United Front

FROM THE AUGUST ISSUE: Experts in multiple industries support the idea of a high-octane fuel standard, but some prefer it as a replacement to the RFS.
By Tim Albrecht | July 16, 2018

Octane is important. The ethanol industry knows this, the automakers know it and even the oil industry understands it. But when it comes to implementing a high-octane fuel standard, the parties are split on how to go about it.

The House Energy and Commerce Committee’s Subcommittee on Environment held a hearing April 13 titled “High Octane Fuels and High Efficiency Vehicles: Challenges and Opportunities” to discuss the proposal for a high-octane fuel standard. The meeting was attended by several prominent figures across the ethanol, auto, fuel marketing and agriculture sectors, including Emily Skor, CEO of Growth Energy.

According to Skor, two main groups are “coalescing” around a nationwide high-octane fuel standard of 95 research octane number (RON), which is about 91 octane fuel at the pump. Those two groups are U.S. auto manufacturers and fuel petroleum marketers, two of the voices that spoke alongside Skor at the House Committee hearing in April.

“From the auto perspective, what they’re saying is if we have a 95 RON, we will get an added lift in terms of the octane performance and that will help us meet some of our fuel economy standards,” Skor says. “So, there are benefits to the automakers, which I don’t challenge or doubt. The fuel petroleum marketers are also saying they like this (the high-octane fuel standard) as a national standard and that’s something we can get behind.”

For the ethanol industry, a high-octane fuel would be a mid-level blend of E20 or E30. Growth Energy has been a part of a working group of over 60 organizations—including ethanol manufacturers, auto manufacturers and corn growers—coordinating for several years on that very thing, Skor says. “A lot of our research and analysis has been on that E20 to E30 sweet spot.

“There has been a lot of research done recognizing that’s the point where you’re maximizing the greenhouse gas reduction emission benefits, the consumer savings and the performance benefits for the automakers.”

Broad Support
Each organization that testified at the hearing was in support of a higher-octane fuel standard and Dan Nicholson, vice president of global propulsion systems at General Motors, said the standard would be beneficial for everyone involved from ethanol to the oil industry. “We believe increasing the minimum octane level in U.S. gasoline for new vehicles will be a win for all industries and, most importantly, consumers.”

Nicholson testified at the hearing to the capabilities of the auto industry and the technological improvements it has made, but insisted on the need for a higher-octane fuel standard to complement those advances. “The global automotive market is growing, and multiple technologies and solutions will be needed to match demand. Octane is one of those solutions. We have an opportunity to play a large role in offering consumers the most affordable option for fuel economy improvement and greenhouse gas reduction. We believe a higher efficiency gasoline solution with a higher RON is very important to achieving this.”

The auto industry has taken steps to “improve engine efficiency via downsized turbocharged engines, improved multispeed transmissions and a handful of eco-friendly improvements,” Nicholson said at the hearing.

The auto industry is focused now on the next regulatory action in engine efficiency and carbon dioxide reduction, says Kristy Moore, principal at KMoore Consulting LLC. For example, the industry is expected to reach a corporate average fuel economy (CAFE) standard of close to 50 miles per gallon in the next 10 years, she says.

“Those two pressures being put on the automakers has them saying they can do it, but they need better fuels to put in the cars,” Moore says. “And, octane is a parameter of gasoline that can bring that technology to consumers while automakers can meet the regulatory requirements at the same time.”

Also pledging support for a high-octane fuel standard at the hearing was Timothy Columbus, general counsel to the National Association of Convenience Stores and the Society of Independent Gasoline Marketers of America. It would provide fuel blend flexibility for retailers and refineries, while still allowing a way for automakers to meet fuel economy standards and market opportunity for renewable fuel producers, he said. The octane standard also would align the U.S. with standards common in other parts of the world and incentivize higher efficiency engines, Columbus added.

As part of fuel blend flexibility, Columbus petitioned for the market to dictate which fuel blends were available at the pump. “In considering any change to the fuels market, it is relevant to consider how the market will adjust to meet new requirements. In the case of the octane solution, the key to successful retailer integration is the flexibility of the RON regime … If a fuel meets RON and RVP (Reid vapor pressure) specifications, it is up to the market to determine which fuel blends are desired by customers.”

The Catch
But a high-octane fuel standard comes with one major hitch for the biofuels industry—the argument for replacing the Renewable Fuel Standard. During the April hearing Chet Thompson, president and CEO of American Fuel Petrochemicals Manufacturers, advocated for the implementation of a 95 RON standard as a replacement for the RFS.

