While electric vehicles pose a long-term threat to U.S. liquid fuel demand, the petroleum and biofuel lobbies are at an impasse when it comes to finding a palatable policy solution that protects liquid fuel's long-term transportation market share.
General Motors Co. Director of Federal Affairs Joseph Guzzo said March 19 at the American Fuel and Petrochemical Manufacturers annual meeting that over the longer term, the current patchwork of U.S. Department of Transportation, U.S. Environmental Protection Agency, and state regulations addressing fuel economy and greenhouse gas emissions reduction are driving automakers' powertrain development to favor battery-electric technology.
"Right now, … battery-electric vehicles are significantly more expensive than internal combustion engines. But we know battery costs will come down and the compliance [costs] on internal combustion engines will go up," Guzzo said.
Turning toward the near term, Flint Hills Resources LLC executive vice president and CFO Anthony Sementelli warned consumers are driving less despite a growing economy.
"This work from home, shop from home, entertain from home and re-urbanization is significant," Sementelli said. "We've got low gas prices, … high unemployment, [and] rising incomes. We should be at a high of vehicle miles traveled per capita, [but] we're 7% off the peak."
"Right now the biofuel industry and the petroleum industry are fighting over a shrinking pie, and that is not productive," Sementelli said.
To address the threat to liquid fuel demand posed by electric vehicles, the refining industry had put forward a proposal to increase octane in the gasoline pool as measured by the research octane number to 95 RON. Under the compromise, the refining industry could buy octane-boosting ethanol to help meet the higher standard while providing a liquid fuel that would help automakers meet efficiency and greenhouse gas reduction targets. At the same time the refining industry wants to eliminate the renewable fuel standard requiring a certain blend of ethanol in the U.S. gasoline pool.
But ethanol is not the only means of boosting octane in gasoline, and the ethanol lobby wants a higher octane standard to ensure future biofuel industry growth.
"Our analysis is 95 RON is a no-growth to growth reduction, and that 98 RON would allow for additional ethanol growth," said Renewable Fuels Association senior strategic adviser and former president Bob Dinneen, who negotiated both the 2005 law establishing the renewable fuel standard and its 2007 expansion. "We're not going to sign away our future."
AFPM President and CEO Chet Thompson called 95 RON "the cheapest outcome for the U.S. consumer."
"In order for this to work for the U.S. auto industry, you need the fuel to be available on day one nationwide. 95 RON cannot be sold in California and five or six other states. So a 98 RON is a non-starter," Thompson said. "The Democrats … want the entire transportation fleet to be electrified and they aren't interested in 98 RON or 95 RON. So we have to work together if we're going to hope to convince folks to move forward."
Refining and biofuel lobbyists clash over biofuel blending waivers, higher ethanol blends
Dinneen said the Trump administration's proposal to allow year-round sales of gasoline blended with up to 15% ethanol does not offset the impact of the administration's more liberal granting of small refinery exemptions, or SREs, that forgive smaller refineries from complying with biofuel blending mandates.
By law, the EPA is allowed to grant hardship waivers to refineries with a processing capacity of less than 75,000 barrels per day if they can show they are disproportionately impacted by the biofuel blending mandates, but the ethanol industry is challenging the waivers in federal court, arguing that the EPA overstepped its authority in part by granting exemptions to refineries owned by large, profitable companies such as Exxon Mobil Corp.
"We do think the economics over time will continue to provide growth for E15 but it's going to be modest," Dinneen said. "The rule, if it's finalized by June 1, … it's maybe 40 million gallons for the year. That's not a whole lot. That's why our hair's on fire. Two days after they give us 40 million gallons potentially, they take away 366 million gallons in five more small refinery waivers. The math doesn't work for us."
"I can assure you that the small refinery exemptions were not intended for use by Exxon. … And I believe that that provision has been abused. I am hopeful the courts will ultimately settle some of this and bring some rational thought to it, but we're going to fight it with every fiber of our being," Dinneen said.
"The EPA cannot back away from granting SREs," Thompson said. "It was debated at the time of enactment of the program whether there should be small refineries defined as company or be small refiners defined as an individual facility and it was the latter that was selected. So if an individual facility can demonstrate that it was disproportionately adversely affected then they are every bit entitled to an SRE as the next one."