Biofuels: Challenges to the Transportation, Sale, and Use of Intermediate Ethanol Blends
Published: 2011-06-03T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: U.S. transportation relies largely on oil for fuel. Biofuels can be an alternative to oil and are produced from renewable sources, like corn. In 2005, Congress created the Renewable Fuel Standard (RFS), which requires transportation fuel to contain 36 billion gallons of biofuels by 2022. The most common U.S. biofuel is ethanol, typically produced from corn in the Midwest, transported by rail, and blended with gasoline as E10 (10 percent ethanol). Use of intermediate blends, such as E15 (15 percent ethanol), would increase the amount of ethanol used in transportation fuel to meet the RFS. The Environmental Protection Agency (EPA) recently allowed E15 for use with certain automobiles. GAO was asked to examine (1) challenges, if any, to transporting additional ethanol to meet the RFS, (2) challenges, if any, to selling intermediate blends, and (3) studies on the effects of intermediate blends in automobiles and nonroad engines. GAO examined government, industry, and academic reports; interviewed Department of Energy (DOE), EPA, and other government and industry officials; and visited research centers.
section_title: What GAO Found
paragraphs: According to government and industry officials, the nation's existing rail, truck, and barge infrastructure should be able to transport an additional 2.4 billion gallons of ethanol to wholesale markets by 2015--enough to meet RFS requirements. Later in the decade, however, a number of challenges and costs are projected for transporting additional volumes of ethanol to wholesale markets to meet peak RFS requirements. According to EPA estimates, if an additional 9.4 billion gallons of ethanol are consumed domestically by 2022, several billion dollars would be needed to upgrade rail, truck, and barge infrastructure to transport ethanol to wholesale markets. GAO identified three key challenges to the retail sale of intermediate blends: (1) Compatibility. Federally sponsored research indicates that intermediate blends may degrade or damage some materials used in existing underground storage tank (UST) systems and dispensing equipment, potentially causing leaks. However, important gaps exist in current research efforts--none of the planned or ongoing studies on UST systems will test actual components and equipment, such as valves and tanks. While EPA officials have stated that additional research will be needed to more fully understand the effects of intermediate blends on UST systems, no such research is currently planned. (2) Cost. Due to concerns over compatibility, new storage and dispensing equipment may be needed to sell intermediate blends at retail outlets. The cost of installing a single-tank UST system compatible with intermediate blends is more than $100,000. In addition, the cost of installing a single compatible fuel dispenser is over $20,000. (3) Liability. Since EPA has only allowed E15 for use in model year 2001 and newer automobiles, many fuel retailers are concerned about potential liability issues if consumers misfuel their older automobiles or nonroad engines with E15. Among other things, EPA has issued a proposed rule on labeling to mitigate misfueling. DOE, EPA, and a nonfederal organization have provided about $51 million in funding for ten studies on the effects of intermediate blends on automobiles and nonroad engines--such as weed trimmers, generators, marine engines, and snowmobiles--including effects on performance, emissions, and durability. Of these studies, five will not be completed until later in 2011. Results from a completed study indicate that such blends reduce a vehicle's fuel economy (i.e., fewer miles per gallon) and may cause older automobiles to experience higher emissions of some pollutants and higher catalyst temperatures. Results from another completed study indicate that such blends may cause some nonroad engines to run at higher temperatures and experience unintentional clutch engagement, which could pose safety hazards.
section_title: What GAO Recommends
paragraphs: GAO recommends, among other things, that EPA determine what additional research is needed on the effects of intermediate blends on UST systems. EPA agreed with the recommendation after GAO revised it to clarify EPA's planned approach.

section_title: Letter
paragraphs: The U.S. transportation sector is almost entirely dependent on petroleum  products refined from crude oil—primarily gasoline and diesel fuels. In  2009, this sector consumed the equivalent of about 14 million barrels of oil  per day, or over 70 percent of total U.S. consumption of petroleum  products. To meet the demand for crude oil and petroleum products, the  nation imported, on a net basis, about 52 percent of the petroleum  products consumed in 2009.
Biofuels can be an alternative to petroleum-based transportation fuels and  are produced from renewable sources, primarily corn, sugar cane, and  soybeans. The United States is the world’s largest producer of biofuels.  The federal government has promoted the domestic production and use of  biofuels through tax incentives since the 1970s and, more recently,  through a Renewable Fuel Standard (RFS). The Energy Policy Act of 2005,  which created the RFS, generally required transportation fuels in the  United States to contain renewable fuels, such as ethanol and biodiesel.  The Energy Independence and Security Act (EISA) of 2007 expanded the  RFS by requiring that U.S. transportation fuels contain 9 billion gallons of  renewable fuels in 2008, with renewable fuels increasing annually to 36  billion gallons in 2022. The Environmental Protection Agency (EPA) is  responsible for administering the RFS.
Ethanol is the most commonly produced biofuel in the United States. In  2010, the nation produced 13.2 billion gallons of ethanol, the vast majority  of which came from corn. Most U.S. corn is grown in the Midwest, and  ethanol is generally produced in relatively small biorefineries near corn- producing areas. Unlike petroleum products, which are primarily  transported to wholesale terminals by pipelines, ethanol is transported to  wholesale terminals by a combination of rail, tanker truck, and barge. At  the terminals, most ethanol is currently blended as an additive in gasoline  to make fuel blends containing up to 10 percent ethanol (called E10).  Finally, the blended fuel is transported via tanker truck to retail fueling  outlets.
In a 2009 report, we identified fuel-blending limits as a challenge to  expanded ethanol consumption. We stated that the nation may soon reach  a “blend wall”—the upper limit to the total amount of ethanol that can be  blended into U.S. gasoline, given current constraints. At the time, the  blend wall existed partly because under EPA’s implementation of the  Clean Air Act, fuels containing more than 10 percent ethanol were  prohibited from being introduced for use with the vast majority of U.S.  automobiles. This created a blend wall at approximately 10 percent of  total U.S. fuel consumption. If the volume of renewable fuels required by  the RFS increased above this 10 percent threshold, the fuel industry would  not be able to meet the RFS using only E10. We noted that one option to  address the blend wall is to use “intermediate” ethanol blends such as E15  or E20 (generally 15 percent or 20 percent ethanol).
In March 2009, a group of ethanol manufacturers petitioned EPA to allow  E15 into commerce. The Clean Air Act prohibits the introduction of fuels  that are not substantially similar to gasoline. However, the Act authorizes  EPA to grant a waiver of this prohibition for a fuel if it does not cause  vehicles or engines to exceed emission standards over their useful life.  EPA issued two decisions on E15. The first, issued in October 2010,  allowed E15 for use in model year 2007 and newer automobiles. The  second, issued in January 2011, allowed E15 for use in model years 2001  through 2006 automobiles. EPA did not allow E15 for use in older  automobiles or nonroad engines (such as lawn mowers, chainsaws, and  boats), motorcycles, or heavy-duty gasoline engines. EPA cited insufficient  test data to support the use of E15 in these engines, as well as engineering  concerns that older vehicles and nonroad engines may not maintain  compliance with emission standards if operated on E15.
In light of the potential use of intermediate ethanol blends, you asked us to  review their potential effects. Our objectives were to (1) determine the  challenges, if any, associated with transporting additional volumes of  ethanol to wholesale markets to meet RFS requirements; (2) determine the  challenges, if any, associated with selling intermediate ethanol blends at  the retail level; and (3) examine research by federal agencies into the  effects of intermediate ethanol blends on the nation’s automobiles and  nonroad engines.
To determine the challenges associated with transporting additional  volumes of ethanol to wholesale markets to meet RFS requirements, we  reviewed relevant literature and reports from federal government  agencies—including EPA, the Department of Energy (DOE), and the  Department of Transportation (DOT)—industry associations, and  academic organizations and interviewed their relevant officials and  representatives. To determine the challenges associated with selling  intermediate ethanol blends at the retail level, we reviewed relevant  literature and reports from federal and state government agencies— including EPA, DOE, the Department of Labor’s Occupational Safety and  Health Administration (OSHA), and the California Air Resources Board— government laboratories, and industry associations and interviewed their  relevant officials and representatives. To examine research by federal  agencies into the effects of intermediate ethanol blends on the nation’s  automobiles and nonroad engines, we reviewed relevant reports and  studies from government and private laboratories, including DOE’s  National Renewable Energy Laboratory (NREL) in Colorado and Oak  Ridge National Laboratory (ORNL) in Tennessee and interviewed their  relevant officials. We also conducted site visits to NREL, ORNL, and a  private laboratory to discuss testing results. Due to ongoing litigation over  EPA’s decision to allow E15 for use in certain automobiles, we did not  make any determination in this report of the adequacy of federal testing  efforts for automobiles. In addition, we interviewed officials from EPA,  DOE, and representatives from relevant industry associations. A more  detailed description of our scope and methodology is presented in  appendix I.
