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Challenges Remain Before E15 Usage Is Widespread

Until late 2010, fuels retailers were only authorized to sell fuel that contained up to 10 percent ethanol (E10) or E85 (containing 51-83% ethanol) for specially manufactured flexible fuel vehicles (FFVs). Other than the 7 million FFVs, most vehicle warranties authorized fuels that contain no more than 10 percent ethanol. It's estimated that roughly 5% of the vehicles on the road today are approved for E15.

A few stations in "corn country" — Iowa, Kansas and Nebraska — have responded by offering E15 to consumers. However, nationwide sales of E15 remain light as retailers review how this fuel could fit in their overall fuels portfolio.

The Rationale for E15
The federal Renewable Fuels Standard (RFS), revised in the 2007 Energy Independence and Security Act, sets annual requirements for the use of biofuels. For 2013, renewable fuels must be at least 13.8 billion gallons, and by 2022, total renewables (including advanced biofuels) must be 36 billion gallons.

Today, virtually all of the renewable fuels available today in the United States is corn-based ethanol. However, if every gallon of gasoline were blended with the legal maximum of 10% ethanol (E85 sales contribute very little to the overall volume of ethanol sold in the United States), the market would only be able to accommodate about 14 billion gallons of the mandate €" and would fall 22 billion gallons short in 2022. But the "blendwall" (the point where renewables do not reach the mandates target) could happen as soon as 2013, since total renewable fuels (including advanced biofuels) must reach 16.55 billion gallons.

In an effort to shrink the expected gap, the U.S. Environmental Protection Agency (EPA) issued a partial waiver in October 2010 that allowed for the use of fuel containing 15% ethanol (E15) in vehicles manufactured in model year 2007 and later. In January 2011, EPA expanded the authorized use of E15 to include model year 2001 and later vehicles. An estimated 60% of the vehicles on the road today are affected by these waivers. However, many owners of these vehicles are not aware that their vehicles can accept 15%.

Despite a January 2013 decision by the courts upholding EPA's decision in the face of a challenge filed by the refining and automobile industries, EPA's announcements will not have immediate effect on the availability of E15 and may indeed not have any measurable effect in the near term future, because there are still a number of significant concerns that retailers must consider related to liability, upgrade costs and demand.

Retailers Are Still Exposed to Liability
EPA's decision to allow the use of E15 in certain vehicles not remove retailers' obligations to ensure that all of their equipment is lawfully certified to store and sell this product.

NACS has told retailers that they should exercise extreme caution when considering whether to sell E15.

Federal law requires that motor fuels retailers must use equipment that has been listed by a nationally recognized testing laboratory, such as Underwriters Laboratories (UL), as compatible with the fuel that they store and dispense. Prior to March 2010, there were no dispensers in the country UL-certified as compatible with gasoline containing more than E10. This means that any retailer selling a mix of ethanol higher than E10 (including E85) through non-certified equipment is violating regulations of the U.S. Occupational Safety and Health Administration, tank insurance policies and bank loan covenants — and exposing themselves to claims of gross negligence. It does not matter if the local fire marshal has approved the fuel for the station; the retailer is violating the law.

In addition, the use of non-listed equipment could expose retailers to claims of gross negligence, which immediately triggers exemplary damages. A retailer selling fuel through equipment not certified/listed could be found guilty of negligence per se and face business-ending litigation.

Further, limiting E15 use to only vehicles manufactured since 2001 could expose retailers to significant liability risk if a consumer were to dispense E15 into a non-approved engine. This includes vehicles made prior to 2001, as well as gasoline-powered engines used in yard equipment like chainsaws, lawn mowers, leaf blowers and other equipment.

For example, if a customer pulls up the pump in a 2000 Lexus and fuels with E15, whether intentionally or unknowingly, that retailer may have some serious issues. The driver may, in fact, sue the retailer for potential damage to his vehicle, or EPA or an environmental group may sue the retailer for allowing the misfueling to occur in violation of the Clean Air Act — fines can be as much as $37,500 per day.

