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10 Jul 2019

Ethanol-Blended Fuel, Farmers, Tariffs & the Oil Industry

A recent decision from the Trump administration lifted restrictions on the sale of E15 ethanol-blended fuel during summer months. As this article from The New York Times™ points out, the move is partly viewed as a relief effort for farmers caught in the crossfire of the growing U.S.-China trade war—but it has simultaneously stoked the ire of representatives in the oil and gas business.

So, how does a measure intended to help farmers end up aggravating the oil industry?

Simple: oil and gas companies see E15 fuel as a competitor. Let’s explain why and then delve into some legal entanglements that may arise.

What is E15 Gasoline?

Without going into a lengthy dissertation on the chemistry behind gasoline refinement, the key thing to remember is that E15 gasoline is made with 10.5 to 15 percent ethanol. Unlike petroleum-based gasoline, ethanol is considered a renewable biofuel and is typically made from corn (though other crops may be used).

Ethanol-blended fuels are now required by law in the U.S. and there are several different blends available, depending on the region. Many automakers even make “flex fuel” vehicles that are compatible with significantly higher ethanol content than the E15 blend. E85 is a good example—it contains up to 85 percent ethanol and you can find these specialized E85 pumps scattered about the country. 

The Obama-Era E15 Restriction

Ethanol blending actually began in earnest thanks to laws enacted during the Presidency of George W. Bush, but it’s a regulation created during President Obama’s term that was specifically targeted by the Trump administration.

The Obama regulation essentially restricted the sale of E15 blended gasoline to the summer months only—a measure initially taken to curb smog.

Enter the Trade War

But, given its eco-friendly origins, why remove the regulation?

The answer is at least partially linked to recent tariffs. As alluded to above, many see U.S agriculture as one of the casualties of the ongoing trade war between the United States and China. A recent NPR® story points out that American farmers are finding it increasingly difficult to sell their crops.

That’s because China was a significant customer of the U.S agriculture industry, which now means farmers are looking to alternative markets. For supporters of ethanol, removing the E15 restriction could have been viewed as an easy opportunity to increase demand for crops.

Possible Ramifications of the E15 Regulation Rollback

Ethanol has long been supported by farmers looking for alternative crop markets and, as such, it’s been aided by their representatives in state and federal governments. But since its inception, the question of ethanol has been politically charged, with proponents and detractors holding positions across many points of the political, environmental and industrial spectrums.

Eco-conscious detractors share concerns that despite its biofuel moniker, ethanol isn’t actually that good for the environment. (This article from the Yale School of Forestry & Environmental Studies might offer some insight.) Hence, increased ethanol use could have negative effects on the environment.

On the positive side, increasing use of ethanol has the potential to control fluctuations in gas prices by reducing the United States’ dependence on foreign oil, ergo it could help mitigate concerns about supply issues and import tariffs. 

Legal Implications?

As mentioned earlier, oil and gas companies see E15 as another competitor to petroleum-based gasolines—and increased use of E15 will have a direct impact on their bottom lines. Industry representatives deride the move as anti-consumer and threaten to sue on those grounds.

Ecology activist groups contest the move, stating that the rollback is illegal under the Clean Air Act. Underlying that belief is the idea that the Environmental Protection Agency (EPA) doesn’t have the right to circumvent U.S. Congress and that rolling-back the regulation requires separate legislation.

Auto manufacturers may wade into the fray as well. In fact, they’ve pursued legal action on this topic before, arguing that increased E15 fuel use can cause adverse side effects in older vehicle systems not designed for ethanol blends—here’s a good primer on those issues from OnAllCylinders.

What’s Next

In light of this current administration’s bullish outlook on ethanol and energy independence, it’s reasonable to conclude that it will confront any legal challenges head-on, while pursuing further measures to increase U.S. fuel production.

That said, there’s another presidential election coming up fast, which could further alter the course of ethanol-blended fuels. In the short term, ethanol’s future may be decided in the courts—as EPA and other government lawyers steel themselves for potential lawsuits.