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The Pennsylvania State University

The Graduate School

Department of Agricultural and Biological Engineering

U.S. RETAIL FUEL COMPANIES’ PERCEPTIONS REGARDING THE ADOPTION-DIFFUSION OF

HIGHER ETHANOL FUEL BLENDS

A Thesis in

Bio Renewable Systems

Jessica L. Boden

Submitted in Partial Fulfillment of the Requirements for the Degree of

Master of Science

August 2018

The thesis of Jessica L. Boden was reviewed and approved* by the following:

Paul. M. Smith Professor of Bioproducts Marketing Bio Renewable Systems Graduate Coordinator

Nicole R. Brown Associate Professor of Wood Chemistry

Ralph A. Oliva Professor of Marketing

*Signatures are on file in the Graduate School.

Abstract

Due to climate change concerns and related greenhouse gas (GHG) emissions from combustion of fossil fuels, the U.S. federal government has established a variety of mechanisms to encourage renewable transportation fuels, such as corn-grain ethanol, into the petro-gasoline transportation fuel supply chain. In 2017, nearly 16 billion gallons of corn-grain ethanol accounted for approximately 10 percent of the total U.S. transportation fuel supply, but is currently constrained by the maximum 10 percent blend allowed in E10 fuels, referred to as the “blend wall”. To increase the amount of ethanol sold per year, the EPA approved the sale of E15 fuel (10.5-15% corn-grain ethanol and 89.5-85% petro-gasoline) for 2001 and newer light-duty vehicles. However, E15 fuel may be viewed as a competitive threat by the oil refining industry and branded fuel retailers and an emerging market opportunity for ethanol producers and unbranded fuel retailers. As a result, challenges remain regarding the expansion of E15 into the retail fuel industry. This paper explores the ranking of perceived drivers and barriers regarding the adoption and diffusion of E15 into retail fuel companies’ stations. Unbranded fuel companies (e.g. 7-Eleven; Cumberland Farms) may purchase their fuel supply from any fuel refiner. However, branded fuel companies (e.g. Shell; BP) franchise their brand to independent retailers who are obliged, under contractual agreement, to purchase and sell fuels supplied by the branded refiner at their station(s). This study found a very wide disparity between the perceived drivers and barriers regarding adoption of E15 fuel into retail fuel stations for unbranded and branded participants. In particular, the eight unbranded participants ranked product differentiation the top ranked driver to adopt E15 fuel into their stations, followed by profit incentive, federal government and private incentives, and the RIN market. The six branded participants ranked E15 fuel mandate highest, followed by consumer demand, octane standard, and profit incentive. In terms of barriers to the adoption of E15 fuel into their retail stations, the eight unbranded participants ranked consumer knowledge as the #1 barrier, followed by RVP waiver, infrastructure costs, and dispensing labeling issues. The six branded participants ranked vehicle warranties as the #1 barrier to E15 fuel adoption, followed by infrastructure costs, consumer mis-fueling liability, and space constraints (for additional fuel tanks). Various policies have

iii been implemented to address future concerns of energy independence, energy security, and climate change, which have, consequently, advanced ethanol-blended fuels. As a result, higher ethanol fuel blends are perceived differently between branded fuel retailers (oil companies) and independent unbranded fuel retailers. And, these two fuel retailer groups have reflected market share competition between the oil refining and ethanol industry.

TABLE OF CONTENTS

List of Figures ...... vii List of Tables ...... viii Chapter 1: Introduction ...... 1 1.1 Background ...... 1 1.2 History Of Ethanol ...... 2 References ...... 8 Chapter 2: Literature Review ...... 12 2.1 Introduction ...... 12 2.2 The U.S. Transportation Fuel Supply Chain ...... 12 2.2.1 Imported Oil and Oil Refineries ...... 13 2.2.2 Bulk Storage Terminal ...... 13 2.2.3 Gasoline Transport ...... 13 2.2.4 Ethanol Biorefineries ...... 13 2.2.5 Ethanol Storage and Transport ...... 14 2.2.6 Distribution Terminals (Blenders) ...... 14 2.2.7 Retail Fuel Station’s Configurations ...... 16 2.3 Drivers to Adoption-Diffusion of E15 fuel into Retail Fuel Stations ...... 18 2.3.1 Competitive Advantage ...... 19 2.3.2 Consumer Demand ...... 21 2.3.3 Regulation ...... 21 2.3.4 Incentives ...... 24 2.3.5 Emissions ...... 25 2.3.6 Fuel Economy ...... 26 2.4 Barriers to Adoption-Diffusion of E15 fuel into Retail Fuel Stations ...... 27 2.4.1 Regulation ...... 28 2.4.2 Infrastructure ...... 29 2.4.3 Consumers ...... 30 2.4.4 Ethanol And Petro-gasoline ...... 31 2.4.5 Opposition to E15 ...... 32 References ...... 33 Chapter 3: Goals, Objectives, and Research Questions ...... 42 3.1 Goals ...... 42 3.2 Objectives ...... 42 3.3 Research Questions ...... 42 Chapter 4: Methodology ...... 43 4.1 Phase 1: Pre-Test Questionnaire ...... 43 4.1.1 Qualitative Interview Process ...... 43 4.2 Phase 2: Population ...... 44 4.2.1 Purposive Sample ...... 44 4.3 Phase 3: Data Collection ...... 45 4.3.1 Interview Design ...... 45 4.4 Data Analysis and Interpretation of Findings ...... 45

4.4.1 Thematic Analysis ...... 45 References ...... 46 Chapter 5: U.S. Retail Fuel Companies’ Perceptions Regarding the Adoption-Diffusion of Higher Ethanol Fuel Blends ...... 47 5.1 Abstract ...... 48 5.2 Introduction ...... 49 5.3 Literature Review ...... 50 5.3.1 The U.S. Transportation Fuel Supply Chain ...... 50 5.3.2 Drivers and Barriers to Adoption-Diffusion of E15 ...... 52 5.3.3 Drivers to E15 Fuel Adoption ...... 53 5.3.1.1 Competitive Advantage ...... 53 5.3.2.2 Consumer Demand ...... 54 5.3.3.3 Regulation ...... 55 5.3.4.4 Incentives ...... 56 5.3.4 Barriers to E15 Fuel Adoption ...... 56 5.3.4.1 Regulation ...... 57 5.3.4.2 Infrastructure ...... 58 5.3.4.3 Consumers ...... 59 5.3.4.4 Ethanol ...... 60 5.3.4.5 Opposition to E15 ...... 60 5.4 Research Objective ...... 61 5.5 Research Design ...... 61 5.5.1 Study Population Development ...... 61 5.5.2 Data Collection ...... 61 5.6 Research Findings ...... 63 5.7 Discussion ...... 80 5.8 Conclusions ...... 83 5.9 Limitation ...... 84 References ...... 85 Appendix A – Fuel Store Chains Per U.S. Region ...... 93 Appendix B – Top 202 U.S. Convenience Stores ...... 94 Appendix A – Email Message To Potential Respondents ...... 97 Appendix A – Qualitative Instrument Script and Interview Questions ...... 98

List of Figures

Figure 1: U.S. GHG emissions in 2015 ...... 1

Figure 2: Reid Vapor Pressure (RVP) for ethanol blended fuels ...... 3

Figure 3: Conventional and reformulated gasoline markets in the U.S...... 4

Figure 4: History of Ethanol ...... 5

Figure 5: Annual U.S. ethanol production volumes from 2006-2015 and their corresponding percentage of the conventional motor gasoline consumption...... 6

Figure 6: U.S. Transportation petro-gasoline and corn-grain ethanol fuel supply chain...... 12

Figure 7: 2015 U.S. corn grain ethanol biorefineries (n=208) locations...... 14

Figure 8: Computerized and splash blending...... 15

Figure 9: Two-tank flex fuel system ...... 17

Figure 10: Three-tank flex fuel system ...... 17

Figure 11: The RIN system ...... 22

Figure 12: Average fuel prices for higher ethanol fuel blends accounting for fuel economy...... 26

Figure 13: U.S. Transportation petro-gasoline and corn-grain ethanol fuel supply chain ...... 51

Figure 14: The top four ranked drivers by branded (n=6) and unbranded (n=8) retail fuel company participants’ views regarding the adoption-diffusion of E15...... 64

Figure 15: The top four ranked barriers by branded (n=6) and unbranded (n=8) retail fuel company participants’ views regarding the adoption-diffusion of E15...... 71

vii

List of Tables

Table 1: Drivers to adoption-diffusion of E15 into retail fuel companies’ stations...... 18

Table 2: Barriers to adoption-diffusion of E15 into retail fuel companies’ stations...... 27

Table 3: U.S. retail fuel industry categorized by fuel type...... 44

Table 4: Drivers to adoption-diffusion of E15 into retail fuel companies’ stations...... 53

Table 5: Barriers to adoption-diffusion of E15 into retail fuel companies’ stations...... 57

Table 6: U.S. retail fuel industry and study’s participants categorized by fuel type...... 61

Table 7: Unbranded (n=8) and branded (n=6) study’s participants ...... 62

viii

Chapter 1: Introduction

1.1 Background Corn-grain ethanol is an alcohol fuel utilized in the United States as an alternative renewable fuel to achieve a reduction in imported petroleum while increasing energy diversification, and rural economic development (Schnepf & Yacobucci, 2013; Vimmerstedt et al., 2012). Starch-based matter (corn) derives from renewable feedstocks and is processed into ethanol, which is known as a “first generation fuel” (Cherubini, 2010; Naik et al., 2010; You, et al., 2012; U.S. DOE, 2018). To address GHG emissions, the U.S Environmental Protection Agency (EPA) has developed various policies focused on the transportation sector – the second largest GHG emissions contributor at 27 percent with 60 percent of those GHG emissions is from light- duty vehicles (EPA, 2017) (Fig. 1). Corn-grain ethanol fuel blends have shown reduced GHG emissions over its lifecycle compared to petro-gasoline fuel (Liska et al., 2009, Wang et al., 2012). As of 2015, the U.S. renewable fuel industry is dominated by corn-grain ethanol and biodiesel, which accounts for over 90 percent of the total U.S. renewable fuels (Chen et al., 2017). These various policies were developed to reduce transportation GHG emissions through integrating corn-grain ethanol fuel blends into the petro-gasoline transportation fuel supply chain (Vimmerstedt, et al., 2012). As of May 2018, 98 percent of total gasoline sold in the U.S. contains ethanol rendering it the primary renewable fuel (U.S. AFDC, 2018).

Fig. 1. U.S. GHG emissions in 2015 (EPA, 2017). 1

1.2 History of Ethanol The first ethanol-gasoline blends were utilized during World War II due to fuel shortages, which increased ethanol usage (Ethanol History, 2010). However, after the war, there was a decrease in ethanol demand due to low oil prices until the energy crises of 1973 (Ethanol History, 2010). The 1973 energy crises occurred because the Organization of Arab Petroleum Exporting (OPEC) imposed an oil embargo on the U.S., which increased oil prices (Vimmerstedt, et al., 2012) and allowed ethanol to look appealing again as an alternative fuel source (Hoffman & Baker, 2010; Hughes et al., 2009; Nixon, 1973). As a result of the energy crises, the 1975 Corporate Average Fuel Economy (CAFE) Standards was created to reduce energy consumption by setting regulations to improve the average fuel economy of light-duty vehicles (NHSTA, 2018). In 1975, the EPA started to phase out lead in petro-gasoline due to the harmful environmental and human health impacts (EPA, 2017). To further the lead phase out, the EPA approved the 1978 Clean Air Act (CAA) waiver that allowed up to 10 percent volume of ethanol in petro-gasoline known as E10 fuel (EESI, 2016). At first, lead was replaced with methyl tertiary butyl ether (MTBE) as the fuel additive due to its cost effectiveness and gasoline performance goals (EESI, 2016; NGA, 2018). However, gasoline refiners phased out MTBE due to ground water contamination that, ultimately, led to state laws banning MTBE products (EPA, 2010). The 1990 Clean Air Act (CAA) and the 1992 Energy Policy Act (EPAC) provided support for growth in the corn-grain ethanol industry (Siegal, 2012). The Reformulated Gasoline (RFG) Program under the 1990 CAA amendments required oxygenates in petro-gasoline to improve the octane rating and implemented stricter Reid Vapor Pressure (RVP) standards in conventional and reformulated gasoline markets (EPA, 2017). The octane rating is a measure of a fuel’s ability to avoid knock in an automobile, which occurs when the fuel is prematurely ignited in the engine’s cylinder and could potentially degrade the vehicles’ efficiency and damage the engine (EESI, 2017). As such, gasoline refiner’s switched to corn-grain ethanol has the oxygen enhancer due to the U.S. federal government providing ethanol tax substitutes and potential liability if MTBE is found in their fuel products (EPA, 2013). Furthermore, RVP is a measure of gasoline fuel’s ability to vaporize (Fig. 2). These vapor emissions contribute to smog, which consists of air pollutants that can be detrimental to human health (EESI, 2016). When the air temperature goes

2 above 100 degrees Fahrenheit, gasoline vaporizes quicker and, as a result the EPA regulates gasoline volatility in the summer months between June 1st and September 15th to reduce the formation of smog (EESI, 2017).

Fig. 2. Reid Vapor Pressure (RVP) for ethanol blended fuels (ESSI, 2017). Conventional gasoline markets (areas with low smog levels), have an RVP cap of 9 pounds per square inch (psi) during summer months. However, E10 has a RVP of 10psi but EPA has granted an E10 RVP waiver to allow the sale during summer months. Additionally, the EPA has mandated that reformulated gasoline markets (areas with high smog levels) must use reformulated gasoline, which has an RVP range of 6.8-8.1 psi year round and, thus does require an RVP waiver (EESI, 2016) (Fig.3). Reformulated gasoline has up to 10 percent ethanol along with reductions in other harmful air toxins such as benzene, toluene, and xylene compared to conventional gasoline (EESI, 2016). In the later 1990s, to further promote ethanol production, the EPA approved the sale of E85 (51- 83% corn-grain ethanol and 49-15% petro-gasoline fuel) at for Flex Fuel Vehicles (FFVs) only. FFVs are vehicles that can operate on fuel that contains up to 85 percent ethanol (RFA, 2013). To improve E85 sales, the 1998 Energy Policy and Conservation Act Amendments (EPCAA) provided credits to automakers to manufacture FFVs to meet CAFE standards.

Fig. 3. Conventional and reformulated gasoline markets in the U.S. (EESI, 2017).

The 2005 Energy Policy Act furthered the corn-grain ethanol industry momentum by establishing the first Renewable Fuel Standard (RFS1), which seeks to reduce GHG emissions and U.S. dependence on foreign petroleum imports by blending renewable fuels into the transportation fuel supply chain each year (RFA, 2018) (Fig. 4). In 2007, the Energy Independence and Security Act (EISA) amended the 1975 CAFE standards to achieve 35mpg in light-duty vehicles by 2020 and introduced a credit trading system between automobile manufacturers to improve fuel efficiency in light-duty vehicles (NHSTA, 2018) (Fig. 4). Furthermore, the 2007 EISA act expanded the RFS1 to the second Renewable Fuel Standard (RFS2), which encouraged an aspirational goal of blending 36 billion gallons of renewable fuels into the petro-gasoline transportation fuel supply chain by 2022 (Schnepf & Yacobucci, 2013). However, the RFS2 increase volume requirement of corn-grain ethanol in the U.S. transportation fuel supply chain has encountered concerns such as the “fuel versus food” debate and the “blend wall” (Chen et al., 2016; Bruce, 2013). Despite mounting concerns and low oil prices, in 2017, the ethanol production reached a new high of nearly 16 billion gallons despite low oil prices (RFA, 2018).

1973 Energy Engery Policy Act 2007 EISA Crises (1992) Act & RFS2

1990 Clean 2005 Air Act Energy (CAA) Policy Act & RFS1

Fig. 4. History of Ethanol.

The fuel versus food debate emerged due to the food crises of 2007 when the corn-grain ethanol production was directly and indirectly used for food (Ajanovic, 2011; Babcock, 2012; Srinivasan, 2009). Consequently, concerns arose regarding increase corn-grain crop usage for fuel, which may lead to future decrease in food availability and would engender higher food prices (Carter & Miller, 2012; Srinivasan, 2009; Ziegler, 2008; Tenenbaum, 2008). However, others contend that corn-grain ethanol production on food prices is minimal and exaggerated (Hamelinck 2013; Schill et al., 2016). Overall, issues regarding the corn-grain ethanol production for fuel use influence on food prices and security are complex with several interconnected factors (Bruce, 2013; Ajanovic, 2011; Babcock, 2012; Srinivasan, 2009). Another major issue is the “blend wall”, which is the amount of ethanol that can be blended into the petro-gasoline transportation fuel supply chain given the EPA approval of E10 fuel (up to 10% ethanol and at least 90% petro-gasoline) for the vast majority of vehicles (Schnepf & Yacobucci, 2013; Chen et al., 2016; RFA, 2018). However, according to the Renewable Fuel Association, the blend wall “does not exist” given that in 2010 the ethanol production volume has surpassed the capacity that can be blended within petro-gasoline transportation fuel supply chain at the 10 percent blend rate (RFA, 2018; Chen et al., 2016) (Fig. 5). To address the “blend wall”, in 2011, the EPA approved the sale of E15 fuel (10.5-15% corn- grain ethanol and 89.5-85% petro-gasoline) for vehicles newer than 2001 to increase the annual

5 amount of ethanol sold per year at retail fuel stations across the U.S. (RFA, 2013; Bracmort, 2018).

