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There are three federal initiatives currently underway that will definitely impact gasoline and diesel retailers: new ground-level ozone standards, E15 and climate legislation.
State governments are required to take action when ground-level ozone (smog) standards are made more stringent by the Environmental Protection Agency (EPA). History tells us states usually implement new restrictions on gas, and these often addcosts and disrupt the retail marketplace. The most common action is for a state to expand areas required to sell reformulated gasoline (RFG), and RFG can create marketplace problems.
There are currently more than 600 U.S. counties classified by the EPA as being in non-attainment of national air quality standards, and many of these are areas where retailers now must sell RFG. In the last year of the Bush administration, the EPA adopted tighter ground-level ozone rules, which will certainly push more counties towards RFG.
As these new regulations were adopted in 2008, many environmental groups protested, claiming the new standards were not stringent enough, and the Obama administration now agrees with these environmental groups. The administration decided to tighten the rules even more, which could add a bunch of new counties to the RFG rolls. If adopted, the new EPA rules will force a previously unthinkable expansion of RFG markets, and it is likely that southern states will be hit the hardest.
The second initiative of concern to retailers is E15. It now appears likely the EPA will approve, in limited circumstances, the sale and distribution of gasoline with 15 percent ethanol. EPA Administrator Lisa Jackson indicated it will likely approve E15for automobiles and light duty trucks manufactured after 2001, and the approval could happen as early as August 2010.
As retailers learn about E15, they certainly must question how this could ever work. It is important to note the EPA will not require E15 to be offered for sale, but only that retailers can sell it if they want to for use in newer vehicles.
PMAA's Alternative Fuels Task Force has worked hard to plan for and anticipate the myriad challenges retailers will face if they decide to offer E15. One of the greatest barriers will be infrastructure restrictions.Currently, there are no gasoline dispensers in use that have been third-party (UL) certified for E15. Most dispensers in use today have only been certified for the use of ethanol up to 10 percent. Additionally, questions arise about underground storage tanks and piping, and it is also likely those items have not been certified for mid-level ethanol use.
So, it will really boil down to financial incentives. Will the E15 financial incentives for retailers justify the risks or costs that must be taken? There will be mis-fueling, legal and other liability risks. There will be infrastructure upgrading or replacement costs. PMAA is urging Congress to ease those risks for retailers, but there is significant resistance. In the interim, when the EPA approves E15, its use will depend on financial incentives. Will the retail financial benefits exceed the risks and costs?
The third initiative is climate legislation. Many politicians believe carbon dioxide emissions from fossil fuels are contributing to climate change, and as a result, the Obama administration and congressional leaders want to reduce gasoline and diesel consumption by 20 percent by 2020. Retailers who have suffered through this recession fully understand the consequences of loss volume, and a 20-percent loss in volume cannot be made up with renewable fuels in the near future. Therefore $5 gasoline is on the horizon if climate legislation is enacted. Dan Gilligan began service as PMAA president in 1998 and has 30 years of experience as a lobbyist and association executive. He earned and maintains his certification as a Certified Association Executive (CAE), which is awarded by the American Society of Association Executives.