In 2023, approximately forty percent of corn produced in the United States (“U.S.”) was used for ethanol production. The top three ethanol producing states are Iowa, Nebraska, and Illinois, which are also three of the top corn producing states in the U.S. To promote corn and ethanol production in their states, the Governor’s of eight states, including Iowa, Nebraska, and Illinois, petitioned the Environmental Protection Agency (“EPA”) to rescind their 1-psi gas volatility waiver in order to allow these states to sell E15 gasoline during the summer months. The Governors of the eight petitioning states claim that E15 gasoline is cheaper for consumers and produces fewer emissions than E10 gasoline. Additionally, increasing the percentage of ethanol in blended gasoline would likely benefit corn and ethanol producers in the states.
The 1-psi waiver allows states to sell E10 gasoline during the summer months at 10-psi Reid Vapor Pressure (“RVP”) instead of at the 9-psi RVP level used for other gasoline types. The 1-psi waiver was necessary because blending ethanol into conventional gasoline increases the volatility of the final product. E15 gasoline contains a higher percentage of ethanol than E10 gasoline and the D.C. Circuit held that E15 cannot be sold under the 1-psi waiver. That case will be discussed in further detail below. In 2024, EPA published a final rule addressing the eight states’ petition to remove the 1-psi waiver.
Background
The Clean Air Act (“CAA”) was passed in 1963 and is the primary federal regulation of air pollutants, including fuel and fuel additives. In 1990, amendments to the CAA were passed that, among other things, established the summer gas standard “to reduce volatile organic compound emissions that contribute to the formation of smog.” The RVP of gasoline must be at or below nine pounds per square inch (“psi”) between June first and September fifteenth for retailers and wholesale purchaser consumers. For everyone else, the RVP must be at that level between May first and September fifteenth. In the 1990s amendments, EPA also established the 1-psi waiver for E10 gasoline, discussed above, which contains ten percent ethanol. According to EPA, “adding 10 percent ethanol to gasoline causes roughly a 1.0 psi RVP increase in the blend’s volatility, which is the premise for the 1-psi waiver contained in [the CAA].” States and territories can request the 1-psi waiver from EPA and waivers are granted on a state-by-state basis.
The CAA also provides a provision requiring EPA to rescind the 1-psi waiver if the waiver will increase emissions in a state. If the Governor of a state provides notification and supporting documentation that the 1-psi waiver increases emissions and contributes to air pollution in that state, EPA must rescind the waiver. If EPA determines that there will be an insufficient supply of gasoline due to rescinding the 1-psi waiver, it may delay rescinding the waiver. EPA has interpreted “insufficient supply” as requiring a “demonstration that gasoline supply disruptions would result from removal of the 1-psi waiver, such that necessary quantities of gasoline may not be available in the States at the time they are required.”
State Governors’ Petition to EPA
In 2022, the Governors of Iowa, Nebraska, Illinois, Ohio, Minnesota, Missouri, South Dakota, and Wisconsin petitioned EPA, requesting that EPA remove the 1-psi waiver for these eight states beginning in summer 2023. The 1-psi waiver allows states to sell E10 gas at 10-psi RVP during the summer high-ozone period, which is 1-psi higher than allowed under the regulations. According to the petitioning Governors, the waiver allowing for a 1-psi increase in gasoline volatility during the summer months leads to an increase in emissions in their states. For this reason, the Governors requested that EPA rescind the 1-psi waiver. A Governor has never requested removal of the 1-psi waiver, so EPA is interpreting the provision of the CAA regarding removing the waiver for the first time.
In 2019, EPA issued a rule that allowed E15 gasoline to be produced and sold under the 1-psi waiver. However, two years later, the D.C. Circuit vacated that rule in a decision titled American Fuel and Petrochemical Manufacturers v. EPA, 3 F.4th 373 (D.C. Cir. 2021). The plaintiffs in that case claimed that under the CAA, the 1-psi waiver cannot apply to blends of gasoline with more than ten percent ethanol because the statute “authorizes EPA to grant a 1-psi waiver to a particular type of fuel: ‘blends containing gasoline and 10 percent denatured anhydrous ethanol’.” The court agreed with the plaintiff’s interpretation of the statute and held that E15 gasoline cannot be produced under the 1-psi waiver. The Governor’s of these eight states are looking for a way to sell E15 gasoline long-term and the states cannot rely on the 1-psi waiver to sell E15 gasoline. Therefore, they are asking for EPA to rescind the 1-psi waiver for each state.
Iowa and Nebraska filed suit against EPA in 2023 challenging EPA’s failure to act on the 2022 petition. The court has not ruled on this case, and it is unclear what effect the 2024 final rule will have on the case. A prior NALC article discusses the case more in-depth.
EPA Rule
On February 29, 2024, EPA published a final rule addressing the eight states’ petition to remove the 1-psi waiver. The final rule delays rescinding the states’ petitions until April 28, 2025. At that time, the petitioning states will be required to sell gasoline with an RVP of 9-psi during the high-ozone months instead of relying on the 1-psi waiver to increase the RVP to 10-psi. Therefore, if these states choose to sell E15 during the high-ozone months, refineries will need to produce a lower volatility conventional gasoline because it will be blended with a higher percentage of ethanol.
Additionally, the final rule amends the gasoline standards regulations to reflect the court’s ruling in American Fuel and Petrochemical Manufacturers v. EPA. The final rule amends the regulations to indicate that the 1-psi waiver can only be used for gasoline blended with between nine and ten percent ethanol. Lastly, the final rule provides a mechanism for states to request a reinstatement of the 1-psi waiver.
Looking Forward
The Congressional delegation from Iowa sent Administrator Regan a letter on February 27, 2024, requesting that instead of delaying implementation of the rule until 2025, EPA implement the rule by March 31, 2024. EPA first delayed the effective date of the final rule until April 2024 due to finding of low gasoline inventory, the limited time to make changes to gasoline infrastructure, and the loss of supply to make the low volatility gasoline. EPA is now delaying the effective date until April 28, 2025, due to similar reasons.
This final rule will primarily affect the operations of entities involved in the production, distribution, and sale of transportation fuels. To increase the percentage of ethanol blended with conventional gasoline, refineries will need to modify their facilities to produce lower volatility conventional gasoline. Refineries that exclusively serve the petitioning states will see little impact other than updating their processes to produce the lower volatility gas. Refineries serving both petitioning and non-petitioning states will likely need additional storage systems for the new lower volatility gasoline, which will take time and capital to construct. There will also be some distribution impacts from creating the E15 blended gasoline. Lastly, allowing for year-round E15 sales will likely benefit producers who grow corn for ethanol production because the refineries will be able to acquire additional ethanol.
To read EPA’s final rule, click here.
To read the text of the CAA, click here.
For more NALC articles on Renewable Energy, click here.
For more NALC resources on biofuels and the CAA, click here.