Fig. 5. Annual U.S. ethanol production volumes from 2006-2015 and their corresponding percentage of the conventional motor gasoline consumption (Chen et al., 2016).

However, the adoption and diffusion of E15 into the retail fuel industry, is expected to be gradual due to a lack of compatible infrastructure at retail fuel stations and limited consumer acceptance of E15 fuel (Antoni et al., 2007; U.S. EIA, 2011; Martin, 2013; NACS, 2014; Diment, 2017). To promote adoption of E15, the U.S. ethanol industry Prime the Prime Initiative has partnered with the USDA Biofuels Infrastructure Program (BIP) providing $210 million to implement compatible equipment at retail fuel companies’ stations throughout the U.S. (Polisch, 2015). However, there is a dearth of literature addressing the salient drivers and barriers to E15 adoption from the unbranded and branded retail fuel company level perspective. Retail fuel companies have unique challenges regarding E15 adoption and may provide insights into E15 optimization across the retail fuel industry. This qualitative study evaluates the relative ranking of these key issues by utilizing semi-structured interviews with key retail fuel industry experts

6 from unbranded and branded fuel sectors. Accordingly, the goal of this this paper is to explore and establish retail fuel companies’ perceived drivers and barriers regarding the adoption and diffusion of E15 into their stations to benchmark and provide insights to policy makers, suppliers and buyers of fuel within the retail fuel industry.

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Chapter 2: Literature Review

2.1 Introduction This literature review is aimed to provide background information into the current petro- gasoline and ethanol supply chains and the overall retail fuel industry. Specifically, this review will categorize the retail fuel industry, identify and describe the drivers and barriers regarding E15 adoption into fuel companies’ retail stations. Ultimately, this study will address the specific challenges associated with E15 integration in retail fuel companies’ stations.

2.2 The U.S. Transportation Fuel Supply Chain To better understand E15 adoption challenges to U.S. retail fuel sector, Fig. 6 illustrates the oil and ethanol supply chain operation process from refinery to retail fuel stations (U.S. DOE AFDC, 2018b).

Fig. 6. U.S. petro-gasoline and corn-grain ethanol transportation fuel supply chain (Moriarty, 2016).

2.2.1 Imported Oil and Oil Refineries As of November 2017, 25 percent of the U.S. petroleum oil supply was obtained from foreign sources and 75 percent was obtained from domestic sources (U.S. EIA, 2017). Oil imports are moved to oil refineries where it is converted to unblended gasoline and is not considered a finished fuel product until blended with corn-grain ethanol (Fuels Institute, 2016). As of November 2017, there were 141 U.S. oil refineries, of which 137 were operating and four were idle (U.S. EIA, 2017; Fuels Institute, 2016).

2.2.2 Bulk Storage Terminal Unblended gasoline is transferred to bulk storage terminals, which provides long-term fuel storage (weeks to months) and are strategically located near oil refineries (Fuels Institute, 2016). As of November 2017, there were 1,400 U.S. bulk storage terminals (Fuels Institute, 2016).

2.2.3 Gasoline Transport Unblended gasoline is moved from the bulk storage terminals to the distribution terminals via pipelines, barges, trucks, or rails depending on geographic location (NCDOI, 2008; Fuels Institute, 2016). As of November 2016, the U.S. has approximately 72,000 miles of pipelines with 70 percent of unblended gasoline transported via pipelines due to its economics of scale and cost efficiency while 23 percent was barged, 4 percent was trucked, and 3 percent was railed (Fuels Institute, 2016).

2.2.4 Ethanol Biorefineries Biorefineries, an alterative to fossil fuel production, converts renewable resources into biofuels, chemicals, and energy (Cherubini, 2010; Liu, et al., 2012; Amidon et al., 2008). Over 90 percent of U.S. ethanol biorefineries utilize corn-grain as its primary feedstock (Chen et al., 2016). In 2015, there were 208 U.S. corn-grain ethanol biorefineries (Fig. 7) with concentrations in the Midwestern corn belt of Iowa (n=40), Nebraska (n=25), Minnesota (n=21), South Dakota (n=15), and Illinois (n=14) (RFA, 2015).

Fig. 7. 2015 U.S. corn grain ethanol biorefineries (n=208) locations (RFA, 2015).

2.2.5 Ethanol Storage and Transport Ethanol is stored on site at biorefineries and is transported to distribution terminals by barge, truck, or rail (Fuels Institute, 2016; NCDOI, 2008). Approximately, 70 percent of ethanol is transported via rail while 20 percent is trucked, and 10 percent is barged (Fuels Institute, 2016). Due to possible corrosion, ethanol is not transported via pipeline (Fuels Institute, 2016; Groysman, 2014).

2.2.6 Distribution Terminals (Blenders) Distribution terminals are the transition between commercial and retail fuel markets and are built to meet local specifications, requirements, and fuel demands (USDA, 2007; NCDOI, 2008). Distribution terminals blend gasoline and ethanol to produce E10 based on inventory orders from retail fuel stations. Blended fuels will be transported to retail fuel stations via trucks. Distribution terminals contain a “rack” or a truck loading facility to complete the blending process (Fuels Institute, 2016). The two blending processes are computerized and splash (Fig. 8). Computerized blending is done through a single loading process whereby the computer calculates the blend rate and fuel is blended before it is injected into the bottom connection of the truck. Moreover, fuel is loaded at the bottom of the truck to reduce emissions. Splash blending requires two distinct loading steps whereby the driver must first load gasoline and then 14 ethanol into the top connection of the truck (Fuels Institute, 2016). In transit, gasoline and ethanol will blend before arriving at retail fuel stations (Fuels Institute, 2016).

Fig. 8. Computerized and splash blending (Fuels, Institute, 2016).

Computerized blending is commonly used to serve retail companies due to greater accuracy and reduced emissions from splash (Fuels Institute, 2016). Splash blending is more common when serving wholesale companies to allow greater flexibility in the blend level but is not as accurate and may result in increased emissions (Fuels Institute, 2016).

Blending of gasoline and ethanol occurs at the distribution terminal and not bulk storage terminals for the following reasons (Fuels Institute, 2016):

• Each state has different blend requirements making it more efficient to blend at distribution terminals due its close proximity to retail fuel stations. • Distribution terminals utilize racks, which simplifies the blending process for truck drivers. • Finished ethanol-gasoline blends can corrode the pipelines and cross-contaminate with petroleum products therefore blending occurs at distribution terminals because it utilizes only trucks as delivery method to retail fuel stations.

Moreover, there are a limited number of distribution terminals that will blend E15 fuel at the rack (Personal Communication B, 2017), which may be due to long-term leasing contracts for fuel tank space (Moriarty, 2016). Additionally, retail fuel companies may obtain E85 (51- 83% corn-grain ethanol and 49-15% petro-gasoline) fuel from ethanol biorefineries and utilize blender pumps at their stations to produce E15 fuel (CFF & NEB, 2011; Personal Communication

A, 2017). Blender pumps draw petro-gasoline and corn-grain ethanol from separate underground storage tanks and dispense a variety of preprogrammed blends such as E10, E15, midgrade, premium, and E85 – creating a mixture from which consumers can choose (CFF & NEB, 2011).

2.2.7 Retail Fuel Station’s Configurations Fuel retailers can purchase E10 from the distribution terminals’ rack and/or can rent storage space to use the distribution terminals’ facilities to blend E10 fuels, which allows fuel retailers to cut distribution terminal’s blending costs (Personal Communication A, 2017). Each retail fuel station’s ability to dispense and/or add E15 is determined by the configuration of the existing fuel system (Personal Communication A, 2018). The fuel system configurations that make up the majority of the retail fuel systems include: 1) Basic Fuel System; 2) Flex Fuel System. The “basic flex fuel system” has one nozzle and two dedicated underground storage tanks whereby one tank holds regular gasoline (E10) and the other tank holds premium gasoline. To produce midgrade gasoline the two fuels are blended together. All three fuels: regular, midgrade, and premium will emanate from one outside nozzle (CFF NEB, 2011). The “flex fuel system” has two to three nozzles and contains a blender pump whereby it draws gasoline and ethanol from separate underground storage tanks and dispenses a variety of preprogrammed blends such as E15, E20, E30, E40, and E85 – creating a mixture from which consumers can choose (Fuels Institute, 2016). Flex fuel systems can utilize two or three tanks (CFF NEB, 2011).

o Two-Tank System § This system has two underground fuel storage tanks whereby tank A contains E10 and tank B contains E85 (CFF NEB, 2011). As shown in Fig. 9,

the right hose will dispense E10 and the left hose dispenses a variety of ethanol blends (e.g. E20, E30, and E85) (CFF NEB, 2011; Boutwell et al., 2014).

o Three-Tank System § This system has three underground fuel storage tanks whereby tank A contains E85, tank B contains E10, and tank C contains premium gasoline. As shown in Fig. 10, the right hose will dispense E10, midgrade, and premium gasoline. The left hose will dispense E30 and E85 (CFF NEB, 2011; Boutwell et al., 2014). o Split Three-Tank System § This system has two underground fuel storage tanks where by tank A is split in half and contains E85 and premium, and tank B contains E10 (Personal communication A, 2017). The right hose will dispense E10, midgrade, and premium gasoline. The outer left hose will dispense E85 and the inner left house will dispense E15 (Personal Communication A, 2017).

Fig.9. Two-Tank Flex Fuel System (CFF NEB, Fig. 10. Three-Tank Flex Fuel System (CFF 2011). NEB, 2011).

2.3 Drivers to Adoption-Diffusion of E15 Fuel into Retail Fuel Stations

From the literature, 6 themes emerged, regarding factors driving E15 adoption-diffusion from the retail fuel companies’ perspective, including competitive advantage, regulation, consumer demand, incentives, emissions, and fuel economy (Table 1). These 6 themes may further be delineated in terms of 12 specific E15 drivers as shown in Table 1.

Theme Driver Citation (Lewis, 2008; Grogan, 2011; Soverinksy, 2018; Lorenz, 2018; Giunipero et al., 2012; Bey et al., 2013; Johnson & Product Differentiation Melendez, 2007; Diment, 2017; Alvarez, 2017; Personal Communication A, 2017; RFA, 2014; NASC, 2014) (Grogan, 2011; Soverinksy, 2018; Personal Communication Competitive Profit Incentive A, 2017; Lorenz, 2018; NACS, 2016; NASC, 2013; Du & Advantage Hayes, 2011). (Grogan, 2011; Marshall & Mayer, 1992; Ginsberg & Bloom, Improved Public Relations 2004; Rego, 2013; Innis & Bernard, 1994; NMI, 2008; NMI, 2017; Trivedi et al., 2015; Ginsberg & Bloom, 2004) Competition has adopted (O’Brian, 2018) E15 (Grogan, 2011; Bruce, 2013; NACS; 2014; NACS, 2015; Consumer Consumer Demand NACS, 2016; Aguilar & Thompson, 2010 Anderson; 2012; Demand Vimmerstedt et al. 2012) (EPA, 2017b; Weinstein, 2016; Weaver & Tidwell, 2015; RIN Market Personal Communication A, 2017) (Koehler, 2018; PMAA, 2016; Personal Communication A, Regulation E15 Fuel Mandate 2017) Octane Standard (Joselow, 2018; Miller, 2018; Lindener, 2018; EESI, 2018) EMV Compliance (Anon., 2016; Anon., 2017; NACS, 2016) Federal Government and (Grogan, 2011; U.S. DOE AFDC, 2017; Polisch, 2015; Incentives Private Incentives O’Brian, 2018; Johnson et al., 2015) Lower Greenhouse gas (GHG) Emissions Emissions (Liska et al., 2009, Wang et al., 2012) (Lane, 2017; ACE, 2015; Vimmerstedt et al., 2015; Corts, 2010; U.S. DOE AFDC, 2018; NHSTA, 2018; Anderson & Fuel Economy Lower Fuel Economy Sallee, 2011; EPA, 2017; Johnson et al., 2015; U.S. EIA, 2016) Table 1. Drivers to adoption-diffusion of E15 into retail fuel companies’ stations.

2.3.1 Competitive Advantage Product Differentiation Fuel retailers sell identical fuel products for different prices at the same time, thus creating a very hyper competitive landscape (Lewis, 2008). Additionally, E15 fuel may be utilized as a niche product to provide product differentiation and consumer choice in fuels (Soverinksy, 2018; Lorenz, 2018). At the retail station level, Grogan (2011) showed that competitive advantage was the number one driver for implementing biofuels. Fueling retailer may use ethanol-blended fuels to differentiate their stations from competitors with the use of green marketing, remodeling, and signage (Johnson & Melendez, 2007). As such, firms’ not implementing sustainable practices into their products and services may be detrimental to gain competitive advantage long-term (Giunipero et al., 2012; Bey et al., 2013). As stated in Johnson and Melendez (2007), gasoline is a very uniform product with an incredibly transparent price making it an extremely low-margin product. Moreover, fuel retailers may utilize ethanol-blended fuels to increase inside store sales (Personal Communication, A 2017). Accordingly, gasoline may only have a 6 percent profit margin whereas in store goods may have 30 to 48 percent mark up (Johnson & Melendez, 2007; Diment, 2017; Alvarez, 2017; NACS, 2014)

The Energy Independence Security Act of 2007 prohibits branded fuel franchisees to restrict the installation of E15 infrastructure (RFA, 2014). However, branded fuel companies discourage their franchisees from selling E15 and E85 through rigid franchise contracts, branding agreements, restrictive supply contracts, strict fuel labeling requirements, and other penalties (RFA, 2014; NASC, 2014). For instance, in 2014, only .6-1.4 percent of branded fuel stations while 2.3-3.6 percent of unbranded fuel stations offered E85 or E15 (RFA, 2014). As such, unbranded fuel companies are four to six times more likely to offer E85 and forty times more times likely to offer E15 at their retail stations (RFA, 2014). As a result, in this hyper competitive market, unbranded retail fuel companies may use E15 to gain competitive advantage compared to branded retail fuel companies (Lorenz, 2018; RFA, 2014; Soverinksy, 2018).

Profit Incentive As of 2018, the E15 fuel market may provide an opportunity for fuel margin enhancement (Grogan, 2011; Soverinksy, 2018). Fuel retailers can discount E15 anywhere from 3 to 10 cents cheaper compared to E10 and still increase profit margins by 5-25 cents (Lorenz, 2018). As of 2016, the annual average fuel retailer profit averages $.05-$.19 cents per gallon (NACS, 2016). Moreover, Du & Hayes (2011) showed, from 2000-2010, ethanol production has kept wholesale gasoline prices down by an average of .29 cents/gallon or 17 percent. As such, total U.S. drivers saved an average of $39 billion/year in gasoline purchases from 2000-2010 (Du & Hayes, 2011). Ultimately, ethanol reduces gasoline prices because ethanol is cheaper than gasoline at the wholesale level due to reducing oil demand, and provides gasoline refiners with a cost-effective source of octane (Lorenz, 2018).

Improved Public Relations In general, firms offering products that are perceived better for the environment will generate a positive public image and, in turn, enhance sales and improve public relations (Marshall & Mayer, 1992). A company embedding “green” into their brand image can create a positive relationship with the customer and may lead to improve loyalty (Ginsberg & Bloom, 2004) and market share (Rego, 2013; Innis & Bernard, 1994). For instance, fuel retailers can potentially pursue the LOHAS (Lifestyles of Health and Sustainability) consumer segment (NMI, 2008), which makes up 22 percent of the consumer market and actively seeks environmental friendly products and services (NMI, 2017). LOHAS consumers have the willingness to pay more for a sustainable product and (NMI, 2008; Trivedi et al., 2015) have displayed increased loyalty to companies that provide those sustainable products (Ginsberg & Bloom, 2004). Additionally, Grogan (2011) found that 18 percent of his study’s participants stated improved public relations as a driver to implement biofuels (e.g. E85 and biodiesel). Moreover, Grogan (2011) found that participants related biofuel adoption as a path to being perceived as a more sustainable business.

Competition has Adopted E15 Fuel retail companies may want to see other companies integrate E15 fuel successfully before they implement it (O’Brian, 2018).

2.3.2 Consumer Demand

Consumer Demand When consumers are looking where to buy gas it has shown, unanimously, that the lowest gasoline price is the number one attribute that attracts consumers (NACS, 2015; NACS, 2016; Aguilar & Thompson, 2010). In fact, 59 percent of respondents would only purchase E15 if it were similarly priced to E10 fuel (NACS, 2014). Moreover, Anderson (2012), found that for every .10 cents per gallon increase in E85 relative to E10 leads to 12-16 percent decrease in consumer demand for E85 as a substitute for E10. Furthermore, E15 fuel is lower priced compared to E10 and may increase consumer demand and, in turn, may drive up fuel retailer sales (Vimmerstedt et al. 2012; NACS, 2014). Furthermore, Grogan (2011) mentioned consumer demand might be galvanized from consumers requesting E15 product at filling stations. If there is limited demand for E15 fuel, retailer may not upgrade their facilities (Bruce, 2013). Moreover, NACS (2014) surveyed 1,183 consumers from May 7th to May 9th, 2013 regarding E15 fuel. NACS (2014) found that 34 percent of surveyed participants were authorized and willing to consider purchasing E15 fuel illustrating limited demand for the product. Furthermore, approximately 79 percent of the 30 retail fuel companies NACS (2014) surveyed cited lack of consumer demand for E15 is a major concern to sell E15.