We conducted this performance audit between April 2010 and June 2011 in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives.
subsections: section_title: Background
paragraphs: The RFS, as defined by EISA, distinguishes between ethanol derived from  corn starch (known as corn ethanol) and advanced biofuels—defined as a  renewable fuel other than corn ethanol that meets certain criteria. For  example, to qualify as an advanced biofuel, a biofuel must reduce lifecycle  greenhouse gas emissions by at least 50 percent compared to the gasoline  or diesel fuel it displaces. According to the RFS, most advanced biofuels  must be produced from cellulosic materials, which can include perennial  grasses, crop residue, and the branches and leaves of trees. In addition,  some advanced biofuels must be produced from biomass-based diesel,  which generally includes any diesel made from biomass feedstocks, such  as soybeans. As shown in figure 1, the volume of corn ethanol included  under the RFS is capped at 15 billion gallons by 2015 and is fixed  thereafter. However, the volume of advanced biofuels continues to grow  to a total of 21 billion gallons by 2022. By comparison, the U.S.  transportation sector consumed about 14 million barrels of oil per day in  2009, which translates to more than 99 billion gallons of gasoline  consumed for the entire year.
The RFS generally requires that U.S. transportation fuels in 2022 contain  36 billion gallons of biofuels. In addition, at least 16 billion of the 36 billion  gallons of biofuels must be cellulosic biofuels—including ethanol and  diesel derived from cellulosic materials. However, under EISA, EPA is  required to determine the projected available volume of cellulosic biofuel  production for the year, and if that number is less than the volume  specified in the statute, EPA must lower the standard accordingly.  Pursuant to this provision, EPA has already lowered the RFS requirements  for cellulosic biofuel, from 250 million gallons to 6.6 million gallons for  2011, mostly due to the small number of companies with the potential to  produce cellulosic biofuel on a commercial scale.
As shown in figure 2, the infrastructure used to transport petroleum fuels  from refineries to wholesale terminals in the United States is different  from that used to transport ethanol. Petroleum-based fuel is primarily  transported from refineries to terminals by pipeline. In contrast, ethanol  is transported to terminals via a combination of rail cars, tanker trucks,  and barges. According to DOE estimates, there are approximately 1,050  terminals in the United States that handle gasoline and other petroleum  products. At the terminals, most ethanol is currently blended as an  additive in gasoline to make E10 fuel blends. A relatively small volume is  also blended into a blend of between 70 percent to 83 percent ethanol  (E85) and the remainder gasoline. E85 has a more limited market,  primarily in the upper Midwest, and can only be used in flexible-fuel  vehicles, which are vehicles that have been manufactured or modified to  accept it. After blending, the fuel is moved to retail fueling locations in  tanker trucks.
There are approximately 159,000 retail fueling outlets in the United States,  according to 2010 industry data. This total included more than 115,000  convenience stores, which sold the vast majority of all the fuel purchased  in the United States, according to industry estimates; a number of large  retailers that sell fuel, such as Walmart, Costco, and several grocery  chains; and some very low-volume retailers, such as marinas. In terms of  ownership, single-store businesses—that is, businesses that own a single  retail outlet—account for about 56 percent of the convenience stores  selling fuel in the United States.
There are three primary supply arrangements between fuel retailers and  their suppliers:    Major oil owned and operated. About 1 percent (or 1,175) of convenience  stores selling fuel in the United States are owned and operated by four  major integrated oil companies—ExxonMobil, Chevron, BP, and Shell.
Branded independent retailer. About 52 percent of retail fueling outlets  are operated by independent business owners who sell fuel under the  brand of one of the major oil companies or refineries (such as CITGO,  Sunoco, or Marathon). These retailers sign a supply and marketing  contract with their supplier to sell fuel under the brand of that supplier.
Unbranded independent retailer. The remaining retail fueling outlets  (about 48 percent) are operated by independent business owners who do  not sell gasoline under a brand owned or controlled by a refining  company. These retailers purchase gasoline from the unbranded wholesale  market, which is made up of gallons not dedicated to fulfill a refiner’s  contracts with branded retailers.
Federal safety and environmental regulations govern the dispensing and  storage of fuel at retail fueling locations. First, OSHA requires that  equipment used to dispense gasoline—including hoses, nozzles, and other  related aboveground components, shown in figure 3—be certified for  safety by a nationally recognized testing laboratory. According to OSHA  officials, OSHA recognizes 17 laboratories, although Underwriters  Laboratories (UL) is the main one that currently certifies equipment sold  for dispensing gasoline. In addition, under the Solid Waste Disposal Act,  EPA requires that underground storage tank (UST) systems—including  storage tanks, piping, pumps, and other related underground components,  shown in figure 3—must be compatible with the substance stored in them  to protect groundwater from releases from these systems. Historically, UL  certification has been the primary method for determining the  compatibility of USTs with EPA requirements. EPA also requires fuel  retailers to install equipment to detect leaks from UST systems. In total,  EPA regulates approximately 600,000 active USTs at about 215,000 sites in  the United States.
State and local governments also play a role in regulating the safety of  dispensing equipment and in implementing EPA’s requirements for USTs.  For example:    The Occupational Safety and Health Act allows states to develop and  operate their own job safety and health programs. OSHA approves and  monitors state programs and plans, which must adopt and enforce  standards that are at least as effective as comparable federal standards.  According to OSHA officials, there are currently 21 states with approved  plans covering the private sector that enforce health and safety standards  over the dispensing of gasoline within their respective states. Four  additional states operate approved state plans that are limited in coverage  to the public sector.
Various state and local fire-safety codes—which aim to protect against  fires—also govern the dispensing of fuel at retail fueling outlets. While  state fire marshals or state legislatures are usually responsible for  developing the fire code for their respective states, some states allow local  municipalities to develop their own fire codes. Fire codes normally  reference or incorporate standards developed by recognized standards- development organizations, such as the National Fire Protection  Association and the International Code Council. State, county, and local  fire marshals are responsible for enforcing the applicable fire code within  their respective jurisdictions. Local officials, such as fire marshals,  typically inspect dispensing equipment for compliance with both state and  local fire codes.
States are largely responsible for implementing EPA’s requirements under  its UST program. EPA has approved 36 states, plus the District of  Columbia and Puerto Rico, to operate programs in lieu of the federal  program. The remaining states have agreements with EPA to be the  primary implementing agency for their programs. Typically, states rely on  UL certification as the primary method for determining the compatibility  of UST systems with EPA requirements. Some states also allow  compatibility to be demonstrated in other ways, including through the  manufacturer’s approval or a professional engineering certification.
