What is the EPA Doing With Your Gasoline?

Where are we now?

Before Renewable Fuel Standards

After seven years…

2012 Renewable fuel facts

• More ethanol produced in 2012 than during 1981-1996 combined.

• Corn ethanol offset 458 million barrels of crude oil imports in 2012.

Where are we headed?

RFS2 before latest revision

Final update for 2013

Missing: cellulosic ethanol• EPA cut requirements for

cellulosic biofuels (again) in 2013.

• Production this year? About 4 million gallons.

• Amount penciled in for 2022? About 16 billion gallons.

Problems exposed#1. Production targets are unrealistic

Cellulosic ethanol faces hurdles• Only 19 million gallons

of capacity in 2013.

• Lack of efficient enzymes.

• Large capital costs associated with new technologies.

Improving fuel economy

• RFS created in 2005 when national fuel consumption was trending upward.

• Efficiency gains, driving habits are reversing the trend.

Historical blend rates

• Refiners say the maximum blend rate is 10%. The EPA says it is 15%.

Year Gasoline sold (gallons)

Ethanol sold (gallons)

Blend ratio

2006 141.8 billion 5.6 billion 4.0%

2007 142.4 billion 7.0 billion 4.9%

2008 138.2 billion 9.8 billion 7.1%

2009 137.9 billion 11.1 billion 8.1%

2010 137.9 billion 12.9 billion 9.4%

2011 133.9 billion 12.9 billion 9.6%

2012 133.9 billion 13.0 billion 9.7%

Unsustainable expectations

• Current mandate calls for 31 billion gallons of ethanol in 2022 (that’s a lot more than 10%-15%).

Year Gasoline sold (gallons)

Ethanol sold (gallons)

Blend ratio

2022 130.0 billion 31.0 billion 23.7%

2022 133.9 billion (2012) 31.0 billion 23.1%

2022 140.0 billion 31.0 billion 22.1%

2022 145.0 billion 31.0 billion 21.4%

2022 150.0 billion 31.0 billion 20.7%

2022 155.0 billion 31.0 billion 20.0%

2022 310.0 billion 31.0 billion 10.0%

Problems exposed#2. Fuel credits difficult to find

Gotta play to RIN

• Fuel credits, or RINs, must be bought with fuel and are quickly soaring in value.

Unlikely competition

• Refiners have to compete with traders on secondary markets.

• Is the market too open?

Refiners spending more

• Valero expects blending costs of $800 million in 2013, up from $250 million in 2012.

• And it is one of the country’s largest ethanol producers!

Can RFS be fixed?

A compromise?• RFS has done its job,

but the EPA needs to be more flexible going forward.

• Refiners need to compromise on “Blend Wall”. E12? E15?

Fixing RFSSteps to fixing RFS:1. Reduce fuel targets to more realistic levels.2. Better regulation of RIN market.3. Encourage production of other fuels covered

by mandates (butanol, biogas, hydrogen, methanol, etc).

4. Issue more timely reports to add certainty to market.