2.3.3 Regulation RIN Market The EPA’s RFS2 has developed a renewable fuel credit system to ensure that a certain amount of renewable fuel is blended into the transportation supply chain each year (EPA, 2017b). Essentially, the EPA assigns Renewable Volume Requirements (RVOs) to obligated parties (e.g. oil refineries and gasoline importers) to be fulfilled (EPA, 2017b) (Fig.11). A RIN is attached with every gallon of renewable fuel produced at the biorefinery and is transported to

21 distribution terminals (EPA, 2017b). After the blending process, RINs are retired to the EPA and will be compared to the RVOs, which demonstrates that obligated parties have met their renewable fuel obligation (Weaver & Tidwell, 2015; EPA, 2017b). Furthermore, blenders may acquire excess RINs, which are valued as commodities on the market that can be traded to other parties (Weaver & Tidwell, 2015; EPA, 2017b).

Fig. 11. The RIN system (EPA, 2017b).

Recently, “non-obligated parties” such as large unbranded companies like Sheetz, Couche-Tarde, Casey’s, and Circle K are starting to “game” the RIN system by performing the fuel blending process themselves. Essentially, RVOs do not apply to “non obligated parties” and thus these companies can blend ethanol into gasoline to produce RINs for profit (Weinstein, 2016). These large retailers can afford the capital investment in blending facilities and have the marketing leverage to position in RIN trading (Weinstein, 2016). Participating in the RIN system allows for additional revenue from undercutting fuel prices, which pushes cost savings to the consumer and increases market share and retail expansion compared to their competitors (Weinstein, 2016; Personal Communication A, 2017). Consequently, smaller retail companies who do not have the resources to participate in the RIN system have to continue to purchase fuel from distribution terminals (Weinstein, 2016). The extra costs may lead smaller retail fuel

22 companies to decrease sale volume, profits, future development, and result in the inability to compete effectively (Weinstein, 2016).

E15 Fuel Mandate Future policy changes may force fuel retailers to implement E15 into their fuel stations. (Koehler, 2018; PMAA, 2016; Personal Communication A, 2017).

Octane Standard To meet CAFE standards automakers may produce higher compression engines, which require higher-octane fuel. Given ethanol’s high-octane value that could help push higher ethanol blends and would call for auto manufacturers to produce vehicles with higher compression engines to operate on higher-octane fuel. Additionally, higher compression engines would improve engine efficiency and fuel economy. A higher-octane standard for new vehicles may drive fuel retailers to adopt E15 to meet the higher octane needed (Joselow, 2018; Miller, 2018; Lindener, 2018; EESI, 2018).

EMV Compliance EMV (Europay, MasterCard® and Visa®) is an accepted specification on credit cards that uses microchip technology to protect consumer's credit card data (Anon., 2016; NACS, 2016). Future liability shifts may make fuel retailers liable for fraudulent transactions (NACS, 2016). Fuel retailers will have to upgrade their fuel dispensers, which may costs $17,000 each, to comply with EMV policy (NACS, 2016). As such, fuel retailers may adopt E15 if they have to upgrade for EMV compliance (NACS, 2016). Fuel retailers have until October 2020 to comply (Anon., 2016; Anon., 2017; NACS, 2016) and may consider E15 adoption during this upgrade for EMV compliance (Anon., 2016; NACS, 2016).

2.3.4 Incentives Federal Government and Private Incentives Federal government and private incentives may drive retail fuel companies to adopt E15 fuel by mitigating upgrade fuel equipment costs (Grogan, 2011). Incentive examples include: • Alternative Fuel Infrastructure Tax Credit: Fueling equipment for E15 is eligible for a tax credit of 30 percent of the costs and cannot exceed $30,000. Retail fuel stations installment of qualified equipment at multiple sites are allowed the tax credit for each location (U.S. DOE, 2017; O’Brian, 2018). • Ethanol Infrastructure Grants and Loan Guarantees: The USDA’s Rural Energy for America Program (REAP) provides loan guarantees and grants to retail fuel companies to purchase renewable energy systems. The max loan guarantee is $25 million (for all applicants) and the maximum grant funding is 25 percent of project costs per applicant (U.S. DOE, 2017). • USDA and Biofuel Infrastructure Partnership (BIP) program: These two groups have partnered with 21 states increase the number of flex fuel systems in the U.S. The USDA will allow up to 100 million in grants with BIP states and private sectors matching them totaling of a $210 million grant funding. The infrastructure is estimated to expand by 5,000 pumps and 1,400 fueling stations (Polisch, 2015).

Johnson et al. (2015), showed fuel retailer investment in E15 equipment is no longer limited if government incentives cover up to 40 percent – 80 percent of initial investment. Subsidizing the investment decreases upfront capital costs greatly and allows for fuel retailers to remain cost competitive (Johnson et al., 2015).

2.3.5 Emissions Lower Greenhouse Gas (GHG) Emissions Corn grain ethanol (E10, E15, E85) has shown to reduce GHG emissions over its lifecycle compared to petro-gasoline fuel (E0) (Liska et al., 2009, Wang et al., 2012) and may motivate fuel retailers to adopt E15 fuel.

2.3.6 Fuel Economy Lower Fuel Economy Ethanol fuel has about 67 percent of the energy density compared to petro-gasoline (E0). As a result, vehicles running on E15 have a lower fuel economy compared to regular (E10) gasoline (Lane, 2017). Generally, the higher the ethanol blend the greater the mileage lost, however, ethanol blend pricing may account for some of this discrepancy (ACE, 2015; Lane, 2017) (Fig. 12). Due to E15 fuel’s lower fuel energy content, results in more frequent fuel stops from the consumer and, in turn, may result in higher in store purchases (Vimmerstedt et al., 2012). The fuel economy for an FFV compared and non-FFV using the same fuel (e.g. E10 and E15) is identical. FFVs can operate between E0 and E85 fuel and averages 16mpg when operating on E85 fuel (U.S. DOE AFDC, 2018). In 2011, CAFE standards set regulations of 54.5mpg for light-duty vehicles by 2025 (NHSTA, 2018), which automobile manufacturers claim inhibit FFVs production because the average vehicle fleet would not be able to meet CAFE regulations (Anderson & Sallee, 2011). For manufacturers to transform a non-FFV into FFV is approximately $100-200 – a marginal expense considering total vehicle production (Anderson & Sallee, 2011). Manufacturers advocate CAFE standards would need to be adjusted given E15’s lower fuel economy compared to petro-gasoline (Personal Communication A, 2017). To promote FFV production, the federal government has given credits to automaker manufacturers to meet CAFE standards but these have recently expired, which may decrease car manufactures production of FFVs (EPA, 2017). Additionally, automobile manufacturers claim low FFVs production is due to lack of higher ethanol fuel blends (HEFBs) infrastructure and prefer incentives to focus on retail fuel companies (Johnson et al., 2015; U.S. EIA, 2016). Furthermore, Corts (2010) showed an increase in FFVs production would stimulate E85 fuel infrastructure. However, fuel retailers’ HEFBs infrastructure investment without consumer demand may diminish their returns (Corts, 2010). To further increase FFV production, an increase in consumer demand for FFVs will have to be demonstrated (Anderson & Sallee, 2011).

Fig. 12. Average fuel prices for higher ethanol fuel blends accounting for fuel economy (Lane, 2017).

2.4 Barriers to Adoption-Diffusion of E15 at Retail Fuel Stations From the literature 5 themes emerged, including regulation, infrastructure, consumers, ethanol and petro-gasoline, and opposition to E15 regarding retail fuel companies’ perceived barriers to E15 fuel adoption (Table 2). These 5 themes may further be delineated in terms of 15 specific E15 barriers as shown in Table 2.

Theme Barrier Citation RVP Waiver (EESI, 2017; Lorenz, 2018; Soverinksy, 2018) (RFA, 2013; EPA, 2017; Gantz, 2017; PMAA, 2016; Gerald & Vehicle Warranties Regulation Thompson, 2016) Consumer Mis-fueling (RFA, 2013; EPA, 2017; U.S. GAO, 2011; AFPM, 2018; NACS, Liability 2013) (Moriarty et al., 2014; Vimmerstedt et al., 2012; Gallic, 2018; Infrastructure Costs RFA, 2013; U.S. GAO, 2011; Groysman, 2014; Moriarty & Yanowitz, 2015; NACS, 2013; NREL, 2008; White, 2014) Infrastructure Determining ROI (Grogan, 2011; Personal Communication A, 2017) (Oller, 2016; Mohamadi, 2018; Klatt, 2018; Personal Dispenser Labeling Issues Communication A, 2017; Cooper, 2012) Space Constraints (U.S. GAO, 2011; Grogan, 2011; Johnson & Melendez, 2007) Consumer Knowledge (NACS, 2013; Aguilar et al., 2015) Mechanic Knowledge (Miller, 2018; Mohamadi, 2018) Consumers Fuel Retailer Employee (Anon. n.d.; Gallic, 2018) Knowledge (Grogan, 2011; Achinas & Euverink, 2016; EESI, 2017; Ethanol Supply Availability Personal communication A, 2017; USDA, 2007; Johnson & Ethanol & Melendez, 2007) Petro-gasoline Ethanol Fuel Quality (Amine et al., 2017; Brion, 2018) Petro-Gasoline Cost (EESI, 2017) Fluctuations (RFA, 2014; Lamberty, 2018; Macchiarola, 2017; PMAA, Opposition to Fuel Industry Opposition 2016; PMAA, 2018; Gerald & Thompson, 2016; AFPM, 2018) E15 Branded Fuel Contracts (RFA, 2014)

Table 2. Barriers to adoption-diffusion of E15 into retail fuel companies’ stations.

2.4.1 Regulation Reid Vapor Pressure (RVP) Waiver Reid Vapor Pressure (RVP) is a measure of gasoline fuel’s ability to vaporize and depending on the ethanol to gasoline blend ratio it will have a different RVP. Essentially air temperatures over 100 degrees Fahrenheit causes gasoline to quickly boil, which allows vapor to lock in an vehicles’ engine leading to the fuel to not combust properly. These vapor emissions contribute to smog, which consists of air pollutants that can be detrimental to human health (EESI, 2017; Soverinksy, 2018). As a result, EPA regulates gasoline volatility in the summer months between June 1st and September 15th to reduce the formation of smog (EESI, 2017). The allowed RVP cap for a fuel is 9psi and changes depend on the region of the U.S. However, E10 has a RVP of 10psi but EPA has granted an E10 RVP waiver to allow the sale during summer months (Lade et al., 2018). Moreover, as the ethanol content increases the RVP drops therefore fuel blends greater then E30 do not require a RVP waiver (EESI, 2017). To date, EPA has not approved of a permanent RVP waiver for E15 and so fuel retailers can only sell E15 to all vehicles in the winter months and has to relabel E15 as “For Flex Fuel Vehicles Only” between June 1st and September 15th (EESI, 2017; Personal Communication, 2017). Fuel retailers may not be willing to dedicate personnel to change the E15 labels for a fuel that can only be sold to all vehicles for part of the year (ESSI, 2017; Lorenz, 2018).

Vehicle Warranties In 2011, the EPA approved E15 to be used for 2001 and newer vehicles, but many vehicle owners’ manuals for the 2001 – 2012 model years may not provide guidance or cover vehicle related damage for E15 fuel usage because E15 was not approved during the time the vehicle was manufactured (RFA, 2013). However, the EPA has stated that manufacturers may not deny warranties based on the use of E15 fuel (EPA, 2017). As of 2017, only 34 percent of vehicle’s warranties provide E15 fuel related damage (Gantz, 2017). Fuel retailers may feel there is a limited vehicle fleet designed to handle E15 fuel (PMAA, 2016; Gerald & Thompson, 2016).

Consumer Mis-fueling Liability Approximately, 46 percent and 44 percent of retailers are concerned over potential liability from misfueling over E15 ad E85, respectively (NACS, 2013). Misfueling occurs when customers choose the wrong fuel type for their vehicle due to confusion or cheaper prices (EPA, 2017). Mis-fueling may damage the vehicle’s engine and performance (EPA, 2017) and may void consumers’ warranties if they do not cover for E15 fuel related damage (AFPM, 2018). A mitigation method has been developed by the EPA to properly label E15 and E85 to decrease possible consumer mis-fueling (EPA, 2017). Moreover, EPA has stated fuel retailers with proper E15 labels are not liable for consumers mis-fueling (RFA, 2013; EPA, 2017; U.S. GAO, 2011).

2.4.2 Infrastructure Infrastructure Costs The Occupational Safety and Health Administration (OSHA) requires fuel systems to be certified for safety by Underwriters Laboratories (UL) and local governments must ensure retail fuel stations are in compliance (RFA, 2013). Moreover, the EPA requires all equipment parts of the fuel system to be compatible with the fuel that the system utilizes (U.S. GAO, 2011). Additionally, the EPA requires maintenance on all fuel systems to detect leaks and possible corrosion (U.S. GAO, 2011). E15 may cause corrosion in underground storage tanks due to ethanol’s attraction to water, which contains microbes that can deteriorate the equipment and, ultimately, cause leaks into the soil and groundwater (Groysman, 2014). To prove compatibility with E15, retailers must keep records of maintenance checks of their fuel system(s) (RFA, 2013). Retailers not ensuring compatibility with E15 will be liable for negligence of safety requirements and any environmental damage (Moriarty & Yanowitz, 2015). Due to possible liability, retail fuel companies must upgrade their stations creating unwanted investment costs when considering adding E15 to their stations (Lorenz, 2018).

The NACS 2013 fuel retailer survey reported 45 percent of retailers felt E15 and E85 investment costs were an issue to upgrading their stations (NACS, 2013). For fuel retailers to sell E15, installment or retrofitting a flex fuel system would be required (NREL, 2008; White, 2014). Depending on existing infrastructure, new equipment installments averages $71,375 while

29 retrofitting a fuel system averages $21,031 (NREL, 2008; White, 2014; Vimmerstedt et al., 2012). However, a retail fuel station has three to four fueling systems and may accrue costs between $73,608 and $249,812 to upgrade an entire retail facility depending on the size (NREL, 2008; White, 2014; Moriarty et al., 2014). Additionally, fuel retailers may endure construction downtime to install E15 (NREL, 2008; White, 2014; Gallic, 2018).

Determining Return on Investment (ROI) Fuel retailers considering both infrastructure costs and limited consumer demand for E15 provides unknown variables to properly calculate an ROI. However fuel, retailers adopting E15 have been shown to quickly recoup their investment (Babcock, 2013; Grogan, 2011; Personal Communication A, 2017).

Dispenser Labeling Issues There is an "identity crisis" for E15 due to no set labeling system. For instance, fuel retailers have labeled E15 as “E-15 –Blend”, “Unleaded 88”, and “Unleaded 88-Plus” (Oller, 2016; Mohamadi, 2018; Klatt, 2018; Cooper, 2012; Personal communication A, 2018).

Space Constraints Upgrading to flex fuel systems may also require installing additional underground storage tanks to support E15 (U.S. GAO, 2011; Johnson & Melendez, 2007). However, additional underground storage tanks may cause space constraints and result in retail fuel stations unable to accommodate E15 (U.S. GAO, 2011; Grogan, 2011).

2.4.3 Consumers Consumer Knowledge According to NACS 2013 fuel retailer survey, 79 percent of retailers did not want to sell E15 fuel due to lack of consumer knowledge (NACS, 2013). In fact, only 29 percent of consumers were aware of E85 fuel and 26 percent of consumers were aware of E15 fuel (NACS, 2013). Additionally, a fuel retailer found that 49 percent of consumers who bought E15 were unaware that they purchased it (Personal Communication A, 2017). Additionally, Aguilar et al. (2015),

30 found that 69.2 percent of respondents heard of ethanol blends while 41.7 percent reported to have used an ethanol blend in their vehicles - indicating low level awareness.

Mechanic Knowledge Mechanics’ advocate to consumers that ethanol negatively impacts vehicle engines. This information may impact consumer’s knowledge and perception about E15 (Miller, 2018; Mohamadi, 2018).

Fuel Retailer Employee Knowledge Fuel retailer employees are critical to communicate to consumers about E15 but it costs resources to train and educate employees about ethanol (Anon. n.d; Mohamadi, 2018).

2.4.4 Ethanol And Petro-gasoline Ethanol Supply Availability Ethanol supply and costs is based on season, geography, and corn grain feedstock output (EESI, 2017; Achinas & Euverink, 2016; Personal communication A, 2017; Grogan, 2011). Additionally, closer proximity to ethanol biorefineries in the Midwest Corn Belt makes it cheaper to obtain ethanol and may impact retail stations’ fuel prices in a give year (USDA, 2007; Johnson & Melendez, 2007).

Ethanol Fuel Quality Phase separation between ethanol and gasoline may occur due to ethanol absorbing water. This phase separation may damage vehicle engines and lower the octane rating of the fuel (Amine et al., 2017; Brion, 2018).

Gasoline Cost fluctuations Gasoline supply is based on season, crude oil supply, and demand imbalances and may impact the availability and cost of gasoline for fuel retail stations in a given year (EESI, 2017).

