busting myths and
TRANSCRIPT
Busting Myths and Breaking “Blend Walls”
Geoff Cooper
Renewable Fuels Association
August 18, 2015
Myth 1: Using corn for ethanol diverts grain away from feed markets and causes higher food prices
FACT: The impact of ethanol expansion on retail food prices has been imperceptible. Retail food price inflation continues to trend lower
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Co
rn U
se f
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Eth
ano
l & C
o-p
rod
uct
s (M
illio
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ush
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Foo
d P
rice
Infl
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% C
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Yea
r A
go)
Annual Food Inflation Rates vs. Corn Use for Ethanol & Co-products Corn Use for Ethanol/Co-products (Right Axis) Annual Food Price Inflation (Left Axis) 1980-2014 Food Inflation Trend
Source: USDA and BLS
FACT: Corn is an extremely minor cost component of retail food items
Retail Food Product
Corn Required
to Produce
Value of Corn in Unit @ $3.65/bushel
(2015/16 avg.)
Value of Corn in Unit @ $6.22/bushel
(2011/12 avg.)
1 Box Corn Flakes 0.63 lbs. $0.041 $0.069
1 Bag Corn Chips 0.75 lbs. $0.049 $0.083
1 lb. Chicken Breast 2.6 lbs. $0.169 $0.289
1 Gallon Milk 3.5 lbs. $0.228 $0.388
In 2014, corn accounted for roughly 13% of total
value of U.S. farm products, meaning just
2 cents per dollar spent on retail food are
related to corn.
Source: USDA
FACT: Food prices are primarily driven by energy costs
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UN Global Food Price Index and Global Crude Oil Price UN FAO Food Price Index (Left Axis) Brent Crude Oil Price (Right Axis)
Source: UN FAO and EIA
FACT: Annual corn production has substantially increased in recent decades
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Annual U.S. Corn Production
1980s avg. = 7,153
1990s avg. = 8,631
2000s avg. = 11,016
2010-15 avg. = 12,886
Annual corn production is up 3-4 billion bushels versus the “pre-ethanol era”
Source: USDA
FACT: More grain is available for feed/food use today than ever before (after accounting for ethanol use)
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ETR
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S
Global Grain Supply and U.S. Ethanol Use
Grain Available for Other Uses U.S. Ethanol Net Grain Use
Source: USDA
1. U.S. farmers switch from corn/soy rotation to corn/corn
2. Soybean acres are reduced
3. U.S. soybean exports are reduced
4. World soybean prices rise
5. Brazilian farmers respond to price signal by expanding soybeans
7. Cattle are displaced
8. Rainforest is destroyed to make room for more pasture
Myth 2: Using corn for ethanol causes expansion of cropland and indirectly leads to deforestation
6. Soybean expansion occurs on pasture
9. GHGs from land clearing (and foregone sequestration) charged against U.S corn ethanol
…Or grassland is converted to make room for dislocated soybeans
FACT: Increased corn production has come through crop switching, multi-cropping and higher yields…not
through conversion of forest or grassland
• ISU/CARD study (Babcock/Iqbal) examined land use patterns from 2002-04 to 2010-12 period
– “…the primary land use change response of the world’s farmers in the last 10 years has been to use available land resources more efficiently rather than to expand the amount of land brought into production.”
– “This finding is not new. …But this finding has not been recognized by regulators who calculate indirect land use.”
