Come Together

FROM THE APRIL ISSUE: At NEC, a GM executive outlined some controversial advice for the ethanol industry.
By Matt Thompson | March 19, 2019

At the Renewable Fuels Association’s National Ethanol Conference in February, a General Motors representative addressed attendees with a proposition: Collaborate with the automotive industry, the petroleum industry, fuel retailers and other stakeholders in the liquid fuels market to push for a national high-octane standard. “We’re advocating for a reasonable and manageable proposal—a new, national high-octane based fuel for all new vehicles,” said Dan Nicholson, vice president of global electrification, controls, software and electronic hardware at GM’s Global Technical Center.

But Nicholson pitched the standard with 95 Research Octane Number (RON) as the base, rather than the 98 RON, or higher, many in the ethanol industry would like to see. “Ninety-five RON is something both retailers and the oil industry can get behind right now,” he said. Nicholson explained that while he previously advocated for a 98 RON standard, he’s since come to believe that the fuel would be priced too high for consumers to be an effective starting point. “Ninety-eight appears too high of a cost hurdle for starters, and given our timing, and yours, the reality is the 98 RON as a base fuel is a bridge too far,” Nicholson said. “We should focus on what can be done now and continue to plan for the future.”

Doug Sombke, president of the South Dakota Farmers Union, said after the address that Nicholson’s proposal came as a surprise to him. “I really couldn’t believe what I was hearing,” he said. “Because he mentioned in his speech a couple years prior that 100 RON was the only way to go, and now, all of a sudden, he’s down to 95. It just doesn’t make sense.”

Following the conference, Sombke penned a letter to GM Chair and CEO Mary Barra. While he recognized GM for its willingness to discuss a high-octane standard, he also said he disagreed that 95 RON is the best option. “Ninety-five RON gasoline is the wrong call for our nation’s transportation fuels regulatory policy,” Sombke wrote in his letter. “It should be a floor at best and a springboard to 100 RON. Now is not the time to play ‘small ball.’”

RFA President and CEO Geoff Cooper said a national high-octane standard is a common goal, but the standard needs to include provisions for using low-carbon fuels to meet the required octane level. “The refiners have acknowledged, and other studies that have been conducted show, that they could meet a 95 RON octane standard pretty easily with minor investments without using a drop more ethanol,” Cooper said during a meeting with the press at NEC. “Honestly, we’d be talking about 95 RON E10 without some form of environmental anti-backsliding provisions.”

Nicholson disagreed. “One might think that the refiners don’t need to change anything from their current oxyfuels production plans,” he said during his speech. “A national 95 RON standard will require an additional 7 percent, or 10 billion gallons, of high-octane fuel each and every year. The refining community does not have the capacity to supply high-octane fuel for the entire U.S. gasoline demand.”

Cooper countered that MTBE (methyl tert-butyl ether) was favored over ethanol during the Oxyfuel Programs, and just because ethanol is the cheapest octane solution, doesn’t mean the petroleum industry will use it. “I think that’s symptomatic of the fear that this industry has about how this could play out,” Cooper told the audience after Nicholson’s presentation. “And we’ve seen a lot of analysis out there, including some from EIA [Energy Information Administration], that just leads us to believe that a 95 RON standard really doesn’t do much for our industry in terms of growth opportunities.”

A Legislative Approach
Nicholson outlined the urgency of getting a standard in place and working with Congress to do it. “We encourage you to work with the legislators to improve and advance the 21st Century Transportation Fuels Act draft, developed by the previous congress.” He added that the industries should work together to fix the parts of the draft bill that don’t work.

That draft, introduced by Rep. John Shimkus (R-Ill.) and Rep. Bill Flores (R-Texas), creates a national high-octane standard, but also phases out the Renewable Fuel Standard. And Cooper said the RFA doesn’t endorse that approach. “That was our concern with the Shimkus-Flores package all along is that it didn’t really do anything to grow the market for ethanol,” he said during the press meeting. “The other key concern we’ve had with their proposal is it kills the RFS. It trades the RFS for an octane standard that really isn’t high enough octane to do much for our industry.”

