The Economics of Eco-Performance Fuel
Dean A. Drake
President
North Dakota Corn Growers Association
February 19, 2014
Background
MN Corn Research & Promotion Council Study
Parties Involved
Defour Group LLC
Objectives
Evaluate the cost of RFS
• Dean Drake
• Dr. Tom Walton
• Dave Aldorfer
Air Improvement Resources
(Tom Darlington)
Compare to Cost of CAFE
Estimate Costs & Benefits of New Fuel
Write Summary Reports
Transportation Fuels Consulting
(Gary Herwick)
Defour Group LLC © 2014
Slide 2
The Intersection of Vehicles and Fuels
Octane Rating
Fuel
Properties
No Fuel is Perfect
Energy Density
•
Gasoline:
Higher Energy Density =
More Power per Gallon
– High Energy Density
– Low Octane Rating
Higher Octane Rating =
•
Ethanol:
• Higher Compression Ratio
– Low Energy Density
• Greater Thermal Efficiency
– High Octane Rating
• More Power per BTU
Thermal
Efficiency
Vehicle Properties
Defour Group LLC © 2014
X
BTU per
Gallon
=
=
Power Output
Slide 3
The Three Uses of Ethanol
Looking for the Highest Value Use of Ethanol
1 Gallon
Ethanol
E10
Boost Octane
In Today’s
Gasoline For
Today’s Vehicles
Saves Consumers
About 6 Cents
Per Gallon of E10
Defour Group LLC © 2014
EPF
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
1st
Place
E85
Replace Gasoline in
Today’s Flex-Fueled
Vehicles
Costs Consumers About
32 Cents per Gallon, But
Energy Security Benefit =
46 Cents Per Gallon
Slide 4
Cost of Corn Ethanol vs Gasoline in 2012 $$
Wholesale Price of
Corn Ethanol
Price as Percent of Gasoline
RFS2 Enacted
Ethanol
Expressed as Percent
Gasoline
Ethanol Tax Credit & Tariff Expired
Volumetric Price Parity
100%
1 gall of ethanol price = 1 gall of gasoline
90%
Saves consumers money
when used to boost octane
80%
70%
Energy Price Parity
60%
$1 of ethanol has the
same energy content as
$1 gall of gasoline (E-10)
50%
2005
Defour Group LLC © 2014
2010
2015
Year
2020
Saves consumers money
over gasoline PERIOD!
2025
Slide 5
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
Fleet Average Fuel
Economy Standards
60Fuel
Economy in
MPG
50
CAFE
Stds.
40
Modest Non-Compliance Penalties
• $55 per mpg per car
• Not a criminal action
2015 2020 2025
Year
• No recall necessary
Defour Group LLC © 2014
Slide 6
Automakers Double Jeopardy
Fleet Average Greenhouse
Gas Standards
Carbon
Dioxide (CO2)
Standards in
gm/mi
163
CO
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
2
Stds.
Severe Non-Compliance Penalties
243
CAFE
Stds.
2015 2020 2025
Year
• Up to $10,000 per car per day fine
• Possible criminal action
• Recall may be necessary
And California has the Right to Veto!
Defour Group LLC © 2014
Slide 7
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
Defour Group LLC © 2014
Ethanol Use in Billions of Gallons Per Year
Why Eco-Performance Fuel?
Economic Reasons
Potential Ethanol Use
with Eco-Performance Fuel
40
RFS-2 w/o Biodiesel
E-10 & EPF
20
E-10
0
From Air Improvement Resource, Inc.
2013
2020 2025 2030 2035
Calendar Year
Slide 8
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
Defour Group LLC © 2014
Slide 9
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
Obstacles to Implementation
Government Wants Support
Do Carmakers Want EPF?
Will Congress Support EPF?
Is Ethanol Industry Behind it?
What are the Political Risks?
Defour Group LLC © 2014
Slide11
Obstacles to Implementation
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
Defour Group LLC © 2014
Slide12
A Path Forward
Eco-Performance Fuel
Comprehensive Test Program
Technical Objectives
Policy Objectives
• Establish the fuel
specifications
• Generate automaker support
• Quantify fuel economy &
emission performance
• Provide basis for regulatory activity
Defour Group LLC © 2014
• Create public awareness
• Create momentum for ethanol
Slide 13
A Path Forward
The Test
Program May
Lead to
Automaker
Support
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
Defour Group LLC © 2014
Slide 14
A Path Forward
Automaker
Support May
Lead to
Government
Action
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
Defour Group LLC © 2014
Slide 15
Next Steps
Biofuel As an Essential Transportation Fuel
Study the Economics of Supply
Campaign to Generate Public Awareness
Get Test Program Moving
Complete MN Study and Publish Public Report
Talk to EPA About the Economics of Ethanol
Defour Group LLC © 2014
Slide 16