MEMORANDUM

Subject: Application of one

- in

- four E85 access methodology to 2014

From: David Korotney

To: EPA Air Docket EPA

- HQ

- OAR

- 2013

- 0479

Based in large part on historical experience with diesel fuel, i n the March 2010 RFS final

rulemaking we defined "reasonable access" to E85 as one

- in

- four pumps offering E85 in a given

area , for purposes of analyzing flexible

- fuel vehicle ( FFV ) usage of E85

. 1 Under this definition,

a n FFV owner would be treated as hav ing the option of refueling on E85 if one out of every four

service stations to which the FFV owner had access offered E85. All other FFVs would then be

treated as not hav ing access to E85, and would therefore be assumed to always refuel on gasoline

(E0, E10, or E15).

For the nation as a whole, the fraction of FFVs that have access to E85 can be calculated

as follows:

where

A

= Fraction of FFVs which have access to E85

N E85 = Number of stations offering E85

N T = Total number of service stations

25% = Number representi ng one

- in

- four access

The calculation of A assumes that the geographic distribution of FFVs is consistent with the

geographic distribution of service stations. T he factor A can further be used to estimate the

volume of E85 that could be consumed in 2014 given a specified number of FFVs , as follows:

where

V E85 = Volume of E85 consumed, million gallons

E FFV = Energy consumed by all FFVs in 2014, in Quadrillion Btu

EC E85 = Energy content of E85 , Btu/gal

1 See discussion at 75 FR 14761, and March 2010 RIA at section 1.6.9.T hese equations can be used to estimate the volume of E85 that could be consumed in 2014.

A. Total number of retail stations

The number of retail stations selling fuel in the U.S. has been in steady decline over the

last decade. Using station counts fr om the National Petroleum News, this trend can be projected

into the future. On this basis, the projected number of service stations in 2014 will be 153, 488

.

Table 1

Total N umber of R etail S tations

(Source: National Petroleum News " 2012 Market Facts" )

2000 175,941

2001 172,169

2002 170,018

2003 167,571

2004 167,346

2005 168,987

2006 167,476

2007 164,292

2008 161,068

2009 162,350

2010 159,006

2011 157,393

2012 156,065

Figure 1

Least

- Squares Regression for Total Number of Retail StationsB. Number of stations offering E8 5

The number of retail stations offering E85 has grown steadily since 200 5 at a nearly

constant rate of about 330 new E85 stations per year. Based on data from two different sources,

this trend can be projected into th e future.

Table 2

Number of Retail Stations Offering E85

Stations offering E85 Source

September 2005 436 DOE Transportation Energy Data Book, Edition 25

March 2007 1085 DOE Transportation Energy Data Book, Edition 26

March 2008 1413 DOE Transportation Energy Data Book, Edition 27

January 2009 1861 DOE Transportation Energy Data Book, Edition 28

February 2010 1980 DOE Transportation Energy Data Book, Edition 29

February 2011 2326 DOE Transportation Energy Data Book, Edition 30

January 2012 2581 E85prices.com

February 2013 2990 E85prices.com

Figure 2

Least

- Squares Regression for Number of Retail Stations Offering E85

W hile the increasing volume mandates in the RFS program might be expected to result in

a n E85 equipment installation rate for 2014 that is higher than 330 per year, the incentives on the

part of retail station owners is also a function of the applicable standards that EPA sets annually.

Since the annual standards are announced at most one mont h before the beginning of the year inwhich those standards will apply 2 , there is very little leadtime for the market to accelerate

installation of new E85 dispensing equipment. Therefore, for this exercise the rate of growth in

stations offering E85 is a ssumed to be 330 per year in the near term , and thus there is projected

to be a total of 3,306 service stations offering E85 in 2014. This represents growth of about 11%

compared to 2013 and about 25% compared to 2012.

The incentives on the part of retail station owners to install E85 dispensing equipment is

also a function of the number of FFVs in the fleet, since this affects the overall demand for E85.

The number of FFVs in the fleet is in turn a function of the incentives that vehicle manufactur ers have to produce them. Given the recently released draft guidance to manufacturers for taking

GHG emissions credit in their certification of FFVs, the indirect impact on the growth in retail

stations offering E85 could be higher than 330 stations per y ear in the future.

