Unintended Consequences - Plan to Boost E15 Gasoline Will Have Big Impact on Refiners, Retailers, Drivers

The Environmental Protection Agency (EPA) has approved a request by governors from eight Corn Belt states to remove a summertime waiver for Reid Vapor Pressure (RVP) included in the Clean Air Act (CAA) for E10 gasoline, a 90/10 blend of petroleum-derived gasoline blendstock and ethanol. The motive for the governors’ request was a desire to increase sales of E15 gasoline and, by extension, boost ethanol/corn demand by putting it on the same summertime footing as E10. In granting the approval, the EPA conceded that the distribution system wasn’t ready for the change. In today’s RBN blog, we look at the decision and the impact it will have on refiners, retailers and drivers, and how it is likely to work against the Biden administration’s plans to keep a lid on gasoline prices. 

Corn growers and ethanol producers have long sought to increase ethanol’s usage as a gasoline blendstock, but in most cases government policy support has been necessary to accomplish this as petroleum-sourced gasoline is simply more economical when considering costs (especially logistics) and blend properties. Originally, the main rationale for increasing ethanol usage was domestic energy security and the desire to replace methyl tertiary butyl ether (MTBE) with a more environmentally friendly octane booster. While direct subsidies for ethanol blending had been in place since the 1970s, the first Renewable Fuel Standard (RFS) in 2005 and the Energy Independence and Security Act of 2007 both provided mandates for using ethanol in gasoline. These and subsequent revisions to the RFS led to corn ethanol usage reaching a concentration of about 10% of the total gasoline pool.

A decades-old waiver in the CAA allows E10 sold during the summer months to have an RVP that is one pound per square inch (1 psi) higher than otherwise permitted for gasoline. That allowance is not extended to E15, meaning that E10 is advantaged, in comparison, in the summer months. As we noted in Hard Habit to Break, RVP is a measure of gasoline’s volatility — the higher the RVP, the more easily it evaporates at a given temperature. As gasoline evaporates, volatile organic chemicals (VOCs) enter the atmosphere, contributing to the formation of ozone (aka smog), especially during the summer months. To minimize smog creation, the EPA promulgated regulations under Section 211(h) of the Clean Air Act Amendments of 1990 (CAAA) that set caps on the RVP of gasoline sold during the summertime (June 1 through September 15) — the acceptable level varies depending on where the gasoline is sold. Higher RVP levels are permitted in “winter-blend” gasoline because (1) gasoline evaporation is less of an issue during the cooler months and (2) gasoline needs to be able to evaporate at lower temperatures for vehicle engines to operate properly in cold weather (see Tank Full of Butane for more). Removal of the summertime RVP waiver essentially puts E10 and E15 on equal footing.

With those factors in mind, the Biden administration has been weighing calls to expand E15 sales. The administration has long sought to keep crude and gasoline prices under control in an effort to boost the economy and reduce political blowback. Those efforts have included a record-setting release of 180 MMbbl of crude oil — an average of 1 MMb/d over six months — from the Strategic Petroleum Reserve (SPR) announced in March 2022 (see I Want To Break Free) and an emergency extension of a 1-psi RVP waiver for E15 during 2022 and 2023, theoretically making the sale of E15 easier (see Turn, Turn, Turn). Also note that the Trump administration attempted to permanently extend the 1-psi RVP waiver to E15, but that move was struck down by the courts. As a result, the Biden administration has had to continually issue 20-day emergency waivers, with high gasoline prices being the emergency.