A number of agriculture media outlets are reporting on a study recently released by Center for Agricultural and Rural Development (CARD) at Iowa State University.
The study explores the implications of recent policy proposals around the Renewable Fuels Standard (RFS), specifically ethanol demand if Renewable Identification Numbers (RIN) price caps and Reid Vapor Pressure (RVP) waivers were to become Environmental Protection Agency (EPA) policy.
The decade old RFS policy requires refiners to blend biofuels, like ethanol, into the U.S. fuel supply or purchase credits called RINs from other companies that do the blending instead.
A Renewable Identification Number (or RIN) is a serial number assigned to a batch of biofuel for the purpose of tracking its production, use, and trading.
A waiver of the RVP would allow E15 to be sold year-round.
The ISU CARD study draws four main conclusions:
A leading Renewable Fuel Standard reform proposal considered by policymakers would allow E15 (fuel containing 15% ethanol) sales throughout the year and implement a cap on D6 RIN prices between $0.10 to $0.20/RIN.
While year-round sales of E15 would encourage retailers to sell the fuel, capping D6 RIN prices would reduce consumption of E15 and E85.
A cap on D6 RIN prices between $0.10/gal to $0.20/gal would likely reduce the effective ethanol mandate from 15 billion gallons to about 14.3 billion gallons in 2018.
Unless increased ethanol exports compensate for the reduced mandate, corn prices would decrease under the proposal’s D6 RIN price cap.
The impact of this policy change would be be felt by corn farmers across the country with lower corn prices.
The CARD study is an in-depth, detailed history of RFS, explores the recent policy change proposal, and thorough analysis of the ramifications. Here are some of the highlights:
The United States Congress enacted the Renewable Fuel Standard (RFS) through the Energy Independence and Security Act in 2007. The U.S. Environmental Protection Agency (EPA) administers the program. The RFS laid a path to significantly expand production and use of both conventional (corn ethanol) and advanced (low greenhouse gas) biofuel production and consumption in the United States.
Until 2013, the fuel industry was able to comply with the RFS mandates by blending 10% ethanol into most gasoline sold in the United States. The fuel industry has complied with RFS mandates beyond the E10 blend wall by increasing sales of E85 (which contains between 51 and 83 percent ethanol), other advanced biofuels, and biodiesel. If EPA is to continue expanding biofuel mandates, which is the current congressional intent, the remaining compliance options are limited because of both economic and technical barriers.
The PES bankruptcy has led to a standoff between U.S. senators representing Midwestern states and senators from states with significant petroleum refining capacity. Recent White House meetings between these parties have led to one compromise proposal that is receiving a significant amount of attention.
Under this proposal, RIN prices would be capped at between 10 and 20 cents in exchange for allowing year-round sales of E15. E15 is a gasoline blend containing 15% ethanol.
In this policy brief, we discuss the economics of this proposal.3, 4 We first provide relevant background on technical issues currently limiting E15 sales, the economics of RIN price caps, and the role of RINs in expanding ethanol use in the United States. We then discuss the demand for higher-blend ethanol fuels (E15 and E85), and implications for RIN price caps for E15 and E85 sales.
Restrictions on Reid vapor pressure (RVP) for retail gasoline-ethanol blends limit sales of E15 and certain higher blend in summer months. RVP is a measure of gasoline’s volatility. The U.S. Clean Air Act limits RVP during high ozone seasons to reduce evaporative emissions from gasoline.
Cindy Zimmerman of AgWired captured this reaction to the study’s findings.
National Corn Growers Association President Kevin Skunes said, “This economic analysis backs up what corn farmers have been telling the Administration – that manipulating the RIN market mechanism would reduce ethanol blending and impact corn prices. A drop of 25 cents per bushel in corn prices, as CARD economists project from a RIN price cap, would devastate farmers and stagger rural communities.”
Both corn and ethanol interests are standing strong on the option of capping RIN prices. “Not on any proposal that would reduce demand,” said Dinneen. “The message is simple, this program is not broken. It is working as it is intended.”
Read Zimmerman’s full story at agwired.com
Evidence that the RFS matter remains a hot issue is found in the tweet Secretary of Agriculture Sonny Perdue sent out touting support for #RFS.
— Sec. Sonny Perdue (@SecretarySonny) March 7, 2018
Image Courtesy Oklahoma Farm Report