Consumers in the United States use retail fueling locations to fuel  hundreds of millions of automobiles and nonroad products with gasoline  engines. According to DOT data, Americans owned or operated almost 256  million automobiles, trucks, and other highway vehicles in 2008, while  about 91 percent of all households owned at least 1 automobile the same  year, according to U.S. Census data. Americans also owned and operated  over 400 million products with nonroad engines in 2009, according to one  industry association estimate. According to EPA documentation, nonroad  engines are typically more basic in their engine design and control than  engines and emissions control systems used in automobiles, and  commonly have carbureted fuel systems and air cooling, whereby extra  fuel is used in combustion to help control combustion and exhaust  temperatures. According to representatives from industry associations for  nonroad engines, most of the small nonroad engines manufactured today  rely on older technologies and designs to keep retail costs low, and all of  the small nonroad engines currently being produced are designed to  perform successfully on fuel blends up to E10. According to industry  representatives, while it is possible to design small nonroad engines to run  on a broad range of fuels, such designs would not be cost effective and  could add hundreds of dollars to the price.
section_title: Challenges to Transporting Additional Volumes of Ethanol to Wholesale Markets May Require Large Investments in Infrastructure over the Next Decade
paragraphs: Existing ethanol infrastructure should be sufficient to transport the  nation’s ethanol production through 2015, according to DOT officials and  industry representatives, but large investments in transportation  infrastructure may be needed to meet 2022 projected consumption,  according to EPA documentation. One option for doing so may be to  construct a dedicated ethanol pipeline, but this option presents significant  challenges.
subsections: section_title: Investments in Transportation Infrastructure May Be Needed to Meet 2022 Ethanol Consumption Levels
paragraphs: According to knowledgeable DOT officials and industry representatives  we met with, the existing rail, truck, and barge transportation  infrastructure for shipping corn ethanol to wholesale markets should be  sufficient through 2015, when the volume of corn ethanol in the RFS is  effectively capped at 15 billion gallons annually. This volume represents  roughly a 2.4 billion gallon increase from 2011 RFS consumption targets  for corn ethanol. Specifically, for rail, which transports about 66 percent  of corn ethanol to wholesale markets, several DOT officials and  representatives from the Association of American Railroads told us that  the addition of a few billion gallons of ethanol over the near term is not  expected to have a significant impact. Railroads hauled more than 220,000  rail carloads of ethanol in 2008 (the most recent year for which data are  available)—which was about 0.7 percent of all the rail carloads and about  1 percent of the total rail tonnage transported that year in the United  States, according to data from the Association of American Railroads.  Similarly, knowledgeable DOT officials and industry representatives said  there is sufficient capacity in the short term to transport additional  volumes of corn ethanol via trucks, which transport about 29 percent of  corn ethanol to wholesale markets, and barges, which transport roughly 5  percent, to meet RFS requirements.
In contrast, the existing infrastructure may not be sufficient to handle the  ethanol production that is projected after 2015. The RFS generally requires  transportation fuels in the United States to contain 21 billion gallons of  advanced biofuels, including a large quantity of cellulosic ethanol, by 2022.  In a 2010 regulatory impact analysis, EPA assessed the impacts of an  increase in the production, distribution, and use of ethanol and other  biofuels sufficient to meet this requirement. In its assessment, EPA used  three scenarios or “control cases” to project the amounts and types of  renewable fuels to be produced domestically and imported from 2010  through 2022. Under its “primary” control case, EPA projected that by  2022, the United States would produce and import over 22 billion gallons  of ethanol, comprising 15 billion gallons of domestically produced corn  ethanol, almost 5 billion gallons of domestically produced cellulosic  ethanol, and over 2 billion gallons of imported ethanol. EPA also  estimated the number of facilities that would need to be built or modified,  as well as the number of additional vehicles that would need to be  purchased. Under its primary control case, EPA estimated that the  necessary spending on transportation infrastructure due to increased  ethanol consumption would be approximately $2.6 billion. According to  EPA’s analysis:    For rail. EPA estimated that approximately $1.2 billion would be needed  for an additional 8,450 rail tanker cars ($760 million) and the construction  of new train facilities ($446 million). EPA projected that biofuels transport  will constitute approximately 0.4 percent of the total tonnage for all  commodities transported by the freight rail system through 2022. Sixteen  percent of the nation’s freight rail system would be affected by biofuels  shipments, and that portion (mostly along rail corridors radiating out of  the Midwest) would see a 2.5 percent increase in traffic.
For trucks. EPA estimated that approximately $87 million would be  needed for an additional 480 tank trucks.
For barges. EPA estimated that approximately $198 million would be  needed for an additional 32 barges ($45 million), and the configuration of  barge facilities (a projected $153 million). EPA stated that it does not  anticipate a substantial fraction of biofuels will be transported via barge  over the inland waterway system. In addition, the agency projected that a  total of 30 ports will receive significant quantities of imported ethanol  from Brazil and Caribbean Basin Initiative countries by 2022.
For wholesale terminals. EPA estimated that $1.15 billion in investments  would be needed, primarily to modify vapor recovery equipment (at a cost  of $1 million for each terminal that does not already handle ethanol).  Other modifications would include the installation of new storage tanks,  modification of existing tanks, and modification of tank-truck unloading  facilities.
EPA stated that the United States will face significant challenges in  accommodating the projected increases in biofuels production by 2022,  but it concluded that the task would be achievable at the wholesale level.  For example, the agency stated that it believed overall freight-rail capacity  would not be a limiting factor to the successful implementation of RFS  requirements.
However, while this task may be achievable, it is likely to be increasingly  difficult because of congestion on U.S. transportation networks. We and  others have reported that congestion is constraining the capacity and  increasing the costs of U.S. rail and highway transportation. For example,  we reported in 2008 that neither rail nor highway capacity had kept pace  with recent increases in demand, leading to increased costs. We also  cited a study by the Association of American Railroads, which predicted  that without system improvements, the expected increases in rail volume  by 2035 will cause 30 percent of primary rail corridors to operate above  capacity and another 15 percent at capacity. The study stated the resulting  congestion might affect the entire country and could shut down the  national rail network. In addition, we noted that many of the highways  used heavily by trucks to move freight are already congested, and  congestion is expected to become a regular occurrence on many intercity  highways. Finally, we noted that ports are likely to experience greater  congestion in the future as more and larger ships compete for limited  berths.
section_title: One Option for Transporting Additional Volumes of Ethanol— Constructing a Dedicated Pipeline—Presents Significant Challenges
paragraphs: If overall ethanol production increases enough to fully meet the RFS over  the long term, one option to transport it to wholesale markets would be  through a dedicated ethanol pipeline. Over many decades, the United  States has established very efficient networks of pipelines that move large  volumes of petroleum-based fuels from production or import centers on  the Gulf Coast and in the Northeast to distribution terminals along the  coasts. However, the existing networks of petroleum pipelines are not well  suited for the transport of billions of gallons of ethanol. Specifically, as  shown in figure 4, ethanol is generally produced in the Midwest and needs  to be shipped to the coasts, flowing roughly in the opposite direction of  petroleum-based fuels. The location of renewable fuel production plants  (such as biorefineries) is often dictated by the need to be close to the  source of the raw materials and not by proximity to centers of fuel  demand or existing petroleum pipelines.
Existing petroleum pipelines can be used to ship ethanol in some areas of  the country. For example, in December 2008, the U.S. pipeline operator  Kinder Morgan began transporting commercial batches of ethanol along  with gasoline shipments in its 110-mile Central Florida Pipeline from  Tampa to Orlando. However, pipeline owners would face the same  technical challenges and costs that Kinder Morgan representatives  reported facing, including the following:    Compatibility. Ethanol can dissolve dirt, rust, or hydrocarbon residues in  a petroleum pipeline and degrade the quality of the fuel being shipped. It  can also damage critical nonmetallic components, including gaskets and  seals, which can cause leaks. In order for existing pipelines to transport  ethanol, pipeline operators would need to chemically remove residues and  replace any components that are not compatible with ethanol. According  to DOT officials, the results from two research projects sponsored by that  agency have identified specific actions that must be taken on a wide  variety of nonmetallic components commonly utilized by the pipeline  industry.
Stress corrosion cracking. Tensile stress and a corrosive environment can  combine to crack steel. The presence of ethanol increases the likelihood  of this in petroleum pipelines. Over the past 2 decades, approximately 24  failures due to stress corrosion cracking have occurred in ethanol tanks  and in production-facility piping having steel grades similar to those of  petroleum pipelines. According to DOT officials, the results from nine  research projects sponsored by that agency have targeted these challenges  and produced guidelines and procedures to prevent or mitigate stress  corrosion cracking. As a result, pipelines can safely transport ethanol after  implementing the identified measures, according to DOT officials.
Attraction of water. Ethanol attracts water. If even small amounts of  water mix with gasoline-ethanol blends, the resulting mixture cannot be  used as a fuel or easily separated into its constituents. The only options  are additional refining or disposal.
Some groups have proposed the construction of a new pipeline dedicated  to the transportation of ethanol. For example, in February 2008, Magellan  Midstream Partners, L.P. (Magellan) and Buckeye Partners, L.P. (Buckeye)  proposed building a new pipeline from the Midwest to the East Coast.  According to this proposal, the pipeline would gather ethanol from three  segments: (1) Iowa, Nebraska, and South Dakota; (2) Illinois, Michigan,  and Minnesota; and (3) Indiana and Ohio. Ethanol would be transported to  demand centers in New England, the Mid-Atlantic, Virginia, and West  Virginia.
