If you didn’t hear, the EPA announced the final RVO (Renewable Volume Obligation) numbers yesterday. The numbers indicate the amount of ethanol we have to use in 2014, 2015, and 2016. In reality, the RVO numbers are a bit more complicated than that, but for the sake of simplicity, we’ll move on.
The numbers the EPA released still fall short of the numbers Congress approved in 2007. For those that don’t understand, it might feel like the EPA knows something you don’t know – like that ethanol is really bad for the environment or that ethanol hurts American pocketbooks.
That couldn’t be further from the truth.
Read on to my previously posted “Why Ethanol Mandates” to help you understand the politics behind the EPA’s decision.
WHY ETHANOL MANDATES?
Most Americans don’t like mandates.
As Americans, we typically believe in capitalism and a business model that sends products out into the world and asks them to stand on their own two feet or die trying. Yet, farmers have continuously asked for ethanol mandates and I know that’s confusing.
It’s a complex issue – aren’t they all? You’ll have to stick with me, but I know we’ll come out at the end much smarter …
1. Gas Stations are largely owned by or on contract with “Big Oil.”
There are a few locally owned gas stations – in Central Illinois a company called Qik N EZ is popular and those stations do not apply here – but most stations are owned or on contract with the big oil refiners like BP, Shell, or Mobil.
BP, Shell, and Mobil have a significant interest in petroleum-based fuels. I think we can all agree on that. And if they don’t own the station, they spell out the terms in a contract that ties the hands of the local owner and doesn’t allow him to make all his own decisions regarding the fuels he can offer.
2. “Big Oil” wants to protect its market.
Of course. This makes sense. If I’m a company in the business of refining and retailing petroleum-based fuel, then I obviously want to protect my market and continue making money off petroleum-based fuel.
No one begrudges the oil industry for their self-preservation. It’s the American way and exactly what we’d expect any other industry to do.
FYI – Exxon Mobil made $4.9 billion in the first quarter of 2015 for reference.
3. But “Big Oil” has little interest in the ethanol industry. Anything more than 10% ethanol is a competitor.
In a different world, if we were writing a different story, the oil industry would have seen the potential for corn-based ethanol and invested heavily. If that were the case, we’d be fighting some other battle right now because “Big Oil” would want to see ethanol succeed. But that didn’t happen.
As it stands, we have a corn-based fuel and a petroleum-based fuel fighting for market share. Cost of production and cost to the consumer ends up being a huge player in who will succeed.
Ethanol is cheaper and cleaner with better performance so we are poised to win. But …
4. All those gas stations are owned or contracted with “Big Oil” so they won’t allow ethanol* to be sold.
You know what? This makes sense too. It’s sort of like asking Kroger to sell Wal-Mart products out of the goodness of their heart when we all know that the Wal-Mart prices are going to be cheaper.
Selling cheaper corn-based fuel is not in the best interest of the oil industry who wants to protect its market and profit, even though selling corn-based fuel is in the best interest of Americans who want to save money, protect the environment, and not send their sons and daughters overseas to fight for oil.
5. Here’s where the mandate comes in.
It’s not the best option, but America isn’t a Utopian society. Since selling ethanol* doesn’t make sense for the oil industry and they won’t do it just to be nice (who would?), we have to make them sell it because it’s better for the country.
By the way, the “mandate” is more commonly referred to as the RFS – the Renewable Fuel Standard. It’s a piece of legislation that forces retailers to sell increasing amounts of ethanol every year because Congress understands that ethanol is good for America.
6. And all those negative things you hear about ethanol? Those are stories spun by a very wealthy oil industry that doesn’t want to lose market share.
Questions? Comments? Let’s chat in the comments …
ICGA/ICMB Marketing Manager
*beyond 10% blends