URBANA, Ill. — The U.S. EPA is classifying its recently-released Renewable Fuel Standard (RFS) volume obligations (RVOs) for this year and next as "forward-looking and consistent with the purpose of the (RFS) statute, to significantly increase the amount of renewable fuel used as transportation fuel over time."
But according to University of Illinois agricultural economists Scott Irwin and Darrel Good, the proposed ethanol standards for 2015 and 2016 of 13.4 and 14 billion gallons, respectively, are well below statutory levels set by Congress.
"The proposal largely confirmed expectations for biomass-based diesel (biodiesel) but did not appear to do so for ethanol," they wrote in a farmdoc Daily essay June 3. "Our analysis confirms that the ethanol mandates proposed by the EPA for 2015 and 2016 do imply some degree of pressure for biofuel volumes above the E10 blend wall, but this depends crucially on assumptions about growth in gasoline use and ethanol inclusion rates.
"Assuming higher gasoline use and inclusion rates, we estimate that ethanol mandates of 13.9 billion gallons in 2015 and 14.5 billion gallons in 2016 would restore the pressures to increase biofuel use beyond the E10 blend wall that the EPA apparently intended in its proposal."
A marked decline in D6 ethanol RIN (Renewable Identification Number) prices in the days following the EPA announcement suggests the market believes the EPA’s assumptions are too conservative and provides little pressure for expanding the ethanol blend wall, Irwin and Good concluded. However, market expectations for the long-awaited RFS standards were accurately reflected in the RIN market prices in the week before the EPA proposal. Irwin predicted on May 28 the current RIN structure suggested three important conclusions.
"The RINs market is expecting relatively large biodiesel mandates for 2014-16," Irwin projected. "The RINs market does not expect the ethanol mandates in 2014-16 to be set at the E10 blend wall (as in the first preliminary proposal of November 2013) and the RINs market does not expect the ethanol mandate to immediately return to statutory levels."
A RIN is a unique 38-character code assigned by producers to every gallon or batch of fuel transferred to others. Any renewable fuel transferred from a plant to a shipper is required to have a RIN to help the EPA track the volume produced.
The RFS mandates for 2014-16 have been fraught with controversy since the agency released its RFS proposal for 2014 on Nov. 15, 2013. The most controversial aspect to the proposal, Irwin noted, was the decrease of the renewable mandate for 2014 from 14.4 billion to 13 billion gallons – it was met with thousands of critical comments and threat of legal challenges.
"A final rule for 2014 had been expected shortly after the November 2014 U.S. elections, but the EPA surprised virtually everyone by announcing on November 21, 2014, that the final 2014 rules would be delayed until sometime in 2015 and the 2015 and 2016 rules would be released at the same time," he explained.