“If done correctly—through free market principles, the sunsetting of the RFS and implemented over a reasonable phase-in period—higher octane fuels have the potential to benefit all stakeholders,” Thompson said during the hearing. “Higher octane fuels, specifically 95 RON, would help auto companies improve the efficiency of the internal combustion engine and comply with fuel efficiency standards. It would provide the biofuel industry with the opportunity to expand its market share. It would end the RFS for refiners and provide product flexibility for the marketers. And it could benefit consumers by creating a transparent and competitive market for all liquid fuels to compete.”

AFPM supports a legislative process to reform and eventually sunset the RFS program. The RFS is full of “uncertainties, inefficiencies and fraud,” Thompson alleged at the hearing, adding the uncertainties will continue to grow as the RFS gets closer to a transition to the full discretion of the EPA after 2022.

Given the level of investment needed for a high-octane fuel standard, there isn’t a scenario where AFPM would consider an octane standard in addition to the RFS, Thompson said. “Not only is the investment uncertainty associated with the RFS incompatible with a higher-octane standard, but the effect would further distort the fuel and vehicles market, undermining any consumer benefit that might otherwise occur.”

Columbus called for reform of the RFS, saying a phase-down of mandates for corn ethanol would coincide with a phase-in of vehicles that must run on higher-octane fuels. A standard for newly manufactured vehicles (after a specific model year) that requires them to run on a minimum 95 RON may be a new option as 2022 approaches, he said.

“In looking for a way to handle the RFS post-2022, Congress must take into account both the program’s successes as well as its shortfalls to ensure that any solution successfully shapes the future of the liquid transportation fuels market in the U.S.,” Columbus said during the hearing.

“If you’re only talking about high-octane fuels and moving to a national standard with 91 octane as a new baseline, that’s great,” Skor tells Ethanol Producer Magazine. “Where things get complicated is they’re coupling this conversation with sunsetting the RFS and making some amendments to the RFS.”

Skor says the octane standard and RFS conversations should be separate, as the two can co-exist. Without the certainty of the RFS, there is no guarantee that the “modest increase” of octane under a high-octane fuel standard will result in market growth for American-made biofuels, she says. “That’s really the rub right now. … That’s where we get concerned. Ninety-one premium fuel is already on the market today and it’s made with E10. It can be made with a 10 percent blend of ethanol and it can be made with no ethanol, but there’s no guarantees or assurances in this conversation that the octane used for 91 will be ethanol or anything above a 10 percent blend of ethanol.”

What’s Next?
A high-octane fuel standard is still in the early planning stages and any bill developed would have to go through the long legislative process. During the opening statements of the hearing, John Shimkus, chairman of the Subcommittee on Environment, called it a “major undertaking.”

Skor says, “The challenge right now is they’re tying this to sunsetting the RFS and I don’t think there is any individual throughout the biofuels supply chain that would support that. So, politically this is going to be really tough for Mr. Shimkus to move through Congress.”

The implementation of a high-octane fuel standard can’t come soon enough, Moore says. Congress can do it, but it’s going to take plenty of collaboration and would be brand new for many parts of the country, as only a handful of states regulate octane, she says.

“It’s kind of self-policed by the oil industry currently,” Moore says. “Consumers in the mountain states get shortchanged.They only get 85 or 86 octane. There hasn’t been a car manufactured to take less than 87 octane since 1984. That proves to me that if it’s self-policed, the oil industry won’t do it, they’ll follow their pocketbooks. That’s why it needs to be a standard.”

Shimkus said at the hearing the committee faces a “proverbial chicken and egg conundrum,” in that it can’t expect refiners and gas stations to invest in a new fuel unless there is a guarantee vehicles will be produced that will run on it, while automakers don’t want to commit to new engines unless the new fuel is widely available.

“And there are a lot of details yet to be decided, including exactly what the high-octane standard should be, how many years refiners and automakers need in order to make the transition, and what gas stations must do in order to provide this new fuel for new vehicles while still carrying the old fuels for existing vehicles,” Shimkus said at the hearing. “We also must figure out what other legal and regulatory provisions need to be revised or repealed in order for a high-octane transition to work. And most important of all, we need to make sure that what we do is of net benefit to consumers.”

Author: Tim Albrecht
Associate Editor, Ethanol Producer Magazine