How Trump's Deregulation Push Could Change How You Fill Up Your Tank

(Bloomberg) -- Ethanol, the intoxicating alcohol found in beer, wine and liquor, has been powering automobiles in the U.S. since the era of the Model T more than a century ago. Since the 1970s, when oil became more expensive and subject to international disputes -- and as worries rose about the environmental damage caused by fossil fuels -- the U.S. government has used tax policy and regulations to encourage use of ethanol and other environmentally friendly alternatives to gasoline. Now, as U.S. President Donald Trump prepares to make it easier to sell more ethanol nationwide, opponents are raising environmental concerns with the corn-based fuel.

1. What change is Trump considering?

He plans to change U.S. policy to allow the sale of so-called E15 fuel -- which contains 15 percent ethanol and 85 percent gasoline -- year-round. The U.S. Environmental Protection Agency, which regulates air pollution from gasoline, currently blocks the sale of E15 from June 1 to September 15 in areas where smog is a problem. That three-and-a-half-month blackout period deters some retailers from offering E15 at all, because they would need to change pumps and warning labels at the start and end of each summer. Trump can order his EPA to draft a new rule that would waive E15 from air pollution requirements, allowing year-round use.

2. What’s so special about E15?

E10 is widely accepted and available in the U.S.; the 10 percent ethanol it contains provides oxygen, making gasoline burn more cleanly in engines and reduce pollution. But because ethanol is also corrosive, some critics believe that higher-ethanol E15 can cause damage to cars. In 2011, the Environmental Protection Agency authorized the use of E15 for newer cars made in 2001 and later. But it’s still not common at U.S. service stations; just about 1,430 of the nation’s 122,000 filling stations sell E15.

3. Why isn’t E15 offered year-round now?

Since the heat of summer increases the evaporation of all liquids, including gasoline, the EPA set regulations with the aim of decreasing pollution. Hence, the agency has more stringent rules in place between June 1 and Sept. 15 to regulate Reid Vapor Pressure, the propensity for gasoline to evaporate and lead to smog. For those hotter months, the EPA has set lower thresholds. Congress must amend existing law or the EPA must issue a waiver of the requirements to allow the summertime sale of fuels exceeding those levels. Even though biofuel supporters say there’s no significant difference between E10 and E15 when it comes to air pollution, the latter fuel would need a waiver to be sold year-round.

4. Why is Trump involved?

As a presidential candidate, Trump promised voters in Iowa -- the top U.S. producer of corn-based ethanol -- that he would support increasing the amount of it that’s mixed in fuel. (Despite that pledge, Trump lost Iowa’s first-in-the-nation Republican presidential nominating contest to Senator Ted Cruz, an ethanol critic).

5. Who supports year-round use of E15?

Mainly agricultural interests in the Midwest, since ethanol is made mostly from corn. Ethanol facilities are set to use some 5.65 billion bushels of corn this year, or 38 percent of the total crop, according to U.S. Department of Agriculture estimates. Corn use for ethanol has more than tripled since 2005 when George W. Bush enacted the Renewable Fuel Standard, which compels refiners and fuel importers to use a variety of biofuels. Under the law, the EPA sets annual (generally increasing) quotas for conventional renewable fuel (usually corn-based ethanol), advanced ethanol alternatives made from non-edible material and biodiesel. Ethanol now accounts for about 10 percent of U.S. gasoline usage, up from less than one-tenth of 1 percent in 1993. Demand was given a boost by the Clean Air Act amendments of 1990, which spurred the use of ethanol as an oxygenate to combat pollution, and the RFS, created in 2005 and expanded two years later.

6. Who opposes year-round use of E15?

Oil companies have battled it for years, warning about potential engine damage from motorists inadvertently pumping it into vehicles and other equipment not approved to use it. Some automakers warn that car warranties would be voided if motorists use E15. Oil refiners already dealing with slowing gasoline demand growth worry that increased use of ethanol will pare their share of the 143 billion gallon market. (This risk is less acute for refiners that also produce ethanol, such as Valero Energy Corp.) Some environmental activists argue that expanding the availability of E15 will drive the production of more corn, resulting in more prairies being plowed and waterways polluted by agricultural runoff. Foes in the oil industry have over the E15 shift, arguing that the EPA doesn’t have legal authority to make the change without action by the U.S. Congress.

7. Is there a middle ground?

Because year-round E15 is a holy grail for ethanol advocates, it’s a potent prize the oil industry can hold out in any negotiations over, say, revising the RFS. Frank Macchiarola, a group director at the American Petroleum Institute, warned Sept. 28 that unilaterally allowing year-round E15 sales would “potentially destroy any opportunity at consensus, bipartisan reform” of the mandate.

8. What would broader use of E15 mean for industry?

For oil refineries, wide use of E15 could mean “a reduction in demand of 2.5 percent” based on current consumption figures, according to Turner, Mason & Co., a Dallas-based consultancy. The refineries would likely fill such a void by increasing exports, the firm said. Since ethanol is cheaper than gasoline, fuel retailers could potentially expand profits with the sale of higher blends. As of Oct. 5, ethanol traded at a 76.61-cent discount to gasoline.

The Reference Shelf

• The U.S. Energy Information Administration explains ethanol.
• Trump’s plan moved markets.
• The U.S. Department of Agriculture on corn used to make ethanol.
• The U.S. Environmental Protection Agency’s Renewable Fuel Standard program page.

To contact the reporters on this story: Jennifer A. Dlouhy in Washington at jdlouhy1@bloomberg.net;Mario Parker in Chicago at mparker22@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net, ;James Attwood at jattwood3@bloomberg.net, Laurence Arnold, David Marino

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