The Economics of Eco-Performance Fuel North Dakota Corn Growers Association February 19, 2014 Dean...

The Economics of Eco-Performance Fuel

North Dakota Corn Growers AssociationFebruary 19, 2014

Dean A. DrakePresident

BackgroundMN Corn Research & Promotion Council Study

Parties Involved

Defour Group LLC

• Dean Drake

• Dr. Tom Walton

• Dave Aldorfer

Air Improvement Resources (Tom Darlington)

Transportation Fuels Consulting (Gary Herwick)

Defour Group LLC © 2014 Slide 2

Objectives

Evaluate the cost of RFS

Compare to Cost of CAFE

Estimate Costs & Benefits of New Fuel

Write Summary Reports

The Intersection of Vehicles and Fuels

Thermal Efficiency

Power Output

=X

Higher Energy Density = More Power per Gallon

Oct

ane

Ratin

g

BTU per Gallon

No Fuel is Perfect• Gasoline:

– High Energy Density– Low Octane Rating

• Ethanol:– Low Energy Density– High Octane Rating

Fuel Properties

Vehicle Properties

Higher Octane Rating =

• Higher Compression Ratio

• Greater Thermal Efficiency

• More Power per BTU

Energy Density


=

The Three Uses of Ethanol

1 GallonEthanol

Boost OctaneIn Today’s

Gasoline For Today’s Vehicles

Saves Consumers About 6 Cents

Per Gallon of E10

E10 E85EPF

Replace Gasoline in Today’s Flex-Fueled

Vehicles

Costs Consumers About 32 Cents per Gallon, But

Energy Security Benefit = 46 Cents Per Gallon

Create Eco-Performance Fuel (EPF) to be Used in Advanced Engines

• Octane Rating of Today’s Premium

• Costs 9 Cents Per Gallon Less Than Today’s Regular

Looking for the Highest Value Use of Ethanol

1st

Place


50%

90%

60%

80%

100%

2005 2010 2015 2020 2025

70%

Ethanol Tax Credit & Tariff Expired

Corn

Eth

anol

Pr

ice

as P

erce

nt o

f Gas

olin

e

Year

RFS2 Enacted

Saves consumers money when used to boost octane

Saves consumers money over gasoline PERIOD!

Cost of Corn Ethanol vs Gasoline in 2012 $$EthanolGasoline

Wholesale Price of Expressed as Percent


Volumetric Price Parity

1 gall of ethanol price = 1 gall of gasoline

Energy Price Parity

$1 of ethanol has the same energy content as $1 gall of gasoline (E-10)

Automakers Double Jeopardy

Federal Fuel Economy (CAFE) Standards

Authorized by the Energy Independence and Security Act (EISA)

Administered by the National Highway Traffic Safety Administration (NHTSA)

Fleet MPG: 35 in 2017 to 48.7 in 2025

Modest Non-Compliance Penalties• $55 per mpg per car

• Not a criminal action

• No recall necessary


Year

40

50

60

2020 20252015

CAFE Stds.

FuelEconomy in

MPG

Fleet Average Fuel Economy Standards

Automakers Double Jeopardy


Year

Fleet Average Greenhouse Gas Standards

2020 20252015

Carbon Dioxide (CO2) Standards in

gm/mi163

243

CO2 Stds.

Federal Carbon Dioxide (CO2) Standards

Authorized by the Clean Air Act (CAA)

Administered by US EPA (EPA)

Fleet Average Standards Decreases to 163 gm/mi by 2025

Severe Non-Compliance Penalties• Up to $10,000 per car per day fine

• Possible criminal action

• Recall may be necessary

And California has the Right to Veto!

CAFE Stds.

Why Eco-Performance Fuel? Economic Reasons

Boosting Octane Highest Value Use of Ethanol• Highest increase = greatest value, if

• Engines can utilize it

Gradual Increase in Volumes may be Lowest Cost Path• Mandated volume increases like RFS

generate new, lower cost supply

• As essential fuel, not subject to repeal

• Eventually make higher level blends like E85 cost competitive with gasoline


From Air Improvement Resource, Inc.0

20

40

20352020 2025 2030Calendar Year

2013

RFS-2 w/o Biodiesel

E-10

Etha

nol U

se in

Bill

ions

of G

allo

ns P

er Y

ear

E-10 & EPF

Potential Ethanol Use with Eco-Performance Fuel

Why Eco-Performance Fuel? Technical Reasons

Enable Automakers to Increase Engine Efficiency• CO2, not MPG, the major challenge

• Higher compression is free

• EPF should result in 7% - 11% lower CO2 emissions with no MPG penalty

EPF Has Additional Properties as a Fuel• Charge cooling further improves efficiency

• Provides low toxic clean octane


Obstacles to Implementation

Carmakers Need Certainty

Engine Tooling - Long Lifetime

Before Making Changes, Carmakers Need to Know:• What is EPF?

• What can it do?

• Will the consumer have access to the fuel?

• Will there be sufficient ethanol?

• Will the government back it?

• Will it be affordable?

Defour Group LLC © 2014 Slide10

Government Wants Support

Do Carmakers Want EPF?

Will Congress Support EPF?

Is Ethanol Industry Behind it?

What are the Political Risks?



Oil Companies

Will Oppose EPF

But Precedent Exists: Unleaded Gasoline in 1970’s• Lead in gasoline kills catalysts

• 1975 emission standards could not be met any other way

• Automakers told oil industry and government to “get the lead out”

• Congress amended CAA to get lead removed from fuel



A Path Forward

Eco-Performance Fuel Comprehensive Test Program

Technical Objectives• Establish the fuel

specifications

• Quantify fuel economy & emission performance


Policy Objectives• Generate automaker support

• Create public awareness

• Provide basis for regulatory activity

• Create momentum for ethanol

A Path Forward

Would Provide CO2 Compliance Cushion

• To meet 2025 standards

• Could Get in 2017 mid-term review– Review of feasibility 2022 and beyond– EPA beginning work now– Would need test program results

Allow Product Planning, Engineering• Design and test high compression engines

• Develop anti-misfueling technology

• Work with gasoline retailers to ensure supply

AutomakerSupport


The Test Program May Lead to

A Path Forward

GovernmentAction

EPA Has Authority to Act• Unleaded gas provides template

• CAA gives power to set fuel specifications

• Would establish:

• Legal definition of EPF using test program results

• Implementation date

• Certification protocols

Government Action Will Trigger Other Work• Infrastructure development

• Standard setting– Pumps and nozzles– Misfueling prevention devices


AutomakerSupport May Lead to


Next Steps

Talk to EPA About the Economics of Ethanol

Get Test Program Moving

Complete MN Study and Publish Public Report

Campaign to Generate Public Awareness

Study the Economics of Supply

Biofuel As an Essential Transportation Fuel

The Economics of Eco-Performance Fuel North Dakota Corn Growers Association February 19, 2014 Dean...

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