Navigating the Future For E15

Summertime Sales Update

By John Maynes, Director of Government and Regulatory Affairs

According to the most recent version of Iowa’s Annual Retail Motor Fuel Gallons Report released in April of 2023, E15 sales account for a shade over 6 percent of Iowa’s total gasoline sales. According to the same report, of Iowa’s 2,002 stations where gasoline is sold, 325 are offering E15 with an overwhelming majority of the 325 sites offering E15 owned by three companies.

Although E15’s current market share is low, the emerging gasoline-ethanol blend has the attention of both federal and state policymakers. E15 enjoys several inherent advantages which make it an attractive option in the liquid fuels market. First, ethanol is the cheapest octane additive in the market and the addition of ethanol to a gallon of gasoline lowers the price as the volume of ethanol increases. Second, ethanol provides environmental benefits when displacing gasoline. Last, ethanol is sourced from corn, creating a homegrown energy source which provides tremendous value to our partners in the agriculture industry. E15’s support among federal and state policy makers has led to the passage of laws directly influencing E15’s place in the gasoline market. Since 2007, biofuels have enjoyed a federal mandate requiring petroleum refiners to sell certain volumes of biofuels via the Federal Renewable Fuel Standard. E15 plays a key role in the federal renewable fuel standard’s objective as its mandate requires refiners to displace their gasoline sales with volumes of ethanol exceeding 10 percent.

In 2022, the Iowa Legislature passed the Biofuels Access Standard which included provisions requiring gasoline retailers in Iowa to offer E15 absent a gasoline retailer providing proof of eligibility for one of the three waivers available in the new law. Also included in the legislation was a 9 cent-per-gallon, fully refundable, state income tax credit available to a retailer for each gallon sold. Paired with the existing 6 cent-per-gallon state excise tax incentive for E15, E15 will now enjoy a 15 cent-per-gallon tax incentive package over more common gasoline products like E10 and E0.

In the retail fuel industry, price drives consumer purchasing habits. With the tax incentive package handed-out for E15, lawmakers are banking on that belief holding true and guiding E15’s growth in the gasoline market. If the historical growth of E10 is any indication, in the years to come we can expect to see E15 take on a similar growth path.

We are already seeing signs that the policies guiding E15 are facilitating growth. Conversations about investments into E15 are being had daily. Iowa’s three largest retailers own and operate the vast majority of the sites selling E15 and have shown no signs of slowing down their investment into the product, largely driven by the incentive package offered by the state of Iowa.

For the 1,158 gas stations in Iowa that can’t sell E15 without infrastructure replacement involving a combination of tanks, product, lines and dispensers, the question becomes how do I plan for the implementation of the E15 Access Mandate?

Step one involves retrieving your annual gasoline sales (all grades combined) during calendar year 2020, 2021, and 2022. If your annual sales in these three years did not exceed 300,000 gallons, you are eligible to apply to the Iowa Department of Agriculture and Land Stewardship (IDALS) for a waiver from the E15 Access Standard. If you determine your site does not qualify for a waiver based on your gasoline sales, your next step is securing an Iowa licensed petroleum equipment installer (licensed installer) to assess the compatibility of your existing gasoline storage and dispensing infrastructure with E15. If the result of an assessment by a licensed installer is that your system is compatible with E15, Iowa DNR form 542-1336 will need to be filed with the Department of Natural Resources, and your insurance provider, 30-days prior to offering E15.

Sales of E15 at your facility must commence by January 1, 2026. If the result of your compatibility assessment proves required equipment upgrades are necessary to store and dispense E15, your licensed installer should start by documenting the age of your underground storage tanks. If the newest underground storage tank on site meets the following criteria, you may apply to IDALS for a waiver from the E15 Access Standard: Along with the assessment of your tanks, licensed installers should prepare a cost summary showing the costs to make E15 available at a single dispenser. If your cost to make E15 available at a single dispenser exceeds $71,430, you may apply to IDALS for a waiver from the E15 Access Mandate. This waiver form is not yet available.

