By: Guest Contributor and NCC Consultant Dave Juday of The Juday Group

President Donald Trump ordered the Environmental Protection Agency (EPA) Monday to allow year-round sales of gasoline with 15 percent ethanol content (E15).  The announcement was made at a rally in Council Bluffs, Iowa this week. 

The President also directed EPA to develop reforms to the system of renewable identification numbers (RINs) to stabilize the price and increase the transparency of those tradeable compliance credits as part of a package of administrative reforms to the Renewable Fuel Standard (RFS).

The sale of E15 is currently prohibited from June 1 to September 15 due to restrictions on fuel evaporative volatility established under the Clean Air Act (CAA).    Volatility is measured by a standard known as the Reid Vapor Pressure (RVP).  EPA regulates the RVP of motor fuel sold at retail stations during the summer ozone season in order to reduce emissions that contribute to ground-level ozone and diminish the effects of ozone-related health problems. E15 has an RVP of 10 pounds per square inch (psi).

Depending on the state and month, retail motor fuel RVP may not exceed 9.0 psi or 7.8 psi.  In 2011, EPA issued a rule that allowed use of E15 in passenger vehicles and light duty trucks of model years 2001 and newer for part of the year, but maintained the restriction for the summer months.  Since last year, however, EPA has allowed E15 to be sold for use in “flex fuel” vehicles which are rated under fuel economy standard to be certified for higher blends of ethanol.  As a result, last summer and this, there have been some sales of E15.  The biofuels industry has argued that the seasonal restriction remains has been an impediment to wider spread use of E15.

EPA is expected to publish a proposed rule granting a waiver from the RVP standards for E15.  That process will unfold over the next 7 months with a target date of being final by the 2019 summer driving season on 1 June.   The petroleum industry, specifically the American Petroleum Institute (API) and the Association of Fuel and Petrochemical Manufacturers (AF&PM) are likely to file suit against the rule on the basis that EPA does not have the statutory authority under the Clean Air Act to gain such a waiver.  A number of environmental groups have also expressed the same concerns, and both sectors cite then-Administrator Scott Pruitt’s comments in 2017 averring that EPA lacks the legal authority to grant a waiver.

The question for the chicken and the rest of the poultry and livestock industry is what impact an E15 waiver would have on corn use and prices.  If a suit is filed against the waiver rule, procedurally, it could not proceed until the waiver is actually granted.  Thus, any legal action could delay implementation until the 2020 summer driving season even if the EPA waiver prevailed in the courts.

Add to that timeline the necessary investments in fueling infrastructure, which are unlikely to start until E15 is cleared from a regulatory perspective, and short term corn use impact is unlikely to be major.  There are currently 1,335 retail outlets selling E15 in 30 States; nationwide there are 152,995 retail fueling stations.  More outlets for E15 would have to come on line in order to directly impact ethanol’s use of corn feedstock.

Aside from the legal and regulatory timeline, the impact of year round E15 is difficult to forecast.  The U.S. Energy Information Administration (EIA) does not track E15 sales because the fuels can be blended at the point of sale. EPA, however, estimates that in 2016, there were 320 million gallons sold nationwide.

Industry estimates of E15 sales nationwide in 2017 are in the upper range of approximately 690 million gallons.  Thus, the marginal increase in corn feedstock use for E15 sales is about 82 million bushels.  A waiver for E15 would extend the marketing year for that fuel by 14 weeks, so a short-term baseline increase in marginal corn use from year-round E15 sales would be in the range of 100 million bushels.

Sales of E15 continue to grow in certain markets close to ethanol production.  In Minnesota, for example, E15 sales increased in 2017 by about 235 percent over the year before.  According to the Minnesota Department of Commerce, through May of 2018 (prior to the summer season ban), E15 sales in the State had grown 497 percent from the same period last year.  Minnesota has subsidies and incentives for blender pumps, mandates for state owned vehicles to use higher blends and other efforts to promote high blends of ethanol.

Of course, the long term threat to the chicken industry is the widespread adoption of E15 across the 145 billion gallon pool of finished retail motor fuel use.  Raising the current blend standard from E10 to E15, could potentially increase ethanol and corn use by nearly 50 percent, resulting in an additional 7 billion gallons of ethanol to 22 billion gallons despite the statutory 15 billion gallon cap.

Such growth would consume another 2.5 billion bushels of corn, well beyond the scope of the intent of the RFS legislation.  Indeed, prior to the Administration’s E15 announcement, a bipartisan group of 20 Senators wrote to the President arguing that there are bigger issues of structural RFS reform and that the E15 waiver would be a “… one-sided approach to address concerns.”