The federal government has studied the feasibility of building a pipeline  similar to the one proposed by Magellan. Specifically, under section 243 of  EISA, DOE (in collaboration with DOT) issued a study in March 2010 that  examined the feasibility of constructing an ethanol pipeline linking large  East Coast demand centers with refineries in the Midwest. The report  identified a number of significant challenges to building a dedicated  ethanol pipeline, including the following:    Construction costs. Using recent trends in and generally accepted industry  estimates for pipeline construction costs, DOE estimated that an ethanol  pipeline from the Midwest to the East Coast could cost about $4.5 million  per mile. While DOE assumed that the construction of 1,700 miles of  pipeline would cost more than $3 billion, it did not model total project  costs beyond $4.25 billion in the report.
Higher transportation rates. Based on the assumed demand for ethanol in  the East Coast service area and the estimated cost of construction, DOE  estimated the ethanol pipeline would need to charge an average tariff of 28  cents per gallon, substantially more than the current average rate of 19  cents per gallon, for transporting ethanol using rail, barge, and truck along  the same transportation corridor.
Lack of eminent domain authority. DOE estimated that siting a new  ethanol pipeline of any significant length will likely require federal  eminent domain authority, which currently does not exist for ethanol  pipelines.
DOE’s report concluded that a dedicated ethanol pipeline can become a  feasible option if there is (1) adequate demand for the ethanol  (approximately 4.1 billion gallons per year for the hypothetical pipeline  assessed) and (2) government financial incentives to help defray the large  construction costs.
section_title: Challenges Due to Regulations, Technical Issues, and Cost Could Slow the Retail Sale of Intermediate Ethanol Blends
paragraphs: We identified several challenges to selling intermediate ethanol blends at  the retail level. First, federal and state regulations governing health and  environmental concerns must be met before these blends are allowed into  commerce, and fuel-testing requirements to meet these regulations may  take 1 year or more to complete. Second, according to knowledgeable  federal officials and UL representatives, federal safety standards do not  allow ethanol blends over E10 to be dispensed at most retail fueling  locations, and federally sponsored research has indicated potential  problems with the compatibility of intermediate ethanol blends with  existing dispensing equipment. Third, according to EPA and several  industry representatives, the compatibility of many UST systems with  these fuels is uncertain, and retailers will need to replace any components  that are not compatible if they choose to store intermediate blends.  Fourth, industry associations representing various groups, such as fuel  retailers and refiners, are concerned that, in selling intermediate ethanol  blends, fuel retailers may face significant costs and risks, such as  upgrading or replacing equipment.
subsections: section_title: Federal and State Regulations Need to Be Met Prior to the Introduction of Intermediate Blends
paragraphs: According to knowledgeable EPA officials within the Office of  Transportation and Air Quality, the regulatory process for allowing an  intermediate ethanol blend into commerce could take 1 year or more. As  described in table 1, the Clean Air Act, among other things, establishes a  comprehensive regulatory program aimed at reducing harmful emissions  from on- and off-road vehicles and engines and the fuels that power them.  According to EPA officials, this regulatory program would apply to the  introduction of new fuels, including E15 and other intermediate blends.
Although intermediate ethanol blends higher than E15 would need to meet  all of these requirements, E15 has already partly met the first two. EPA  partially granted a fuel waiver allowing E15 for use in model year 2001 and  newer automobiles, and EPA officials told us the agency has no plans to  revise its regulations for certifying detergents for E15 because it currently  has not determined any detergent-related issues different from E10.  According to EPA officials, the remaining two requirements have not yet  been completed for E15 but are in the process of being addressed,  specifically:    Health-effects testing similar to that performed for E10 could take 2 years  or more to register intermediate ethanol blends, depending on variables  such as the availability of testing laboratories. According to EPA officials,  EPA received information on February 18, 2011, from an ethanol industry  representative contending that the health-effects testing previously  performed for E10 is an adequate substitute for E15. According to recent Congressional testimony, EPA expects to finish reviewing the information  by the middle of 2011.
EPA would have to update the regulations for its reformulated gasoline  program, which do not currently allow fuel manufacturers to certify  batches of gasoline containing greater than 10 percent ethanol by volume.  In November 2010, EPA proposed a rule that would, among other things,  update the model to allow for reformulated gasoline containing up to 15  percent ethanol by volume. According to EPA officials, EPA expects to  issue a final rule sometime in 2011.
In addition to federal regulations, many states have established regulations  or statutes related to transportation fuels, according to a 2010 industry  report. In particular, many state regulations or statutes contain  references to specific industry standards for fuel published by a  recognized standards development organization, including ASTM  International and the National Institute of Standards and Technology  (NIST), according to the report and knowledgeable NIST officials we  interviewed. These standards, however, are only relevant to E10, and  neither organization has published any standards related to the use of  intermediate ethanol blends up to E85. Therefore, before allowing  intermediate ethanol blends into commerce, the states that reference  existing ASTM International or NIST standards would have to either (1)  enact new statutes or regulations that no longer reference the existing  standards or (2) wait for ASTM International or NIST to update their  standards related to intermediate ethanol blends. Either option could take  more than a year to implement, according to knowledgeable officials from  NIST and the California Air Resources Board.
section_title: OSHA Regulations Prohibit Using Most Existing Dispensing Equipment with Intermediate Blends, and Research Suggests Compatibility Issues
paragraphs: In general, federal safety standards do not allow ethanol blends over E10  to be dispensed with existing equipment at most retail fueling locations.  Specifically, OSHA requires that all equipment used to dispense gasoline  be certified for safety by a nationally recognized testing laboratory. UL, the  only such laboratory that has developed standards for certifying  dispensing equipment, did not publish safety standards specifically for  intermediate ethanol blends until August 2009, and no UL-certified  dispensing equipment was available for use with these blends until 2010.  Dispensing equipment manufactured earlier has been certified for blends  up to E10, and UL does not recertify equipment that has already been  certified to an existing UL standard, according to several UL  representatives. Moreover, UL does not retroactively certify manufactured  or installed equipment to new safety standards because it cannot monitor  whether the equipment has been modified by, for example, aging or  maintenance. As a result, according to knowledgeable OSHA officials and  several UL representatives, the vast majority of existing retail dispensers  in the United States are not approved for use with intermediate ethanol  blends under OSHA’s safety regulations.
Until recently, UL and OSHA were each exploring ways to allow fuel  retailers to use existing dispensing equipment with intermediate ethanol  blends while still meeting OSHA’s safety regulations. For example, in a  February 2009 announcement, UL stated that existing dispensing  equipment—certified for use with E10—could be used with blends  containing up to 15 percent ethanol, based on data the company had  collected. According to the announcement, UL did not find any significant  incremental risk of damage to existing equipment between E10 and fuels  with a maximum of 15 percent ethanol. In addition, several OSHA officials  told us in November 2010 that the agency was at the early stages of  evaluating several options—such as implementing a grace period on  planned enforcement activities or developing an enhanced inspection and  maintenance program for a limited time—that would allow existing  dispensing equipment to be approved for use with E15.
However, results from federally sponsored research indicate potential  problems with the use of intermediate ethanol blends with some existing  dispensing equipment. A DOE-commissioned report prepared by UL was  issued in November 2010 on the compatibility of intermediate blends with  new and used dispensing equipment certified for blends up to E10.  According to the report, although various components generally  performed well with the testing fluid, some of the components tested  (including valve assemblies and nozzles) demonstrated a reduced level of  safety, performance, or both when exposed to the testing fluid. This was  mostly due to the failure of certain nonmetal components, such as gaskets  and seals. In March 2011, DOE’s ORNL published a report stating that,  although metal samples experienced very little corrosion, all elastomer  samples (such as fluorocarbon, nitrile rubber, and polyurethane) exhibited  some level of swelling and the potential to leak when exposed to testing  fluids.
This research has led UL and OSHA to reconsider support for the use of  existing dispensing equipment with intermediate ethanol blends. In a  December 2010 announcement based on this research, UL stated that it  advised against the use of intermediate ethanol blends with dispensing  equipment certified for E10 and, instead, recommended the use of new  equipment designed and certified for use with intermediate ethanol  blends. The announcement stated that UL was particularly concerned that  blends over E10 could lead to the degradation of gaskets, seals, and hoses  and could cause leaks. In addition, several OSHA officials told us that, as a  result of this research, the agency is re-evaluating its plan to explore ways  to allow fuel retailers, under certain conditions, to use existing dispensing  equipment with intermediate blends.
