The 'octane olive branch' is full of thorns

The 'octane olive branch' is full of thorns
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With a final rule on fuel economy likely to come out in the near future, a considerable amount of attention has centered on higher octane fuels as a pathway to increased efficiency in automobiles, both for legacy vehicles currently in use and for new designs. One argument in the debate, that oil refiners are offering an olive branch of higher octane to the ethanol industry, presents an inaccurate picture of what is described as a decades-long political conflict between "big corn" and big oil.

The idea of a conflict suggests two sides, when in reality, the conflict is only on the side of an oil industry that has become increasingly resistant to the Renewable Fuels Standard (RFS), which they were party to and at least initially supported more than a decade ago.

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Characterizing the RFS as an ethanol mandate and a corn ethanol mandate is simply incorrect. There is no such thing as an ethanol mandate. It is a standard requiring that fuels contain a modest renewable content, of which corn ethanol is just one of the options. In theory, the RFS could be met with renewable electricity, biodiesel or even biogas. The oil industry chooses ethanol because it is the cleanest, least expensive option and meets a number of public policy objectives that are aimed at reducing our reliance on petroleum.

 

To the extent a conflict exists, it is the result of some refiners, importers and other obligated parties simply thumbing their nose at the law and failing to use biofuels. The RFS established a credits and trading system to make compliance easier, but refiners have used voodoo economics to portray that as some kind of fine or tax. Some have rightfully pointed out that the promise of cellulosic ethanol has been plagued by technical difficulties but fail to mention major oil companies like BP and Shell had touted their cellulosic technologies only to abandon them and to some extent make the cellulosic failure a self fulfilling prophecy.

To somehow now turn this failure to comply with the law into an olive branch for higher octane by the oil industry is somewhere between sad and insulting. Moreover, many touting this approach confuse their octane numbers, mixing retail octane at the pump with research octane (RON). Refiners offering to agree to a 95 octane standard is a mere one or two point increase in what we call AKI — the anti-knock index. The result is a pump octane of 88 or 89. That is not enough to incentivize automakers to make a high compression engine that would significantly increase mileage and can easily be made with petroleum, leaving ethanol with no role to play. The toxic, carbon intensive aromatics refiners use for octane present a host of health and associated problems when ethanol is readily available. 

And it is hard to swallow the audacity of those in the oil industry who suggest they will "give" the ethanol industry this meager increase if they can do away with the pesky renewable requirement — including a number of environmental safeguards — and institute other provisions that would pretty much guarantee no market growth from corn, cellulose, or anything else. 

Regardless of the feedstock, if a number of unnecessary market restrictions were lifted by EPA as promised by this administration, ethanol would be able to compete head to head with anything out of the oil barrel. Ethanol has been and continues to be significantly less expensive — with no subsidies — than gasoline and the petroleum industry makes a tidy profit off the margin when they buy low and sell high. Interestingly the petroleum industry has invested heavily in ethanol with Valero, Koch and Marathon, among others, owning and operating large ethanol plants.

It is false to say automakers do not warrant cars above 10 percent ethanol — almost every automaker on the planet now warrants cars to 15 percent volume and are headed higher. We have successfully demonstrated 30 percent blends which the Department of Energy Labs have said is an ideal level. It is also irresponsible to say 40 percent of the corn crop is used for ethanol without pointing out that more than a third of that is returned to the feed markets after the starch is extracted while we continue to have corn surpluses and the lowest prices in decades.

It is without question that this seemingly endless — but unnecessary — debate has used up a lot of political capital on both sides. But if EPA removed a number of regulatory barriers largely cemented by the previous administration ethanol would be free to compete by having access to the market. The RFS is a critical backstop that allows for investment here at home but we envision a future where we grow well beyond that base.

It’s difficult to find an analogy that is simple to understand, but it often comes back to other standards put in place for the public benefit. One such example: If builders were required to ensure that a certain number of restrooms in federal buildings were handicap accessible, what would Congress say if some builders adhered to the code and met the law while others simply ignored it?

All the oil industry needs to do is comply with the law, as many others have already done. 

Douglas Durante is the executive director of the Clean Fuels Development Coalition, whose membership includes ethanol, agriculture, engineering, and automotive interests.