E15: Beyond the Waiver

The expected EPA approval of E15 later this year will be only the beginning. In order to bring E15 to market, the ethanol industry needs to support petroleum marketers in addressing the issues that impact their willingness and ability to sell higher ethanol blends.
By Erin Voegele | February 09, 2010
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Although many in the ethanol industry are confident that the U.S. EPA will ultimately issue an approval of the E15 fuel wavier later this year, it is important to note that EPA approval of E15 is only one step in the lengthy process of bringing this new fuel to market. There are a variety of liability, equipment certification and logistical issues that need to be addressed before E15 becomes a significant part of the transportation fuel market.

Early in December the EPA announced it would delay decision making on the E15 fuel waiver until later this year to allow the U.S. DOE to complete its vehicle testing and ensure the agency has the science it needs to make the right decision. In a letter addressed to the leaders of Growth Energy, the EPA said that preliminary tests indicate the robust fuel, engine and emission control systems of newer vehicles will accommodate higher ethanol blends such as E15. According to the EPA, as long as continued testing remains supportive and provides the necessary evidence, the agency will likely be in a position to approve E15 for 2001 and newer vehicles by mid-2010.

Model Year Limitations
The possible restriction of E15 to 2001 and newer vehicles is raising industry concern. "There are a number of gasoline marketers who have indicated to us that they will have a real problem moving forward with high level blends if they are only available to a portion of their consumer base," says Bob Dinneen, president and CEO of the Renewable Fuels Association. According to Dinneen, the RFA's frustration with this restriction stems from the lack of data cited by the EPA suggesting problems in using E15 with older vehicles.

Brian Jennings, executive vice president of the American Coalition for Ethanol, agrees and says that ACE has asked EPA to clarify its rationale for indicating this model year restriction on E15 use. However, he also notes that approving E15 for some vehicles is better than denying the waiver request all together. "If EPA comes out and approves E15 for 2001 and newer cars, it is certainly a step in the right direction," says Jennings. "It's better than the status quo."

From a practical standpoint, splitting approval for E15 by model year is a logistical nightmare for a retailer, says John Eichberger, vice president of government relations at the National Association of Convenience Stores. In addition to the fact that it's nearly impossible to accurately determine the model year of a vehicle by sight, he says that many convenience stores have up to 25 fuel pumps. This makes it impossible for station owners to police their customers to ensure they are using the correct fuel blend for their car. Without proper liability protection in place, Eichberger says station owners could be held liable for Clean Air Act violations in the event a customer fills their tank with the wrong fuel.

"[Model year restrictions] are a scary notion for retailers," says Dan Gilligan, president of the Petroleum Marketers Association of America. "What I think might happen, when the infrastructure is available and it's considered safe to sell E15, is that retailers will just convert the whole station," he says. "They'll just say it's an E15 station and older cars are not welcome anymore."

Liability
Although model year restrictions could negatively impact a petroleum marketer's decision to offer E15, concerns over a lack of liability protection are expected to be the primary impediment to a marketer's willingness to offer the fuel. According to Ron Lamberty, ACE's vice president of market development, one of the biggest hurdles the ethanol industry is going to have is convincing fuel marketers they can use E15 in their existing equipment. This is largely because existing pumps are only certified by Underwriters Laboratories to dispense fuels containing up to 10 percent ethanol. "I don't think that any [fuel marketers] really believe there will be any problemsand frankly that's what EPA and DOE are testing for," Lamberty says. "The concern of marketers is that testing won't stop someone from saying there is a problem and dragging them into court. The way our legal system works, there are going to be people who try to turn myth and folklore into a bunch of dollars."

"We have member companies that would start selling E15 tomorrow if it was approved," said Gilligan. "We don't have a lot of them, but we do have some. The reason that most of them won't do it right away is because of the inherent risk involved." He says the risks associated with selling E15 will be similar to the risks currently faced by petroleum marketers selling E85. "Their equipment has only been approved for E10, and they are taking the gamble that if things go wrongwhich we don't think they will, but if they dothey could be held liable," he continues. For example, Gilligan says that if a retailer selling E15 without properly certified equipment has a fire and someone is injured, that injured party could sue and the trial lawyer would argue that the marketer was not selling their products through certified or legally allowable dispensers.

