Post on 30-Mar-2015
transcript
Will the EPA Reverse Itself on the Write Down of the Renewable
Mandate? The Message from the RINs Market
Scott H. Irwin
10.5
12.0
12.6
13.213.8
14.4
15.0
13.3 13.1 13.0 13.0 13.0 13.0 13.0
8
9
10
11
12
13
14
15
16
2009 2010 2011 2012 2013 2014 2015
Eth
ano
l (b
il. g
al.)
Year
RFS Mandate for Renewable Fuel (Corn Based Ethanol) and E10 Blend Wall, 2009 - 2015
Mandate Blend Wall
E10 blend wall challenges drove EPA policy shift:
“The proposal seeks to put the RFS program on a steady path forward - ensuring the continued growth of renewable fuels while recognizing the practical limits on ethanol blending, called the ethanol "blend wall.“
EPA Proposed 2014 RVOs
http://www.epa.gov/OTAQ/fuels/renewablefuels/documents/420f13048.pdf
E10 blend wall challenges drove EPA policy shift:
“The proposal seeks to put the RFS program on a steady path forward - ensuring the continued growth of renewable fuels while recognizing the practical limits on ethanol blending, called the ethanol "blend wall.“
Novel legal argument for renewable mandate write down:
“inadequate domestic supply”
EPA Proposed 2014 RVOs
http://www.epa.gov/OTAQ/fuels/renewablefuels/documents/420f13048.pdf
EPA Proposed 2014 RVOs
2014 RFS 2014 Proposed 2013 EPA RVO Requirement EPA RVO
Cellulosic biofuel 6 mil. gal. 1.75 bil. gal. 17 mil. gal.
Biomass-based diesel 1.28 bil. gal. > 1.0 bil. gal. 1.28 bil. gal.
Advanced biofuel 2.75 bil. gal. 3.75 bil. gal. 2.2 bil. gal.
Total 16.55 bil. gal. 18.15 bil. gal. 15.21 bil. gal.
Implied renewable fuel 13.8 bil. gal. 14.4 bil. gal. 13.01 bil. gal.
Note: These volumes are in ethanol equivalents, except for biomass-based diesel which is stated in actual “wet” gallon terms.
EPA Proposed 2014 RVOs
What are the Implications of the 10% Ethanol Blend Wall for
the RFS?
The Ethanol Market: No Mandate
Price
Quantity
1.1 x Pcbob
13
DemandSupply
Pe
Gasoline Blenders
Selling Price
BuyingPrice
13 bil. gal. = E10 blendwall
5 bil. gal. = minimum for MTBE replacement
The Ethanol Market: RFS Mandate
Price
Quantity
1.1 x Pcbob
13
DemandSupply
Pe
12.6
Gasoline Blenders
Selling Price
BuyingPrice
RFS2011
The Ethanol Market: RFS Mandate
Price
Quantity
1.1 x Pcbob
13
DemandSupply
Pe
12.6
Gasoline Blenders
Selling Price
BuyingPrice
13.8
RFS2011
RFS 2013
The Ethanol Market: RFS Mandate
Price
Quantity
1.1 x Pcbob
13
DemandSupply
Pe
12.6
Gasoline Blenders
Selling Price
BuyingPrice
13.8
RFS2011
RFS 2013
Additional biodiesel mandate
The Ethanol Market: RFS Mandate
Price
Quantity
1.1 x Pcbob
13
DemandSupply
Pe
12.6
Gasoline Blenders
Selling Price
BuyingPrice
13.8
RFS2011
RFS 2013
D6 RINs Price = 0
Additional biodiesel mandate: D6 = D4 RINs Price
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
Pri
ce (
cen
ts/g
al.)
Date
Weekly (Thursday) Price of D4 Biodiesel and D6 Ethanol RINs in the Secondary Market, 04/03/08 - 08/15/2013
D6 Ethanol RIN
D4 Biodiesel RIN
Source: OPIS
The Biodiesel Market: No Mandate
Price
Quantity
Pulsd
Q*
Demand
Supply
Pbd =
Price
Quantity
Pulsd
Q*
Demand
Supply
Pbd
1.28
Diesel Blenders
Purchase Price
Selling Price
RFS 2013
The Biodiesel Market: Binding RFS Mandate
Price
Quantity
Pulsd
Q*
Demand
Supply
Pbd
1.28bg
Diesel Blenders
Purchase Price
Selling Price
“wet” RINs Price
RFS 2013
The Biodiesel Market: Binding RFS Mandate
Price
Quantity
Pulsd
Q1*
Demand
Supply
Pbd
1.28bg
Diesel Blenders
Purchase Price
Net Selling Price
“wet” RINs Price
RFS 2013
The Biodiesel Market: Binding RFS Mandate
Demand + Tax Credit
Q2*
-0.50
0.00
0.50
1.00
1.50
2.00
2.50M
arg
in o
r P
rice
($/
gal
.)
