WASHINGTON – If the U.S. government wants to move the needle on biofuels in the auto industry, one lobbyist here suggests it should address some of the regulatory, legal and economic pitfalls saddling fuel-sellers.

“Until we overcome the legal and regulatory rules, we’re not going to make a big splash selling more biofuels,” says John Eichberger, vice president-government relations for the National Association for Convenience & Fuel Retailing.

Eichberger tells the annual Society of Automotive Engineers Government/Industry meeting, held in conjunction with the Washington auto show this week, that his 3,800 members, mostly independent owners of retail convenience stores that sell fuel, would add more biofuels pumps if regulations on pumps and tanks were loosened.

Store owners also worry about the potential legal ramifications when selling biofuels, fearing they could be held responsible if it damages a driver’s fuel system.

Additionally, Eichberger says the economics of biofuels do not add up for retailers or consumers, because store owners can't price it cheaply enough and consumers know their fuel economy can degrade by as much 30%.

The federal government has been pushing broader use of biofuels since 2007, when the Bush Admin. enacted the Renewable Fuel Standard requiring the use of 15 billion gallons (56.8 billion L) of ethanol by 2015 to reduce reliance on foreign oil and support corn growers providing the biomass for ethanol production.

The nation was supposed to achieve consumption of 13.2 billion gallons (50 billion L) this year, and the Environmental Protection Agency approved the release of biofuels blends using 15% ethanol for vehicles back to model-year 2000 and newer to meet the target.

Gasoline currently contains 10% ethanol, which nearly all vehicles on the road can use without damaging their fuel system.

Consumer-group opposition to E15 has been strong, because of the potential for drivers to choose the incorrect grade. E85, the highest-grade biofuel available at retail, works only in flex-fuel vehicles and they comprise just 5% of the 240 million light vehicles on the road today.

Auto makers such as Chrysler, Nissan and Volkswagen also have stepped forward, saying warranties on their vehicles will not cover damage caused by E15. The E15 backlash is just the latest to scuff the reputation of biofuels.

E85 has for many years been seen as the more promising alternative. But in addition to the low numbers of cars and trucks on the road capable of using the fuel, it comes with the fuel-economy penalty.

Some retailers sell E85 at as much as a 40% loss, Eichberger says. “(Flex-fuel vehicle) owners are not even buying the fuel,” he says.

Fuel retailers cannot price E85 any less he adds, because margins on gasoline already are too thin for most store owners. In fact, they use fuel to lure drivers inside their stores to buy more profitable items such as food and drinks.

Those thin margins also make it difficult for fuel retailers to invest in the special pumps necessary to dispense higher-grade ethanol fuels. Eichberger’s group estimates it will cost store owners $983 billion to convert their pumps to handle ethanol grades higher than E10.

Eichberger suggests regulatory reforms to enable the certification of pumps currently in use by fuel retailers to higher than E10, and legal protection to keep stores owners off the hook."

“Tell us how to prevent misfueling and we’ll do it, but then if someone breaks the rules we should not be held responsible,” Eichberger says. In addition, if researchers determine higher grades of ethanol do damage vehicles, fuel retailers should not be held liable.

“They are not afraid of putting money into their stores to satisfy customers, but until that customer demand is there, until the legalities are resolved and the economics are there, we are not going to see a lot more biofuels on the market,” he says.

Another idea floated here to boost ethanol use would eliminate mid-grade gasoline and put higher levels of ethanol in a new “super-premium” blends.

“Start robbing Peter to pay Paul,” offers William Woebkenberg, senior engineer-Research at Mercedes-Benz. “Let’s take the ethanol content out of regular fuel by 1% or 2% and repurpose it.”

The ethanol of regular gasoline would end up in super-premium fuel containing upwards of 30% ethanol.

The luxury auto makers would need to fortify their fuel systems against the higher ethanol levels, Woebkenberg says, but the premium sticker price on the cars would cover the extra investment. It traditionally has cost auto makers about $100 to make their fuel systems flexible.

Woebkenberg admits the idea faces a number of hurdles, including those store owners who use mid-grade fuel to pad their thin margins. “It will make retailers horrified,” he says.

jamend@wardsauto.com