"That's a risk E85 retailers are taking today, and I suspect that it's a risk that some retailers will be willing to take with E15 when it's approved," Gilligan says. "But I'm guessing that the overwhelming majority of retailers would rather wait and see if some sort of liability protection can be pursued through Congress that essentially says that if you are selling E15 through E10 infrastructure, you can't be sued for negligence."

According to NACS's Eichberger, even if the EPA approves E15, retailers who sell the fuel through existing equipment may be in violation of several regulations, policies and agreements that make them vulnerable to litigation. For example, he says that a fuel marketer's tank insurance requires the use of approved equipment, lending agencies require compliance with all applicable regulations, and the U.S. Occupational Safety and Health Administration stipulates retailers use only listed equipment. "Most importantly, you could be sued for gross negligent violation of selling a product through an unapproved system," Eichberger continues. "If you have a leak and get sued and it's found that you are selling a product not approved for that dispenser, you can be nailed for punitive damages, which can put a retailer out of business pretty quickly.

"There are a lot of equipment compatibility issues that have to be resolved before many retailers will be comfortable going forward with anything above E10," Eichberger says. It has nothing to do with safety expectations for the equipment, he says. "We think E15 is safe for equipment, and I do not expect there to be any problems with E15 in the equipment, but that's irrelevant," he continues. "As long as the potential to be sued is in existence, there is going to be a lot of resistance to starting to increase the blend level."

In February 2009, Underwriters Laboratories announced its support for other authorities with jurisdiction to allow the use of existing UL-listed fuel dispensers with E15, but Eichberger says that gaining approval from the local fire marshal or weights and measure department may give fuel marketers a false sense of confidence. According to Eichberger, when those authorities permit fuel marketers to sell higher ethanol blends through equipment certified for E10, what they are really saying is that they will not fine a retailer for using non-compatible equipment. He says this approval does nothing to negate the potential legal liability issues associated with OSHA requirements, tank insurance or gross negligence. "If there is a problem, you can be sued for willful violation of the law, and that is huge," Eichberger says. Having the approval of your local fire marshal may be helpful in the event of a lawsuit, he says, but their decision to exercise enforcement discretion does not change existing law.

Beyond the Waiver
Due to these liability issues, Eichberger and Gilligan stress the need to establish liability protection for petroleum marketers who choose to sell E15 through E10 certified equipment, as well as the establishment of labeling requirements that will protect petroleum marketers from accidental or intentional misfueling by customers. Both PMAA and NACS, with the support of ACE, propose legislation that would protect petroleum marketers from these liabilities. Successfully enacting liability protection will help overcome the primary impediment in moving E15 to market.

As E10 was introduced to market, some customers tried to blame any of their vehicle problems on ethanol. "We would be foolish if we thought the same thing won't happen with E15," adds Lamberty. "We are going to see stuff blamed on E15 that has little or nothing to do with ethanol." From a petroleum marketer's standpoint, it is necessary to ensure protection in the event a customer misuses the fuel.
Dinneen notes that there are various regulatory steps that need to be completed beyond EPA's approval of the 211(f) fuel waiver. "I would hope that the marketplace will respond fairly quickly, but there are a lot of ifs' that need to happen in addition to granting the 211(f) waiver," he says. "EPA also has to act on a 211(b) health effects filing, marketers are going to need to have an ASTM standard in place, and are likely going to want to see the 1 pound waiver in place. Some jurisdictions are also going to have to be looking at their legacy pumps, so there are other things that will fall into play."

Although the ethanol industry is currently focusing a lot of attention on E15, Jennings says it's important not to lose sight of long-term goals. "We tend to have this short-term fixation with numbers like E15, and we need to have the vision to think longer term because we don't want to lurch from the E10 blend wall to the E15 blend wall," he says. "We need a more intelligent, sustainable vision for how we are going to gain market access in the future. While we are putting a lot of effort into supporting E15and will continue to do sowe are also focusing a lot of time and attention on the next steps, the steps beyond E15." These include working toward legislation that would establish incentives specifically for blender pumps and require the production of more flex-fuel vehicles. "If we have enough flexible fuel vehicles on the road, and more widespread availability of blender pumps, we don't have to keep asking the EPA to approve E12, or E15 or E17. We can take those fueling choices out of the hands of the government bureaucrats and oil companies, and put that power in the hands of the motorist." EP

Erin Voegele is an associate editor with BBI International. Reach her at (701) 850-2551 or evoegele@bbiinternational.com.