2.4.5 Opposition To E15 Fuel Industry Opposition Fuel retailers may feel the petroleum industry and/or ethanol industry is providing misinformation to consumers and others retailers about ethanol - creating challenges to sell E15. (RFA, 2014; Lamberty, 2018; Macchiarola, 2017; PMAA, 2016; PMAA, 2018; Gerald & Thompson, 2016; AFPM, 2018). In 2012, the oil industry spent $115 million on lobbying against overall climate change policies. Moreover, in 2013 the petroleum industry has spent $4.1 million in lobbying against ethanol fuels (Choma, 2013).

Branded Fuel Contacts An RFA (2014) study reported only 1.4 percent of branded fuel stations offered E85 or E15 whereas 2.3-3.5 percent of unbranded fuel stations offered E85 or E15. As a result, unbranded retail fuel stations were four to six times more likely o offer E85 and E815 than branded fuel stations. This may be due to branded fuel companies may restrict their franchisees from adopting E15 fuel (RFA, 2014).

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Chapter 3: Goals, Objectives, and Research Questions

3.1 Goals The goal of this study is to better understand the key issues impacting retail fuel companies’ adoption of E15 into their stations. The findings will benefit the fuel retail industry to better understand and utilize fuel opportunities in the market.

3.2 Objectives • Identify and explore drivers and barriers for adopting E15 into unbranded retail fuel companies • Identify and explore drivers and barriers to E15 adoption for branded retail fuel companies. • Examine differences between unbranded and branded retail fuel company participants’ regarding the drivers and barriers to E15 adoption and diffusion into their stations. 3.3 Research Questions • What are the top 4 drivers perceived by unbranded retail fuel companies regarding the adoption of E15 into their stations? • What are the top 4 barriers perceived by unbranded retail fuel companies regarding the adoption of E15 into their stations? • What are the top 4 drivers perceived by branded retail fuel companies regarding the adoption of E15 into their stations? • What are the top 4 barriers perceived by branded retail fuel companies regarding the adoption of E15 into their stations?

Chapter 4: Methodology

4.1 Phase 1: Pre – Test Questionnaire The goal of this phase is to confirm literature review issues for this particular setting and time period and to identify any additional information pertaining to U.S. retail fuel companies’ challenges to E15 adoption - whereby the company’s perspective adds value to the proposed research. To ensure the current issues are representative of the selected population – two experts within in the ethanol production and retail fuel industries reviewed the questionnaire and proposal to provide feedback. As of October 2017, one experts’ ethanol facility produced 110 million gallons of ethanol while the other experts’ retail fuel company is the number one U.S. E15 seller (Personal Communication A, 2017). These experts suggested this study utilize a qualitative interview method given that E15 adoption issues are common knowledge among retail fuel companies (Personal Communication A, 2017, Personal Communication C, 2017). Therefore, an adequate representative sample of interviews with key contacts from the retail fuel sector would accurately portray E15 adoption-diffusion challenges similarly to utilizing a quantitative survey method (Personal Communication A, 2017, Personal Communication C, 2017).). Additionally, these experts suggested high response rates for a quantitative survey would be difficult to acquire from retail fuel companies (Personal Communication A, 2017). Qualitative expert interview methods have shown to be a valid scientific option to develop a deep understanding of research study issues (Creswell, 2012; Trumbull, 2005).

4.1.1 Qualitative Interview Process Interview sample size will be determined based on data saturation which entails bringing in new participates continually until enough data is reached to the point of diminishing returns – when there is no addition of new contributions to the research (Marshall, et al., 2013). In terms of thematic analysis Guest et al. (2006) showed 73 percent of content was identified within the first six interviews, 92 percent was identified after 12 interviews, and 100 percent was identified after 13 interviews. Thus, concluding that data saturation occurs by the 12th interview (Marshall, et al., 2013; Baker & Edwards, 2012). Additionally, to justify saturation several interviews will be conducted past the saturation point to illustrate the data set is indeed redundant and the

43 themes and categories are sufficient (Marshall, et al., 2013; Baker & Edwards, 2012). Overall, quality of research studies will increase until data saturation is reached while gathering too much data will impair researchers time, resources, and deep analysis of the proposed research objectives (Marshall, et al., 2013; Baker & Edwards, 2012).

4.2 Phase 2: Population In 2016, the U.S. retail fuel industry totaled N = 127,820 stations and N=1,609 retail fuel companies, of which 44 percent were categorized unbranded fuel stations (N= 72,829 stations; N=15 companies) and 56 percent were categorized as branded fuel stations (N= 72,829 stations; N=15 companies) (Table 3).

Total number % of Retail Fuel Company Total companies of stations stations per Category per category per category category

Unbranded N =1,594 N=56,942 44%

Branded N=15 N=72,829 56%

Total N=1,609 N = 129,771 100%

T able 3. U.S. retail fuel industry categorized by fuel type.

Estimates were based on NACS, 2016b data and Technomic, 2016 data.

4.2.1 Purposive Sample This study will employ nonprobability purposive sampling and will be working with a retail fuel expert to gain access to key contacts. This will ensure a targeted sample quickly and to ensure the sample demonstrates expertise in E15 adoption-diffusion issues (Trochim, 2002). The interviews sample size is estimated between nine and thirteen to ensure all retail fuel company to ensure saturation point is reached.

4.3 Phase 3: Data Collection Data will be collected through semi-structured in person and phone interviews. Interviews offer a free form of response and a possibility for dialog, which allows for greater interaction between the interviewer and the participant (García-Maroto, et al., 2014). Additionally, a personal one-on-one interview provides the participant with a feeling of being the focus of attention and allows interviewers to reveal deeper emotions and thoughts about participant’s responses (McDaniel & Gates, 2004).

4.3.1 Interview Design Interviews will be standardized with a list of the same questions in the same order for all participants interviewed which provides a means of obtaining similar information (García- Maroto, et al., 2014). The interview was designed to explore and identify the most important drivers and barriers to adoption-diffusion of E15 into retail fuel companies’ stations.

4.4 Phase 4: Data Analysis and Interpretation of Findings 4.4.1 Thematic Analysis Thematic analysis is a process for encoding qualitative information (Boyatzis, 1998) by which the text is coded into categories. This allows the research to quantify the frequency of patterns within a text that was addressed by the participant. Ultimately, long statements are reduced into simple categories, which allows for the topics that respondents mentioned to be streamlined and understood easily (García-Maroto, et al., 2014). Categories may developed through three different ways: 1) Using prior research/data; 2) Inductive (i.e. from raw data); or 3) Data driven (Boyatzis, 1998). Once the data analysis is finished, conclusions can be made about the sample population to address the research questions.

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U.S. RETAIL FUEL COMPANIES’ PERCEPTIONS REGARDING THE ADOPTION-DIFFUSION OF

HIGHER ETHANOL FUEL BLENDS

This paper, by Jessica L. Boden and Paul M. Smith, was written for submission to…

5.1 Abstract Due to climate change concerns and related greenhouse gas (GHG) emissions from combustion of fossil fuels, the U.S. federal government has established a variety of mechanisms to encourage renewable transportation fuels, such as corn-grain ethanol, into the petro-gasoline transportation fuel supply chain (Vimmerstedt et al., 2012; Anderson, 2012; EPA, 2017; EPA, 2017b; RFA, 2018). In 2017, nearly 16 billion gallons of corn-grain ethanol accounted for approximately 10 percent of the total U.S. transportation fuel supply, but is currently constrained by the maximum 10 percent blend allowed in E10 fuels, referred to as the “blend wall” (Chen et al., 2016; RFA, 2018). To increase the amount of ethanol sold per year, the EPA approved the sale of E15 fuel (10.5-15% corn-grain ethanol and 89.5-85% petro-gasoline) for 2001 and newer light-duty vehicles (Bracmort, 2018; EPA, 2017). However, E15 fuel may be viewed as a competitive threat by the oil refining industry and branded fuel retailers (Al-Falihs, 2017; Dinnenn, 2017) and an emerging market opportunity (Aguilar et al. 2015) for ethanol producers and unbranded fuel retailers (Lorenz, 2018; O’Brian, 2018). As a result, challenges remain regarding the expansion of E15 into the retail fuel industry (Grogan, 2011; Vimmerstedt et al., 2012; NACS, 2014; Lorenz, 2018). This paper explores the ranking of perceived drivers and barriers regarding the adoption and diffusion of E15 into retail fuel companies’ stations through 14 semi-structured interviews with eight unbranded and six branded participants from February to May 2018. Unbranded fuel companies (e.g. 7-Eleven; Cumberland Farms) may purchase their fuel supply from any fuel refiner (Firgo et al., 2015). However, branded fuel companies (e.g. Shell; BP) franchise their brand to independent retailers who are obliged, under contractual agreement, to purchase and sell fuels supplied by the branded refiner at their station(s) (Firgo et al., 2015). This study found a very wide disparity between the perceived drivers and barriers regarding adoption of E15 fuel into retail fuel stations for unbranded and branded participants. In particular, the eight unbranded participants ranked product differentiation the top ranked driver to adopt E15 fuel into their stations, followed by profit incentive, federal government and private incentives, and the RIN market. The six branded participants ranked E15 fuel mandate highest, followed by consumer demand, octane standard, and profit incentive. In terms of

48 barriers to the adoption of E15 fuel into their retail stations, the eight unbranded participants ranked consumer knowledge as the #1 barrier, followed by RVP waiver, infrastructure costs, and dispensing labeling issues. The six branded participants ranked vehicle warranties as the #1 barrier to E15 fuel adoption, followed by infrastructure costs, consumer mis-fueling liability, and space constraints (for additional fuel tanks). Various policies have been implemented to address future concerns of energy independence, energy security, and climate change, which have, consequently, advanced ethanol-blended fuels. As a result, higher ethanol fuel blends are perceived differently between branded fuel retailers (oil companies) and independent unbranded fuel retailers. And, these two fuel retailer groups have reflected market share competition between the oil refining and ethanol industry.

5.2 Introduction Corn-grain ethanol is an alcohol fuel utilized in the United States as an alternative fuel to achieve a reduction in imported petroleum while increasing energy diversification, and rural economic development (Schnepf & Yacobucci, 2013; Vimmerstedt et al., 2012). Moreover, corn- grain ethanol fuel blends have shown reduced greenhouse gas (GHG) emissions over its lifecycle compared to petro-gasoline fuel (Liska et al., 2009; Wang et al., 2012). Additionally, corn-grain ethanol blended in petro-gasoline fuel provides an improved octane rating to meet the U.S.

Clean Air Act Standards (Urbanchuk, 2010). 1 In 2007, the U.S. Congress enacted the Renewable Fuel Standard 2 (RFS2 ), which required the use of 36 billion gallons of renewable fuels into the transportation fuel supply chain by 2022 (Schnepf & Yacobucci, 2013). As of 2015, the U.S. renewable fuel industry is dominated by corn-grain ethanol and biodiesel, which accounts for over 90 percent of the total U.S. renewable fuels (Chen et al., 2017). Furthermore, corn-grain ethanol production has dramatically increased from 1.7 billion gallons in 2001 to 15.8 billion gallons in 2017 and accounted for approximately 10 percent of the total transportation fuel supply in 2017 (RFA, 2018).

1The 2005 Energy Policy Act established the Renewable Fuel Standard (RFS1), which was expanded to the Renewable Fuel Standard 2 (RFS2) by 49

Despite the benefits of corn-grain ethanol, the alternative fuel industry is constrained by the maximum 10 percent blend allowed in E10 fuels, referred to as the “blend wall2” (Chen et al., 2016; Chen et al., 2017). To address the blend wall, the EPA, in 2011, approved the sale of E15 fuel (10.5-15% corn-grain ethanol and 89.5-85% petro-gasoline) for 2001 and newer vehicles to increase the annual amount of corn-grain ethanol sold per year at retail fuel stations across the U.S. (EPA, 2017; Bracmort, 2018). However, the EPA does not mandate retail fuel companies to sell E15 fuel at their stations (AFPM, 2018). Since the turn of the century, U.S. transportation fuel consumption has steadily declined due to decreased vehicle miles traveled (VMT) per driver and improved vehicle fuel efficiency3 (Fuels Institute, 2014; Diment, 2016; Lorenz, 2018b), leading to a saturated fuel market (Fuels Institute, 2014; Lorenz, 2018b). In terms of the U.S. retail fuel market, these alternative fuels are fragmenting the existing market rather than fostering market growth (Fuels Institute, 2014). Accordingly, E15 fuel may be viewed as a competitive threat to the branded fuel companies and oil refining industry (Al-Falihs, 2017; Dinnenn, 2017), and a market opportunity to the unbranded fuel companies and corn-grain ethanol industry (Aguilar et al. 2015; Lorenz, 2018b). As a result, alternative fuels have become a politically charged issue due to consequences of market share competition between oil and ethanol refiners (Lorenz, 2018). As such, E15 commercialization may face a variety of barriers to wide-scale adoption within the retail fuel industry (Lorenz, 2018; NACS, 2014). Generally, the corn-grain ethanol industry supports unbranded fuel companies due their flexibility and motivation regarding E15 adoption whereas branded fuel companies have shown resistance to E15 implementation into the marketplace (Becker-Knecht, 2017b). In October 2015, the USDA’s Biofuel Infrastructure Partnership (BIP), and the corn-grain ethanol industry’s Prime the Pump Initiative provided $210 million to help fund E15 fuel infrastructure, a key to higher ethanol fuel blends such as E30 (Polisch, 2015). This initiative has found a pathway through unbranded fuel companies who have been pivotal in the efforts to

2 The ethanol “blend wall” is the amount of ethanol that can be blended into the transportation fuel supply chain given the EPA approval for E10 fuel (up to 10 percent ethanol and at least 90 percent petro-gasoline) for the vast majority of vehicles (Schnepf & Yacobucci, 2013; RFA, 2013). 3 Improved fuel economy occurred due to auto manufacturer’s adhering to CAFE standards. Due to the 1973 oil crises and embargo, the EPA established the first Corporate Average Fuel Economy (CAFE) standards, which required automakers’ fleets to average 27.5 miles per gallon (mpg) for new light new duty vehicles (USDA, 2015) and was amended, in 2011, by the EPA to 54.5 mpg for new light duty vehicles by 2025 (NHSTA, 2018). 50 promote E15 fuel (Becker-Knecht, 2017b). According to Jim Pirolli, VP of Fuels for Kum & Go, “It’s a gateway to the next generation of fuels that offer the best overall mixture of low cost, low emissions, sustainability, and performance” (Becker-Knecht, 2017).

5.3 Literature Review 5.3.1 The U.S. Transportation Fuel Supply Chain To better understand the U.S. transportation fuels industry and the role of ethanol fuel blends, an overview of the integrated fuel supply chain is provided in Fig. 1. U.S. petroleum refineries convert domestic and imported oil into unfinished petro-gasoline fuels, which are stored in bulk storage terminals prior to transport to distribution terminals (Fuels Institute, 2016) (Fig.1). A small volume of imported finished gasoline and unfinished petro-gasoline fuels are transported to these bulk storage terminals or transported to distribution terminals via pipelines, barges, trucks, or rails (Fuels Institute, 2016). Ethanol fuel is stored on site at biorefineries and is subsequently transported to distribution terminals by barge, truck, or rail but not pipeline due to possible corrosion issues (Fuels Institute, 2016; Groysman, 2014). Distribution terminals then blend petro-gasoline with corn-grain ethanol at the rack4 to produce E10 fuel (maximum=10 percent ethanol) that is subsequently transported to retail fuel stations via trucks (Fuels Institute, 2016). However, there are a limited number of distribution terminals that will blend E15 fuel at the rack (Personal Communication B, 2017), which may be due to long-term leasing contracts for fuel tank space (Moriarty, 2016). Additionally, retail fuel companies may obtain E85 (51- 83% corn-grain ethanol and 49-15% petro-gasoline) fuel from ethanol biorefineries and utilize blender pumps5 at their stations to produce E15 fuel (CFF & NEB, 2011; Personal Communication A, 2017).

4 Distribution terminals contain a truck loading facility referred to as the “rack” to complete the blending process (Fuels Institute, 2016). The petro-gasoline and corn-grain ethanol will be blended prior to entering the truck and will further blend during transit to retail fuel stations (Fuels Institute, 2016). 5 Blender pumps draw petro-gasoline and corn-grain ethanol from separate underground storage tanks and dispense a variety of preprogrammed blends such as E10, E15, midgrade, premium, and E85 – creating a mixture from which consumers can choose (CFF & NEB, 2011). 51

Fig. 1. U.S. petro-gasoline and corn-grain ethanol transportation fuel supply chain (Moriarty, 2016).

