No Changes Needed to 2014/2015 RFS

According to a new analysis from Iowa State University’s Center for Agricultural and Rural Development (CARD), the Environmental Protection Agency’s (EPA) proposal to reduce the 2014 Renewable Fuel Standard (RFS) blending requirements is unwarranted and economically irrational. “Feasibility and Cost of Increasing US Ethanol Consumption Beyond E10,” demonstrates that the 2014 statutory RFS requirements could be easily met with no new investment in refueling infrastructure, and 2014 requirements could be achieved with only modest infrastructure investments.

CARD LogoWhen EPA released the lower volume obligations for renewable fuel back in November 2013, the agency cited the so-called E10 “blend wall” as a key factor in its decision to propose the cut. Yet the authors of the report, Bruce Babcock an Sebastien Pouliot write, “…the assumption by EPA that a 14.4 billion gallon ethanol mandate in 2014 was not feasible is not correct. …meeting a 14.4 billion gallon ethanol mandate is feasible in 2014 with no new stations, modestly lower E85 prices, and judicious use of available carryover RINs.”

The analysis finds that cutting the 2014 blending requirements below the “blend wall” results in a “self-fulling prophecy that stunts any future growth potential in domestic ethanol consumption”. The report states that exceeding E10 levels (overcoming the ‘blend wall’ with higher blends of ethanol such as E15 and E85) is contingent on the EPA setting mandates sufficiently high to incentivize the investments in fueling infrastructure that allow the targets to be met.

In terms of 2015, the authors argue that, “Adopting a 14.4 billion gallon ethanol mandate would send a clear signal that EPA is not locked into keeping ethanol mandates below E10 levels. It would also increase RIN prices enough to incentivize investments in new E85 stations that would give EPA the freedom to move the ethanol mandate to 15 billion gallons in 2015.”

The authors conclude, “The 14.4 billion gallon mandate level in 2014 is feasible to achieve even if no new E85 stations are added. Adding stations would lower the cost of meeting the 14.4 billion gallon mandate and, more importantly, would allow EPA to increase mandates by even more in the future.”

The analysis also finds that if EPA set the 2014 requirement for renewable fuel at 14.4 billion gallons, and no new E85 or E15 stations were added, RIN prices could be expected to average 69 cents each. However, adding 500 additional E85 stations in 2014 would reduce RIN prices to just 18 cents apiece.

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