Kansas In Line for More Ethanol in its Gasoline

Ethanol industry pushes for the state to step up from the E10 blend now offered. But automakers warn of engine damage, voided warranties.

Ready or not, Kansas is one of three states in line for more ethanol in its gasoline.

The Environmental Protection Agency last year allowed E15 — gasoline with 15 percent ethanol — for model year 2001 and newer vehicles. Now the agency is ready to take the next step — approve applications to sell E15, making it legal to use in roughly 60 percent of the country’s cars and light trucks.

E10 will still be available, and selling E15 won’t be mandatory, but there are concerns that E10 could be harder to find if the new blend becomes popular.

Promoters hope to have the fuel in some Kansas gas stations this summer or later this year to help meet the federal energy policy’s call for more use of biofuels. But congressional intervention or a lawsuit filed by critics of E15, including automakers, could delay its introduction.

Critics say more study is needed to ensure E15 won’t harm the newer engines it’s approved for, and automakers say warranties could be voided if the new fuel blend is used. In addition, misuse could damage older vehicle engines, boat motors and small engines such as those in lawnmowers.

The Renewable Fuels Association, a major ethanol trade group, has placed an official in the Kansas City area to push E15. He is initially focusing on Kansas, Iowa and Illinois for a quick start when — and if — E15 is legal.

The three states were picked because the association says they’re “very pro-ethanol” and don’t have regulations that would slow its introduction. Missouri has a law capping ethanol content at 10 percent, so that will have to be changed before E15 can be sold.

“We have to get those first gallons out into the market and show that consumers want this,” said Matt Hartwig, a spokesman for the Renewable Fuels Association. “We can’t afford to wait.”

A couple of fuel stations in Kansas are already selling E15, although for now it can be used only in “flexfuel” vehicles, which are equipped to run on E85 — the blend of 85 percent ethanol and only 15 percent regular gas, which is less readily available.

Scott Zaremba, who has been selling E15 at his Zarco 66 station in Lawrence for about a month, is getting ready for wider use of the blend. He has seven other retail fuel stations in the state, including two in Olathe, and plans on selling E15 in them once the EPA gives its final OK.

“I’m ready when it becomes legal,” he said. “It’s going to be interesting in how this plays out.”

The new fuel blend comes as gasoline prices continue to rise amid renewed attention to curbing oil imports. Ethanol has had a controversial role in the country’s energy picture — keeping fuel prices lower than if there had been none of the biofuel available, but also providing less energy per gallon than straight gasoline.

According to AAA, while a gallon of E85 is now 60 cents cheaper than a gallon of regular gasoline, it actually “costs” 40 cents more when adjusted for its lower energy content.

There are also questions about how gas blends containing more ethanol will mesh with environmental rules meant to reduce summer smog. The Kansas City area has to use a special summer gasoline blend under those rules.

Ethanol blends can release more vapors and cause more smog. But E10 had an exemption allowing it to exceed federal vapor standards. E15 doesn’t have that exemption, though, which would require more refining for summer use, and that could raise its cost. The ethanol industry says it is examining options to avoid the problem.

But there’s no doubt that ethanol has been successful in reducing oil imports. E10 has replaced 5 percent of the country’s gasoline supply, and ethanol production could triple over the next decade if the federal mandate for more ethanol use succeeds. E15 will be crucial in meeting the mandate, although eventually blends with even more ethanol will be necessary.

That is, if E15 happens at all. Critics are vowing to try to stop it or at least stall its introduction until further study of its effect on engines.

The EPA has said that sound science shows it will perform well in the vehicles approved to use it. Ethanol advocates say their tests and those by the U.S. Department of Energy confirm there will be no problems.

But critics have joined a lawsuit seeking to send E15 back to the EPA for reconsideration. They’ve also asked Congress to have the National Academy of Sciences study the effects of E15 on engines.

The concerns are twofold: Will it damage 2001 and newer models it has been approved for? And what would happen if it is mistakenly used in older vehicles, or equipment such as lawnmowers, that aren’t supposed to use E15?

Automakers say that they also have concerns about using E15 in newer vehicles and that further study is needed. They also point out that owner manuals state that using more ethanol than is in E10 will void the warranty.

“Our position hasn’t changed,” said Sharon Basel, a spokeswoman for General Motors Corp. “We’re pretty confident that cars and trucks will be damaged.”

Outdoor equipment such as lawn mowers wasn’t approved to use E15, and manufacturers say misfueling could be a problem. Consumers could either accidentally use E15 or be tempted by a lower pump price to use it anyway.

“We know people will misfuel,” said Kris Kiser, president of the Outdoor Power Equipment Institute trade group. “This is a train wreck.”

The ethanol industry, frustrated by such arguments and believing years of study showing that E15 can be used safely, is eager to get to the ground game of getting E15 into the country’s fuel stream.

