Regulation of Fuels and Fuel Additives: Renewable Fuel Standard ...
Regulation of Fuels and Fuel Additives: Renewable Fuel Standard ...
Regulation of Fuels and Fuel Additives: Renewable Fuel Standard ...
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the capital cost <strong>of</strong> making the necessary upgrades to the fuel distribution infrastructure<br />
system, <strong>and</strong> 2) the ongoing additional freight costs associated with shipping ethanol to<br />
terminals. The most comprehensive study <strong>of</strong> the infrastructure requirements for an<br />
exp<strong>and</strong>ed fuel ethanol industry was conducted for the Department <strong>of</strong> Energy (DOE) in<br />
2002 . 72 That study provided the foundation for our estimates <strong>of</strong> the capital costs<br />
associated with upgrading the distribution infrastructure system as well as the freight<br />
costs to h<strong>and</strong>le the increased volume <strong>of</strong> ethanol needed to meet the requirements <strong>of</strong> the<br />
RFS in 2012. Distribution costs are evaluated here for the case where the minimum<br />
volume <strong>of</strong> ethanol is used to meet the requirements <strong>of</strong> the RFS (7.2 bill gal/yr) <strong>and</strong> for the<br />
projected case where the volume <strong>of</strong> ethanol used is 9.6 bill gal/yr. The 2012 reference<br />
case against which we are estimating the cost <strong>of</strong> distributing the additional volume <strong>of</strong><br />
ethanol needed to meet the requirements <strong>of</strong> the RFS is 3.9 billion gallons.<br />
a. Capital Costs To Upgrade Distribution System For Increased Ethanol<br />
Volume<br />
The 2002 DOE study examined two cases regarding the use <strong>of</strong> renewable fuels for<br />
estimating the capital costs for distributing additional ethanol. The first assumed that 5.1<br />
bill gal/yr <strong>of</strong> ethanol would be used in 2010, <strong>and</strong> the second assumed that 10 bill gal/yr <strong>of</strong><br />
ethanol would be used in the 2015 timetable. We interpolated between these two cases to<br />
provide an estimate <strong>of</strong> the capital costs to support the use <strong>of</strong> 7.2 bill gal/yr <strong>of</strong> ethanol in<br />
2012. 73 The 10 bill gal/yr case examined in the DOE study was used to represent the<br />
projected case examined in today’s rule <strong>of</strong> 9.6 bill gal/yr <strong>of</strong> ethanol. 74 Table VII.B.1.a-1<br />
contains our estimates <strong>of</strong> the infrastructure changes <strong>and</strong> associated capital costs for the<br />
two ethanol use scenarios examined in today’s rule. Amortized over 15 years, the total<br />
capital costs equate to approximately one cent per gallon. We performed a sensitivity<br />
analysis where we increased reliance on rail use at the expense <strong>of</strong> barge use in<br />
transporting ethanol. The costs were relatively insensitive, increasing to just 1.1 cents per<br />
gallon<br />
72<br />
Infrastructure Requirements for an Exp<strong>and</strong>ed <strong>Fuel</strong> Ethanol Industry, Downstream Alternatives Inc.,<br />
January 15, 2002.<br />
73<br />
See Chapter 7.3 <strong>of</strong> the Draft Regulatory Impact Analysis associated with today’s rule for additional<br />
discussion <strong>of</strong> how the results <strong>of</strong> the DAI study were adjusted to reflect current conditions in estimating the<br />
ethanol distribution infrastructure capital costs under today’s rule.<br />
74<br />
For both the 7.2 bill gal/yr <strong>and</strong> 9.6 bill gal/yr cases, the baseline from which the DOE study cases were<br />
projected was adjusted to reflect a 3.9 bill gal/yr 2012 baseline.<br />
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