5.3.2 Drivers and Barriers to Adoption-Diffusion of E15 into Retail Fuel Companies’ Stations By the end of 2017, nearly 1,200 retail fuel stations offered E15 fuel (Soverinsky 2018), suggesting that E15 fuel is gaining momentum in the U.S. Unbranded fuel retailers have generally been the early adopters for the integration of E15 fuel whereas branded fuel companies have often shown resistance to E15 fuel adoption in the marketplace (Becker-Knecht, 2017b; Personal Communication B, 2017; RFA, 2014). From 2007-2010, Grogan (2011) interviewed 22 participants in the Michigan retail fuel industry including retail station managers, and other associated oil and energy industry experts regarding the drivers and barriers to adoption of biofuels (e.g. E85 and biodiesel). Grogan (2011) found the most important drivers were product differentiation, biofuels support from the community6, and the ability to use existing infrastructure while the most salient barriers were infrastructure costs, branded fuel contracts, and biofuel mandates. NACS (2014) surveyed 30 retail fuel companies from May 29th to June 7th, 2013 regarding the challenges to E15 fuel adoption. Accordingly, 79 percent of fuel retail companies’ cited lack of consumer demand and 46 percent cited infrastructure costs and consumer mis-fueling liability

6 Selling biofuels may support corn-grain ethanol farmers. 52 as major concerns to E15 fuel adoption (NACS, 2014). Moreover, 65 percent of survey participants indicating misfueling liability would drive their E15 fuel adoption (NACS, 2014). In summer 2017, Soverinksy (2018) with the Fuels Institute interviewed four unbranded fuel companies to assess their experiences with E15 early adoption. Accordingly, interviewees indicated that product differentiation through consumer choice was the key driver to E15 fuel adoption; however, the RVP waiver for E15 was found to be the most significant barrier (Soverinsky 2018). Few studies have investigated the drivers and barriers to higher ethanol fuel blends, such as E15, and there is a dearth of literature addressing the relative ranking of these drivers and barriers to E15 adoption from the unbranded and branded retail fuel company level perspective.

5.3.3 Drivers to E15 Fuel Adoption From the literature, 4 themes emerged, regarding factors driving E15 adoption-diffusion from the retail fuel companies’ perspective, including competitive advantage, regulation, consumer demand, and incentives (Table 1). These 4 themes may further be delineated in terms of 10 specific E15 drivers as shown in Table 1. These 10 drivers emanating from this study’s qualitative thematic analysis discussed later in this paper.

Theme Driver Citation Product Differentiation (Grogan, 2011; Soverinksy, 2018; Lorenz, 2018) (Grogan, 2011; Soverinksy, 2018; Personal Competitive Profit Incentive Communication A, 2017; Lorenz, 2018) Advantage Improved Public Relations (Grogan, 2011) Competition has adopted E15 (O’Brian, 2018) Consumer Demand Consumer Demand (Grogan, 2011; Bruce, 2013; NACS, 2014) (Weinstein, 2016; Personal Communication A, RIN Market 2017; EPA, 2017b) (Koehler, 2018; PMAA, 2016; Personal E15 Fuel Mandate Regulation Communication A, 2017) (Joselow, 2018; Miller, 2018; Lindener, 2018; EESI, Octane Standard 2018) EMV Compliance (Anon., 2016; Anon., 2017; NACS, 2016) Federal Government and (Grogan, 2011; U.S. DOE AFDC, 2017; Polisch, 2015; Incentives Private Incentives O’Brian, 2018) Table 1: Drivers to adoption-diffusion of E15 into retail fuel companies’ stations.

5.3.3.1 Competitive Advantage Retail fuel companies argue that E15 fuel provides a competitive advantage through product differentiation, profit incentive, and improved public relations (Soverinksy, 2018; Personal Communication A, 2017; Grogan, 2011; Lorenz, 2018) (Table 1). However, retail fuel companies may postpone E15 use and allow their competitors to first illustrate successful E15 adoption (O’Brian, 2018).

• Product Differentiation: E15 fuel may be utilized as a niche product to provide product differentiation and consumer choice in fuels (Soverinksy, 2018; Lorenz, 2018; Grogan, 2011). • Profit Incentive: As of 2018, the E15 fuel market may provide an opportunity for fuel margin enhancement (Grogan, 2011; Soverinksy, 2018). For instance, fuel retailers may discount E15 fuel by 3-10 cents per gallon compared to E10 fuel and still increase profit margins by 5-25 cents (Personal Communication A, 2017; Lorenz, 2018). • Improved Public Relations: Grogan (2011) found that 18 percent of his study’s participants stated improved public relations were a driver to implement biofuels (e.g. 54

E85 and biodiesel). Moreover, Grogan (2011) found that participants related biofuel adoption as a path to being perceived as a more sustainable business. • Competition has Adopted E15: Retail fuel companies may want to see other companies integrate E15 fuel successfully before they implement it (O’Brian, 2018).

5.3.3.2 Consumer Demand • Consumer Demand: Grogan (2011) mentioned consumer demand might be galvanized from consumers requesting E15 product at filling stations. Additionally, if there is limited demand for E15 fuel, retailers may not upgrade their facilities to accommodate E15 fuel (Bruce, 2013). Moreover, NACS (2014) surveyed 1,183 consumers from May 7th to May 9th, 2013 regarding E15 fuel. NACS (2014) found that 34 percent of surveyed participants were authorized and willing to consider purchasing E15 fuel illustrating limited demand for the product. Furthermore, approximately 79 percent of the 30 retail fuel companies NACS (2014) surveyed cited lack of consumer demand for E15 is a major concern to sell E15.

5.3.3.3 Regulation Regulations such as the RIN market (EPA, 2017b; Weinstein, 2016; Personal Communication A, 2017), E15 fuel mandates (PMAA, 2016; Koehler, 2018; Personal Communication A, 2017), octane standard (EESI, 2018; Joselow, 2018; Miller, 2018; Lindener, 2018), and EMV compliance (Anon., 2016; Anon., 2017; NACS, 2016) may drive retail fuel companies to adopt E15 fuel into their stations.

• RIN Market: Renewable Identification Numbers (RINs) were developed by the EPA to ensure the “obligated parties” (e.g. oil refineries and gasoline importers) comply with the Renewable Fuel Standard 2’s (RFS2) Renewable Volume Obligations (RVOs) at the level determined each year by the EPA (EPA, 2017b). “Non-obligated parties” (e.g. fuel retailers) may participate in the RIN market, which may provide additional revenue;

however, only very large fuel retailers will have the financial strength to trade, and manage RINs (Weinstein, 2016; Personal Communication A, 2017). • E15 Fuel Mandate: Federal and/or state mandates may force retail fuel companies to implement E15 fuel into their stations (Koehler, 2018; PMAA, 2016; Personal Communication A, 2017). • Octane Standard: Octane is a measure of a fuel’s ability to resist ‘knock’ (EESI, 2018). Currently, octane minimums are determined by the state, with the lowest equal to 85 in Rocky Mountain (high elevation) states. A higher-octane fuel standard, such as a minimum of 95 Research Octane Number (RON) (Joselow, 2018; Miller, 2018; Lindener, 2018), would require auto manufacturers to produce higher compression engines, which operate on higher-octane fuel. A higher-octane standard for new vehicles could provide an E15 driver since ethanol is a cheaper route to attain higher octane versus oil (Joselow, 2018; Miller, 2018; Lindener, 2018). • EMV Compliance: EMV (Europay, MasterCard® and Visa®) uses microchip technology in credit cards to protect consumer's data (Anon., 2016; NACS, 2016). Fuel retailers have until October 2020 to comply (Anon., 2016; Anon., 2017; NACS, 2016) and may consider E15 adoption during this upgrade for EMV compliance (Anon., 2016; NACS, 2016).

5.3.3.4 Incentives Federal government and private incentives may drive retail fuel companies to adopt E15 fuel by mitigating upgrade fuel equipment costs (Grogan, 2011). Incentive examples include:

• The USDA’s Rural Energy for America Program (REAP): provides loan guarantees and grants to retail fuel companies to purchase renewable energy systems. The max loan guarantee is $25 million (for all applicants) and the maximum grant funding is 25 percent of project costs per applicant (U.S. DOE AFDC, 2017; O’Brian, 2018). • USDA’s Biofuel Infrastructure Partnership (BIP) program and ethanol industry’s Prime the Pump: In October 2015, these two groups have provided $210 million to help fund E15 fuel infrastructure (Politsch, 2015).

5.3.4 Barriers to E15 Fuel Adoption From the literature 5 themes emerged, including regulation, infrastructure, consumers, ethanol, and opposition to E15 regarding retail fuel companies’ perceived barriers to E15 fuel adoption (Table 2). These 5 themes may further be delineated in terms of 14 specific E15 barriers as shown in Table 2. These 14 drivers emanated from this study’s qualitative thematic analysis discussed later in this paper.

Theme Barrier Citation RVP Waiver (EESI, 2017; Lorenz, 2018; Soverinksy, 2018) (RFA, 2013; Gantz, 2017; PMAA, 2016; Gerald & Regulation Vehicle Warranties Thompson, 2016) (EPA, 2017; U.S. GAO, 2011; AFPM, 2018; NACS, Consumer Mis-fueling Liability 2014) (Moriarty et al., 2014; Vimmerstedt et al., 2012; Infrastructure Costs Gallic, 2018; NACS, 2014) Determining ROI (Grogan, 2011; Personal Communication A, 2017) Infrastructure (Oller, 2016; Mohamadi, 2018; Klatt, 2018; Dispenser Labeling Issues Personal Communication A, 2017) Space Constraints (U.S. GAO, 2011; Grogan, 2011) Consumer Knowledge (NACS, 2014; Aguilar et al., 2015) Mechanic Knowledge (Miller, 2018; Mohamadi, 2018) Consumers Fuel Retailer Employee Knowledge (Anon. n.d.; Gallic, 2018) Ethanol Supply Availability (Grogan, 2011; Achinas & Euverink, 2016) Ethanol Fuel Quality (Amine et al., 2017; Brion, 2018) (RFA, 2014; Lamberty, 2018; Macchiarola, 2017; PMAA, 2016; PMAA, 2018; Gerald & Thompson, Opposition to E15 Fuel Industry Opposition 2016; AFPM, 2018) Branded Fuel Contracts (RFA, 2014) Table 2: Barriers to adoption -diffusion of E15 into retail fuel companies’ stations.

5.3.4.1 Regulation Regulations such as the Reid Vapor Pressure (RVP) waiver (ESSI, 2017; Lorenz, 2018; Soveriksy, 2018), vehicle warranties (RFA, 2013; Gantz, 2017; PMAA, 2016; Gerald & Thompson, 2016), and consumer mis-fueling liability (EPA, 2017; U.S. GAO, 2011; AFPM, 2018; NACS, 2014) may be seen as barriers to the adoption of E15 fuel at retail fuel stations.

• RVP Waiver: When the air temperature rises above 100 degrees Fahrenheit, gasoline vaporizes quicker and, as a result, the EPA regulates gasoline volatility (Reid Vapor Pressure) in the summer months between June 1st and September 15th to reduce the formation of smog (EESI, 2017; Lorenz, 2018; Soverinksy, 2018). Conventional gasoline markets (low smog areas) have an RVP cap of 9 pounds per square inch (psi) during summer months (EESI, 2017). However, E10 has an RVP of 10 psi but the EPA granted a

one-pound RVP waiver, which allows the sale of E10 during summer months (EESI, 2017). To date, EPA has not approved an RVP waiver for E15 thus restricting E15 sales during summer months (EESI, 2017; Lorenz, 2018; Soverinksy, 2018).

• Vehicle Warranties: In 2011, the EPA approved E15 fuel use for 2001 and newer vehicles (RFA, 2013). But as of 2017, only 34 percent of vehicle warranties include provisions for E15 fuel related damage (Gantz, 2017). As a result, fuel retailers may feel there is a limited vehicle fleet designed and warrantied to handle E15 fuel (PMAA, 2016; Gerald & Thompson, 2016). • Consumer Mis-fueling Liability: Consumer mis-fueling E15 fuel in their vehicles, which may not be warrantied for E15 fuel use, may try to hold retailers liable (AFPM, 2018). However, EPA has stated fuel retailers with proper E15 labels are not liable for consumers mis-fueling (EPA, 2017; U.S. GAO, 2011). The NACS (2014) study found 46 percent of retailer participants cited consumer mis-fueling liability as a concern to selling E15 fuel with 64 percent stating protection from mis-fueling liability would entice them to consider adopting E15 fuel.

5.3.4.2 Infrastructure E15 fuel infrastructure issues may include implementation costs, determining Return On Investment (ROI), E15 labeling, and space limitations (Moriarty et al., 2014; Vimmerstedt et al., 2012; Personal Communication A, 2017; Grogan, 2011; U.S. GAO, 2011; Gallic, 2018; Mohamadi, 2018; Klatt, 2018; Oller, 2016; NACS, 2014).

• Infrastructure Costs: Fuel retailers may accrue costs between $2,000 to $250,000 per station to upgrade dispensers, and underground tanks to accommodate E15 fuel (Moriarty et al., 2014; Vimmerstedt et al., 2012). Additionally, construction downtime may occur and cause decreased revenue, and employee turnover (Gallic, 2018). The NACS (2014) study showed 46 percent of their fuel retail company participants cited infrastructure costs as a major concern to E15 adoption.

• Determining ROI: Considering the variability in infrastructure costs, and unknown consumer demand for E15, fuel retail companies may find it difficult to properly calculate an accurate ROI (Grogan, 2011; Personal Communication A, 2017). • Dispenser Labeling Issues: There is an "identity crisis" for E15 fuel due to inconsistent dispenser labeling (Oller, 2016; Mohamadi, 2018; Personal Communication A, 2017). For instance, retail fuel companies have labeled E15 as “E-15 blend”, “Unleaded 88”, and “Unleaded 88 Plus” (Oller, 2016; Klatt, 2018; Personal Communication A, 2017). • Space Constraints: Adding dispensers and/or underground storage tanks to accommodate E15 fuel may be impractical due to space limitations at retail fuel stations (U.S. GAO, 2011; Grogan, 2011).

5.3.4.3 Consumers A lack of consumer knowledge may constitute a perceived barrier to E15 adoption by fuel retailers (NACS, 2014; Aguilar et al., 2015). In addition, a lack of mechanic’s knowledge (Miller, 2018; Mohamadi, 2018), and fuel retailer employee knowledge regarding ethanol fuel blends may also be perceived as E15 adoption barriers (Anon. n.d.; Gallic, 2018).

• Consumer Knowledge: The NACS (2014) study indicated that only 26 percent of consumers were aware of E15 fuel, and 79 percent of fuel retailers did not want to sell E15 fuel due to lack of consumer knowledge. Additionally, Aguilar et al. (2015) found that 69 percent of respondents had heard of ethanol blends while 42 percent reported to have used ethanol blends in their vehicles. • Mechanic Knowledge: Mechanics may advocate to consumers that ethanol negatively impacts their vehicle and, in turn, impacts consumers’ perception regarding E15 fuel (Miller, 2018; Mohamadi, 2018). • Fuel Retailer Employee Knowledge: Fuel retailers’ employees play a critical role in communicating E15 issues to consumers; however, employee E15 education and training

requires retailer resources (Anon. n.d.; Gallic, 2018).

5.3.4.4 Ethanol • Ethanol Supply Availability: Ethanol costs and production are based, in part, on season, geography, and corn grain feedstock supply (Grogan, 2011; Achinas & Euverink, 2016). • Fuel Quality: Phase separation between ethanol and gasoline may occur due to ethanol absorbing water and, in turn, may lower the fuel’s octane and damage vehicle’s engines (Amine et al., 2017; Brion, 2018).

5.3.4.5 Opposition to E15 • Fuel Industry Opposition: Fuel retail companies may perceive the ethanol and/or oil refinery industry provides contradictory information regarding E15 fuel, which may create confusion in the marketplace (RFA, 2014; Lamberty, 2018; Macchiarola, 2017; PMAA, 2016; PMAA, 2018; Gerald & Thompson, 2016; AFPM, 2018). • Branded Fuel Contacts: Branded fuel companies may restrict their franchisees from

adopting E15 fuel (RFA, 2014).

5.4 Research Objective There is a dearth of literature addressing the salient drivers and barriers to E15 fuel adoption from the unbranded and branded retail fuel company level perspective. This qualitative study evaluates the relative ranking of these key issues by utilizing semi-structured interviews with key retail fuel industry executives from both the unbranded and branded fuel sectors. Accordingly, the goal of this paper is to explore and establish retail fuel companies’ perceived drivers and barriers regarding the adoption and diffusion of E15 into their stations to benchmark and provide insights to policy makers, suppliers and buyers of fuel within the retail fuel industry.

5.5. Research Design 5.5.1 Study Population Development In 2016, the U.S. retail fuel industry totaled N=127,820 stations and N=1,609 retail fuel companies, of which 44 percent were unbranded fuel stations (N=72,829 stations; N=15 companies) and 56 percent were categorized as branded fuel stations (N= 72,829 stations; N=15 companies) (NACS, 2016b) (Table 3). This study’s participants included eight unbranded and six branded retail fuel companies representing a total of 34,659 stations and 14 companies (Table 3).

Total number % of % of Retail Fuel Company Total companies of stations stations per Participants participants' Category per category per category category stations

n=8 companies Unbranded N =1,594 N=56,942 44% 6.07% n=3,459 stations n=6 companies Branded N=15 N=72,829 56% n=31,200 42.84% stations n=14 companies Total N=1,609 N = 129,771 100% n =34,659 26.71% stations

Table 3: U.S. retail fuel industry and study’s participants categorized by fuel type. Estimates were based on NACS, 2016b data and Technomic, 2016 data.

