Journey to the Center of the Renewable Fuel Standard

October 29, 2013 |

center-of-earthThe pressure has risen to 30 atmospheres and the temperatures are rising into the hundreds of degrees.

You think: “I’m in a dream, on a journey to the center of the earth.”

But, in fact, you are in DC, working at EPA on the Renewable Fuel Standard for 2014. The source of all the heat and pressure? The irresistible force of renewable fuels innovation crashing into the immoveable object of the oil lobby.

Over the past few years — and increasingly in 2013 — there’s been a lot of chat about “blend walls” – which is to say, the maximum percentage that can be safely blended into conventional fuels before your car doesn’t work any more.

There’s so much controversy over what point at which that wall is reached – that only one thing is sure. Oil lobbies and renewable fuel lobbies, they don’t blend together, at all.

The stakes, the scare tactics, and the skinny: a Five-Minute Guide

Like cats and dogs, you can generally expect no more than an armed truce when Father Washington puts them in one room, or one issue, together. So, while the cats and dogs snarl at each other across the Demilitarized Zone, here’s a Digest Five-Minute Guide to the issues before them — and, more importantly, before the country.

Q: What’s the underlying issue?

A: In the original Energy Security & Independence Act, the 2014 Renewable Fuel Standard was supposed to call for 14.4 billion gallons of corn ethanol and 3.75 billion gallons of advanced ethanol.

The oil industry says there is no place for the fuel to go. They’ve hit an E10 blend wall. They can’t distribute any more — in fact, more like 9.7 percent is their limit. The API is calling for 12.55 billion gallons of corn ethanol. Above that, they say, the cars won’t tolerate the fuel.

Here’s a chart from the Advanced Biofuels Association that summarizes the state of play.


Q: What does the biofuels industry say?

A: Using E10 blending and excess credits from previous years, the blenders can handle 14.4 billion gallons of corn ethanol, say them.

But wait, there’s more.

They add to that a recent August 2013 CARD analysis concluded that existing E85 stations have 1.0-1.8 billion gallons of capacity for ethanol use in higher-blends, based on reasonable expectation of sales with the current economics.

Long story short, the biofuels industry says that as much as 16.2 billion gallons of corn ethanol (including old credits), can be handled in terms of supply to the market.

Q: Who’s right?

A: If you picked a number in the middle, around 14.4 billion gallons of corn ethanol, you are.

That’s a reasonable expectation from E10 blending, E85 sales and use of old credits. Meaning there’s no need to mess with the intended RFS gallonage right now, really — as it pertains to corn ethanol.

Advanced biofuels would add to that. And we’ll go there in just a moment. But, first, a little more about the role of higher-blend fuels, like E85 ethanol and Bu16 biobutanol.

Q: What’s the role of E10 and E85 — what about those who prefer, or need, straight gasoline (E0)? How does the RFS come together to make 36 billion gallons of renewable fuel available without all this blend-wall crazy?

A: According to Butamax, the process that the Renewable Fuel Standard contemplates can be understood very simply.

First, “the US market transitions away from straight gasoline (E0) to E10, a step which has already largely occurred. From there, E10 is gradually displaced by growing volumes of E85.

Butamax RFS compliance outlook, without biobutanol (Bu16) in the mix

Butamax RFS compliance outlook, without biobutanol (Bu16) in the mix

“Delivering this result requires retail pricing which incentivizes FFV owners to regularly purchase E85, as well as growing the FFV share of the vehicle population and increasing retail availability of E85. With those enabling requirements in mind, the accompanying chart estimates the share of E0 and E85 in the market required to generate the quantity of RINs implied by full RFS implementation. (Sales of E15 or other types of biofuel would directionally reduce the amount of E85 sales required).

“As illustrated, the required ethanol volume share grows from about 8% in 2010 to over 25% in 2022, E0 virtually disappeared by 2012 and E85 slowly grows to 24% of fuel sales by 2022. E0, in fact, has continued in the US market at low levels as biomass-based diesel and some E85 sales have contributed to the fuel mix and generated RINs to enable RFS compliance.”

Q. Speaking of Butamax, where does biobutanol fit into the equation?

A. Butamax adds: “Drop in biofuels, such as biobutanol, provide an opportunity to further reduce the amount of E85 and, therefore, FFV’s needed to achieve the RFS  targets while staying within the capabilities of the existing vehicle fleet and infrastructure. A 16% blend of butanol in gasoline (Bu16) offers consumers the same fuel economy as E10 while generating twice the number of RINs per gallon as E10.