C. Energy consumed by FFVs in 2014

EPA recently proposed guidance on manufacturer GHG credits for FFVs in the context of

the light

- duty vehicle GHG rulemaking 3 . As part of this proposed guidance, EPA projected sales

of FFVs in each year , and these s ales projections were converted into a projection of the FFV

fraction of vehicle miles travelled (VMT) for the in

- use fleet in each calendar year

.

Figure 3

Potential scenarios for growth in FFVs

2 Under the statute, the applicable percentage standards must be published by November 30 of the year preceding the

year in which those standards will apply.

3 Draft Guidance Letter, CD

- 13

- XX (LD), "E85 Flexible Fuel Vehicle Weighting Factor for Model Year 2016

- 2019

Vehicles" http://epa.gov/otaq/regs/ld

- hwy/greenhouse/ld

- ghg.htm#actionEIA's Annual Energy Outlook 2013 proj ects that the total energy demand for all gasoline

powered vehicles and engines is 14.331 quadrillion Btu in 2014

. 4 Based on the medium FFV

sales scenario shown above

, 9.0 % of this energy is projected to be consumed by FFVs in 2014

. As a result, the en ergy consumed by all FFVs in 2014 is projected to be 1.288 Quad Btu ( 9.0 % ×

14.331 Quad Btu). This represents an increase of about 13 % compared to 2013 and about 27 %

compared to 2012.

D. Energy content of E85

Consistent with historical assumptions made by the Energy Information Administration,

E85 is assumed to contain 74% ethanol on an annual average basis. 5

Energy content of E85 = 74% ×(77,000 Btu/gal) + 26% × (115,000 Btu/gal)

Energy content of E85 = 86,890 Btu/gal

E. Estimate of potential E85 consumption volume in 2014

Based on the one

- in

- four definition of "reasonable access," the fraction of FFVs which

will have access to E85 in 2014 is estimated to be 8.6%.

A = 8.6%

If all of the FFVs that have access to E85 refueled on it 100% of the time, the total volume of

E85 that would be consumed in 2014 would be nearly 1.3 billion gallons.

V E85 = (8.6%) × (1.288 Quad Btu) / (86,890 Btu/gal) × (10 9 Million/Quadrillion)

V E85 = 1,27 5 mill gal

However, f

or an FFV owner that has access to E85, the decision concerning whether to

actually refuel on E85 will largely be a function of the price of E85 relative to the price of

gasoline (E0, E10, or E15). In addition to the lower energy content of E85, this price difference

may need to accommodate the inconvenience of a greater number of refuelings for a vehicle

operating on E85, the greater driving distance to a station offering E85 , and any other reasons

that an FFV owner might not use E85 , such as un familiarity with E85 or their own vehicle's

capabilities

. The price of E85 may also need to include some additional reduction compared to

4 Represents lower heating value of a ll forms of gasoline energy used (e.g. E0, E10, E15, and E16

- E85). Based on

AEO2013 Tables 37 and 17.

5 It is possible that the ethanol content of E85 could be as low as 51%. However, at this time there is no indication

that ethanol contents this low a re common.E10 in order to provide enough economic incentive for FFV owners to purchase it instead of

E10.

If the price of E85 was such that it provided no economic advantage over E10, but did not

create an economic disadvantage either, then there would be an equal probability of an FFV

owner purchasing E85 or E10. FFV owners would have no incentive to drive an additional

distan ce to purchase E85, but FFV owners arriving at a station offering E85 would be just as

likely to purchase E85 as E10. Under these circumstances, 12.5% of all FFVs with access to E85

would purchase it (50% × one out of four FFVs with access to E85 ). This would correspond to

about 160 mill gal of E85.

If the price of E85 were low enough to accommodate some of the additional distances

that FFVs in the region would need to travel to reach a station offering E85, then the volume of

E85 consumed would be corr espondingly higher. For instance, if half of the FFVs with access to

E85 had an economic incentive to drive an extra distance to refuel on E85, then the total volume

of E85 consumed would be about 640 mill gal.

F. Estimate of business

- as

- usual growth in E85 consumption

Section B provides an estimate of about 11% for the annual growth in the number of

retail stations offering E85 in the short

- term. Likewise Section C provides an estimate of about

13% for the annual growth in the energy consumed by in

- use FFVs in the short

- term. A

simplified approach to business

- as

- usual annual growth in E85 consumption, one that would

ignore any changes in the price of E85 relative to the pri ce of gasoline, would therefore be about

25% (1

- 1.11 × 1.13) annually.