The “Blend Wall,” a Tale of Infrastructure Woe

The promise of the RFS was diversified biofuels feedstocks, to provide the United States with cost-competitive petroleum alternatives. Part of this was achieved by incentivizing FlexFuel Vehicle (FFV) manufacturing, which put millions of E85 compatible cars on the road. Yet today, only 12 percent of FFV drivers are filling up with E85 today, and the U.S. retail fuel market has reached the “blend wall” earlier than anticipated, thanks to lowered gasoline consumption, higher fuel efficiencies, but mostly because of a lack of ethanol infrastructure.

Original EPA forecasts of the ability to on-ramp advanced biofuels turned out to be bullish. As a result, advanced biofuel production volumes lag significantly below the volumes laid out by the Renewable Volume Obligates (RVOs). This, coupled with the E10 “blend wall,” created the opportunity for oil and gas industries to challenge the RFS, claiming that the market simply cannot absorb any more renewable fuels. This has also provided a good opportunity to opponents of corn ethanol to propose a wholesale removal of ethanol from the RFS. While advanced cellulosic technology is now starting to catch up to original expectations –producers of these advanced fuels will be dependent on a marketplace for their product. A marketplace that was created by the success of corn ethanol, and the regulatory certainty provided by the RFS.

Going forward, the best way to ensure a marketplace for advanced biofuels is to break through the “blend wall”. Now that the United States has reached the E10 “blend wall”, the infrastructure needed to support higher blends – blender pumps and FlexFuel Vehicles, becomes critical. While there is potential with drop-in fuels, a petroleum equivalent which requires no special infrastructure or engine modifications, the technology for drop-in fuels will still require at least several years’ research and development although much progress has been made. Electric vehicles also currently face technological barriers, since they cannot yet be driven long-distances –no more than 80 to 100 miles, nor can they be easily charged away from home for most people. These technologies are all options to lowering petroleum use – but just imagine the gas mileage achievable with a plug-in hybrid powered by biofuels! Humans tend to be futurists – favoring the promise of a perfect tomorrow over the reality of today. But the world doesn’t have time to wait. According to the Intergovernmental Panel on Climate Change (IPCC) and the overwhelming majority of climate scientists, greenhouse gas emissions (GHG) from burning petroleum products must be lowered now, in order to avoid the worst effects of a changing climate. Pushing through the “blend wall” is a critical step in lowering petroleum use.

Have consumers truly decided that ethanol isn’t a good fuel – as the petroleum industry suggests? Or is the problem one of consumer access to mid and higher ethanol blends. The U.S. DOE’s 2013 Technologies Market Report conservatively estimates that there are 10.6 million FlexFuel Vehicles on the road today, which are certified to use blends up to E85. However, DOE estimates that only about 870,000, or 12 percent, of the FFVs on the road today actually fill up with E85. Out of the approximately 156,000 retail fuel locations in the United States, E-85 is sold at 2,669, or 1.7 percent, of stations nationwide. The top states with E-85 stations are in the Midwest, with no states outside the region having more than 100 stations. For example, the most populous state, New Jersey, has 5 stations with E85 available, and California and Texas have 90 and 98 E85 filling stations, respectively.

According to an opinion poll conducted by Fuels America, more than 80 percent of respondents said they would like to have the choice to buy higher E15 and E85 blends at their local gas stations. Eighty percent of vehicles on the road today are able to use E15 fuels, with the EPA approving E15 use in 2001 model year vehicles and beyond. Since fuel retailers are in the customer service industry, why aren’t more retailers offering more choice when it comes to fuel? One hint may be provided by looking at the makeup of the fuel retail business today. While most fuel retailers are independently owned, retailers have contracts to sell a particular refiner’s blend. An individual fuel retailer has a lot to gain from selling mid and higher ethanol blends, since they can use RIN revenue from selling higher blends of ethanol to pass on savings to customers, increase profits, invest in infrastructure, or a mix of all three. Yet, most aren’t investing in the infrastructure necessary to tap into the RIN market. The only existing federal support for blender pumps was removed from the 2014 Farm Bill’s energy title, and there is little incentive provided to the retail market to install this technology. There are approximately 750,000 dispensing pumps in the United States, and about 10 percent of these pumps are routinely replaced each year. Blender pumps are already used at many stations to mix mid-grade fuel on-site. Imagine – if even just 1 percent of routinely replaced pumps transitioned to blender pumps, that would be 7,500 blender pumps installed in a one-year period! Transitioning to a flex-pump system capable of blending mid and higher ethanol blends on-site represents a modest incremental cost each year as pumps wear out and have to be replaced.

Refiners – the most vocal opponents of the RFS -- have been the biggest roadblock to getting the infrastructure necessary for renewable fuels installed at retail gas stations. The petroleum industry supports every effort to roll-back or even defeat the RFS. The Renewable Fuels Association has calculated that if the proposed 40 percent reduction to the RFS was approved, the petroleum industry would stand to gain anywhere from $9.2 to $15.2 billion in fuel sales, about 10 percent of the industries’ 2012 profits. After the EPA announces 2014 RVOs, the petroleum industry will most likely continue to chip away at the small pre-existing market share of renewable fuels. The most effective method the petroleum industry has to continue its market stranglehold is to obstruct the modest infrastructure investments needed to distribute renewable fuels.