When the US oil industry resists the forced sale of nonpetroleum fuel—ethanol—in gasoline blends, its arguments tend to be dismissed a self-serving efforts to defend its share of the vehicle-fuel market. To some degree, that view has validity. Ethanol, helped by past tax credits and current sales mandates, now claims more than 10% of the gasoline market. Volumetric requirements under current law, if they could be met, would raise that portion to nearly 30% of gasoline demand projected by the Energy Information Administration.
Such growth in ethanol's market share can seem to conflict with the commercial interests of oil companies. Yet companies selling gasoline don't give away ethanol blended into the fuel; they sell it. They make money on ethanol if costs behave. Some of them make their own ethanol hoping to profit from doing so. It's simplistic, therefore, to assume oil companies uniformly dislike ethanol because it represents a competitive threat.
Better reasons
Oil companies have better reasons than concern about market share to dislike ethanol—more specifically, the way the US government has pushed the additive into the gasoline pool. Prime among those reasons is a requirement that refiners and blenders pay what amounts to a fine for failing to supply a type of ethanol that doesn't exist in required amounts.
Such a requirement should offend anyone sensitive to fairness in law and regulation. It's a strong reason to oppose the requirement, a reason that has nothing to do with self-serving worry about market share and everything to do with concern about legal legitimacy, affronts to which should arouse alarm far outside the oil industry.
In each of the past 2 years, refiners in the US have paid $17 million to the Environmental Protection Agency for failing to blend required amounts of ethanol made from cellulose into gasoline. Cellulosic ethanol exists in minuscule volumes produced intermittently at noncommercial plants. Although EPA has exercised its authority to set annual mandates for cellulosic ethanol below statutory levels, it's still requiring sales of more of the substance than is available. And it's collecting fines for the balance.
That's grotesquely unfair and manifestly wrong.
If EPA doesn't accommodate its regulation to reality, the perversion will continue. The law raises the specific requirement for cellulosic ethanol in steps to a maximum level slightly above 1 million b/d in 2022. A further 326,000 b/d might be required under a mandate for "undifferentiated advanced biofuel" in the probable absence of another alternative to ethanol made from grain, the requirement for which is capped at 980,000 b/d.
No one expects those requirements, totaling 2.35 million b/d, to be met. In its just-released preliminary forecast for energy markets to 2040, the EIA forecasts US production of ethanol of all types at 1.07 million b/d in 2022—scarcely above peak output of ethanol from corn. EPA thus has widening scope to continue fining refiners and fuel blenders for failing to meet arbitrary and unachievable annual standards.
If Congress won't fix the mistake it clearly made with this impracticable segment of its Renewable Fuel Standard (RFS), courts should. Last March, the American Petroleum Institute sued EPA in the US Appeals Court for the District of Columbia. In arguments this month, according to the investment analyst firm Bradley Woods & Co. Ltd., API asked the court to vacate EPA's 2012 cellulosic-ethanol requirement.
Pushing development
A government attorney, Bradley Woods, argued that Congress wanted the RFS to push development of cellulosic ethanol and that the volume by which EPA's requirements exceeded EIA production projection wasn't large—although the variation was 25%. By this reasoning, unelected bureaucrats should be able to require anyone to pursue any fantasy that occurs to them and extort money for failure to do the impossible.
Resisting capricious authoritarianism like this does not reflect self-serving preservation of market share. It represents defense of American ideals. API shouldn't have to fight the battle alone.