5.5.2 Data Collection A purposive sample of U.S. retail fuel industry executives was used for this study. Primary data was collected through a combination of fourteen semi-structured interviews from February 6th to May 21st 2018 (Table 4). Initial contact was made via email with an attached interview script to seek approval, and to schedule a time and place (where relevant) to conduct recorded interviews. Each recording was transcribed, and examined through thematic analysis to identify patterned or “themed” meanings through the encoding of qualitative information into categories based off frequency of themes (Boyatzis, 1998; Garcia-Maroto, et al., 2014). Three graduate student coders at The Pennsylvania State University were used to increase the reliability of the thematic analysis and served as a tie breaking mechanism (Chen et al., 2017; Boyatzis, 1998; Garcia-Maroto, et al., 2014). Before analyzing the data, each coder was provided with a codebook and trained to understand relevant drivers and barriers to E15 fuel adoption. Further beta testing of select statements was administered to ensure each coder completely understood the categories. Inter-coder agreement was examined through calculation of percent agreement and, overall, this study achieved 100 percent inter-coder agreement for all driver and barrier categories.

Stations Stations Participant Fuel Type Title Geographic Region with E15 with E85

A Executive Vice President of Petroleum Supply Northeast & Southeast 38% 38% B General Manager of Fuel Procurement and Marketing MidWest 55% 48% C Director of Retail Fuel MidWest 32% 61% D Unbranded Fuel Supply Logistics Director South & Midwest 3% 3% E Companies COO of Company Southeast 50% 100% F Vice President of Company MidWest 25% 60% G Executive Director of Company MidWest 92% 92% H CEO of Company Northeast 0% 0% I Product Quality Advisor Nationwide <1% <1% J Manger of Federal Government Affairs Northeast & Southeast <1% <1% K Branded Director of Retail Product Quality East Coast <1% <1% L Companies Senior Advisor of Marketing Strategy Northeast <1% <1% M Chief Operator Officer Northeast <1% <1% N Senior Director of Branded Contract Sales Northeast & South 0% <1% Table 4: Unbranded (n=8) and branded (n=6) participants. Geographic Region Source: U.S. Census Bureau, 2015.

5.6 Research Findings This research asked participants to provide their “Top 4” drivers and barriers to adding E15, in the next 5 years, to their retail fuel stations. First, all responses were given a value rating weight of 4 points for the #1 ranked driver/barrier, 3 points for the #2 ranked driver/barrier, 2 points for the #3 ranked driver/barrier, and 1 point for the #4 ranked driver/barrier for each unbranded and branded participant groups regarding the adoption-diffusion of E15 into retail fuel companies’ stations. Second, these weighted scores were summed together for each participant’s groups. Third, due to sample size discrepancy between the unbranded (n=8) and branded (n=6) participant groups, the weighted scores were standardized for comparison between groups (Rosesburg, 2004), resulting in Standardized Value Ratings (SVRs). All participants’ Standardized Value Ratings (SVRs) for each driver and barrier were summed and plotted in Fig. 2 and Fig. 3, respectively. Moreover, specific quotes were chosen from the interview transcripts that best represented participant groups’ views regarding E15 drivers and barrier categories to add depth to the analysis.

The first question asked participants to rank the top four drivers to adding E15 into their retail fuel stations.

Question 1: In your opinion, what is the #1 DRIVER to adding E15, in the next 5 years, to your company’s retail fuel stations? What is #2? What is #3? What is #4?

Among the eight unbranded participants, the number #1 ranked driver was product differentiation (SVR=.72), the number #2 ranked driver was profit incentive (SVR=.56), the #3 ranked driver was federal government and private incentives (SVR=.34), and the #4 ranked driver was the RIN market (SVR=.28). Other drivers identified by unbranded participants were consumer demand (SVR=.25), improved public relations (SVR=.16), EMV compliance (SVR=.09), and E15 fuel mandate (VR=.09) (Fig. 2). Among the six branded participants, the number #1 ranked driver was E15 fuel mandate (SVR=.63), the number #2 ranked driver was consumer demand (SVR=.54), the #3 ranked driver

was octane standard (SVR=.50), and the #4 ranked driver was profit incentive (SVR=.42). Other drivers identified by branded participants were competition has adopted E15 (SVR=.17), RIN market (SVR=.08), product differentiation (SVR=.08), federal government and private incentives (SVR=.04), and improved public relations (SVR=.04) (Fig. 2).

Drivers to E15 Adoption 0.72 Product Differentiation 0.08 0.56 Proit Incentive 0.42 0.34 Federal Gov. and Private Incentives 0.04 0.28 RIN Market 0.08 0.25 Consumer Demand 0.54 Improved Public Relations 0.16 Unbranded 0.04 0.09 EMV Compliance 0.00 Branded 0.09 E15 Fuel Mandate 0.63 0.00 Octane Standard 0.50 0.00 Competition has adopted E15 0.17

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 Participant's Summed Standardized Value Ratings (SVRs)

Fig. 2: The top four ranked drivers by unbranded (n=8) and branded (n=6) retail fuel company participants’ views regarding the adoption-diffusion of E15.

All responses were given a value weighting of 4 points for the #1 ranked driver, 3 points for the #2 ranked driver, 2 points for the #3 ranked driver, 1 point for the 4th ranked driver regarding the adoption-diffusion of E15 into retail fuel companies’ stations. Participants groups were then standardized. All participants’ weighted Standardized Value Ratings (SVRs) for drivers were summed and plotted in Fig. 2.

Product Differentiation Product differentiation received the highest summed standardized value rating (SVR=.72) by unbranded participants and was mentioned by seven out of the eight (87.5%) unbranded participants with three ranking it as the number one driver (Fig.2). However, only one of our six (17%) branded participants mentioned product differentiation as a driver, resulting in a summed SVR=.08 (Fig. 2). Both unbranded and branded participants generally stated that E15 fuel provides a competitive advantage through product differentiation from the competition.

“At this point there is so little market penetration as a fuel retailer you need to differentiate yourself to see sale improvement.” (Participant A – unbranded retailer)

“E15 sets us apart from our competitors. No one else in our area has this product. We have this product to attract consumers’ attention and they are responding favorably.” (Participant G – unbranded retailer)

“E15 allows us to have an offering that another competitor has chosen not to have.” (Participant B – unbranded retailer)

“We would use E15 as a point of differentiation to position our sites differently to the consumer.” (Participant M – branded retailer)

Profit Incentive Profit incentive received the second highest summed standardized value rating (SVR=.56) by unbranded participants and was identified by six out of the eight (75%) unbranded participants with two ranking it as the number one driver (Fig. 2). Unbranded participants mentioned E15 as a more cost-effective way to raise octane and pass cost savings to consumers. Profit incentive received the fourth highest summed standardized value rating (SVR=.42) by branded participants and was mentioned by five of our six (83%) branded participants with

66 only one ranking it as the number one driver (Fig. 2). Branded participants generally stated that there is a possible future profit incentive to adopt E15 fuel.

“Ethanol provides the most cost-effective way to improve octane rating. If you examine the value proposition, E15 allows us to discount it 3 to 10 cents per gallon, compared to E10, while still making profit. The consumer gets a great valued product that is lower priced and has a higher octane. It is a win-win for both the retailers and the consumers.” (Participant A – unbranded retailer)

“There are some market fundamentals to say oil refiners like us can make more profit if we blend more corn ethanol into our product because it is cheaper. However, the price difference between crude oil and corn is not wide enough…Oil has gone up recently but it has to be over a $100/barrel to even begin thinking of this huge incentive to blend higher ethanol blends into gasoline.” (Participant J - branded retailer)

Federal Government and Private Incentives Federal government and private incentives was the third highest summed standardized value rating (SVR=.34) by unbranded respondents and was mentioned by five of the eight (62.5%) unbranded respondents with only one ranking it the number one driver (Fig. 2). Unbranded respondents simply stated that the federal government and private incentives helped their company overcome investment costs associated with fuel equipment. However, only one of the six (17%) branded respondents mentioned federal government and private incentives as a driver, resulting in a SVR=.04 (Fig. 2). The one branded participant mentioned incentives would facilitate their company to adopt E15 but preferred E15 adoption to be market driven rather incentivized by grants.

“If we got a grant to cover a portion of upgrade costs it would be much more feasible and likely that we would adopt E15.” (Participant H – unbranded retailer)

“The USDA’s BIP and Prime the Pump incentives helped us save on costs big time.” (Participant F – unbranded retailer)

“If the agricultural lobby and the federal government were to offer incentives that would certainly motivate us to get E15. However, our company tends to be more of a free market type meaning we want E15 to be market driven rather than the government incentivizing E15 adoption.” (Participant L – branded retailer)

RIN (Renewable Identification Number) Market The RIN market ranked the fourth highest summed standardized value rating (SVR=.28) by unbranded participants and was mentioned by six of the eight (75%) unbranded participants as a driver. Two of the six (33%) branded participants mentioned the RIN market as a driver, resulting in a SVR=.08 (Fig. 2). One unbranded participant associated the RIN market with additional revenue whereas one branded participant stated if the RIN market stabilized then it could potentially help future revenue.

“The ongoing financial incentive is really the RIN. The incentives are in the right place and drives us to sell more ethanol blended fuels.” (Participant A – unbranded retailer)

“If the artificial market, the RIN system, ever became stabilized and had a consistently high RIN price then we would take advantage of that high RIN price to re-coop our investments and sell more E15.” (Participant J – branded retailer)

Consumer Demand Three of the eight (37.5%) unbranded participants mentioned consumer demand with one ranking it the number one driver, resulting in a SVR=.25 (Fig. 2).

Consumer demand was the second highest summed standardized value rating (SVR=.54) by branded respondents and was mentioned by four of the six (67%) branded respondents with two ranking it as the number one driver (Fig. 2). Both unbranded and branded participants generally stated that if consumers were demanding E15 fuel it would drive their adoption.

“If we see consumer and market demand for E15 that would be a big driver for our company to adopt it.” (Participant D – unbranded retailer)

“We want to supply fuel that our customers are demanding. If E15 is more attractive to a consumer and demand went up for it weather through economics, regulations, or policy then we would look to adopt E15.” (Participant K – branded retailer)

Improved Public Relations Improved public relations were mentioned by two of the eight (25%) unbranded participants with one unbranded participant ranking it the number one driver, resulting in a SVR=.16 (Fig.2). However, only one of our six (17%) branded participants mentioned improved public relations as a driver, resulting in a SVR=.04 (Fig.2). Both unbranded and branded participants mentioned E15 would help their company appear more positive towards the environment by the consumer.

“As a company we want to be a sustainable retailer and E15, being a renewable fuel, is a way to add to that portfolio. This helps our company look better in the consumer’s eye.” (Participant C – unbranded retailer)

“We may use E15 to position ourselves to look better in the community.” (Participant M – branded retailer)

EMV (Europay, MasterCard® and Visa®) Compliance Two of the eight (25%) unbranded respondents mentioned EMV compliance as a driver, resulting in a SVR=.09 (Fig. 2). The one unbranded executive stated that due to future EMV compliance and associated upgrade costs, E15 adoption has been considered. However, our six branded retail fuel participants did not mention EMV compliance as a driver (Fig. 2).

“We are trying to think a step ahead since prices for EMV dispensers are trending upward and it is going to be more expensive and in short supply. So we might as well think about putting in ethanol products like E15.” (Participant D – unbranded retailer)

E15 Fuel Mandate Only one of our eight (12.5%) unbranded respondents mentioned E15 fuel mandate as a driver, resulting in a SVR=.09 (Fig. 2). E15 fuel mandate received the highest summed standardized value rating (SVR=.63) by branded participants and was mentioned by five of the six (83%) branded participants with one ranking it the number one driver (Fig. 2). The one unbranded participant stated a mandate would drive them to adopt E15 whereas branded participants generally stated E15 adoption is not necessary until future government policies mandated the change.

“If the government mandated fuel retailers to use E15 and other higher blends then we would adopt it.” (Participant G – unbranded retailer)

“A government mandate would be needed for us to convert all of our facilities to adopt E15.” (Participant I – branded retailer)

Octane Standard Our eight unbranded retail fuel participants did not mention octane standard as a driver (Fig. 2). Octane standard received the third highest summed standardized value rating (SVR=.50) by branded participants and was mentioned by four of the six (67%) branded participants with one ranking it the number one driver (Fig.2). Branded participants stated vehicles requiring higher-octane fuel would drive them to integrate E15 fuel. Additionally, branded participants mentioned an octane standard might provide a solution to E15 vehicle warranty and consumer mis-fueling issues.

“If automakers designed future automobiles for higher octane fuel then one solution would be for us refiners to generate a higher octane blend stock from ethanol, such as E15, to adhere to these new octane standards.” (Participant L – branded retailer)

“Automakers can design cars with higher compression engines that are more fuel- efficient but require higher-octane fuel. If congress adopted an octane standard that might increase adoption rate of higher blends by us [branded fuel retailers] and other fuel retailers since ethanol is the cheapest source of octane. Additionally, it may help with vehicle warranty and mis-fueling liability issues surrounding E15 fuel.” (Participant J – branded retailer)

Competition Has Adopted E15 Our eight unbranded retail fuel participants did not mention competition has adopted E15 as a driver (Fig. 2). One of our six (17%) branded participants mentioned competition has adopted E15 as a driver, resulting in a SVR=.17 (Fig. 2). The one branded participant stated that they wanted to see other competitors be successful with E15 fuel adoption.

“We would like to see our competition be successful with E15 before we dip our toes in the water.” (Participant M – branded retailer)

The second question asked participants to rank the top four barriers to adding E15 fuel into their retail fuel stations.

Question 2: In your opinion, what is the #1 BARRIER to adding E15, in the next 5 years, to your company’s retail fuel stations? What is #2? What is #3? What is #4?

Among the eight unbranded participants, the number #1 ranked barrier was consumer knowledge (SVR=.69), the number #2 ranked barrier was RVP waiver (SVR=.63), the #3 ranked barrier was infrastructure costs (SVR=.31), and the #4 ranked barrier was dispenser labeling issues (SVR=.25). Other barriers identified by unbranded participants included determining ROI (SVR=.16), space constraints (SVR=.09), ethanol supply availability (SVR=.09), fuel retailer employee knowledge (SVR=.09), branded fuel contacts (SVR=.09), fuel industry opposition (SVR=.06), mechanic knowledge (SVR=.03), and fuel quality (VR=.03) (Fig. 3). Among the six branded participants, the number #1 ranked barrier was vehicle warranties (SVR=.71), the number #2 ranked barrier was infrastructure costs (SVR=.63), the #3 ranked barrier was consumer mis-fueling liability (SVR=.29), and the #4 ranked barriers was space constraints (SVR=.21). Other barriers identified by branded participants included consumer knowledge (SVR=.17), determining ROI (SVR=.17), ethanol supply availability (SVR=.17), RVP waiver (SVR=.08), and branded fuel contracts (SVR=.08) (Fig. 3).

Barriers to E15 Adoption 0.69 Consumer Knowledge 0.17 0.63 RVP Waiver 0.08 0.31 Infrastructure Costs 0.63 0.25 Dispensing Labeling Issues 0.00 0.16 Determining ROI 0.17 0.09 Space Contraints 0.21 0.09 Unbranded Ethanol Supply Availability 0.17 0.09 Fuel Retailer Employee 0.00 Branded Branded Fuel Contracts 0.09 0.08 0.06 Fuel Industry Opposition 0.00 0.03 Mechanic Knowledge 0.00 0.03 Fuel Quality 0.00 0.00 Vehicle Warranties 0.71 0.00 Consumer Mis-fueling Liability 0.29 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 Participant's Summed Standardized Value Ratings (SVRs) Fig. 3: The top four ranked barriers by unbranded (n=8) and branded (n=6) retail fuel company participants’ views regarding the adoption-diffusion to accommodate E15, in the next five years, into their retail fuel stations.

All responses were given a value weighting of 4 points for the #1 ranked barrier, 3 points for the #2 ranked barrier, 2 points for the #3 ranked barrier, 1 point for the 4th ranked barrier regarding the adoption-diffusion of E15 into retail fuel companies’ stations. Participants groups were then standardized. All participants’ weighted Standardized Value Ratings (SVRs) for barriers were summed and plotted in Fig. 3.

Consumer Knowledge Consumer knowledge received the highest summed standardized value rating (SVR=.69) by unbranded participants and was mentioned by seven of the eight (87.5%) unbranded participants with four ranking it as the number one barrier (Fig. 3). Unbranded participants suggested educating the consumer about ethanol might facilitate consumer’s knowledge regarding E15 fuel. One of the six (17%) branded participants mentioned and ranked consumer knowledge as the number one barrier, resulting in a SVR=.17 (Fig. 3). Both unbranded and branded participants generally stated that consumer’s lack of knowledge regarding ethanol might impede their E15 adoption.

“The biggest barrier is consumer knowledge. For instance, E15 is a cheaper fuel with a higher octane, which creates customer confusion. This makes them question the quality and safety of the product. We are trying to educate the consumer to let them become confident with the fuel they purchase.” (Participant B – unbranded retailer)

“We have tried to overcome the knowledge gap by using a supplement that shows a list of car brands that can handle E15 fuel. It is not the full solution but it does help. The task of addressing consumer knowledge is so colossal that we try to focus on the point of sale.” (Participant E – unbranded retailer)

“We had some brand ambassadors to help customers choose E15 and pamphlets to help people better understand E15.” (Participant F – unbranded retailer)

“Consumer knowledge regarding E15 and other higher ethanol blends is a major barrier to extend the offering.” (Participant J – branded retailer)

RVP (Reid Vapor Pressure) Waiver The RVP waiver received the second highest summed standardized value rating (SVR=.63) by unbranded participants and was mentioned by seven of our eight (87.5%) unbranded participants with two ranking it the number one barrier (Fig. 3). Unbranded participants mentioned the RVP waiver creates consumer confusion in the marketplace and restricts E15 sales. Additionally, unbranded participants suggested legislation at the federal government level is required to amend this major concern. Two of our six (33%) branded participants mentioned the RVP waiver as a barrier, resulting in a SVR=.08 (Fig. 3). Branded participants mentioned the RVP waiver was a concern due to changes in fuel products during summer months.