However, OSHA’s position on this issue remains unclear, and it is  uncertain when the agency will establish a definitive position. On the one  hand, according to several OSHA officials we talked with, the vast majority  of existing retail dispensers in the United States are not approved for use  with intermediate ethanol blends under OSHA’s safety regulations. On the  other hand, these officials also stated that OSHA is still developing its  position on the use of existing dispensing equipment with intermediate  blends. While these officials said that strict enforcement of current OSHA  requirements for dispensing equipment seems more like an option now,  they did not provide any time frames for when OSHA would finalize its  position, nor how it planned on communicating a decision to fuel retailers  and other interested parties.
section_title: The Compatibility of Many UST Systems with Intermediate Blends Is Unclear
paragraphs: According to our discussions with knowledgeable federal officials and  several industry association representatives, the compatibility of many  existing UST systems with intermediate ethanol blends is unclear for two  main reasons—many fuel retailers have older equipment and lack records,  and recent federally sponsored research indicates potential problems with  the use of intermediate blends. Retail fueling outlets generally have two or  more UST systems, according to industry association representatives, and  each system contains a large number of components and materials.  According to EPA documentation and knowledgeable EPA officials within  the Office of Underground Storage Tanks, many existing USTs range in age  from 1 to 40 years and contain components certified to a range of UL  standards, which typically have evolved over time, or have been approved  by the manufacturer for varying uses. Because these systems are buried  underground, visually inspecting some components for compatibility is  impossible without excavating them. Thus, fuel retailers, along with state  and federal inspectors, primarily rely on recordkeeping to verify UST  system compatibility with the fuel stored in them.
However, inadequate recordkeeping may make it difficult for retailers with  older stations to verify UST system compatibility with intermediate  ethanol blends. For example, according to EPA documentation,  knowledgeable EPA officials, and a representative from the Society of  Independent Gasoline Marketers of America, many fuel retailers do not  have complete records of all their UST equipment, particularly those with  stations having several previous owners. Furthermore, many installation  companies and component manufacturers may have gone out of business,  according to EPA documentation, which could make verification  particularly challenging. Recognizing this issue, EPA announced in  November 2010 that it plans to issue guidance that would clarify its  compatibility requirements for UST systems storing ethanol blends higher  than 10 percent. In its announcement, EPA also solicited public feedback  on the extent of the challenges fuel retailers face in demonstrating existing  UST systems’ compatibility with intermediate ethanol blends and on  alternatives that would sufficiently protect human health and the  environment. EPA officials said the agency expects to issue guidance  sometime in 2011.
Determining compatibility may be important because ongoing federal  research indicates potential problems with the use of intermediate ethanol  blends with some UST components. For example, according to a recent  DOE report and additional results from DOE research, certain elastomers,  rubbers, and other materials used in UST systems may degrade or swell  excessively when exposed to intermediate ethanol blends, becoming  ineffective as gaskets or seals. DOE testing also indicates that a pipe- thread sealant commonly used in UST piping in the past is not compatible  with any ethanol blends, which raises concerns that these components  may leak when exposed to ethanol—even in lower blends, such as E10.  According to the report, DOE expects to conclude this research in the near  future. In addition, DOE officials said they do not expect to conduct  additional research on UST components or equipment.
However, important gaps exist in current federal research efforts in this  area. For example, several officials within EPA’s Office of Underground  Storage Tanks told us that DOE’s research efforts to date have focused  only on testing materials (e.g., elastomers and rubbers) and not actual  components and equipment (e.g., valves and tanks) found in UST systems.  In addition, according to EPA officials, while the agency plans to study the  compatibility of E15 with UST systems, this research will be based on  interviews with experts and not on actual testing of materials,  components, or equipment. Moreover, EPA officials characterized this  research effort as more of a “modeling” or scoping effort to determine the  extent of any potential problems. EPA officials stated that the ability to  determine the compatibility of legacy equipment with intermediate blends  is limited. Nevertheless, they acknowledged that additional research will  be necessary to facilitate a transition to storing intermediate ethanol  blends in UST systems, including the suitability of specific UST  components with intermediate blends. EPA officials told us that they are  working with industry officials and federal partners to understand the  impact of intermediate blends in UST systems. However, to date EPA has  not developed a plan to undertake such research.
It is also unclear whether leak-detection equipment will properly detect  leaks of intermediate ethanol blends. According to knowledgeable EPA  officials and UL representatives, UL has not developed performance  standards for leak-detection equipment used in UST systems. EPA officials  explained that, while some leak-detection equipment has been approved  by the manufacturer for the compatibility of its materials with  intermediate ethanol blends, EPA is not certain whether the ethanol  content of the fuel, in general, would affect the operability of this  equipment. To address this potential problem, EPA is sponsoring research,  in collaboration with manufacturers and other stakeholders, to determine  which of these devices works properly with ethanol. EPA officials  currently expect test results to be available by the end of 2011.
section_title: Retailers May Face Significant Costs and Risks in Selling Intermediate Blends
paragraphs: According to several industry associations representing various groups,  such as fuel retailers and refiners, many fuel retailers may face significant  costs and risks in selling intermediate ethanol blends. According to these  industry representatives, retailers make very little money selling fuel—for  example, the national average profit from selling gasoline last year was 9  cents per gallon, according to industry data. Most retailers make most of  their profit selling merchandise such as food, beverages, and tobacco  products, according to these industry representatives, and gasoline is sold  below cost in some markets to attract customers to buy more profitable  goods. As a result, according to several industry representatives, most  retailers do not upgrade their fuel-storage and -dispensing equipment  without a significant market opportunity.
For these fuel retailers, the prospect of selling intermediate ethanol blends  presents several potential challenges. The first is cost. Some fuel retailers  may have to spend hundreds of thousands of dollars to upgrade their  equipment to store and dispense intermediate ethanol blends, for the  following reasons:    Under current OSHA regulations, most fuel retailers will need to replace at  least one dispenser system to sell intermediate ethanol blends. According  to estimates from EPA and several industry associations, installing a new  dispenser system compatible with intermediate ethanol blends will cost  over $20,000. According to some industry association representatives, a  typical fuel retailer has four dispensers and, therefore, would face costs  exceeding $80,000 to upgrade an entire retail facility.
Fuel retailers with inadequate records of their UST systems may have to  upgrade certain UST components to demonstrate compatibility with  intermediate ethanol blends. According to some industry association  representatives and information from DOE’s NREL, upgrading some  components would be less expensive than installing an entirely new UST  system. Taking this into consideration, EPA estimated an average cost of  $25,000 per retail facility to make the needed changes to underground  storage components. However, EPA cautioned that this cost scenario is  very speculative, given that the costs of modifying underground  components could vary greatly. According to EPA officials, most tank  owners will be able to demonstrate compatibility by replacing certain  portions of the UST system that are easily accessible (such as submersible  pumps, tank probes, pipe dope, and overfill valves). The costs for these  upgrades, including labor, can be as low as a few thousand dollars but may  increase if more extensive upgrades are required.
According to EPA and industry estimates, the total cost of installing a new  single-tank UST system compatible with intermediate ethanol blends is  more than $100,000. In addition to the high costs, some industry  association representatives stated that fuel retailers who have recently  installed new UST systems may be particularly reluctant to replace them,  especially since UST warranties can last for several decades, and the  useful life of these systems can be even longer. In Florida, for example,  fuel retailers were required to replace or upgrade all single-wall USTs by  December 31, 2009.
A second potential challenge consists of financial and logistical limitations  on the types of fuel a retailer may be able to sell. According to  representatives from several industry associations, most retail fueling  locations have only two UST systems, and many fuel retailers cannot  install additional UST systems due to space constraints, permitting  obstacles, or cost. Currently, fuel retailers with two UST systems can sell  three grades of gasoline: regular, midgrade, and premium. To accomplish  this, they typically use one of their tanks to store regular gasoline and the  other for premium, both of which are preblended with up to 10 percent  ethanol. They then use their dispensing equipment to blend fuel from both  tanks into midgrade gasoline. If fuel retailers with two UST systems want  to sell intermediate ethanol blends, however, they may face certain  limitations. For example, fuel retailers with two UST systems who want to  sell regular, midgrade, and premium gasoline could use the tanks to store  regular and premium grades of an intermediate blend, such as E15.  However, since EPA has only allowed E15 for use in model year 2001 and  newer automobiles, these retailers would not be able to sell fuel to  consumers for use in older automobiles and nonroad engines.