Retailer concern over liability from intentional misfueling is grounded in history. When regulations phased out lead from gasoline in the early 1980s, consumers went to extraordinary measures to bypass the fill pipe-nozzle restrictions that were designed to prevent misfueling. EPA then punished retailers for not physically preventing self-service consumers from introducing leaded gasoline into unleaded-only vehicles. Although EPA has indicated that it does not plan to pursue similar enforcement against retailers, the Clean Air Act includes a private right of action empowering citizens — including groups that are opposed to E15 — to sue retailers for such misfuelings.

To help mitigate concerns about misfueling, EPA proposed a requirement that E15 dispensers be appropriately labeled according to specific EPA standards to ensure that consumers are provided adequate information about the fuel that they are purchasing. However, without additional legislation, a retailer could still be held liable for misfueling. They could be fined or sued under the Clean Air Act for not physically preventing the consumer from misusing the fuel, as well as potentially being sued and held liable for any equipment damage, warranty voiding or personal injury that could occur as a result of misuse.

Finally, there also are concerns about E15's compliance with various federal, state and local air control regulations. For example, conventional gasoline blended with 10% ethanol is allowed to exceed volatility control standards (measured in terms of Reid vapor pressure and expressed in pounds per square inch) by one pound. Federal law does not extend that one-pound waiver to fuels containing more than 10% ethanol, and that means that retailers who choose to sell E15 are potentially liable for violating air quality control regulations.

The Cost to Upgrade Equipment to Sell E15 Can Be Considerable
If equipment is not compatible with E15, there are considerable costs involved with replacing dispensers and underground equipment — including underground storage tanks, pipes from the tanks to the dispensers and the materials used to connect them such as the gaskets, glues and seals.

The vast majority of retail stations do not have equipment that is legally UL-certified and -listed to store and sell anything greater than E10. Retailers are not able to get their existing equipment certified, even if the same equipment they are using has been certified for other retailers. Instead, they must purchase new equipment that has been certified. The cost of a new fuel dispenser is approximately $20,000. An average store has four dispensers, so the cost could be as much as $80,000 to upgrade the dispensers alone. If underground equipment is also replaced, permitting and other related costs would increase expenses significantly.

Is the Demand There?
Even if retailers are able to accept the risks that accompany selling E15 and have obtained legal equipment to sell it, retailers also would have to evaluate the real demand for the product.

While an estimated 60% of vehicles are allowed by the federal government to use E15, that does not mean that demand will follow. In fact, because the automobile industry is not embracing the fuel and is not adjusting warranties or recommendations for fuel type, the potential for actual demand remains small. If E15 were less expensive in the market, that could boost interest but unless the automobile industry gets behind E15, it would be an uphill struggle.

Most retailers have two underground storage tanks (UST) for their fuel— one for premium gasoline and one for regular gasoline. (Mid-grade gasoline is typically blended from these two tanks.) A retailer looking to sell E15 would either have to add another UST or abandon the sale of mid-grade and premium gasoline, which have known sales volumes. Nationwide, mid-grade and premium gasoline accounts for approximately 13 percent of all gasoline sales — or about one in every eight customers. 

Next Steps
EPA has placed retailers in a very precarious position. By bifurcating the engine market, EPA has created a scenario in which misfueling could be rampant and retailers will be forced to pay the bill.

Further, by restricting the engines that are authorized to use E15, EPA has implied that E15 may cause performance, emissions or safety issues in other engines, thereby increasing the potential liability to retailers of E15.

Finally, by issuing this decision before other laws and regulations could be amended to allow for the lawful sale of E15, EPA has authorized a fuel that could trigger widespread violations and liability for retailers who decide to act on this decision.

NACS is working with members of Congress in support of legislation that will enable retailers to have their existing equipment evaluated and re­certified as compatible with new fuels, thus potentially removing the need to replace their equipment. The legislation will provide some protection in the event a consumer ignores the labels on their dispensers and fuels a non-approved engine with a new fuel.

The legislation also protects all parties in the supply chain from broad-based product liability. Retailers should not be held liable for selling a fuel approved in accordance with today's laws if, in the future, a court decides that fuel should not have been approved and is defective.