“From a retailer standpoint, not getting the RVP waiver is a real issue because during the summer you either have to stop selling E15 or re-label it as a flex fuel. That is a real issue because it ties back to consumer acceptance because you may have gotten a consumer to try it, liked it, and is using it but now you are literally pulling it away from them. To solve this issue would require an amendment change to the RVP waiver from the EPA or Congress.” (Participant A – unbranded retailer)

“We think the RVP waiver is a gigantic problem. Ultimately, we are not going to adopt E15 in our new stations in conventional gasoline markets until we can sell E15 year- round. A legislative change is required to address this problem and right now the ethanol industry is trying to do that.” (Participant F – unbranded retailer)

“In terms of regulatory standpoint, E15 does not benefit from the Reid Vapor Pressure waiver during the summer when E10 does. It cannot be sold under current regulations and so you would have to get different product of a different quality.” (Participant L – branded retailer)

Infrastructure Costs Infrastructure costs regarding upgrading underground storage tanks, dispensers, and piping to be compatible with E15 fuel received the third highest summed standardized value rating (SVR=.31) by unbranded participants and was mentioned by three of the eight (37.5%) unbranded participants with one ranking it the number one barrier (Fig. 3). Unbranded participants mentioned incentives as a means to help cover infrastructure costs. Infrastructure costs received the second highest summed standardized value rating (SVR=.63) by branded participants and was mentioned by five of our six (83%) branded participants with two ranking it the number one barrier (Fig. 3). Both unbranded and branded participants generally mentioned that E15 implementation would involve high upgrade costs.

“We have to shutdown stations to put in tanks, fuel lines, and dispensers and we then re- open in 4 to 6 weeks. The second we shut that store down we instantly lose volume and cash flow, and it takes a long time to recover your investment. But, federal government and private grants can be used to cover costs.” (Participant F – unbranded retailer)

“It generally costs anywhere from $150,000 to $220,000 to upgrade or buy new infrastructure.” (Participant H – unbranded retailer)

“There are a lot of old 1990s tanks out in our network that would have to be upgraded to prove compatibility. To replace these tanks, it would cost anywhere from $2,000 to $100,000.” (Participant K – branded retailer)

Dispensing Labeling Issues Dispensing labeling issues received the fourth highest summed standardized value rating (SVR=.25) by unbranded participants and was mentioned by four of the eight (50%) unbranded participants while our six branded participants did not mention this barrier (Fig. 3).

Unbranded participants have experimented with E15 Labels such as “E15”, “Unleaded 88”, and “Unleaded 88 Plus”. One participant mentioned having E15 label congruity within the retail industry might help to diminish consumer confusion and E15 dispenser labeling issues.

“Labeling is one of the greatest challenges we have because people simply have no idea what E15 is and labels are confusing and inconsistent.” (Participant E – unbranded retailer)

“With E10, the label says contains up to 10 percent ethanol but doesn’t actually label it as E10 so moving to E15 has been a real problem.” (Participant A – unbranded retailer)

“E15 labels are one of the biggest issues the industry faces. As of now, the retail industry is trying to work together to have a consistent label that retailers can use and consumers can recognize easily.” (Participant D – unbranded retailer)

Determining Return of Investment (ROI) Determining ROI was mentioned by two of the eight (25%) unbranded participants with one unbranded participant ranking it the number one barrier, resulting in a SVR=.16 (Fig. 3). However, determining ROI was mentioned and ranked the number one barrier by one of the six (17%) branded participants, resulting in a SVR=.17 (Fig. 3). Both unbranded and branded respondents stated determining ROI was a barrier due to the interconnection with multiple moving variables such as infrastructures costs, fuel margins, and consumer demand regarding E15.

“A ROI is questionable and hard to determine because if you’re selling E15 it could have incremental sales but it could also be that you’re cannibalizing E10 sales.” (Participant A – unbranded retailer)

“It is difficult to calculate and determine the ROI due to a lot of unknown variables such as costs, consumer demand, and fuel margins.” (Participant E – unbranded retailer)

“It's a hard analysis to run because you do not know if you are gaining an E15 customer or converting a customer from E10 to E15.” (Participant N – branded retailer)

Space Constraints Two of our eight (25%) unbranded participants mentioned space constraints as a barrier, resulting in a SVR=.09 (Fig. 3). Space constraints received the fourth highest summed standardized value rating (SVR=.21) by branded participants and was mentioned by two of the six (33%) branded participants with one ranking it the number one barrier (Fig. 3). Both unbranded and branded participants mentioned it would be difficult to accommodate E15 fuel due to space limitations at their stations.

“For upgrading or building new fuel stations there will be an issue of space due to adding more tanks to accommodate the additional fuel.” (Participant H – unbranded retailer)

“It would be tough for our stations to find the room to accommodate E15.” (Participant N – branded retailer)

Ethanol Supply Availability One of the eight (12.5%) unbranded participants (SVR=.09) and two of the six (33%) branded participants (SVR=.17) mentioned ethanol supply availability as a barrier (Fig. 3). One of the unbranded retail executives stated lack of ethanol supply might create difficulties in the procurement process whereas one of the branded executives mentioned there is not enough ethanol produced to meet their volume needs.

“If we wanted to switch over to E15 at a large scale it would be really hard from a supply standpoint.” (Participant D – unbranded retailer)

“As of now, if we switched over to E15 there is not enough ethanol to supply our needs and volume capability.” (Participant I – branded retailer)

Fuel Retailer Employee Knowledge Only two of the eight (12.5%) unbranded participants mentioned fuel retailer employee knowledge as a barrier, resulting in a SVR=.09 (Fig. 3). One unbranded executive mentioned to train employees requires large amounts of resources due to high turnover rates in the industry. However, our six branded participants did not mention fuel retailer employee knowledge as a barrier (Fig. 3).

“There is so much turnover in this industry it is hard to get the message out about ethanol and requires a lot or resources to educate employees.” (Participant C –unbranded retailer)

Branding Fuel Contracts Only one of our eight (12.5%) unbranded participants (SVR=.09) and one of our six (17%) branded participants (SVR=.08) mentioned branded fuel contracts as a barrier (Fig.3). Both unbranded and branded participants generally stated that branded fuel contracts restrict fuel retailers from E15 adoption.

“Generally, a lot of these branded fuel companies do not allow their franchisees to sell E15 or make it difficult by putting it outside the canopy. Ultimately, it is hard for these retailers to break these contracts and go with our private branded fuel.” (Participant G – unbranded retailer)

“There are fairly strict branding guidelines of what you can and cannot do…weather or not we could offer E15 as an additional product under the canopy would be challenging.” (Participant M – branded retailer)

Fuel Industry Opposition Fuel Industry opposition was mentioned by two of the eight (23%) unbranded participants (SVR=.06) while our six branded participants did not mentioned this barrier (Fig. 3). Unbranded fuel respondents stated that the oil refining industry publicizes misinformation about E15 fuel and creates E15 labeling difficulties due to their lack of competitive advantage.

“The PMAA gives us a difficult time about labeling E15 and puts out misinformation that E15 fuel will damage car engines and will void car warranties.” (Participant G – unbranded retailer)

“The PMAA is making it more difficult for us to market and sell E15 by trying to add label specifications to dispensers and stating misinformation that E15 will damage car engines, and will void warranties. The petroleum industry probability does not have the ability to make the change and feel they have a competitive disadvantage. Instead of changing, they try to fight it and create more issues for us.” (Participant B – unbranded retailer)

Mechanic Knowledge Only one of the eight (12.5%) unbranded participants stated mechanic knowledge (SVR=.03) as a “top 4” barrier whereas our six branded participants did not mention it as “top 4” barrier (Fig. 3). The one unbranded fuel executive mentioned that mechanics claim ethanol negatively impacts vehicles and, as a result, impacts consumer’s knowledge regarding ethanol.

“Mechanics will say ethanol is bad for your car and, in turn, confuse the consumer.” (Participant F – unbranded retailer)

Fuel Quality Only one of the eight (12.5%) unbranded participants stated fuel quality as a “top 4” barrier (SVR=.03) and did not make the “top 4” with any of our six branded participants (Fig. 3). The one unbranded participant stated ethanol’s fuel quality is a barrier to E15 fuel adoption due to possible phase separation, which may result in lower octane fuel and vehicle damage.

“Ethanol blends are more prone to phase separation and, if this happens, you end up with a tank of worthless product, which can damage vehicle engines and lower the fuel’s octane.” (Participant G – unbranded retailer)

Vehicle Warranties Our eight unbranded participants did not mention vehicle warranties as a barrier (Fig. 3). Vehicle warranties received the highest summed standardized value rating (SVR=.71) by branded participants and were mentioned by all six branded participants with one ranking it the number one barrier (Fig. 3). Branded participants stated there is limited number of vehicles on the road today that are warrantied and designed to handle E15 fuel by automobile manufacturers.

“The EPA gave a waiver stating any car 2001 and onward is okay to use E15. However, many of the vehicles are not warrantied above E10 and were not specifically designed to handle E15 products. So we take this as the current vehicle fleet is not quite ready for a broad adoption of higher ethanol blends.” (Participant J – branded retailer)

“If you look at the current fleet, about 35-50 percent are warrantied for E15 fuel. It will take time for the fleet to be compatible with higher blends.” (Participant K – branded retailer)

Consumer Mis-fueling Liability Consumer mis-fueling liability was not mentioned as a barrier from our eight unbranded participants (Fig. 3). Consumer mis-fueling liability received the third highest summed standardized value rating (SVR=.29) by branded participants and was mentioned by four of the six (67%) branded participants as a barrier (Fig.3). Branded participants felt consumer mis-fueling their vehicles with E15 fuel may engender a class action lawsuit against their company.

“The fact that cars are not designed to take E15 will result in consumers holding our company liable for their mis-fueling and can turn into a class action lawsuit, which would hurt our company.” (Participant J – branded retailer)

“There is the potential for mis-fueling…consumers have to ensure that their car is certified for E15 fuel, which can create liability issues for us.” (Participant L – branded retailer)

5.7 Discussion In the United States, corn-grain ethanol has been utilized as an alternative to petro- gasoline fuel to address growing concerns over energy security, rural economic development, climate change, and associated greenhouse gas (GHG) emissions (Vimmerstedt et al., 2012; Schnepf & Yacobucci, 2013). The U.S. federal government has enacted the RFS2 to encourage corn-grain ethanol into the petro-gasoline transportation fuel supply chain (Vimmerstedt et al., 2012; Anderson, 2012; EPA, 2017; EPA, 2017b; RFA, 2018), and has in 2011 approved the sale of E15 fuel for 2001 and newer light duty vehicles (EPA, 2017). However, U.S. transportation fuel demand has leveled off and may actually decline through 2050 due to higher fuel prices, more fuel-efficient vehicles and fewer driver miles, resulting in fierce market share competition in a saturated market (Blewitt, 2018; Kemp, 2018; Fuels Institute, 2014; Diment, 2017; Lorenz, 2018b). However, there is a dearth of literature examining the key issues regarding E15 fuel adoption within the retail fuel industry. This study employed 14 semi-structured in-person and

82 phone interviews, from February to May 2018, with eight unbranded and six branded retail fuel company experts to better understand the perceived drivers and barriers regarding E15 fuel adoption and diffusion into their retail fuel stations. The study’s results highlighted differences in perceived drivers and barriers to the adoption of E15 between unbranded and branded participants. In particular, the eight unbranded participants ranked product differentiation as the #1 driver to adopt E15 fuel into their retail stations, followed by profit incentive, federal government and private incentives, and the Renewable Identification Number (RIN) market whereas the six branded participants ranked E15 fuel mandate as the top ranked driver, followed by consumer demand, octane standard, and profit incentive. These results show that unbranded and branded participants shared only profit incentive as a top ranked driver to adopting E15 fuel into their retail stations. Similar to Soverinksy (2018), our study found unbranded participants ranked product differentiation as a major driver due to their perception of E15 fuel as niche, lower priced product for consumers, which ultimately provides a competitive advantage. According to NACS (2016), price is the number one factor consumers look for when purchasing gasoline, so it follows that E15 can be utilized as mean to provide a cheaper fuel and consumer choice in fuels. Additionally, this study found that federal government and private incentives, such as the USDA’s BIP and ethanol industry’s backed Prime the Pump, have helped unbranded participants facilitate their company to become early adopters of E15 (Becker-Knecht, 2017; O’Brian, 2018; Lorenz, 2018). Furthermore, unbranded participants ranked the RIN market as high driver due to their perception of future revenue enhancement from blending ethanol (Becker-Knecht, 2017b; Voegele, 2016; Weinstein, 2016). Typically, branded fuel companies are the obligated parties within the RIN system and may feel pressure to comply with RVOs (Renewable Volume Obligations) (Voegele, 2016) due to high RIN prices (Renshaw, 2017) and provides reasoning for why branded fuel participants did not rank the RIN market as a high driver. To date, EPA does not force fuel retailers to sell E15 (PMAA, 2016) but branded participants may perceive an E15 fuel mandate as a way to provide consistent consumer demand for E15 fuel (Bruce, 2013). Additionally, branded fuel companies ranked octane standard as a high driver due to their perception of future vehicle engines requiring higher

83 octane, ethanol’s cost advantage to increase octane, and adjusting to this market reality (Anon, 2018b, NACS, 2018; Brown, 2018; ESSI, 2018; Joselow, 2017). Moreover, high consumer demand for E15 fuel would drive retail fuel companies to dispense this fuel product (NACS, 2014). However, with current limited consumer demand for E15 fuel, retail fuel companies appear unwilling to upgrade their facilities (NACS, 2014). Moreover, branded fuel companies may have ranked consumer demand as a high driver due to their perception of consumers demanding ethanol free fuel (Carroll, 2015; API, 2017). Moreover, limited consumer demand for E15 fuel may increase through E15 education campaigns, which may drive fuel retailers to adopt E15 fuel (NACS, 2014). Overall, unbranded participants viewed E15 adoption as an opportunity for economic benefit to their company, which may be further driven by political incentives whereas branded participants viewed E15 adoption will be driven through forced government mandates or market fundamentals. Moreover, the eight unbranded participants ranked consumer knowledge as the #1 barrier to adopt E15 fuel into their retail stations, followed by RVP waiver, infrastructure costs, and dispensing labeling issues whereas the six branded participants ranked vehicle warranties as the top ranked barrier, followed by infrastructure costs, consumer mis-fueling liability, and space constraints. These results show that unbranded and branded participants shared only infrastructure costs as a top ranked barrier to adopting E15 fuel into their retail stations, which is not surprising considering Grogan (2011) and NACS (2014) also showed fuel retailers concerns regarding upgrade costs associated with accommodating additional fuel products. Unbranded participants ranked consumer knowledge as the highest barrier to E15 fuel adoption due to their perception that consumers are unaware of E15 fuel and may be weary of purchasing E15 fuel for their vehicle due to safety concerns (NACS, 2014). The RVP waiver limits the growth and sale of E15, which may indirectly decrease the amount of ethanol fuel retailers are able to blend due to the limited downstream consumer consumption (Irwin, 2018) and gives rise to why unbranded participants ranked RVP waiver as a high driver. Moreover, unbranded participants ranked RVP waiver as a high barrier due to re-labeling E15 fuel as “flex fuel” during summer months, which further exacerbates consumer knowledge and E15 dispenser labeling

84 issues (Soverinksy, 2018). Dispensing labeling issues was also ranked as a high barrier by unbranded participants due to a variety of names used to label E15, which may further exacerbate consumer knowledge regarding E15 fuel (Oller, 2016; Mohamadi, 2018; Klatt, 2018). To overcome these barriers, unbranded participants suggested consumer education regarding E15 fuel, legislative action to approve the RVP waiver so E15 can be sold throughout the year, utilization and implementation of federal, state, and private incentives to mitigate infrastructure costs associated with E15 fuel equipment, and industry wide acceptance of an E15 fuel dispenser label to facilitate consumer confusion. Branded participants ranked vehicle warranties and consumer mis-fueling liability as high barriers, which may be due to their perception of limited vehicles on the road that are warrantied and design for E15 fuel use. However, the reality is, as of 2017, only 34 percent of vehicles on the road are warrantied for E15, which is due to automakers’ not retroactively endorsing E15 in vehicles since the approval of E15 fuel in 2011 (Gantz, 2017). Additionally, automakers state that E15 fuel use may void vehicle’s warranties and damage engines (Strauss, 2012) and, as a result, consumers may hold retail fuel companies liable for E15 fuel related damage (PMAA, 2016). Additionally, possible protection against consumer mis-fueling liability may drive fuel retailers to adopt E15 fuel (NACS, 2014). Moreover, branded fuel participants may have ranked vehicle warranties and consumer mis-fueling as higher barriers due to their risk assessment that consumers’ perceive oil companies as potential class action lawsuit targets. Furthermore, branded fuel companies’ core business mission is to provide high quality fuel and if selling E15 may damage consumer vehicles, the media may negatively shed light on the company and possible tarnish their brand image. As a result, taking the risk to adopt E15 fuel may outweigh the benefits. Additionally, possible protection against consumer mis-fueling liability may drive fuel retailers to adopt E15 fuel (NACS, 2014). However, unbranded participants did not mention vehicle warranties and consumer mis- fueling as a barrier, which may be due to EPA stating E15 fuel consumer use in 2001 and newer vehicles cannot void warranties (EPA, 2017) and, fuel retailers with proper E15 dispenser labeling, cannot be liable for E15 fuel related vehicle damage (U.S. GAO, 2011). Additionally, 81 percent of the 2017 vehicle fleet has been warrantied for E15 fuel (Gantz, 2017), which may also

