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