A third potential challenge relates to legal uncertainty among industry  groups, who are concerned they could be held liable for selling  intermediate ethanol blends. For example, according to representatives  we interviewed from several industry associations, fuel retailers have  received conflicting or confusing messages from different authorities as to  whether existing dispensing equipment can be lawfully used with  intermediate ethanol blends. According to these industry representatives,  this confusion is partly the result of UL’s 2009 announcement supporting  the use of blends containing up to 15 percent ethanol with existing  dispensing equipment. However, even if state or local officials—such as  fire marshals—approve the use of intermediate blends with existing  dispensers, the retailers selling these blends would still be effectively  ignoring OSHA’s regulations, which require the use of equipment that has  been certified for safety by a nationally recognized testing laboratory, such  as UL. As a result, several industry representatives raised concerns that  fuel retailers could expose themselves to lawsuits for negligence and  invalidate important business agreements that may reference these safety  requirements, such as tank insurance policies, state tank-fund policies,  and business loan agreements.
In addition, according to representatives from several industry  associations we interviewed, many fuel retailers are concerned that  consumer misfueling—using intermediate ethanol blends in nonapproved  engines—could raise liability issues, especially if the misfueling is  associated with negative outcomes, such as diminished engine  performance and safety problems. Because EPA has only allowed E15 for  use in model year 2001 and newer automobiles, representatives from  several industry associations stated that consumers may not be aware of  the distinction between approved and nonapproved engines, or they may  be confused about which fuel to use, thus complicating their experience at  retail fueling outlets and increasing opportunities for misfueling.  According to some industry and state government representatives, since  many automobile manufacturer warranties do not cover the use of  intermediate ethanol blends, even for the model year vehicles approved by  EPA for E15, consumers could be held responsible for the cost of any  repairs attributed to the use of E15.
One proposed method of mitigating the potential for misfueling is to label  fuels at retail outlets. In November 2010, EPA issued proposed labeling  requirements for ethanol blends as high as E15. According to its  proposed requirements, EPA is coordinating with the Federal Trade  Commission, which in March 2010 proposed labeling requirements for  ethanol blends containing greater than 10 percent and less than 70 percent  ethanol by volume. However, representatives from several industry  associations have raised concerns that labeling will not adequately address  potential misfueling. For example, some industry association  representatives stated that some consumers will not understand the label,  or the label might get lost among the other labels commonly found on  dispensers. Furthermore, industry association representatives said some  consumers will intentionally misfuel their automobiles if intermediate  ethanol blends are cheaper. For example, industry association  representatives stated some of their members have witnessed consumers  using E85 in nonflex-fuel vehicles, presumably because E85 is cheaper  than E10.
section_title: Federally Sponsored Studies Are Evaluating Effects of Using Intermediate Ethanol Blends in Automobiles and Nonroad Engines
paragraphs: With the possibility of introducing intermediate ethanol blends in the  nation’s motor-fuel supply, DOE began to study the effects of these fuels in  automobiles and nonroad engines in 2007. Specifically, in March 2007,  DOE’s Office of Energy Efficiency and Renewable Energy convened a  workshop of experts to evaluate progress and develop a strategy for  meeting the Bush Administration’s “20 in 10” initiative. The goal of the  initiative was to reduce U.S. gasoline usage by 20 percent over the next 10  years through increased use of alternative fuels and improved fuel  economy. One conclusion from the workshop was that increasing the  ethanol content in motor fuel to E15 or E20 would be the most effective  strategy over the short term. However, based on a review of existing  research, DOE’s ORNL found that almost no data existed on the effects of  E15 on automobiles, while only limited data existed on the effects of E20.
To address this data gap, DOE began working with EPA, the Coordinating  Research Council, Inc. (CRC), and other groups in 2007 to develop a list of  research projects to test the effects of E15 and E20 on automobiles and  nonroad engines. DOE, EPA, and CRC have provided about $51 million in  funding (for fiscal years 2007 through 2010) for ten research projects (see  table 2).
Of the six federally sponsored projects on automobiles, four projects are  ongoing and are expected to be completed in 2011. Two projects have  been completed—Project V1, which looked primarily at the effects of E15  and E20 on tailpipe emissions from automobiles, and Project V3, which  looked primarily at the effects of E20 on evaporative emissions from  automobiles. According to published reports, project findings included the  following:    Exhaust emissions. According to the 2009 DOE report for Project V1,  regulated tailpipe emissions from 16 automobiles (including model years  ranging from 1999 to 2007) remained largely unaffected by the ethanol  content of the fuel. Increasing the ethanol content of the fuel, however,  resulted in increased emission of ethanol and acetaldehyde. DOE has also  released all of the testing data from Project V4, which is looking at  emissions testing and aging on 82 automobiles (including model years  ranging from 2000 to 2009). EPA based its decision to allow E15 for use in  certain automobiles partly on these results. According to EPA’s decision,  model year 2000 and older automobiles do not have the sophisticated  emissions control systems of more recently manufactured automobiles,  and there is an engineering basis to believe they may experience emissions  increases if operated on E15.
Fuel economy. According to DOE’s report for Project V1, ethanol has  about 67 percent of the energy density of gasoline on a volumetric basis.  As a result, automobiles running on intermediate ethanol blends exhibited  a loss in fuel economy commensurate with the energy density of the fuel.  Specifically, when compared to using gasoline containing no ethanol, the  average reduction in fuel economy was 3.7 percent using E10, 5.3 percent  using E15, and 7.7 percent using E20.
Catalyst temperatures. According to the 2009 report for Project V1, 9 of  the 16 automobiles adjusted their air-to-fuel ratio at full power to  compensate for the increased oxygen content in the ethanol-blended fuel.  In these cases, the catalyst temperatures at equivalent operating  conditions were lower or unchanged with ethanol. Seven of the 16 tested  automobiles failed to adequately adjust their air-to-fuel ratio for the  increase in oxygen with E20 fuel compared with 100 percent gasoline at  full power. As a result, catalyst temperatures for these automobiles at full  power were between 29ºC and 35ºC higher with E20 relative to gasoline.  According to the report, the long-term effect of this temperature increase  on catalyst durability is unknown and requires further study.
Evaporative emissions. According to its 2010 report for Project V3, CRC  found that intermediate ethanol blends may increase evaporative  permeation emissions—fuel-related emissions that do not come from the  tailpipe—in older automobiles. CRC’s report was not based on statistically  significant comparisons, but it noted certain trends—for example,  compared to pure gasoline, E10 and E20 were associated with increased  evaporative emissions.
Of the four federally sponsored projects on nonroad engines, one (SE4) is  ongoing, and one (SE3) has been canceled. According to DOE, the  objective of Project SE4 is to determine the effects of E15 on the safety,  performance, and emissions of several popular marine and snowmobile  engines. The objective of Project SE3 was to assess the effects of  intermediate ethanol blends, including E15, on the safety and performance  of handheld small nonroad engines, including chainsaws. However,  according to DOE officials, the department decided in the summer of 2010  to defer Project SE3 indefinitely because the Outdoor Power Equipment  Institute—an industry association representing small nonroad engine  manufacturers and DOE’s major partner on the project—declined to  submit a proposal for conducting the testing. According to one official  with the Institute, this decision was based, in part, on EPA’s indication  that it would not allow E15 for use in small nonroad engines.
The two federally sponsored projects on nonroad engines that have been  completed—SE1 and SE2—were not conclusive, but indicated potential  problems with the use of intermediate ethanol blends in small nonroad  engines. Project SE1 was a pilot study of six commercial and residential  small nonroad engines, and Project SE2 tested 22 engines over their full  useful lives. According to the 2009 DOE report, the projects found that  with increasing levels of ethanol:    For all engines tested, exhaust and engine temperatures generally  increased.
Three handheld trimmers had higher idle speeds and experienced  unintentional clutch engagement, which DOE laboratory officials  identified as a potential safety concern that can be mitigated in some  engines by adjusting the carburetor.
