ALEXANDRIA,
VA – The requirements of the 2007 Renewable Fuels Standard (RFS) are already
outdated and must evolve if the goals of the program are to be achieved,
according to NACS.
“The
assumptions about the growth of the U.S. motor fuels market that informed the
2007 Congress have proven wrong and the program needs to evolve to reflect
current market realities,” said John Eichberger, NACS vice president of
government relations. “Six years ago, there was every indication that motor
fuels demand would continue to increase. Instead, it has declined by 7% since
2007 and is projected to continue to decline, making it even harder to satisfy
the requirements of the RFS.”
The RFS
requires that increasing amounts of qualified renewable fuels be integrated
into the motor fuels supply, culminating at a minimum of 36 billion gallons in
2022. Based on the U.S. Energy Information Administration’s (EIA) current
market projections, this mandate is expected to increase renewables to
approximately 28% of the overall gasoline market in 2022, nearly triple the
rate of 9.6% in 2012 and almost 40% more than expected when the program was
revised in 2007.
While E10
blends (gasoline containing 10% ethanol) are relatively standard across the
country, much higher percentages of ethanol — including E15 and E85 — will need
to be consumed to satisfy the mandate’s ever-increasing consumption targets.
But recent consumer input indicates that the market is not ready to accommodate
sufficient volumes of these alternative fuel blends to satisfy the requirements
of the RFS. Inadequate infrastructure and limited consumer demand puts the
future of the RFS in peril unless adjustments are made.
“For the
RFS to succeed, two things have to happen in a relatively short span of time.
First, retailers must be able to legally and affordably sell new fuels. Second,
consumers need to accept and use the new fuels that will be required by the
program. However, gasoline demand destruction combined with the aggressive
implementation schedule of the RFS has shortened the timeframe for all of this
to happen. Without revisions, the entire program could be in jeopardy,” said
Eichberger.
Consumers
Not Ready to Purchase E15 or E85
To
examine current market conditions, NACS surveyed both consumers and fuel
retailers to assess their familiarity with the alternative fuels. Only 26% of
fuel consumers said that they are familiar with E15, and this lack of awareness
significantly diminishes potential demand. After E15 was described to surveyed
consumers, only 59% of them said that they would consider purchasing E15 if it
were the same price per gallon as gasoline.
Further
complicating matters, three of five (59% also) of these consumers who would
consider using E15 said that their primary vehicle is from the model year 2001
or earlier, which are prohibited from using E15 by the U.S. Environmental
Protection Agency. (Respondents were not informed during the survey of this
regulatory limitation.) This means only one-third (34%) of consumers are
authorized and willing to consider purchasing E15. Retailers recognize this
limitation in demand, with more than three-quarters (79%) of the NACS members
surveyed citing lack of demand as the reason that they don’t sell the fuel.
“Consumer
unfamiliarity with E15 significantly limits its retail availability because
demand is insufficient,” said Eichberger. “Worse, most consumers are wary of
the product: 55% of those who said that they will not purchase E15 said that
they are worried that it will damage their vehicles and 45% are worried about
decreased performance and fuel efficiency. Limited potential demand will not
change until some negative perceptions about the fuel are addressed through a
comprehensive education campaign.”
Surprisingly,
consumers were not much more familiar with E85, which has been in the market
for more than a decade. Only 29% of consumers surveyed said that they were
familiar with the product and only 10% said they drive a flex-fuel vehicle,
which is required to use E85. Furthermore, three of four (75%) fuel retailers
surveyed said that demand isn’t sufficient for them to install E85 pumps, which
may be why there are only 2,354 U.S. commercial fueling stations currently
selling E85, according to Department of Energy statistics.
Legal
Risks Deter Many Retailers
Demand
isn’t the only issue limiting availability. Retailers also expressed concerns
about the costs associated with upgrading or replacing equipment to legally
store and sell these new fuels: 46% said that the costs to upgrade to sell E15
were a concern, and 44% said that the costs to upgrade for E85 were a concern.
Failure to use certified equipment can expose retailers to potential liability.
Retailers also expressed concerns over potential liability from misfueling: 46%
and 44% cited liability concerns over E15 and E85, respectively.
However,
incentives could help entice retailers to sell both E15 and E85. More than half
(64%) of retailers surveyed said that reasonable protection from misfueling
liability would entice them to consider selling E15, and nearly half (46%) said
that similar protections would entice them to sell E85.
“Most
retailers simply want to understand their potential risk before they invest in
new equipment to sell a product. We want to see a smooth market transition to
meet the higher mandated blends but that is simply not going to happen until
consumers are ready for the fuels and until legal uncertainties for fuels
retailers are clarified,” said Eichberger.
NACS
to Congress: Evolve the RFS
The RFS
is not a modern program and its objectives will not be achieved without
modifications. But the overall goals are worth pursuing and they may be
achievable with modifications and a robust education program, said Eichberger.
He said that NACS recommends policymakers pursue a three-step program to evolve
and reinvigorate the RFS.
First,
the statutory increases in renewable fuel volumes sold each year must be
revised to reflect the declining size of the overall gasoline market.
“The
implementation of new corporate average fuel economy (CAFE) standards will
dramatically reduce the volume of gasoline consumed in the nation. We should
revise the program requirements to ensure that they are consistent with market
developments and on a schedule that will allow for concurrent development of
compatible infrastructure and consumer acceptance,” said Eichberger.
Second,
policymakers must take steps to make higher ethanol blends legal and attractive
to sell.
“There
needs to be clarity related to who is ultimately responsible for potential
misfuelings. In addition, retailers should not be forced to make capital
investments to replace equipment that is technically safe and compatible with
the new fuels entering the market. An alternative certification process for
existing equipment already identified by EPA must become legally binding,” said
Eichberger.
Third, a
significant education campaign is needed to build consumer demand.
“Consumers
said that signage at the dispenser is how they want to be informed about
appropriate uses of new fuels, but more education is needed to develop consumer
demand and entice retailers to sell these products. Until consumers are
educated about the positive attributes of these new fuels, demand will not
build and the RFS will languish,” said Eichberger. “We urge Congress and the administration
to thoughtfully review how we evolve the outdated RFS to fit today’s landscape
and to create a comprehensive education campaign to meet these new demand
goals.”
The NACS
consumer survey was conducted by Penn, Schoen and Berland Associates LLC, with
1,183 gas consumers surveyed from May 7-9, 2013. The margin of error for the
entire sample is +/- 2.85 at the 95% confidence interval and higher for
subgroups.
The NACS
retailer survey was conducted May 29 to June 7, 2013, and incorporates
responses from more than 30 retailer companies, which range in size from
one-store owners to large chains operating hundreds of stores.