like OPEC countries of Saudi Arabia, Iraq, and Venezuela. U.S. Gasoline Refiners using heavy oil (represented in the black dots on the chart below) are not going to just walk away en masse from their capital investment and reconfigure yet again for U.S. light oil.
|Dependency Metric||Gross Imports|
- The U.S. will continue to be very dependent on imported heavy oil until/unless many Refineries are re-configured to process light oils.
- Unless many U.S. Refineries are reconfigured, much of the U.S.'s light oil will be exported.5
- This results in higher cost heavy foreign oil ending up in U.S. consumer's gastanks, while lower cost domestic light oil is exported.
U.S. (WTI) Versus International (Brent)
With domestic oil (WTI) selling at a discount to the international Brent price, U.S. Refiners/Blenders have a competitive advantage over their international competitors. This explains why U.S. gasoline exports have increased so dramatically, as U.S. Gasoline Exporters have lower raw product crude oil cost.
(5) Either as refined products (primarily gasoline and diesel) or direct crude oil exports (if Congress rescinds the +30 year old U.S. Oil Embargo).
Applying the No Harm, No Foul Rule: Three octane alternatives to ethanol are the aromatic compounds benzene, toluene, and xylene. These aromatics can be produced via high-pressure catalytic reformers in the same refineries that produce other petroleum feedstock for gasoline blending. In a recent study from the University of Illinois, the price of these 3 aromatics was compared with ethanol over a two year period -- January 2013 through January 2015.
Anyone doubting the validity of the above data should think about something. The price of premium octane grades at the pump (greater than 87) always are significantly higher than regular. Higher octane ratings in premium grades are being achieved by using these non-ethanol aromatics.
Thus, by considering two points we can put Tea Party ideological arguments that customers must always have a freedom of choice into a pragmatic context:
- Historically, the price of ethanol beats the costs of its alternatives as a needed octane enhancer for automotive engines.
- In light of Refiners resistance to commit extensive capital to reconfigure their facilities for domestic light oil, it is inconceivable they would commit billions of dollars in capital to produce octane enhancers to replace lower cost ethanol.