Robert White, director of market development for the Renewable Fuels Association, is now based in Olathe and gearing up for a push once the EPA approves applications from ethanol sellers.

Tom Palace, executive director of the Petroleum Marketers & Convenience Store Association of Kansas, said: “Our members support E15. The bigger issue is the logistics.”

QuikTrip, a major retailer, says it hasn’t decided whether to sell E15 and won’t until after it becomes legal.

In fact, selling a new fuel like E15 isn’t simple — or cheap. One way is to use pumps that can blend gas and ethanol. But there are only about two dozen of those pumps in Kansas now, and a blending pump can cost around $30,000, although there will be some financial assistance to buy them for E15.

The other way is to deliver E15 already mixed, but that will require stations to have a separate storage tank for that blend. Wholesale fuel outlets would have to prepare for it as well.

Bruce Heine, a spokesman for Magellan Midstream Partners, which operates the largest wholesale terminal in the Kansas City area, said they haven’t been approached about providing E15 but if they did it would likely require additional storage to be built.

White believes the logistics will be handled.

To be successful, he said, E15 will need to be cheaper than E10, which he expects to happen.

“I think the economics are going to drive it in the marketplace,” he said.

www.kansascity.com    

Running on "E": Ethanol Subsidies Are Losing Traction

December 4 -- It's in the gas you pump. It shapes your grocery bill and the prospects of the nation's corn growers

It's a clear, colorless liquid known as ethanol. But its fortunes are sputtering.

For more than 30 years, the federal government has offered tax credits and imposed a tariff to stimulate U.S. production of ethanol, nearly all from corn. The goal: to reduce the nation's reliance on foreign oil. Ethanol use boomed after 2005 when the Renewable Fuel Standard mandated a growing proportion of "natural" alternatives in your tank.

Most gas now sold in stations is classified as "E10," meaning 10 percent is ethanol. About 14 billion gallons of ethanol will be produced in the United States this year.

The policy created strong demand for corn. So strong that about 40 percent of the nation's corn yield is set aside for ethanol. And that, some analysts say, has helped drive up prices for food - everything from corn to soda to poultry.

"I just think this is a classic example of where you can reduce federal involvement and not hurt the individual," said Democratic U.S. Sen. Jim Webb, who has sought to drop the subsidies. "We need to be a lot smarter about letting the marketplace work."

The tax credit and tariff are set to expire at the end of December. Midwestern politicians have fought to keep them, and, in the past, they have seemed untouchable in presidential election years, given the early Iowa caucuses. But this time, the subsidies may be running on empty in Congress.

"There's a pretty good chance that they will just let it go," said William Gibson, a professor of political science at Virginia Wesleyan College.

He said an unlikely alliance between environmentalists and budget-cutting tea party activists may doom the subsidies, which cost the government $6 billion a year. Ethanol critics range from former Democratic Vice President Al Gore to Rich Lowry, editor of the conservative National Review, who called it "an object lesson in the incorrigibility of Washington's gross special-interest politics."

Representatives of the ethanol industry say the policy has reduced U.S. intake of foreign oil and the price of gas. Yet even ethanol lobbyists say they're not fighting to renew the subsidies.

"The industry has evolved to where the tax incentive isn't as important as it once was," said Matt Hartwig of the Renewable Fuels Association, which lobbies for ethanol. "We also recognize the country is in a bit of a jam right now. Everyone needs to do their part."

Ethanol isn't new.

Benjamin Franklin used it for his warming pan in the 18th century, said Bill Kovarik, a professor of communication at Radford University who has studied the topic. Henry Ford built the Model T with an "adjustable carburetor" to run on gas or ethanol, Kovarik said.

The energy crisis of the 1970s, with curtailed foreign oil supplies and spiked gas prices, fueled the modern interest in ethanol. In 1978, Congress enacted the tax credit, now worth 45 cents for every gallon, for companies that blend ethanol. The tariff, now at 54 cents per gallon, came two years later to ward off imported ethanol, particularly Brazilian sugar-based ethanol.

In 2005, President George W. Bush signed a law creating the Renewable Fuel Standard and the modern ethanol boom.

It's a complex issue that doesn't "fit into a sound bite," said Sheryl Ball, an associate professor of economics at Virginia Tech. When she surveyed her colleagues, "there wasn't anybody willing to give me a thumbs up on it."

Critics most frequently target ethanol's effect on food prices.

Supply and demand dictate that the remaining corn available for food will cost more, they say. Corn prices tripled from $2 a bushel in 2006 to about $6 now.

That triggers higher prices at the store not just for corn and products with corn syrup such as sodas and baked goods, but also for beef, poultry and pork. Corn is a primary ingredient of feed, which makes up 60 to 80 percent of the cost of raising animals.

