EPA to Crack Down on Ethanol Cheats

Gasoline sold from pumps with signs proclaiming "May Contain 10% Ethanol" may harbor more than 10% ethanol.

By Peter Rohde, Editor, Kiplinger's Biofuels Market Alert

August 11, 2008

The Environmental Protection Agency (EPA) is stepping up its policing of ethanol in gasoline. With ethanol prices running about $1.30 a gallon less than gasoline, oil companies and fuel distributors have tremendous incentive to put more ethanol in gasoline than the 10% allowed under current Clean Air Act regulations.

"We believe some retailers are either taking inadequate precautions to assure that fuel containing greater than 10% ethanol is not dispensed into motor vehicles and engines certified for gasoline only -- or are selling fuel labeled as 'gasoline' that actually contains greater than 10% ethanol in violation of the Clean Air Act," an EPA spokesman says.

"We are pursuing a number of cases," he says, while declining to discuss specific investigations in progress. He adds that the agency doesn't have enough data yet to provide meaningful numbers.

Auto manufacturers, some state regulators and a maker of gasoline dispenser parts say concentrations ranging from a bit over 11% to as much as 20% are showing up in spot tests. Moreover, an independent analysis of Energy Department monthly data suggests that in the first five months of 2008, there was an excess of 500 million gallons of ethanol. This amount cannot be readily explained by either the amount of E10 blending, as gathered from Energy Department reports, or the meager E85 market.

What's at stake?

• For cheating distributors, a $32,500 a day fine from EPA, though, so far, the risk of being caught has been miniscule.

• For the ethanol industry, its reputation and future sales. Blends of more than 10% haven't been proven OK to use in cars or small engines -- lawn mowers, snowmobiles and so on. Any jump in poor engine performance reports is likely to be laid at the doorstep of the ethanol industry, scotching chances of an official blessing for higher blends.

• For consumers, there's a risk that illegal blends will damage motors.

Wholesale gasoline currently fetches about $3 a gallon while ethanol costs about $2.10. Combine the spread with the 51¢ per gallon federal tax incentive and a blender nets more than a dollar profit for every gallon of ethanol mixed in the fuel. For the typical 29,000 gallon tank truckload, that's roughly $3000 for a 10% ethanol mix. It's easy to do the math to see how overblending adds to profit. And that, automobile and oil industry officials say, is leading more and more fuel distributors to pump up the ethanol concentration.

A 2008 winter survey by the Alliance of Automobile Manufacturers found the maximum ethanol level in all samples to be 11.6% by volume for premium gasoline and 11.1% for regular. A spokesman for the Alliance, which represents 10 domestic and foreign automakers, says, "There's no question we have concerns -- but we don't believe [overblending] is epidemic."

However, an auto industry official characterizes overblending as significant.

And a manufacturer of components for gasoline dispensers reports testing fuels from clients' service stations and finding ethanol concentrations as high as 20% in E10. An official at the manufacturing company emphasizes that the results were not isolated incidents, but were found in a half dozen states. That largely rules out the possibility that samples were from gasoline/ethanol batches that were inadequately mixed or a result of phase separation, where the ethanol content disassociates from the gasoline component.

Odds are that state authorities will also pay more attention in light of mounting reports of overblending. Tennessee, which has a law requiring annual testing of fuel in all of the state's service stations, has recorded instances of ethanol concentrations of 12% and 13%. But an official with the State Department of Agriculture's Weights and Measures Section says that overblending does not appear to be widespread in the state. He did point out, however, that many states have no testing programs at all.

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