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By Staff | Jan 16, 2015

From its conception, the ethanol industry has been fighting for its birthright to live and prosper. It is the invading entity into the petroleum industry’s market and therefore has been resisted with brute force by that industry’s defenders.

Each time the ethanol industry successfully takes a hill it has been confronted with another. The defenders focused initially on the ethanol blender’s credit arguing that it gave the ethanol industry an advantage in the marketplace. It did, just like it was intended to.

New industries are born just like people, immature. Parents look out for their children until they are ready to go it alone. Thrown into the real world full of wolves, babies and children would not survive.

The ethanol blender’s credit was a nurturing support mechanism that allowed the industry to reach maturity where by it could then take care of itself. It was not over-extended as the industry was forced to grow up fast.

When the blender’s credit was removed, the petroleum industry was disappointed to find out ethanol was no longer as vulnerable as Big Oil wanted it to be. The petroleum industry resigned itself to accepting the E-10 blend standard because ethanol was priced to be very competitive as a fuel and even more so as an octane additive.

The petroleum industry knew that the ethanol industry would not be resigned to accepting a 10 percent blend limit and that the RFS mandated higher usage than an E-10 market share. The petroleum industry also recognized that the U.S. gasoline market was shrinking as fleet mileage improved and hybrid vehicles expanded their market share of auto sales.

Therefore, it expended great resources into denigrating biofuels attempting to promote consumer resistance as part of its defense of market share. No lie was too big to tell in its public relations denigration campaign against ethanol.

Consumers were told that their vehicles would break into pieces if they used E-15. The fact that Brazil has an E-27 fuel standard without consequence to vehicle maintenance is ignored.

The petroleum industry attack on ethanol was threefold:

  • It was launched on a public relations front to undermine consumer confidence in ethanol.
  • It was launched on a legislative front with oil congressmen set upon gutting the RFS.
  • It was launched on a regulatory front as they push the Environmental Protection Agency into limiting ethanol market share.

They have had some success on all fronts, but the toughened ethanol industry is still standing strong so the opponents cannot declare victory. The petroleum industry is fighting to defend market share from biofuel.

If E-15 were to become the standard fuel the RFS corn-based target could be fulfilled and the petroleum industry would lose another 5 percent of its market share, which to them was intolerable.

E-85 was an even bigger threat to petroleum market share so the petroleum industry has attempted to rein in E-85 market potential by colluding with the auto-industry to limit flex-fuel vehicle production and engine warranties for higher ethanol blends. Big Oil has employed its congressmen to defund USDA subsidies to fuel retailers for installation of blender’s pumps.

In addition, Big Oil controls a dominant market share of retail fuel franchising so through franchise rules it puts constraints on the retail network limiting ethanol market access at the pump. So much for the market determining how much ethanol is consumed.

The petroleum industry controls most of the market access. It has been successful in stopping EPA from following through with RFS-mandated volumetric targets. Up until this point the RFS has been essentially irrelevant, something in the background away from where the battle was being fought.

Ethanol opponents focused on eliminating the blender’s credit and then after that have refocused on the RFS. EPA is now two years behind announcing the volumetric targets of ethanol and the law was written that 15 billion gallons of corn ethanol was to be used this year.

The EPA appears to have accepted the revision that the RFS is “15 billion gallons of ethanol or E-10 whichever’s reached first.” The law doesn’t provide the EPA that provision so it has not announced volumetric targets.

EPA has essentially accepted the oil industries’ premise that ethanol consumption be limited to E-10. To comply with the RFS, fuel blenders can either blend more ethanol into fuel which they could do by installing E-15 blender’s pumps or buy RINS which were a provision for them to buy compliance without blending ethanol at a cost determined by the market for RINS.

The RFS was supposed to enforce this compliance but essentially the EPA has already gutted that component of the RFS by failing to announce the volumetric targets.

The reasons given for the lack of EPA implementation is first, that it caved into petroleum industry arguments supporting the blend wall and second, that if it announced low volumetric targets White House lawyers said EPA would be vulnerable to a legal challenge and could be forced by the courts to enforce the RFS as written unless told differently by Congress.

The Obama administration, which talks big on climate change and moving away from fossil fuels, superficially supports renewable and alternative energy evident in its lack of implementation of the RFS.

To be continued next week.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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