May 11, 2022
My dad, being the king of dad jokes that he is, recently told me that he needed to take out a loan application…so that he could put gas in his car… While he was quite pleased with the joke, his take on the price of a gallon of fuel these days is felt by many commuters at the pump. Like the typical daughter, I roll my eyes at his jokes, but the fuel supply issues these days are nothing to roll your eyes at. EPA, called on by the Biden Administration, has felt these constraints and has recently allowed an Emergency E15 Reid Vapor Pressure (RVP) Waiver, to be effective on May 1, 2022, for a period of 20 days.
Ethanol at 15 percent concentrations (“E15”) typically requires an RVP waiver to be sold during summertime months. When EPA first issued RVP waivers, E15 was not being marketed. Instead, the more common blend found at the pump was E10 (ethanol at a 10 percent concentration). When E15 emerged among fuel markets, EPA granted the same RVP waiver considerations for E15 as it had for E10. However, EPA’s stipulation was that a convenience store could not offer E15 during the summer months if the resulting fuel product could not meet the RVP requirements. Summertime fuel use is particularly important because the higher temperatures combined with increased traffic might contribute to an overall rise in vapor pressure.
Now, there’s a bit of a plot twist here. In 2019, EPA passed a permanent E15 RVP waiver, which allowed E15 to be sold year-round, nationwide. More specifically, EPA extended the RVP waiver that was granted to E10 for the summer months to E15. When this happened, affected parties filed suit against EPA for extending beyond the “plain language” of the original rule. In 2021, the D.C. Circuit Court of appeals ruled that EPA was precluded from issuing rule for a year-round E15 RVP waiver.
Ok, cool, cool, cool, but also, why issue an emergency E15 RVP waiver now? If the fuels industry is used to this type of action from EPA, and if, presumably, the science hasn’t changed, why would EPA grant an emergency waiver? One of the main reasons for “gassing up” the emergency waiver to allow for the use of ethanol during the summer months is the Ukraine-Russian war. Regardless of what you think of the relevancy of the claims, the price of fuel at the pump has skyrocketed over the past months. Largely, this is thought to be because Russia has a bit of a stranglehold on global fuel supply. In a statement issued by the Biden Administration, one method of combating “Putin’s price hike at the pump” is by offering “homegrown biofuels” to alleviate fuel costs.
Now, the million-dollar question, will this work? I am not an expert on geopolitical relations, conflicts, nor fuel markets. I do know that certain states offer tax incentives for the sale and, in some cases, the production of pure ethanol and ethanol blends. In states that offer these types of tax incentives, it is common for the ethanol blends to be priced lower per gallon at the pump than fuel that is just gasoline. In states like Iowa, Nebraska, Illinois, and California, tax incentives to encourage the use of E15 and other ethanol blends in the marketplace have been enacted, which can lead to increased sales at the pump. I should note that tax incentives alone will not make ethanol blends cheaper, it also has to do with the retailer’s supply contracts as well as their business model.
Now, I’ve told you a lot of things, but I’ve also mentioned that EPA granted the emergency waiver for a period of 20 days. Doesn’t that mean that the waiver runs out on May 20? Yes, it does. However, EPA will not be precluded from renewing the waiver, as it is needed. If circumstances continue, will EPA grant a renewal of the emergency waiver? While I am not a prophet or fortune teller, I would expect that to be true.
One thing is for sure, the ethanol industry is “fueled up” for May 20.