FACT: Total U.S. planted cropland is below levels seen 15-20 years ago
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U.S. Field Crops: Planted Acres
Source: USDA
FACT: Amazon deforestation rates are down since RFS adoption
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Eth
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AMAZON DEFORESTATION AND U.S. ETHANOL PRODUCTION
Amazon Deforestation U.S. Ethanol Production
Source: Brazil INPES and RFA
FACT: Increases in productivity (i.e., yield) have reduced pressure on land resources
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U.S. Average Corn Yield
One acre in 2014 produced twice as much corn as that
same acre in 1975
Source: USDA
Myth 3: Ethanol costs more than gasoline and is used by refiners strictly for BTU content
FACT: Wholesale ethanol prices have averaged $0.48/gal. less than gasoline prices since Jan. 2011
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$/G
allo
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Ethanol and Gasoline Nearby Futures Prices, 2011-Present
RBOB Gasoline Ethanol
Source: NYMEX and CME
FACT: Refiners primarily use ethanol for its octane value, not for its BTU content
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n-Butane Benzene Toluene Xylene MTBE Ethanol Methanol
Octa
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mb
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"Blending Octane" Values for Various Gasoline Components
Limited to 1% of blend (0.62% in 2017)
Extremely high RVP
Banned in 26 states; no liability protection for
producers
Not covered by OEM warranties
Premium Grade
Gasoline (93)
Regular Grade
Gasoline (87)
Source: U.S. Dept. of Energy, National Renewable Energy Laboratory
Toxic Compounds
Myth 4: Oil companies can’t distribute gasoline with more than 10% ethanol, creating a “blend wall”
FACT: There is no E10 “blend wall”…numerous legal options exist to increase ethanol blending
• E85 & other flex fuels have been in the marketplace for 20+ years • 3000+ stations sell E85 • ~350 stations sell E20, E30, E40, etc. through blender pumps
• E15 was approved for use in MY2001 and newer vehicles in 2011 • Represents ~85% of current fleet • 100+ stations selling E15 currently; 250-350 stations by end of 2016
• New NREL analysis found that most existing underground storage tanks are E15-compatible • Many are compatible with E85 or higher
• Typically only the above-ground hardware needs upgrading or replacement to offer E15
• Over past decade, most oil companies have failed to partner with downstream marketers/retailers to invest in new E15/E85 dispensing equipment
Myth 4a: Oil companies don’t control what fuels retailers offer to the public
FACT: Oil companies exert tremendous control over what fuels are offered to the public at retail
• Roughly 50% of existing retail stations carry an oil company/refiner brand • Branding agreements often dictate what fuels can be offered at retail • …or place onerous restrictions on retailers who choose to offer E15 or
ethanol flex fuels
• Oil companies typically control what fuels are available at the terminal level (wholesale) • Most supply contracts allow retailers to sell only “branded fuels” • E15 not available at a single terminal in the country today
• Unbranded/independent stations 4-6 times more likely to offer E85 than “Big Five” branded stations and 42 times more likely to offer E15
Fuel contracts require supplier exclusivity
• Example 1 (BP contract): Jobber/retailer must “…purchase and receive [BP’s] currently offered and available branded petroleum products as determined and designated by [BP]…” – Thus if BP does not offer E85 or E15 at the terminal,
the branded retailer cannot offer the fuels
• Example 2 (Chevron contract): “[a]t no time shall any product not authorized by ChevronTexaco to be sold thereunder be offered for sale or sold under [Chevron] trademarks and trade names.”
Many branding agreements require posting of intimidating warning labels
Myth 5: Gasoline demand is falling, accelerating the arrival of the “blend wall”
FACT: Gasoline demand has been rising since 2012 and is projected to hit a 10-year high in 2016
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U.S. Gasoline Consumption, Actual and Projected
AEO 2010
AEO 2011
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STEO 8/2015
Actual
EIA repeatedly underestimating gasoline
demand since 2012
Source: EIA
Myth 6: Automakers don’t approve the use of E15 in their vehicles; and there aren’t many FFVs
• 85% of current automotive fleet is approved by EPA to use E15 – Automakers didn’t offer E15
warranty coverage for pre-2011 vehicles because E15 wasn’t yet a legal fuel!