The Congressional Budget Office reported in 2009 that up to 15 percent of the rise in food prices resulted from ethanol policy. The budget office also said the subsidies added $600 million to $900 million to the cost of U.S. programs to feed the needy in fiscal 2009.

Environmentalists, from Gore to the Sierra Club, also have voiced growing alarm about a compound they once championed. Friends of the Earth said ethanol production increases greenhouse gas emissions.

The hazards include soil erosion, nitrate poisoning of groundwater and air pollution, said Tadeusz Patzek, chairman of petroleum and geosystems engineering at the University of Texas at Austin. In a paper he called it "a human assault on geologic processes."

Ethanol supporters offer counterarguments and additional points on its behalf:

The bogeyman for rising food prices, they say, isn't ethanol, but speculative commodities trading and rising oil prices. There's enough corn for fuel and food. Growers "typically carry over a billion bushels of corn from one year to the next in surplus," said Andrew Smith, senior assistant director of the Virginia Farm Bureau Federation.

The policy, supporters say, has helped both consumers and the government.

The ethanol blend reduced gas prices at the pump an average of 89 cents per gallon last year, economists from Iowa State University and the University of Wisconsin found in a study funded by the Renewable Fuels Association. A McKinsey and Co. study in 2008 pegged the savings at 17 cents a gallon.

The ethanol requirement also has saved the U.S. government billions in payments to farmers that would be triggered under a different subsidy if corn prices were too low, said Chris Thorne, spokesman for Growth Energy, a coalition of ethanol producers.

As for the environment, the fuel association's Hartwig said: "Unfortunately for many in the environmental community, there isn't anything they like unless it's this utopian ideal for energy production."

At first glance, ethanol policy might not appear to affect Virginia's businesses much.

Virginia is a "corn-deficit state," said Katie Frazier, executive director of the Virginia Grain Producers Association. With 340,000 acres devoted to the crop, it brings in far more corn than it sends out. And it doesn't have a major ethanol plant, she said.

Nevertheless, ethanol has had sharp, and differing, effects on local companies from Smithfield Foods Inc. to Norfolk Southern Corp.

Smithfield executives have blamed ethanol for hog-production losses surpassing $539 million in fiscal 2010. C. Larry Pope, Smithfield's president and CEO, thinks $1 per bushel of the price increase for corn comes from ethanol subsidies. Every extra dollar triggers a $10 increase in the cost of raising each animal, said Dennis Treacy, an executive vice president. "So if you have 16 to 17 million head, that adds $160 million."

Stihl Inc., the Virginia Beach-based power-tool manufacturer, has brought up other problems. If it sits too long, ethanol attracts moisture and can separate from gasoline, sometimes clogging fuel jets and creating gum deposits, said John Foster, manager of product compliance. The Consumer Product Safety Commission cited "the level of ethanol" when it recalled 2.3 million Stihl tools in May over concerns about fastening or removing fuel caps.

Foster recommended that gas not be kept in tools for longer than two months.

For Norfolk Southern, ethanol has been golden. From November 2010 to October 2011, the company transported nearly 2.1 billion gallons of ethanol from the Midwest to points across the country, said Tom Landrum, national account manager - a huge jump from the 298 million gallons it moved in 2003.

Officials from Stihl and Norfolk Southern have steered clear of the political debate. Not Pope. He has said the policy "makes absolutely no sense at all."

If the tax credit and tariff die, what will happen? Maybe not a whole lot.

The Virginia Farm Bureau's Smith predicted a drop in food prices and corn production: "Farmers are going to grow what they think they can make money on." But Hobey Bauhan, president of the Virginia Poultry Federation, said the fuel standard "will continue artificially inflating corn prices."

U.S. Rep. Bob Goodlatte, a Republican from the Roanoke area, wants to do away with the Renewable Fuel Standard. He submitted two bills in October - one to kill it, the other to relax it when corn supplies get low.

"As long as the government is mandating that a certain amount of corn be used for ethanol production, they're going to get their higher price, and my livestock farmers and consumers are going to be the losers," he said.

Those bills, Thorne said, "would turn the clock back to the 1970s and allow OPEC to control the economy."

He and Hartwig seek a new wave of cars and gas-station pumps that can operate on fuel with higher levels of ethanol. Others champion alternative ethanol sources, such as grass or wood, or moving to other energy forms, like electricity.

In a statement, Republican U.S. Rep. Randy Forbes of Chesapeake criticized the "knee-jerk reactions" in favor of, and now against, ethanol. He submitted a bill to encourage harnessing energy from sources such as nuclear fusion and to launch a multibillion-dollar research competition to uncover other alternatives.

Ball, the Tech professor, said: "We need to stop making fuel out of things people can eat and work really hard to find a way to make fuel out of things that people can't eat."

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