Butamax RFS compliance outlook, with biobutanol (Bu16) in the mix

Butamax RFS compliance outlook, with biobutanol (Bu16) in the mix

A good read: The full Butamax white paper on the Renewable Fuel Standard can be downloaded here.

Q. E85 – is it price competitive?

A. Yep. If the fuel is priced 50 cents or more per gallon below gasoline.

On an energy-content basis, drivers save using E85 compared to conventional unleaded fuel (E10).

Right now, The Andersons are selling E85 for $1.86 per gallon. The November contract for wholesale RBOB gasoline $2.59. On a BTU-for-BTU basis, in the free market, gasoline is 24 cents per gallon more expensive than E85.

Here’s a chart from BIO summarizing that.


Q: How’s the free market for ethanol?

A: As we detailed earlier in the Digest, the Iowa Renewable Fuels Association released the first month of sales data for E15 and E85 in Iowa following its September 16 reintroduction.  Averaged across all fuel blends, ethanol accounted for roughly 25 percent of the retailers’ gasoline sales.  This level of ethanol sales far exceeds the scheduled RFS levels for years to come.

Q: What about 3.75 billion gallons of advanced biofuels. A recently circulated proposal from EPA wants to slash that number to 2.1 billion gallons. Is that the right number?

A: The correct answer is 2.75 billion gallons.

Q. Why?

A. The biodiesel industry expects to produce between 1.5 and 1.7 billion gallons next year — that counts for 2.25 to 2.55 billion gallons under RFS’s math (biodiesel gets credit for higher energy density). There is more than 700 million gallons of renewable diesel capacity around the world, installed — that produces, in RFS math, up to 1.4 billion additional gallons.

If you’ve added all that and have a total 3.65 billion to 3.95 billion, give yourself a gold star. But not every gallon of renewable diesel will reach the US market — which makes 2.75 billion a much more comfortable target.

Having said that, Digest senior editor Meghan Sapp reports that “RIN prices for 2013 biodiesel credits have crumbled to a three-year low, a move which is also weighing heavily on ethanol and advanced biofuel RINs, dragging them down to nine-month lows.”

“On Monday, prices were at 30 cents, 22 cents and 31 cents respectively. Though the EPA revised down the blending mandate for biodiesel by 7%, RINs already available in the market accounted for more than 94% of the year’s blending mandate with more than two months to go until year’s end.”

Q: At the macro level is that the only issue?

A: No. It’s this. As the Advanced Ethanol Council’s Brooke Coleman notes, “All these options (E15, E85, more biodiesel, more renewable diesel) are compliance paths for the oil industry to utilize. They are telling the President that they can’t do it. In reality, it’s that they don’t want to do it.

“RIN prices go up when a collusive industry does not want to do something, which in turn encourages more independent players to actually blend liquid gallons of renewable fuel. This is how the program works, and it works this way with savings to the consumer (as illustrated in the letter).

“If there is a basic message in the letter, it’s “Mr. President, don’t be fooled by fantasy whipped up by the oil industry, the RFS is working and you need to let RINs do their thing.”

Q. Speaking of the Advanced Ethanol Council, they just penned, with BIO, a letter to President Obama cautioning against “willful non-compliance” by the oil industry. What’s the issue there?

A: Coleman, again: “On the record: Clearly, the oil industry thinks they can convince the Obama Administration to change the program in the face of higher RIN prices so they don’t have to change their own behavior and use more renewable fuels. Otherwise they would not be doing this.

“Monopolies are not broken easily. The oil industry is going to kick and scream and make stuff up in the process to protect their monopoly. The best remedy is to simply stick by the RFS. The oil industry will be intransigent for a while. RIN prices will increase. Higher RIN prices will encourage real change in the marketplace without consumer cost. These are all good things.

“If this Administration believes in innovation in the energy space, and the President clearly does, the White House should messaging that the program is working as designed and saving consumers money in the process instead of even considering what they are reportedly considering. Ethanol is a dollar cheaper than gasoline and the oil companies are refusing to use it. What happened to their fiduciary responsibility to their shareholders?”

Q: Where’s that BIO/AEC letter?

A: Right here.

Q: Is there any evidence of problems with E15 ethanol blends?

A: According to Renewable Fuels Association CEO Bob Dinneen, “American motorists have driven more than 40 million miles on E15, and not a single complaint has arisen from its use.”

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