Date
Weekly (Thursday) Wholesale Biodiesel Blending Margin at Chicago Net of Blenders' Tax Credit and D4 Biodiesel RINs
Price, 09/03/2009 - 10/24/2013*
Source: OPIS
Biodiesel Blending Margin (in ethanol equivalents)
D4 Biodiesel RIN
* Biodiesel blending margin is multiplied by -1 for comparison to RINs prices
Price
Quantity
Pulsd
Q1*
Demand
Supply
Pbd
1.28bg
Diesel Blenders
Purchase Price
Net Selling Price
“wet” RINs Price
RFS 2013
The Biodiesel Market: Binding RFS Mandate
Demand + Tax Credit
Q2*
0.00
1.00
2.00
3.00
4.00
5.00
6.00P
rice
($/
gal
.)
Date
Weekly (Thursday) Wholesale Biodiesel and Ultra Low Sulphur Diesel (ULSD) Price at Chicago, 04/03/2008 - 08/15/2013
Source: OPIS
Biodiesel Price
ULSD Price
Who Knew What When about the EPA Policy Change?
http://feedstuffs.com/story-epa-says-leaked-rfs-levels-draft-45-103353
0.00
0.25
0.50
0.75
1.00
1.25
1.50R
INs
Pri
ce (
$/g
al.,
eth
ano
l eq
uiv
.)
Date
Daily Price of D4 Biodiesel and D6 Ethanol RINs, Current Year Vintage, 10/5/2012 - 10/11/2013
D4 Biodiesel RINs
D6 Ethanol RINs
Source: OPIS
OPIS biofuels news service reported on July 24:"There is lots of testimony on Capitol Hill this week on the subject of RINs, with various stakeholders reaffirming their positions on the controversial credits. A call for a repeal of the RFS by some lawmakers isn't regarded as a movement with any traction, but the noisy week has inspired buzz that EPA might act sooner rather than later and perhaps restate mandatory levels for blending that are part of the RFS.“
OPIS biofuels news service reported on July 24:"There is lots of testimony on Capitol Hill this week on the subject of RINs, with various stakeholders reaffirming their positions on the controversial credits. A call for a repeal of the RFS by some lawmakers isn't regarded as a movement with any traction, but the noisy week has inspired buzz that EPA might act sooner rather than later and perhaps restate mandatory levels for blending that are part of the RFS.“
The next day, on July 25, OPIS reported:"Prices for D6 2013 ethanol RINS are in a freefall this morning, on chatter coming from Washington caucuses and hearing rooms, as well as on a sense that some major holders of RINs are liquidating some holdings. OPIS just confirmed that 2013 vintage D6 RINs moved in the last 15 minutes for just 90cts, after opening at $1.05 and plunging in 5ct increments in a clear sellers' panic. There is no word on the scale of volumes, but those holding RINs are frightened that some sort of remedy might be coming from the Environmental Protection Agency.“
OPIS biofuels news service reported on July 24:"There is lots of testimony on Capitol Hill this week on the subject of RINs, with various stakeholders reaffirming their positions on the controversial credits. A call for a repeal of the RFS by some lawmakers isn't regarded as a movement with any traction, but the noisy week has inspired buzz that EPA might act sooner rather than later and perhaps restate mandatory levels for blending that are part of the RFS.“
The next day, on July 25, OPIS reported:"Prices for D6 2013 ethanol RINS are in a freefall this morning, on chatter coming from Washington caucuses and hearing rooms, as well as on a sense that some major holders of RINs are liquidating some holdings. OPIS just confirmed that 2013 vintage D6 RINs moved in the last 15 minutes for just 90cts, after opening at $1.05 and plunging in 5ct increments in a clear sellers' panic. There is no word on the scale of volumes, but those holding RINs are frightened that some sort of remedy might be coming from the Environmental Protection Agency.“
Only a few days later, on August 6, OPIS noted that:"It is a wild Tuesday morning in the paper markets for RINs - - Renewable Identification Numbers - - as well as most grades of gasoline. Reports from Washington indicate that there could be a forthcoming action from the Environmental Protection Agency, perhaps as early as today, that might grant some relief from targets on blending."
0.00
0.25
0.50
0.75
1.00
1.25
1.50P
rice
($/
gal
.)
Date
Daily Price of D4 Biodiesel and D6 Ethanol RINs,10/5/2012 - 10/11/2013
D4 Biodiesel RINs
D6 Ethanol RINs
Source: OPIS
July 23, 2013
0.00
0.25
0.50
0.75
1.00
1.25
1.50P
rice
($/
gal
.)
Date
Daily Price of D4 Biodiesel and D6 Ethanol RINs,10/5/2012 - 10/11/2013
D4 Biodiesel RINs
D6 Ethanol RINs
Source: OPIS
July 23, 2013
October 11, 2013
What Do Recent Movements in RINs Prices Tell US about The Possibility of an EPA Reversal
on the Renewable Write Down?
http://blogs.platts.com/2013/12/30/rfs-2014/
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60R
INs
Pri
ce
($
/ga
l.,
eth
an
ol e
qu
iv.)
Date
Daily D4 Biodiesel and D6 Ethanol RINs Prices, 2014 Vintage, 7/12/2013 - 3/4/2014
Source: OPIS
OPIS biofuels news service reported on February 25:
Senator Charles Grassley of Iowa last week told reporters, "I would doubt there would be a complete reversal [from the proposal], which is what I would like to happen. I'd be surprised if there wasn't some modification of the original rule that still might be considered a partial victory for ethanol."
http://thegazette.com/wp-content/uploads/2011/08/grassley485.jpg
www.farmdocdaily.illinois.edu