For all engines tested, emissions of nitrogen oxides increased and  emissions of carbon monoxide decreased, while emissions of  hydrocarbons decreased in most engines, but increased for some.
EPA cited results from Projects SE1 and SE2 in its decision to not allow  the use of E15 in nonroad engines and other equipment. Specifically, in its  October 2010 decision, EPA stated that the results of these projects  indicated reasons for concern with the use of E15 in nonroad engines,  particularly regarding long-term exhaust and evaporative emissions  durability and materials compatibility. Moreover, the agency stated that  the application for use of E15 did not provide information to broadly  assess the nonroad engine and vehicle sector. EPA concluded that since  there are important differences in design between the various types of  nonroad engines, and since the agency was not aware of other information  that would allow it to fully assess the potential impacts of E15 on the  emission performance of nonroad products, it could not allow the use of  E15 in these engines.
Due to ongoing litigation, we did not evaluate the adequacy of these  federally sponsored projects. In November 2010, several trade groups  representing the oil and gas sector and the food and livestock industries  filed a lawsuit with the U.S. Court of Appeals for the District of Columbia  Circuit challenging EPA’s E15 waiver decision. According to the plaintiffs’  statement filed in January 2011, one key issue in the lawsuit is whether  EPA acted arbitrarily, capriciously, and in excess of its statutory authority  by relying on data that do not provide adequate support for its  conclusions, while ignoring extensive data contradicting its position. In  addition, in December 2010, several trade groups representing automobile  and small-engine manufacturers filed another lawsuit with the U.S. Court  of Appeals for the District of Columbia Circuit challenging EPA’s E15  waiver decision. The initial court documents did not provide details on  these groups’ rationale for challenging EPA’s waiver decision.
In addition to these federally sponsored projects, some nonfederal  organizations are conducting research on the effects of intermediate  ethanol blends in automobiles. Appendix II provides a description of these  organizations and a list of some of their published research. We did not  evaluate the results of these studies.
section_title: Conclusions
paragraphs: The RFS calls for increasing amounts of biofuels to be blended in the  nation’s transportation fuel supply, including up to 15 billion gallons of  ethanol made from corn starch and potentially billions of gallons of  additional ethanol made from cellulosic sources. EPA is responsible for  establishing and implementing regulations to ensure that the nation’s  transportation fuel supply contains the volumes of biofuels required by the  RFS. The agency is also tasked with ensuring that new fuels do not cause  or contribute to noncompliance with existing emissions standards when  used in automobiles and nonroad products. EPA recently allowed an  intermediate ethanol blend, E15, for use in model year 2001 and newer  automobiles, after determining that it would not cause these automobiles  to be out of compliance with emissions standards.
EPA, along with OSHA, is also responsible for ensuring that fuels are  compatible and safe for use with infrastructure at fueling locations.  However, the effects of intermediate ethanol blends on key components of  the nation’s retail fueling infrastructure—such as gaskets and seals in  dispensing equipment and UST systems—are not fully understood. A  recently published DOE report found that materials commonly used in  these gaskets and seals can swell when exposed to certain intermediate  ethanol blends, potentially causing leaks.
In the case of fuel-dispensing equipment, some newer equipment meets  OSHA safety regulations for use with intermediate ethanol blends, as this  equipment has been tested and certified by UL for compatibility. Most  existing equipment at retail fueling locations in the United States,  however, is not approved for use with intermediate blends. Until recently,  OSHA had been exploring ways to allow fuel retailers to use existing  equipment with intermediate blends while still meeting OSHA’s safety  requirements. In light of the recent DOE-sponsored research, OSHA  officials are re-evaluating the use of existing equipment with intermediate  blends. However, the agency has not clarified when it will make an official  decision. Without clarification from OSHA on how its safety regulations on  fuel-dispensing equipment should be applied to fuel retailers selling  intermediate ethanol blends, the retail fuel industry faces uncertainty in  how it can provide such blends to consumers while meeting OSHA safety  regulations.
In the case of UST systems, fuel retailers can purchase new equipment— certified by UL or the equipment manufacturer for use with intermediate  ethanol blends—to meet EPA regulations for compatibility. However,  many existing UST systems may not be fully compatible with intermediate  blends, and inadequate records may make it difficult for many retailers to  verify the compatibility of their UST systems. Due to these concerns, and  in light of the recent DOE-sponsored research, EPA is in the process of  issuing guidance to clarify how its UST regulations apply to the use of  intermediate blends. While DOE is conducting studies on the compatibility  of UST materials with intermediate blends, and while EPA plans to  conduct a study limited to experts’ views on the subject, EPA officials  have acknowledged that additional research, including research on the  suitability of specific UST components with intermediate blends, will be  needed to facilitate a transition to storing intermediate ethanol blends.  Without this effort, the retail fuel industry faces uncertainty in how it can  provide intermediate blends to consumers.
section_title: Recommendations for Executive Action
paragraphs: We are making the following two recommendations:    To reduce uncertainty about the applicability of federal safety regulations,  we recommend that the Secretary of Labor direct the Assistant Secretary  for Occupational Safety and Health to issue guidance clarifying how  OSHA’s safety regulations on fuel-dispensing equipment should be applied  to fuel retailers selling intermediate ethanol blends.
To reduce uncertainty about the potential environmental impacts of  storing intermediate ethanol blends at retail fueling locations, we  recommend that the Administrator of EPA determine what additional  research, such as research on the suitability of specific UST components,  is necessary to facilitate a transition to intermediate ethanol blends, and  work with other federal agencies to develop a plan to undertake such  research.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided copies of our draft report to EPA, the Department of Labor,  DOE, and DOT for comment. In written comments, EPA generally agreed  with the information and findings but expressed concern about our  recommendation (as worded in the draft report). Specifically, EPA stated  that while it believed a targeted approach to conducting additional  research will be important to accommodate the move to higher ethanol  blends, there will always be uncertainty concerning the compatibility of  legacy UST equipment with intermediate ethanol blends given the  multitude of factors involved (e.g., the age and prior use of UST  equipment, and the number of UST system components). EPA stated that  it planned to continue to work with other federal agencies and  stakeholders to assist tank owners in safely transitioning to new fuels, and  that additional research may be necessary to facilitate that transition. We  agree with this characterization of the issue and have revised the draft  recommendation to reflect EPA’s suggestions. In addition, in written  comments, the Department of Labor concurred with our findings and our  recommendation. EPA’s written comments are reprinted in appendix III,  and the Department of Labor’s written comments are reprinted in  appendix IV. EPA and the Department of Labor also provided technical  clarifications, which we incorporated as appropriate. DOE and DOT did  not provide formal written comments but provided technical clarifications,  which we incorporated as appropriate.
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If you or your staff members have any questions about this report, please  contact me at (202) 512-3841 or ruscof@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report. GAO staff who made major contributions to this  report are listed in appendix V.