If your site is granted a waiver under any of the scenarios described above, the waiver is valid through 2041 or until such time you replace a storage tank at your facility. If a storage tank is upgraded at your facility, upon replacement of a new tank, you are required to offer E15 at 50 percent of your gasoline dispensers. restricts the Reid Vapor Pressure of gasoline sold at retail locations between June 1 and September 15 to 9 psi. Because the addition of 10 percent ethanol to gasoline raises the RVP of the finished blend by 1 psi, Congress granted E10 a 1 psi summer RVP waiver during its regulatory control period of June 1 – September 15.

In addition to Iowa’s RFIP, the United States Department of Agriculture is expected to offer a series of grant opportunities mirroring their High Blend Infrastructure Incentive Program. In 2022, President Joe Biden signed the Inflation Reduction Act into law. Included in the Act was a $500M appropriation for infrastructure investment into High Blend Biofuels.

For members with gas stations not qualifying for one of the waivers above, you have until January 1, 2026 to make E15 available at a single dispenser at your facility. Fortunately, there are grant programs available to assist gas station owners with offsetting a portion of the infrastructure costs mandated by Iowa’s 2022 E15 Access Standard.

The Iowa Renewable Fuel Infrastructure Grant Program (RFIP) offers applicants a cost-share equal to the lesser of $50,000 or 70 percent of the cost attributable to infrastructure upgrades for E15. Applications may be submitted to the program at any time. The RFIP Board of Directors meets periodically to review and approve grant applications. This program is not a competitive grant program although preference for funding is given to facilities which do not qualify for one of the waivers under the E15 Access Mandate.

During the 2023 Iowa Legislative Session, FUELIowa is advocating for an increase in funding to the RFIP along with an increase in the eligible cost-share for retailers.

FUELIowa is proposing to raise the cost share eligibility for a retailer under the program to 75 percent of cost or $160,000, whichever is less.

FUELIowa believes the appropriation will be parceled out in five $100M increments with the first release of funds slated for the late spring or early summer of 2023. In contrast with Iowa’s RFIP program, historically, USDA grant programs have been competitive grant programs. Although the competitive nature of previous USDA grant programs has favored awards for higher volume retail chains, the USDA grant programs have been the most lucrative grant programs to date providing grant dollars to offset the infrastructure costs associated with marketing high blends of biofuels like E15. FUELIowa continues to advocate with USDA for the protection of small businesses under their grant programs.

FUELIowa members with interest in either the Iowa RFIP or USDA grant program are encouraged to contact John Maynes in the FUELIowa office.

The final unknown surrounding E15 has been the uncertainty encompassing the sale of E15 during the summer months. Federal regulation

Unfortunately, Congress has yet to extend the 1 psi summer waiver to include E15. Congressional inaction on the issue is largely due to politics. Led by Iowa Governor Kim Reynolds, a coalition of eight Midwestern Governors frustrated with Congressional inaction have petitioned EPA to rescind the 1 psi RVP waiver for E10 in their respective states. Their petition was recently approved by EPA but implementation delayed until 2024 leaving the question of whether E15 can be sold during the summer of 2023 in doubt.

The Midwest Governors along with national ethanol trade associations have threatened to sue EPA over their decision to delay implementation until 2024. Litigation surrounding this issue is unlikely to be resolved in time to provide clarity for parties in the gasoline distribution chain prior to EPA’s June 1, 2023 retail deadline.

The last option for summer sales of E15 comes in the form of emergency waivers issued by President Joe Biden. President Biden has the authority to issue emergency fuel waivers in 15 day increments. Last summer, in response to the war in Ukraine, President Biden issued a series of emergency waivers during the summer, relaxing summer gasoline RVP restrictions and allowing the sale of E15 during the summer months.

FUELIowa anticipates the President being asked to take similar action once again this summer. However, the President’s authority to issue the 15 day waivers is tied to emergency conditions. In recent statements from government officials, no decision will be made on whether the President will exercise his authority to grant the waivers until much closer to the June 1 regulatory compliance date. Stay tuned on the issue of E15’s eligibility to be sold summer of 2023.