As refiners blend more ethanol into gasoline seeking to comply with RFS mandates,infrastructure constraints and a lack of consumer demand put the policy at odds with reality and have pushed the gasoline pool to a breaking point known as the"blend wall."
Regardless,the Environmental Protection Agency is refusing to readdress or ease the mandates, and recently approved E15 (fuel containing 15 percent ethanol by volume) for use in a large portion of the U.S. automobile fleet. That's even though neither the driving public nor the U.S. auto industry is prepared to use E15 in large volumes. Due to potential engine damage, the use of E15 is strictly forbidden in heavy duty vehicles or cars made before 2000, and U.S auto makers have gone on record that using E15 will violate auto warranties for a range of newer car models.
E85— a fuel option being touted by the EPA that contains between 60 and 85 percent ethanol — is equally riddled with restriction and drawbacks. This fuel can only be used in "flex fuel vehicles" (FFVs) — a type of vehicle most Americans don't own. Even consumers who own FFVs have been resistant to E85 because of its high cost when adjusted for its lower energy content, limited availability and higher frequency of refill. If using E85, consumers will be shelling out more for gas and making frequent trips to the gas station. Additionally, the lack of E85 distribution infrastructure is so dire that it cannot currently be distributed effectively in most regional markets.
As fuel refiners and importers seek to comply with this unrealistic policy, the unintended consequences are becoming clear. RFS could soon result in less gasoline production, which would lower a refiner's or importer's renewable fuel obligation and facilitate the continued production of fuel with less than 10 percent ethanol. Alternatively, refiners could divert some production to foreign markets that do not require, or even want, gasoline blended with ethanol. Greater foreign sales have the added benefit of pushing off the date when obligated parties must blend ethanol at levels above 10 percent, a costly and unworkable option. If neither avenue to compliance is viable, refiners will be forced pay a large fine for not meeting the mandated blending volume.
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It is becoming increasingly clear that the RFS mandate will likely reduce gasoline supplies to the domestic market at the very time U.S. crude oil production is on the rise. With this abundant supply, American refiners and importers could be producing plentiful, affordable gasoline that meets standards set by strict environmental policies. Instead, refiners are forced to produce gasoline most consumers can't use, if they can produce at all. If the RFS mandate is not reformed, get ready for a rough ride and much higher gasoline prices.
Lucian Pugliaresi has been president of Energy Policy Research Foundation (EPRINC) since February 2007. He has also served in a wide range of government posts, including the National Security Council at the White House, Departments of State, Energy, and Interior, as well as the EPA.