The U.S. oil industry has strongly warned the U.S. Environmental Protection Agency against requiring ethanol in reformulated gasoline (RFG).
EPA issued its reformulated gasoline rule last month and proposed a new rule to require 30% of the compounds used to add oxygen to RFG come from renewable sources such as ethanol (OGJ, Dec. 20, 1993, p. 29; Dec. 27, 1993, p. 27).
NPRA OBJECTION
At a recent hearing on the proposal the National Petroleum Refiners Association said the ethanol proposal violates the spirit and letter of the government industry regulatory negotiation (reg neg) that produced the RFG rule.
It said the proposed rule is "an unworkable, complicated, and intrusive scheme that fails to afford any cost effective environmental benefits."
Robert Hemminghaus, chief executive officer of Diamond Shamrock Inc., testified for NPRA. He said, "NPRA and its member companies are outraged that we even have to appear before this panel today to discuss a politically motivated proposal mandating a market for ethanol in reformulated gasoline.
"While the final rule on reformulated gasoline does not include a renewable oxygenate requirement, the proposed action is so closely linked to the final RFG rule that they are inseparable."
Hemminghaus said the uncertainty created by the ethanol proposal ensures that industry cannot meet the Jan. 1, 1995, deadline for RFG without significant market distortions.
"Additional processing and storage facilities required to meet provisions of this proposal cannot be installed by 1995. Many contracts for purchased oxygenates, which should have been finalized, are now on hold.
"The New York Mercantile Exchange, which serves an important role in U.S. and world energy and financial markets for gasoline futures contracts, typically has contracts listed for 18 months forward. It now has no contracts beyond September 1994 due to uncertainties over the fate of reformulated gasoline."
NPRA said even EPA has admitted it lacks the legal authority to mandate a market for ethanol in reformulated gasoline.
It said refiners see many problems in distributing and managing the renewable oxygenated fuels. Further, NPRA said ethyl tertiary butyl ether (ETBE) and blendstock for ethanol would require segregated systems.
"Switching from ethanol blends every winter to ETBE blends every summer would pose disruptive tankage and logistical problems and would be very costly to refiners and retailers. This proposal, as designed, requires a refinery to set up a second, or parallel distribution system, to take care of the oxygenated requirements."
NPRA noted, "Congress has mandated the use of oxygenates in the gasoline pool. Thus, a sizable market will be created for oxygenates. Ethanol is absolutely necessary to help meet this need, but attempts to set aside a fixed portion of this market are ill advised."
OTHER VIEWS
William O'Keefe, American Petroleum Institute executive vice president, said there is no economic rationale for the rule.
"Mandating a transfer of wealth from consumers to ethanol producers has nothing to do with energy security or environmental protection and everything to do with pork barrel politics."
He said the proposed rule would offset only about 9,000 b/d of imported oil but would cost $350 million/year. "That means we'll be spending well over $100 to eliminate a barrel of imported crude that costs about $15.
"And consider the environmental benefits, which should be EPA's objective. The proposal would do absolutely nothing to reduce ozone smog or to cut toxic air pollutants, which is the only reason reformulated gasoline is being required."
Gary Edwards, executive vice president of Conoco Inc., said his company blended nearly 10 million gal of ethanol in 1993, about 30% of its oxygenate uses.
He said the refining capacity for the RFG markets is concentrated on the Gulf Coast and California, and the RFG will be shipped by pipeline markets in the Northeast, Mid-west, and California.
But because the ethanol production capacity is concentrated in the Mid-west, it must be shipped by barge or tank car to refineries, raising costs.
He said refiners must make additional equipment investments to convert to ETBE production but lack the needed time. And he said the rule's enforcement provisions are complex and burdensome and require a level of paper tracking that will be virtually impossible to implement.
J.T. McMillan, executive vice-president of Exxon Co. U.S.A., said, "The ethanol industry, which already receives a federal subsidy of about $500 million annually, could see its subsidy increase by another $340 million per year. We do not believe that there is any basis for the existing subsidy, let alone a 60% increase.
"In fact, the current 54/gal subsidy is more than 10/gal greater than the current Gulf Coast refinery gate price for regular unleaded gasoline."
W. David Montgomery, vice president of Charles River Associates, said farmers would get less than 30 of every dollar that is spent on producing and distributing ethanol fuels, with ethanol producers receiving the balance.
The Highway Users Federation told EPA the proposal could cost the Highway Trust Fund as much as $1 billion/year.
The Oxygenated Fuels Association opposes the rule, saying all fuels should be treated in a neutral manner.
"In reality, there is no need for rigid and inflexible administrative requirements to ensure ethanol and ETBE a place in the oxygenate marketplace. According to the most recent 12 months of market supply data, ethanol derived oxygen has about a 50% share of the motor fuel oxygen market and methanol the other 50%."
CORN GROWERS RESPOND
The National Corn Growers Association said the proposed rule would replace imported energy with domestic renewable fuel, creating investment and jobs in the U.S. and lowering emissions of greenhouse gases.
It said corn farmers expect yields to increase, but price depressing surpluses have outpaced demand for corn. The group said the proposed rule could increase corn demand by 250-500 million bushels/year.
The Renewable Fuels Association maintained refiners would have to make only minor modifications to distribution, transportation, and storage, yet would gain "enormous flexibility to comply with the requirements of the RFG program."
It counted about 40 ethanol plants, 49 grassroots ethanol plants in planning stages, and 14 expansions planned for existing facilities. More than 1.2 billion gal of new capacity is planned, half of which would be in production by 1995.
Downstream Alternatives Inc., which is promoting an oxygenated fuels program, said, "Historically, each time the petroleum industry has been faced with an environmentally driven change to fuel composition or characteristics, they have testified that such programs would result in near impossible changes in their distribution, transportation, and storage infra-structures.
"Examples include the introduction of unleaded fuel, EPA volatility controls, and oxygenated fuel programs. Each of these programs led to claims by the petroleum industry that included exaggerated cost projection, prediction of supply interruptions, and other problems that did not materialize.
It said the program presents only minor logistic challenges, and in most the geographic areas affected, the infrastructure for transportation and storage of fuel oxygenates already exists.
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