85 ameliorate concerns related to vehicle warranties and misfueling issues for unbranded fuel companies. Accordingly, E15 has been the most tested fuel in EPA’s history illustrating the safety, quality, and performance of the product (Growth Energy, 2018). Overall unbranded fuel participants viewed consumer’s acceptance and RVP waiver as the major barriers to E15 fuel adoption whereas branded fuel participants perceived liability due to the “grey areas” between government policy and automaker industry warranties as key barriers. To overcome these barriers, branded participants mentioned an octane standard would ensure new vehicles were designed and warrantied to handle high octane fuel, such as E15, and thus would rid of E15 warranty and consumer mis-fueling issues. Regulatory measures, such as the RFS2’s ethanol mandate, have been utilized to address future concerns of energy independence, energy security, and climate change and have, consequently, resulted in market share competition between the oil and ethanol refining industries. Branded and unbranded fuel companies somewhat reflect this divide and, in particular, the corn-grain ethanol industry has created different political agendas regarding the future of consumer fuels and energy security in the U.S. (Lorenz, 2018). The approved fuels for vast majority of vehicles has shifted from E10 to E15 fuel – giving rise to a possible 5 percent market share change – a major concern by the oil refinery industry (Dinneen, 2017). To further oil refining industry concerns, future approval of higher ethanol blended fuels (e.g. E20) coupled with improvements in biofuel technology may claim a greater share of the fuel market (Al-Falih, 2017). This study has highlighted the perceptual and dynamic differences among unbranded and branded retail fuel participant groups regarding E15 adoption issues, which is not surprising considering their fierce competition over market share. However, these issues are not black and white and this study’s results underscore the different political perspectives of the unbranded and branded participants. These issues are so politically embedded, both sides of the fuel industry met with the Trump administration to discuss the U.S. biofuel policy and E15 regulatory issues (Irwin, 2018). However, the results of this meeting showed no clear outcome regarding the future of biofuels and E15 regulatory issues. Clearly, there is a multitude of conflicting

86 political and economic points of views that continue to create consumer confusion in the retail fuel market place and stall clear action regarding the future of ethanol blended fuels in the U.S. To alleviate confusion in the market place, consumers should be provided accurate sources of information about ethanol-blended fuels so they can better understand the issues surrounding E15, which may help determine the future of the U.S. biofuel policy. For policy makers, if their position is to support E15 fuel then it will take a fairly significant amount of incentives to continue growth in the corn-grain ethanol industry. For the future of biofuels, if current policy remains there will be continued confusion in the marketplace and lack of clear action for the future of E15 in the U.S. To further push E15 fuel, a strong biofuel policy will be needed; however, with different factions pulling in different directions the lack of clear direction for biofuels in the U.S. will likely remain.

5.8 Conclusions This study’s exploratory implications are critical to provide insight and extend knowledge regarding the drivers and barriers to adoption of E15 fuel within the retail fuel industry. Additionally, this research may facilitate policy makers to better understand the impact of E15 fuel legislation within the retail fuel industry. Findings highlight the multifaceted nature of potential drivers and barriers to adoption and diffusion of E15 fuel. In particular, these E15 adoption drivers and barriers are perceived differently by branded fuel retailers (oil refinery franchisees – e.g. Shell; BP) who may be obliged, under contractual agreement, to purchase fuel from their parent company, versus unbranded fuel retailers (e.g. 7–Eleven; Cumberland Farms) who typically source their fuels from a wide array of refiners. The wide array of views on E15 adoption may be attributed to different political agendas regarding the future of consumer fuels and energy security in the U.S. The literature review revealed limited research regarding E15 fuel commercialization within the U.S. transportation fuel supply chain and its impact on market share between ethanol producers and gasoline refiners, and subsequent downstream retail fuel markets. Additionally, there is a lack of literature regarding consumers’ knowledge about E15 fuel and consumers’ perception of E15 dispenser labels. Accordingly, future research may consider the influence of

87 car dealerships, mechanics, and retail fuel employees on consumer’s knowledge regarding ethanol-blended fuel to attain a better understanding on E15 rate of adoption in future fuel markets. Moreover, rate of E15 fuel adoption may be regionally different within the U.S. and future examination of these differences may help to gain a better understanding of where policymakers should focus incentives and resources.

5.9 Limitations The findings of this study are considered exploratory due to the qualitative approach and should be interpreted with care. The qualitative approach employed provides dynamic insights into the key issues regarding E15 fuel adoption into retail fuel companies’ stations. However, the results should not be generalized to the U.S. retail fuel industry as a whole.

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Appendix A - Fuel Store Chains Per U.S. Region

51- 101- 2-3 4-5 6-10 11-25 26-50 201-500 501+ Store Total Single 100 200 Region Store Store Store Store Store Store Store Type Stores Stores Store Store Chains Chains Chains Chains Chains Chains Chains Chains Chains 1 Fuel 22216 12637 143 124 457 764 907 785 981 971 4447 2 Fuel 31819 20801 327 261 746 1493 1329 915 162 842 4943 3 Fuel 19982 10774 133 224 438 1087 1060 806 811 598 4051 4 Fuel 20783 12833 171 154 436 985 715 470 110 1904 3005 5 Fuel 12192 5405 126 187 489 841 613 400 53 1229 2849 6 Fuel 16815 10379 145 116 320 519 515 786 539 1437 2059 Total US Fuel 123807 72829 1045 1066 2886 5689 5139 4162 2656 6981 21354

Appendix B –Top 202 U.S. Convenience Stores

# of # of Rank Company Rank Company Stores Stores #1 7-Eleven Inc. 8,303 #45 G&M Oil Co. Inc. 157 Petroleum Marketing Group Inc.—E&C 7,232 150 #2 Alimentation Couche-Tard* #46 Enterprises #4 Casey's General Stores Inc. 1,931 #47 QuickChek Corp. 146 #7 GPM Investments LLC 1,020 #48 ARS West LLC—American Retail Services 144 #11 QuikTrip Corp. 740 #49 Hy-Vee Gas 141 #12 Pilot Flying J 735 #50 Blarney Castle Oil Co. 128 #13 Wawa Inc. 730 #51 Vintners Distributors 126 #14 Cumberland Farms 554 #52 Duchess Shoppes (Englefield Oil) 125 #15 Kwik Trip Inc. 545 #53 GoMart Inc. 123 #16 Western Refining Inc. 543 #54 Huck's (Martin & Bayley Inc.) 118 #17 Sheetz Inc. 524 #55 Lil' Mart (Nouria Energy) 116 #18 Holiday Stationstores Inc. 505 #56 Plaid Pantries Inc. 115 #19 TravelCenters of America 487 #57 Terrible Herbst Oil Co. 114 #20 RaceTrac Petroleum Inc. 430 #58 Little General Stores Inc. 113 #21 Kum & Go LC 408 #59 7-Eleven Stores 111 #22 Love's Travel Stops & Country Stores Inc. 397 #59 Quality Marts (Quality Oil) 111 #22 Sunshine Gasoline Distributors 395 #61 Truenorth Energy LLC 110 #24 United Refining Co. 375 #62 Mirabito Holdings Inc. 101 #25 United Pacific 350 #63 Mountain Empire Oil Co. 100 #26 Mapco Express 348 #64 Town Pump Inc. 95 #27 Stewart's Shops Corp. 335 #65 Panjwani Energy LLC 94 #28 Allsup's Convenience Stores Inc. 320 #66 Tri Star Energy LLC 87 #30 Maverik Inc. 300 #67 Toot'n Totum Food Stores 83 #31 E-Z Mart Inc. 283 #68 Family Fare 82 #32 Anabi Oil 275 #68 Farm Stores Grocery Inc. 82 #33 Global Partners LP 251 #68 Johnson Oil Co. 82 #34 Jackson Oil Co. 234 #71 Buchanan Energy 81 #35 CEFCO 226 #71 The Spinx Co. Inc. 81 #36 Giant Eagle Convenience Division 218 #73 FKG Oil Co.—Moto Mart 79 #37 Landmark Industries 212 #74 C.N. Brown Co. 78 #38 Convenient Food Mart 210 #74 Sampson-Bladen Oil Co. 78 #39 Meijer Gas Stations 207 #76 Morris Petroleum Inc. 77 #40 Petroleum Wholesale LP 202 #76 Petr-All Petroleum Corp. 77 #41 Thorntons Inc. 186 #78 Flash Oil Co. of Arkansas 75 #42 United Dairy Farmers 179 #79 MNS Ltd. 74 #43 Royal Farms 170 #79 Newcomb Oil Co. LLC 74 #43 Southeast Petro 170 #82 Krist Oil Co. 73

# of Rank Company Rank Company # of Stores Stores #82 MFA Oil Co./BreakTime 73 #118 Stop & Go 50 #84 Certified Oil 71 #120 BFS Cos. 49 #85 Family Express Corp. 68 #120 CoGo's 49 #85 Gate Petroleum Co. 68 #120 Reid Petroleum Corp. 49 #85 Par Mar Oil Co. 68 #123 Bradley Petroleum 48 #85 Southwest Georgia Oil Co. Inc. 68 #123 Craddock Oil Co. 48 #89 OnCue Marketing LLC 67 #123 Jernigan Oil Co. Inc. 48 #90 Dash In (The Wills Group Inc.) 66 #123 Jet Food Stores of Georgia Inc. 48 #90 Wallis Cos. 66 #123 Kelley Williamson Co. 48 #92 CHR Corp.—Rutter's Farm Stores 65 #128 Bulk Petroleum Corp. 47 #92 Dandy Mini Marts Inc. 65 #128 Clark Oil Co. 47 #92 Stinker Stores 65 #128 Fastrac Markets LLC 47 #95 Walters-Dimmick Petroleum Inc. 64 #128 Savings Oil Co. 47 #95 Weigel's Stores Inc. 64 #132 J&H Oil Co. 46 #97 Byrne Dairy 62 #132 MWS Enterprises Inc. 46 #97 John W. Clark Oil Co. Inc. 62 #132 Parker Co. 46 #97 Shop Rite/Tobacco Plus 62 #135 Carroll Independent Fuel 45 #100 Double Quick 60 #135 Cox Oil Co. Inc. 45 #100 Flyers Energy LLC 60 #135 Pete's Corp. 45 #100 Flyers Energy LLC 60 #138 Jolley Stores 44 #100 Tommy's Handy Mart 60 #138 R.L. Vallee Inc. 44 #103 Enmarket Inc. 59 #140 Clyde's Market Inc. 43 Alta Convenience/Pester Marketing 57 #104 Group #140 Dari Mart Inc. 43 #104 Midwest Petroleum Corp. 57 #140 Lee Oil Co. Inc. 43 #106 Campbell Oil Co. 56 #140 R.L. Jordan Oil Co. 43 #106 East Side Enterprises LLC 56 #140 Street Corner 43 #106 Ricker Oil Co. 56 #140 Western Convenience Stores Inc. 43 #109 Holiday Oil Co. 55 #146 Git-n-Go 42 #109 Hollingsworth Oil Co. 55 #147 Childers Oil Co. 41 #109 Magness Oil Co. 55 #147 Moyle Petroleum Co. 41 #112 First Coast Energy LLP 54 #149 Cantrell Cos. 40 #112 Jaco Oil Co. 54 #149 Golden Pantry Food Stores 40 #114 Green Valley Grocery 53 #149 Li'l Thrift Food Marts Inc. 40 #115 Wesco Inc. 52 #149 LSAA—Sam's Mart Inc. 40 #116 General Equities Inc. 51 #149 The Carioca Co. Inc. 40 #116 Western Oil Co. 51 #149 The Kent Cos. 40 #118 Bosselman Enterprises 50 #149 U-Pak-It Convenience Stores 40

# of # of Rank Company Rank Company Stores Stores #149 Wesco Oil Co. 40 #192 Buc-ee's 32 #157 E.J. Pope & Sons Inc. 39 #192 Condon Cos. 32 The Spencer #157 Edwards Oil Co. 39 #192 Companies 32 #157 Road Ranger LLC 39 #192 Wes-T-Go 32 BHT Investment Co. #157 Rose Oil Co. 39 #197 Inc. 31 #161 Bonfare Markets Inc. 38 #197 Coles Energy Inc. 31 #161 Mega Co-Op 38 #197 Energy North Group 31 #161 WSCO Petroleum 38 #197 Folk Oil Co. 31 #164 Brother's Petroleum LLC 37 #197 Top Star Inc. 31 #164 Graham Enterprise Inc. 37 #197 Yesway 31 #164 McCraw Oil Co./Kwik Chek 37 Total stores 35924 #164 NOCO Energy Corp. 37 #168 Brewer Oil Co. 36 #168 Champlain Oil Co. 36 #168 Cubby's Inc. 36 #168 Downey Oil Co. Inc. 36 Greeneville Oil & Petroleum #168 Inc. 36 #168 McClure Oil Corp. 36 #174 Coborn's Inc. 35 #174 Coen Oil Co. LLC 35 #174 Friendly Express 35 #174 Hill City Oil Co. 35 #174 Honey Farms Inc. 35 #174 Jay Petroleum Inc. 35 #174 Par Hawaii Inc. 35 #174 PDQ Food Stores Inc. 35 #174 Petromark Inc. 35 #174 Piedmont Petroleum Corp. 35 #174 Stop-N-Go of Madison Inc. 35 #185 Brabham Oil Inc. 34 #185 Freedom Oil Co. 34 #185 Lassus Bros. Oil 34 #185 Warrenton Oil Co. 34 #189 Brandi Cos. 33 #189 Heritage's Dairy Stores 33 #189 Robinson Oil Corp. 33 #192 Big D Oil Co. 32

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Appendix C – Email Message to Potential Respondents

Penn State University - Fuel Retailer Higher Ethanol Blend Survey

Dear Fuel Retailer,

I am a Graduate student at The Pennsylvania State University conducting research to assess retail fuel companies’ perceptions regarding the adoption of higher ethanol fuel blends into their facilities.

You represent a unique sector in the transportation fuel supply chain and can provide important insights into this potential market opportunity.

If you were able to participate in a 30 minute in person or phone interview about these issues, it would greatly help my research. Your participation is voluntary. Your responses will provide valuable information to understand the impacts of higher ethanol blends in the retail fuel sector. All your response will remain completely confidential and no identifiable information will be associated in the research reports.

As this is part of my Master of Science research project, your responses are highly appreciated and critical for the completion of my degree. If you have any question or concerns, please contact me at [email protected]

Thank you for your time and help,

Jessica Boden M.S. BioRewnable Systems The Pennsylvania State University

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Appendix D - Qualitative Instrument Script and Interview Questions

Only researchers on this project will be privy to the tapes, which will be deleted after they are transcribed. Once transcribed, the conversation will be emailed to you for approval before analysis. The interview will take anywhere from 30 minutes to an hour to complete. All information will be held confidential and completely anonymous. Participation is voluntary and you may decide to stop at any time. You do not have to answer any questions that you do not want to answer. Overall, there is minimal risk in participating in this study and remuneration includes a copy of the study results if interviewee is interested. Additionally, by choosing to participate or not will have no impact on your job status.

This interview is to explore and establish the “drivers and barriers” to adoption-diffusion of higher ethanol fuel blends (e.g. E15) into your companies’ retail fuel stations. Furthermore, this research will also explore ways for retail fuel companies to overcome these issues.

A. Background - First, a little background on you and your company.

1. What is your title and what primary functions does your job involve? 2. How long have you held your current position? 3. How many years have your company engaged in the retail fuel industry? 4. Has your company integrated Higher Ethanol Fuel Blends (e.g. E15 and E85) into their retail stations? à IF NO: Move on to question 5. à IF YES: What percentage of your total retail fuel stations has E15? E85? Or both? (After this question, continue to question 5).

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B. Potential Barriers: Higher Ethanol Fuel Blends, such as E15, are gaining momentum in the U.S. retail industry.

In YOUR OPINION: 5. What is the #1 BARRIER to adding E15, in the next 5 years, to your company’s retail fuel stations? What is #2? What is #3? What is #4? a. Can these “Top 4” barriers be overcome? How so or why not? 6. Are there additional barriers to adding E15, in the next 5 years, to your company’s retail fuel stations? If so, please specify.

C. Potential Drivers:

In YOUR OPINION: 7. What is the #1 DRIVER to adding E15, in the next 5 years, to your company’s retail fuel stations? What is #2? What is #3? What is #4? 8. Are there additional drivers to adding E15, in the next 5 years, to your company’s retail fuel stations? If so, please specify.

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