Ethanol still in gas, even with new law

If Hawaii motorists want ethanol-free gasoline they will have to demand it, and they may have to pay extra for it.

Effective Friday, Gov. David Ige and the state Legislature eliminated the state requirement that most gasoline sold here must be blended with ethanol. However, Hawaii’s largest refinery plans to continue blending ethanol into gasoline sold here anyway.

Lance Tanaka, director of government and public affairs for Hawaii Independent Energy, said federal Renewable Fuels Standards approved by Congress still require refineries to either blend biofuels with the gasoline they produce, or purchase “credits” on the national market if they decide not to blend.

Buying those credits would impose an extra cost if the company were to stop blending, and that cost would be passed on to Hawaii consumers. The company is a subsidiary of Par Pacific Holding Inc., and operates the state’s largest refinery.

Al Chee, spokesman for Chevron Hawaii, declined to divulge Chevron’s plans, other than to say it will produce gasoline that is “perfectly fine” for vehicles, and will meet the demands of the marketplace. Chevron operates the second-largest refinery in the state, and produces more than half the gasoline consumed by motorists here.

Chee said Chevron will listen to its customers, which include retailers such as Aloha Petroleum Ltd. that buy gasoline from the Chevron refinery.

“At the end of the day, we need to supply our customers, those other than our own brand, what they determine to be the product they want to sell,” he said. “I’m not aware of anybody requesting anything different at this point in time.”

State lawmakers originally imposed the 10 percent ethanol blending requirement in Hawaii in 2006 to try to revive the local sugar industry and make the state more energy self-sufficient.

Under a state mandate, almost all gasoline sold in Hawaii includes 10 percent ethanol, an alcohol-based fuel that can be made from sugar or corn. The state also offered generous tax credits to encourage development of an ethanol production facility in Hawaii that would be supplied with local feedstock.

The hope was that one or more local businesses would spring up to produce ethanol from sugar for transportation fuel, and optimists suggested Hawaii ethanol production could attract more than $100 million in investment and generate 700 jobs.

That didn’t happen. No ethanol plant was built in Hawaii, and by 2009 the state was importing 45 million gallons of ethanol a year.

Blending gas and ethanol can gum up or damage small engines, and motorists unhappy with the ethanol mandate have been complaining to state lawmakers. The Legislature voted to repeal the state ethanol blending requirement during its 2015 session.

How Hawaii’s refineries respond to that change in the state law will depend on a variety of factors including the price of the federal credits, the price of oil and the price of ethanol.

“If ethanol continues to increase in price, of course that may provide us with a slightly different view of what would be more economical for us to do,” Tanaka said.

Another consideration is the cost of refining gasoline at different octane levels. Refineries now produce a gasoline with lower octane levels, and then blend it with ethanol to increase the octane levels to meet the standards required by the federal government.

That “sub-octane” gasoline is cheaper to refine than higher octane gasoline that meets the federal octane requirements. That is another consideration that has to be weighed in deciding whether to produce low octane gasoline and blend it with ethanol, or simply produce a higher octane non-ethanol gas.

Apart from the considerations of the cost of gasoline and ethanol, there is also the issue of the operational costs of blending. Tanaka said the refinery is tooled to produce the sub-octane fuel, and there are additional equipment maintenance costs if the refinery shifts to produce higher octane gasoline.

Chee said, “You really can’t change these things on a moment’s notice. There are a lot of economic ramifications every time you change the configuration of the refinery.”

In the meantime, Tanaka said, HIE does sell gasoline without ethanol at some of its 76 stations, “but it comes at a premium” because of the additional costs. The state’s ethanol mandate authorized sales of gasoline without ethanol if the use of ethanol would cause “undue hardship.”

The bottom line is that unless there is a sudden, unexpected outcry from Hawaii motorists who want straight gasoline for their engines, imported ethanol will continue to be mixed into Hawaii’s gasoline.

“Everybody’s going to make a decision as to what’s in their best interest as a company in response to what consumers are asking for,” Chee said. “Everybody’s got the same decision.”

State House Commerce and Consumer Protection Chairman Angus McKelvey said the federal requirement to blend biofuels makes little sense because national research shows producing ethanol consumes energy and water and produces pollution that offset any environmental benefits from the fuel. Vehicles running on ethanol blend also have poorer fuel efficiency than unblended gasoline, he said.

However, McKelvey said the state Legislature can’t do much about that other than pass a resolution asking for an end to the federal renewable fuels blending requirement. “Until we can get rid of this federal mandate, unfortunately ethanol-free gas will be more expensive than the ethanol blend,” he said.