section_title: Appendix I: Scope and Methodology
paragraphs: To determine the challenges associated with transporting additional  volumes of ethanol to wholesale markets to meet Renewable Fuel  Standard (RFS) requirements, we interviewed relevant government,  industry, academic, and research officials. We also reviewed relevant  government reports and studies, industry reports, and academic and  research literature. In particular, we asked a nonprobability sample of  knowledgeable stakeholders, among other things, to discuss the  challenges, if any, associated with transporting additional volumes of  ethanol to wholesale markets. We also asked these stakeholders to  identify key studies and other knowledgeable stakeholders on this topic.  We selected these stakeholders using a “snowball sampling” technique,  whereby each stakeholder we interviewed identified additional  stakeholders and stakeholder organizations for us to contact. Specifically,  based, in part, on our recent work, we first interviewed stakeholders from  the Environmental Protection Agency (EPA); the Departments of  Agriculture (USDA), Energy (DOE), and Transportation (DOT); the  Renewable Fuels Association; the American Petroleum Institute; the  Alliance of Automobile Manufacturers; the Association of Oil Pipe Lines;  and the Outdoor Power Equipment Institute. We then used feedback from  these interviews to identify additional stakeholders to interview. Over the  course of our work, we interviewed officials from the following federal  agencies: DOE Office of the Biomass Program, DOE Office of Vehicle  Technologies Program, DOT Research and Innovative Technology  Administration, DOT Pipeline and Hazardous Materials Safety  Administration, DOT Federal Railroad Administration, DOT Federal Motor  Carrier Safety Administration, DOT Maritime Administration, EPA Office  of Research and Development, EPA Office of Solid Waste and Emergency  Response, EPA Office of Transportation and Air Quality, USDA  Agricultural Research Service, and USDA Economic Research Service. We  also interviewed state officials from the Minnesota State Fire Marshal  Division and the Office of North Carolina State Fire Marshal. We  interviewed industry representatives from the following organizations: the  American Petroleum Institute, the Association of American Railroads, the  Association of Oil Pipe Lines, Growth Energy, Independent Fuel Terminal  Operators Association, Kinder Morgan, the National Petrochemical and  Refiners Association, the National Tank Truck Carriers, American  Trucking Associations, and the Renewable Fuels Association. We also  made several attempts to speak with representatives from an industry  association representing barge operators but were not able to schedule an  interview during the time frame of our audit. Finally, we interviewed  academic and research stakeholders from Carnegie Mellon University, the  Energy Policy Research Foundation, the James A. Baker III Institute for  Public Policy of Rice University, the Pipeline Research Council  International, and TRC Energy Services. During these interviews,  knowledgeable stakeholders identified a number of studies related to our  work. Of these studies, we identified the following three studies as being  directly relevant to our scope of analysis: (1) the National Commission on  Energy Policy’s Task Force on Biofuels Infrastructure, (2) EPA’s  Renewable Fuel Standard Program (RFS2) Regulatory Impact Analysis,  and (3) DOE’s Report to Congress: Dedicated Ethanol Pipeline Feasibility  Study. We examined these three studies and determined that they are  sufficiently reliable for our purposes based on interviews with  contributors to these studies, comparisons of estimates with other  sources, and checking selected calculations.
To determine the challenges associated with selling intermediate ethanol  blends at the retail level, we reviewed relevant presentations, analyses,  reports, and other documents from various federal and state agencies,  federal research laboratories, and industry associations, including the  American Petroleum Institute and the National Association of  Convenience Stores. We also selected a nonprobability sample of  knowledgeable stakeholders to interview using the same “snowball  sampling” technique described for our first objective. In particular, we  asked these stakeholders, among other things, to discuss the challenges, if  any, associated with selling intermediate ethanol blends at the retail level.  We also asked these stakeholders to identify key studies and other  knowledgeable stakeholders on this topic. Over the course of our work,  we interviewed officials from the following federal laboratories and  agencies: DOE National Renewable Energy Laboratory (NREL), DOE Oak  Ridge National Laboratory (ORNL), DOE Office of the Biomass Program,  DOE Office of Vehicle Technologies Program, EPA Office of Research and  Development, EPA Office of Transportation and Air Quality, EPA Office of  Underground Storage Tanks, the Department of Labor’s Occupational  Safety and Health Administration, the National Institute of Standards and  Technology, USDA Agricultural Research Service, and USDA Economic  Research Service. We also interviewed state officials from the California  Air Resources Board, the Minnesota State Fire Marshal Division, Northeast  States for Coordinated Air Use Management, and the Office of North  Carolina State Fire Marshal. We interviewed representatives from the  following industry associations: Growth Energy, the Renewable Fuels  Association, the American Petroleum Institute, the National Association of  Convenience Stores, the Society of Independent Gasoline Marketers of  America, the National Association of Truck Stop Operators, the Petroleum  Marketers Association of America, and the National Petrochemical and  Refiners Association. Finally, we interviewed stakeholders from the  following research and standards development organizations: ASTM  International, Sierra Research, Inc., and Underwriters Laboratories (UL).  We also conducted site visits to the research centers responsible for  coordinating federal studies on the effects of intermediate ethanol blends  on materials and components used in retail fuel storage and dispensing  equipment. Specifically, we visited NREL facilities in Golden, Colorado;  and ORNL facilities near Knoxville, Tennessee. During these site visits, we  interviewed researchers conducting studies on the effects of intermediate  ethanol blends on materials and components used in retail fuel-storage  and -dispensing equipment. We asked these researchers to discuss  available test results and the status of their testing efforts for these  studies. We also toured some of the research facilities where testing was  being conducted for these studies.
To examine research by federal agencies into the effects of intermediate  ethanol blends on the nation’s automobiles and nonroad engines, we  reviewed relevant presentations, analyses, reports, and other documents  from various federal and state agencies; NREL; ORNL; and industry  associations, including the American Coalition for Ethanol, the National  Marine Manufacturers Association, and the Outdoor Power Equipment  Institute. In addition, we reviewed relevant studies and reports from  academic groups and private research organizations, including the  Coordinating Research Council, Inc., Minnesota State University, Mankato;  and the Rochester Institute of Technology. We also selected a  nonprobability sample of knowledgeable stakeholders to interview using  the same “snowball sampling” technique described for our first objective.  In particular, we asked these stakeholders, among other things, to identify  research by federal agencies and others into the effects of intermediate  ethanol blends on the nation’s automobiles and nonroad engines. Over the  course of our work, we interviewed officials from the following federal  agencies and laboratories: DOE Office of Vehicle Technologies Program,  NREL, ORNL, EPA Office of Research and Development, and EPA Office  of Transportation and Air Quality. We also interviewed state officials from  the California Air Resources Board and Northeast States for Coordinated  Air Use Management. We interviewed representatives from the following  industry associations: the American Petroleum Institute, Growth Energy,  the Renewable Fuels Association, the Alliance of Automobile  Manufacturers, the Association of International Automobile  Manufacturers, Inc., the Outdoor Power Equipment Institute, the Engine  Manufacturers Association, the National Marine Manufacturers  Association, and the International Snowmobile Manufacturers  Association. Finally, we interviewed stakeholders from the following  academic and research organizations: the Coordinating Research Council,  Inc.; the Rochester Institute of Technology; and Minnesota State  University, Mankato. We also conducted site visits to the research centers  responsible for coordinating federal studies on the effects of intermediate  ethanol blends on automobiles and nonroad engines. Specifically, we  visited NREL facilities in Golden, Colorado; and ORNL facilities near  Knoxville, Tennessee. We also visited a private research facility in Aurora,  Colorado, where some of the automobile testing for federal studies has  taken place. During these site visits, we interviewed researchers  conducting studies on the effects of intermediate ethanol blends on  automobiles and nonroad engines. We asked these researchers to discuss  available test results and the status of their testing efforts for these  studies. We also toured some of the research facilities where testing was  being conducted for these studies. Due to ongoing litigation over EPA’s  decision to allow ethanol blends with 15 percent ethanol (E15) for use  with certain automobiles, we did not evaluate any research by federal  agencies and others into the effects of intermediate ethanol blends on  automobiles and nonroad engines.
We conducted this performance audit from April 2010 to June 2011, in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives.
section_title: Appendix II: Studies by Nonfederal Organizations on the Effects of Intermediate Ethanol Blends in Automobiles
paragraphs: Nonfederal organizations are conducting research on the effects of  intermediate ethanol blends in automobiles. For example, in addition to  the research the Coordinating Research Council, Inc. (CRC) is conducting,  in coordination with DOE and EPA, it has both ongoing and completed  research projects on a range of related topics, including evaporative and  exhaust emissions for various intermediate ethanol blends. A CRC  representative told us that it expects to complete these projects by early  2012. Based on this research, CRC has published 10 reports as of March  2011 (see table 3).
Two academic organizations have also conducted research on  intermediate ethanol blends in automobiles. Specifically, the Minnesota  Center for Automotive Research at Minnesota State University, Mankato,  has issued five studies looking at the effects of ethanol blends containing  20 percent ethanol (E20) on fuel system components. These studies  received funding from the Minnesota Department of Agriculture and  appear on the department’s Web site. In addition, the Center for  Integrated Manufacturing Studies at Rochester Institute of Technology in  New York has studied the effects of E20 on automobile exhaust,  drivability, and maintenance, with funding from DOT. To date, the center  has published one report and expects to publish at least two more later in  2011, along with a final summary report to DOT.
section_title: Appendix III: Comments from the Environmental Protection Agency
section_title: Appendix IV: Comments from the Occupational Safety and Health Administration
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Tim Minelli (Assistant Director),  Nirmal Chaudhury, Cindy Gilbert, Chad M. Gorman, Jason Holliday,  Michael Kendix, Ben Shouse, Barbara Timmerman, and Jack Wang made  key contributions to this report.