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The Economics of Eco-Performance Fuel
North Dakota Corn Growers AssociationFebruary 19, 2014
Dean A. DrakePresident
BackgroundMN Corn Research & Promotion Council Study
Parties Involved
Defour Group LLC
• Dean Drake
• Dr. Tom Walton
• Dave Aldorfer
Air Improvement Resources (Tom Darlington)
Transportation Fuels Consulting (Gary Herwick)
Defour Group LLC © 2014 Slide 2
Objectives
Evaluate the cost of RFS
Compare to Cost of CAFE
Estimate Costs & Benefits of New Fuel
Write Summary Reports
The Intersection of Vehicles and Fuels
Thermal Efficiency
Power Output
=X
Higher Energy Density = More Power per Gallon
Oct
ane
Ratin
g
BTU per Gallon
No Fuel is Perfect• Gasoline:
– High Energy Density– Low Octane Rating
• Ethanol:– Low Energy Density– High Octane Rating
Fuel Properties
Vehicle Properties
Higher Octane Rating =
• Higher Compression Ratio
• Greater Thermal Efficiency
• More Power per BTU
Energy Density
Defour Group LLC © 2014 Slide 3
=
The Three Uses of Ethanol
1 GallonEthanol
Boost OctaneIn Today’s
Gasoline For Today’s Vehicles
Saves Consumers About 6 Cents
Per Gallon of E10
E10 E85EPF
Replace Gasoline in Today’s Flex-Fueled
Vehicles
Costs Consumers About 32 Cents per Gallon, But
Energy Security Benefit = 46 Cents Per Gallon
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
Looking for the Highest Value Use of Ethanol
1st
Place
Defour Group LLC © 2014 Slide 4
50%
90%
60%
80%
100%
2005 2010 2015 2020 2025
70%
Ethanol Tax Credit & Tariff Expired
Corn
Eth
anol
Pr
ice
as P
erce
nt o
f Gas
olin
e
Year
RFS2 Enacted
Saves consumers money when used to boost octane
Saves consumers money over gasoline PERIOD!
Cost of Corn Ethanol vs Gasoline in 2012 $$EthanolGasoline
Wholesale Price of Expressed as Percent
Defour Group LLC © 2014 Slide 5
Volumetric Price Parity
1 gall of ethanol price = 1 gall of gasoline
Energy Price Parity
$1 of ethanol has the same energy content as $1 gall of gasoline (E-10)
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
Modest Non-Compliance Penalties• $55 per mpg per car
• Not a criminal action
• No recall necessary
Defour Group LLC © 2014 Slide 6
Year
40
50
60
2020 20252015
CAFE Stds.
FuelEconomy in
MPG
Fleet Average Fuel Economy Standards
Automakers Double Jeopardy
Defour Group LLC © 2014 Slide 7
Year
Fleet Average Greenhouse Gas Standards
2020 20252015
Carbon Dioxide (CO2) Standards in
gm/mi163
243
CO2 Stds.
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
Severe Non-Compliance Penalties• Up to $10,000 per car per day fine
• Possible criminal action
• Recall may be necessary
And California has the Right to Veto!
CAFE Stds.
Why Eco-Performance Fuel? Economic Reasons
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 Slide 8
From Air Improvement Resource, Inc.0
20
40
20352020 2025 2030Calendar Year
2013
RFS-2 w/o Biodiesel
E-10
Etha
nol U
se in
Bill
ions
of G
allo
ns P
er Y
ear
E-10 & EPF
Potential Ethanol Use with Eco-Performance Fuel
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
Government Wants Support
Do Carmakers Want EPF?
Will Congress Support EPF?
Is Ethanol Industry Behind it?
What are the Political Risks?
Obstacles to Implementation
Defour Group LLC © 2014 Slide11
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
Obstacles to Implementation
Defour Group LLC © 2014 Slide12
A Path Forward
Eco-Performance Fuel Comprehensive Test Program
Technical Objectives• Establish the fuel
specifications
• Quantify fuel economy & emission performance
Defour Group LLC © 2014 Slide 13
Policy Objectives• Generate automaker support
• Create public awareness
• Provide basis for regulatory activity
• Create momentum for ethanol
A Path Forward
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
AutomakerSupport
Defour Group LLC © 2014 Slide 14
The Test Program May Lead to
A Path Forward
GovernmentAction
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
AutomakerSupport May Lead to
Defour Group LLC © 2014 Slide 16
Next Steps
Talk to EPA About the Economics of Ethanol
Get Test Program Moving
Complete MN Study and Publish Public Report
Campaign to Generate Public Awareness
Study the Economics of Supply
Biofuel As an Essential Transportation Fuel