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25 Jun 2019 | 19:00 UTC — Insight Blog
Featuring Solomon Lanitis, Chrysa Glystra, and Wesley Swift
Ambitious emissions targets are driving governments across the globe to mandate greater use of biofuels in gasoline, and higher-ethanol blends of gasoline look set to make further inroads in the EU in the coming year.
Electric vehicles and hybrids have dominated headlines and are frequently portrayed as the answer to cutting road transport emissions. But even if all new cars purchased from now on were electric, it would still take several decades before the entire fleet was renewed. Although biofuels have attracted some controversy, they continue to be seen by many states as a more immediate solution for reducing vehicle greenhouse gas emissions.
In a number of European countries, consumption of gasoline blends with 5% and 10% ethanol is growing, as individual states gradually implement legislation to meet EU-wide targets. The Netherlands’ upcoming adoption of E10 in particular is seen as a potential tipping point for the region.
Meanwhile, across the Atlantic, the US is targeting a 15% blending level for the summer months. For the US, the push towards greater use of biofuels is not only about environmental protection – energy security has also been a major driver of the policy. But there are still challenges to overcome before E15 adoption becomes a reality, not least the opposition of the refining industry.
Biofuel demand in Europe is driven by EU-wide targets under the Renewable Energy Directive and Fuel Quality Directive, but implemented differently in each member state. Some countries have blending mandates on a volume basis, others on an energy basis, and some have opted for a greenhouse gas reduction target.
These mandates often rise yearly and it is becoming increasingly difficult to comply due to blendwall limitations. Currently, the typical 95 RON gasoline (E5) used in the majority of vehicles across Europe includes up to 4.7% of ethanol, but targets are often much more ambitious than that.
Some countries, like the Netherlands, also allow for waste-based biofuels to count double towards their obligation. From 2020, a revised Renewable Energy Directive will come into force, with a 32% target for renewable energy, and a 14% target for renewable energy in transport, by 2030.
Increased market penetration of E10, a gasoline blend with up to 10% ethanol, is seen as one of the key ways meet these ambitious targets in countries with a high gasoline consumption. France has been the greatest success story for E10 – every month sees new records of consumption, and E10 has already reached a market share of nearly 50%. Other countries where E10 has been introduced are Austria and Belgium, while Germany, Finland and France all currently have the option of both E10 and E5 at the pump.
The next adopter of E10 is likely to be the Netherlands from October 2019. This could be a catalyst for more widespread adoption in Northwest Europe, as the Netherlands is the leading exporter of gasoline in Europe, with refining capacity of over 1.29 million barrels/day.
Public sentiment towards E10 is often mixed and has resulted in modest uptake of the fuel in some countries like Germany. It is often believed that greater amounts of ethanol can be harmful to the engine, but this is only true for a small proportion of older vehicles. The consensus is that E10 can be used in around 90% of all petrol-driven cars used in Europe and in 99.7% of the petrol vehicles produced since 2010.
Logistical and infrastructural constraints will also be a factor across many countries, notably the UK, with many stations not yet positioned to introduce E10. The current gasoline blends sold in the UK contain no more than 5% ethanol and an E10 rollout would have to take into consideration fuel compatibility with older vehicles.
Blending up to 10% could help deliver the UK's Renewable Transport Fuel Obligation target of 9.75% by 2020. However, the UK government will not be rolling out E10 gasoline before 2021, a representative of the Department for Transport told the RTFO Quarterly Stakeholder Workshop.
Higher uptake of E10 would immediately boost ethanol demand, as for every liter of gasoline consumed, double the amount of ethanol would be blended. This would of course be welcome news for European ethanol producers, although higher mandates are already keeping the demand side quite strong.
This year ethanol prices have been particularly high and European fundamentals have so far been either finely balanced or on the tight side. But the contribution of producers using sugar beet as their feedstock varies every year depending on the yield of the crop and the sugar-ethanol parity, as they have the option to produce more of one or the other depending on price.
The 2017-18 campaign saw a record bumper crop with ample feedstock for both sugar and ethanol production, which translated into price pressure and poor margins. With all plants running in Europe, the ethanol market can veer into oversupply and UK producer Vivergo, often considered the swing plant in Europe, in the end fell victim to poor economics and has been closed since September. The company stated that the UK government’s delays in introducing E10 alongside challenging market conditions were the key factors that led to the decision to close.
While E10 is still the new theme in Europe, countries such as the United States, Australia and New Zealand are already using 10% ethanol in their fuel blends, with the US looking to allow 15% in gasoline through the busy summer driving period.
The US Environmental Protection Agency on May 30 announced that it will remove the ban on the sale of gasoline blending with 15% ethanol during summer months. The measure was immediately challenged in court by US oil refiners, who argued the agency does not have the authority to make such a move.
The approval of year-round access to E15 fuel will curb US dependence on imported oil by as much as 250 million barrels/year, US President Donald Trump said on June 11. However, substantial obstacles still exist for widespread use and sale of E15 fuel.
The most notable is the lack of infrastructure. Outside of the US Midwest, where the majority of the country’s ethanol plants are located, few retail gasoline outlets have pumps that can handle E15 fuel.
The US Department of Agriculture has in the past provided funds for the purchase of such gasoline pumps in an attempt to build the infrastructure the market needs. However, until such pumps become more common, it could be a while before E15 sales grow enough to see a substantial impact on the US ethanol market.
Meanwhile, the US refining industry continues to lobby Congress to weaken or repeal the Renewable Fuel Standard, which mandates that refiners blend renewable fuels into petroleum-based fuel stocks.
Prior to the passage of the RFS by the federal government in the late 2000s, ethanol was primarily blended into gasoline as an octane booster. Its adoption for such use came after the US government banned MTBE use in US gasoline stocks due to concerns about its health impacts.
However, when gasoline prices spiked in the 2000s during concerns about whether the world had reached “peak oil,” the US government looked to renewable fuels as part of its strategy to reduce reliance on foreign oil. Hence the RFS, which raised the volumes of mandated renewable fuel blending each year.
Under the RFS, the higher and higher volumes would force renewable fuel producers to expand their industry to meet the growing demand. By 2018, ethanol producers had to provide 15 billion gallons of ethanol to blend into transportation fuel. They met that goal, and still had excess product, leading domestic producers to search for foreign markets.
On the domestic front, higher-ethanol blends of gasoline present one of the final paths for growth. Newer models of cars have the ability to accept higher proportions of ethanol in gasoline. Ethanol’s generally lower prices in comparison with gasoline create an economic incentive for consumers to use more, albeit in exchange for substantially reduced mileage.
But to actually see the growth that ethanol advocates have projected, the infrastructure issue will have to be addressed, with more E15-compatible pumps in more retail gas stations across the country. And the industry will have to continually lock horns with the refining sector, which continues to fight against the RFS.
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