– Most pre-2007 vehicles are out of warranty (powertrain)
• Automakers have been explicitly approving E15 use since 2012
• ~75% of MY2016 vehicles sold will be warrantied for E15
• 18 million FFVs on the road today (8% of total)
These automakers clearly warranty/approve the use of E15 in MY2015 and/or 2016 vehicles
• Chrylser, Fiat, Dodge, Jeep • Ford, Lincoln • GM, Chevrolet, Buick, Cadillac • Honda, Acura • Toyota, Lexus • Volkswagen, Audi • Land Rover • Jaguar • Mercedes-Benz
These automakers do not explicitly
offer warranty coverage for E15: • Kia • Hyundai • Subaru • Nissan • Mazda
FACT: Most vehicles sold today are approved and warrantied by the automaker for E15, and FFV production continues to grow
Myth 7: Oil companies can’t meet RFS statutory requirements for 2015-2016 (15 BG)
• Higher gasoline demand allows more ethanol blending in E10 (~14 bg)
• 3000+ stations selling E85 could easily distribute 800-900 mg of E85 (550-650 mg of ethanol)
• 250-300 stations selling E15 by the end of 2016
• Excess biodiesel and renewable diesel
• Large stock of surplus RINs to cover any shortfall in blending (1.8 billion)
FACT: Oil companies could easily comply with statutory RFS requirements in 2015-16
Myth 8: RIN costs cause higher retail gas prices
• As RFS levels surpass the so-called “blend wall,” refiners have a choice: – Buy a gallon of ethanol (w/RIN) and blend E15-E85
• May require modest investment in infrastructure
– Buy a RIN from other refiners or blenders who have surplus RINs
– RINs are bought and sold in a “closed loop” and a cost for one refiner is a profit for another
• EPA: “…the RIN market seems to be functioning generally as expected; providing an incentive for the continued growth of renewable fuels in the transportation fuel market without causing overall increases to the retail price of transportation fuel.”
FACT: RIN credits have had no meaningful impact on retail gas prices
No relationship between RINs and gas prices
Myth 9: EPA has the legal authority to waive RFS requirements based on “distribution constraints”
• EPA has proposed to reduce the 2014-2016 RFS requirements for renewable fuel based on “constraints on distribution” (i.e., “blend wall”): – 2014: 14.4 bg slashed to 13.25 bg – 2015: 15.0 bg slashed to 13.4 bg – 2016: 15.0 bg slashed to 14.0 bg
• Statute allows EPA to waive these volumes only if they find there is “inadequate domestic supply” of renewable fuel (and RINs) to meet the requirements – Adequacy of supply is NOT an issue – Industry produced 14.34 bg in 2014; on pace for 14.8 bg in 2015 – 0.8 bg of ethanol stocks – 1.8 billion carryover RINs available – Capacity to produce 15.5-16.0 bg
• EPA has not found—nor could they—that RFS implementation has caused “severe harm” to the economy
FACT: EPA has very narrow authority to waive RFS volumes based on “inadequate domestic supply” or “severe harm”
Myth 10: Cellulosic ethanol is a “phantom fuel”
• Oil companies have suggested RFS reform/repeal is necessary because cellulosic biofuels “don’t exist”
• RFS provisions only require oil companies to blend cellulosic biofuels if they are available
• First wave of commercial scale cellulosic facilities are now in commissioning or production
• Potential developers/investors in future projects are “sitting on the sidelines” awaiting resolution of 2014-2016 RFS proposed rule
• …or taking investment to Brazil, China, and elsewhere
FACT: Cellulosic Biofuels Have Arrived
Thank You
Geoff Cooper
Renewable Fuels Association
DC Office: (202) 289-3835
STL Office: (636) 594-2284
Back-up Slides
Fossil Fuel Carbon Cycle
Exploration
and
Extraction
Refining
Distribution
Combustion
The fossil fuel cycle emits previously sequestered below-ground
carbonaceous compounds into the atmosphere
Fossilized
Carbon
Sum of GHG emissions: 95-100 grams CO2e./mega joule
Crude Oil
Transportation
Biofuels Carbon Cycle Biomass Feedstocks are Carbon Neutral
Feedstock
Production
Feedstock
Transportation
Biofuel
Production
Biofuel
Distribution
Combustion
CO2 Uptake
(Via Photosynthesis)
The biofuels cycle recycles atmospheric carbon
Fossil
Biogenic
Sum of GHG emissions: 50-70 grams CO2e./mega joule