Nicholson said getting a standard in place is an urgent issue because of the time it takes for new technologies to be implemented in the automotive industry, and the time it takes to get legislation passed in congress. “We need to act now, not later, and we need to know if you are willing to work with all stakeholders today,” he said. “We can’t wait for years of additional discussion and debate. We need to know that your industry will work with all the stakeholders involved on a path forward to take advantage of the timing and the opportunity that exists.”

Sombke agreed that an urgent solution is necessary for both the farming and ethanol industries.  “In rural America today, we can’t wait,” he said. “We’re losing farmers too fast right now.”

Nicholson also signaled that the petroleum industry was willing to work together with all parties. “Many believe that the oil industry is working against the biofuel industry. What’s evident to many of us now is that the oil industry is integrally involved in biofuels and they understand the market value of bio-based products. They are willing to engage.” However, he acknowledged that the oil industry likely will not act with ethanol’s best interests in mind.

And Cooper said working together is something RFA is willing to do. “It would be great if we could get to a point where we can sit down with the autos and oils and come to some agreement that works for everybody,” he said. “We’re not there yet and the Shimkus-Flores bill certainly was not representative of something that works for all of us.”

Crossroads
Nicholson said at NEC that without the support of the ethanol industry, the automotive industry may look to other areas for future vehicle design. “As mentioned earlier, automotive OEMs [original equipment manufacturers] need to see your support and participation, so we can make investments in our engine systems that can utilize higher octane,” he said. “Without this signal, we will work on compliance alternatives where we have such assurances. Once those investments are made, we won’t be revisiting other pathways.”

One of those investment areas is electric vehicles (EVs). While Nicholson said EVs are gaining their share of the market, their growth so far has been limited, and that means liquid fuels will be required for the foreseeable future. But there is a transition happening in the industry. In the past five years, GM has shifted its focus from 100 percent internal combustion engines to 70 percent electrification and 30 percent internal combustion, he said, predicting other manufactures will follow this trend.

“You’ve heard many times that GM leads an electric future, and we do,” he told his audience. “No one knows how soon it’ll happen. However, I can guarantee that if you do not actively work with all stakeholders now, or cling to idealism, you’ll only make it happen quicker with even greater disruption to the liquid fuels market.”

Getting Engaged
While both GM and the RFA are proponents of a high-octane standard, the two are at odds about how the process has worked, and the correct path to take in getting a high-octane standard adopted. Nicholson went so far as to say the ethanol industry hasn’t been engaged in the discussions thus far. “We need ethanol to shift from not engaging, to being the leaders in the discussion,” he said.

In response, Cooper noted the industry’s involvement in previous talks about an octane standard. “I really do need to challenge the notion that ethanol has not been engaged in the 95 RON bill that Congressmen Shimkus and Flores introduced,” he told the audience after Nicholson’s presentation. “We were absolutely engaged in representing the industry’s interest in that discussion.”

Cooper also said the RFA could potentially support a high-octane standard with 95 RON as the base, if the RFS remains intact. “We do think a high-octane standard—whether it’s 98 RON, 100 RON, maybe even if it is 95 or 96 RON—if it’s on top of an RFS, it could provide future growth for the industry, above and beyond what we see specified in the RFS,” he told the press at NEC.

Sombke said a 95 RON isn’t high enough. “It’s just not far enough, fast enough,” he said. He advocated for a 100 RON, E30 fuel.

In his address, Nicholson said he understands the desire for growth and believes there is opportunity to grow the ethanol industry with a 95 RON octane standard. But, he said, the industry should also plan for any potential declines. “I think there’s a path for growth, but there’s certainly not any guarantees. But I think you also have to think about scenarios which have not just growth, but actually declines. And on the current path, there are very likely scenarios for actual declines.”

While Cooper advocated for a solution that will provide benefits for the ethanol industry, Nicholson said GM is also looking to benefit. He said the key is working with all stakeholders. “We’re not going to just do things to facilitate higher levels of ethanol with no payback for us, and no benefit for customers,” he said. “It has to be a coordinated solution. And it has to be time-coordinated with lawmakers.”


Author: Matt Thompson
Associate Editor, Ethanol Producer Magazine
701.738.4922
mthompson@bbiinternational.com