It's Really Not Complicated

By John Eichberger | July 2016

My first job that touched the energy space was as a legislative assistant for a congressman from Iowa. Within my first couple of weeks, I received a question from a constituent – "Does the congressman support ethanol?" Not having a clue, I turned to my legislative director who responded simply, "We’re from Iowa." (In other words, he was saying - "Duh, idiot.")

I had no background in grain agriculture or motor fuels and had no clue what ethanol was or why someone from Iowa would support it. Yes, you might say I was living under a rock – but it was only 1998. I had no clue then what an influence ethanol would have on my career.

For the next two years, I was a tireless advocate for expanding market opportunities for this farm-grown fuel alternative, pushing policies that would ensure a return for corn farmers and elevate ethanol to a prominent position within the transportation energy sector of the United States. This was before the Renewable Fuel Standard (both of them) and long before ethanol comprised 10% of nearly every gallon of gasoline sold in the U.S.

For context, remember the first RFS passed in 2005 established a market objective of 7.5 billion gallons by 2012 – the starting point was 4 billion gallons in 2006, which at the time was considered a significant increase in market share.

Fast-forward to today. More than 10 years after the first RFS was established and we are no longer talking about how to bring 4 billion gallons of ethanol to market. Instead, we are looking at the near ubiquitous use of ethanol in gasoline with the fuels market comprised of approximately 14 billion gallons each year, more than 3,000 retail locations selling E85 and close to 1,000 now selling E15 – with more coming online. Beyond that, the auto industry is looking at the prospects for a high octane fuel to enable more efficient engines and many of the research models are analyzing the potential use of E25 to satisfy that demand. And for retailers, it now is easy to acquire dispensers that are listed as compatible with E25 without a significant increase in expense. (Of course, retailers must be certain their underground equipment is compatible with the fuel they wish to sell.)

The market has evolved and provided opportunities for this alternative fuel that was such a small factor when I started in this sector that I did not even know what it was. Evolution, however, does not occur in isolation.

After leaving the Hill for NACS, instead of pounding the ethanol drum I spent years pointing out the challenges facing retailers with an expanding ethanol market. My friends in the ethanol community have at times labeled me a "leading opponent of ethanol in Washington, DC," "one of the most negative people I have ever heard," and "so pessimistic about everything." In response to such characterizations, I have always pointed out that if you don’t identify the hurdles standing in front of your opportunities, how can you possibly overcome them?

Today, there remain hurdles and detractors to ethanol, debates and arguments, accusations and sensitivities - but the fact is the market is now responding because the hurdles are being overcome.

For any fuel product, government support programs might make sense in the early stages of market development, but the key will be to convince consumers to use the product and demonstrate to retailers their ability to make money selling it. Recent announcements by leading retail companies that they will be offering E15 is evidence that if a business case can be established, the market will respond. (Check out this video prepared by the American Coalition for Ethanol seeking to explain to retailers why they should consider E15 as an option.)

This is a great lesson for every competing new transportation energy technology seeking to penetrate the market. The answer to successful market introduction is demand and return on investment. If consumers want to purchase a product (or if they can be convinced they want to do so) and if retailers can realize a return on investment, the market will respond. The chicken and egg situation must always be considered – consumers won’t buy a car that they cannot refuel and retailers will not offer an energy solution with no demand. But once these fit, the opportunities can expand.

In part, the Fuels Institute was established to create a forum through which hurdles to new opportunities can be identified in a collaborative way, questions about the nature of those hurdles can be answered without bias, and businesses and policymakers can make more informed decisions about how they wish to address those hurdles. It is a role that is critical to market evolution.

This is a very exciting time to be engaged in the fuels and vehicles industries, so many things are happening simultaneously that it can be a bit overwhelming to stay on top of it all. But through all the noise, the fundamentals for each new opportunity do not change – will the consumer buy it, and can businesses sell it? At the end of the day, it really is not very complicated.

Read more from the July Issue of our Fuel for Thought newsletter.