Changes to ethanol NOM prompt fuel market debate

Corn squeezins
Corn squeezins

Mexico’s Energy Regulatory Commission (CRE) published modifications to the country’s fuel quality standard, NOM-016-CRE-2016, on June 26, 2017, stoking an ongoing kerfuffle among parties on either side of the ethanol-as-fuel debate.  Beyond the philosophical grandstanding, the changes to the reg have potential to impact the evolution of the fuel industry in Mexico and as is often the case, they are generating no small amount of confusion.

Over the past 10 years, national oil company Petróleos Mexicanos (Pemex) has repeatedly announced its intention to introduce gasoline containing ethanol into the Mexican market, only to suspend the effort for one reason or another each time, most recently in 2015.  The standard permitting up to 5.8% ethanol as an oxygenate in gasoline has been on the books since August 2016, yet as best we can determine, gasoline currently sold in Mexico is oxygenated with MTBE rather than ethanol.  The recent modifications to the fuel standard include an increase in the maximum allowable percentage of ethanol in gasoline from 5.8% to 10%, clearing the way for the introduction of so-called E10 fuel.  The move comes within the context of Mexico’s energy industry reform, which allows for private production, importation and sale of fuels as well as the elimination of government establishment of fuel prices.  The elimination of gas price controls at the pump is currently being implemented by region, to culminate in nationwide free market pricing as of January 1, 2018.

In the Official Gazette (DOF) publication of the NOM changes, the CRE appears to justify the increase in the ethanol limit on the grounds that it will allow Mexican producers, importers and retailers of gasoline to compete on more equal terms with their counterparts in the United States, where ethanol-blended fuel is commonplace.  The explanation presented suggests that using ethanol rather than MTBE to oxygenate gas will reduce the cost, favoring domestic producers, importers and consumers.

Publication of the rule change as a fait accompli prompted an immediate backlash from opponents of ethanol-blended fuel.  Procedurally, critics observed that in updating the NOM, the CRE had skipped the customary public consultation period which provides interested parties the opportunity to register comments on the proposed modification with the Federal Regulatory Improvement Commission (Cofemer).  Pemex itself pointed out that the CRE also failed to issue a required Regulatory Impact Statement.  On substantive grounds, various organizations both public and NGO raised objections that an increase in the ethanol content of gasoline would increase harmful emissions.  The CRE announcement in the DOF presents carefully worded declarations from the Mexican Petroleum Institute (IMP) and the Ministry of the Environment (Semarnat) as examples of their backing – or at least non-opposition – to the changes.

Now, here’s where things start getting fuzzy.  The statements from the IMP and Semarnat both provide tacit support for the reg change as long as its zone of implementation excludes the country’s three major metropolitan areas of Mexico City, Guadalajara and Monterrey.  And, in fact, the NOM-016-CRE-2016 specifically prohibits the use of ethanol in gasoline in these three areas, while allowing up to 10% ethanol in gasoline outside these areas.  The three big cities are excluded on the grounds that the impact of ethanol-blended fuels on the environment, and possibly on vehicles as well, requires further scientific study before it be extended to these areas.  Now, we’re not scientists, but we’re just going to throw this out there: If we lived in Querétaro, this justification would raise a red flag for us.  We might even read this to mean, “We’re going to try this stuff out on the rubes in the sticks and see what happens before we expose the more important people to it.”  To be fair, Semarnat explains the greater concern over the three big cities by noting that they have higher ozone levels making them more sensitive to harmful emissions.  So that should come as consolation to the folks in Aguascalientes.

The pro-ethanol camp in Mexico says it’s not bad for you, and the anti-ethanol folks say it is.   Some say it’s bad (or not bad) for air quality, and others say it’s harmful (or not) to vehicles not configured for ethanol-blended fuels.  One would think some scientific research has been done on this topic (we confess we haven’t read the journals) but perhaps the findings have been mixed, since both sides claim studies support them.  Outside of the CRE, the defense of E10 gasoline has been led by an ethanol producers’ organization called the Mexican Association for Sustainable Mobility (AMMS), which candidly recognizes that a boom in demand for E10 fuel in Mexico would be, you know, totally awesome for them.  The leading service station operators’ association, Onexpo, also supports the NOM change.  Opponents include Greenpeace and other environmental organizations, the Mexican Competitiveness Institute (IMCO) and the Mexican Automotive Industry Association (AMIA), and Pemex and Semarnat have expressed reservations.  Right now, as far as we can tell the whole topic appears to be a philosophical construct, not unlike Kierkegaard’s The Sickness Unto Death, since so far there’s no ethanol in Mexico’s gasoline.  But if the country’s transition to free energy markets proceeds according to plan, the impact of the recent changes to NOM-016-CRE-2016 could turn out to be real.

Leave a Reply

Your email address will not be published. Required fields are marked *