Return of The Rubik’s Cube: Higher Blends the Simple Solution to Match Up RVOs, SREs, E15, Tax Credits, & RINS

by Doug Durante, Executive Director, Clean Fuels Development Coalition
Special to The Digest

The only way to ensure the long term health of the biofuel (RFS) program is with more biofuels. That is because the construct of the RFS allows RINS and SREs to eat away at the volumes, which by definition, would make the RFS a failure.  Here’s how you save it.

It has actually been a good summer for biofuels as a trifecta of positive developments have resulted in a better outlook than many of us thought possible under a drill baby drill administration. With the E15 waiver, then the healthy volume obligations proposed for the RFS, and the 45 Z tax credits that made it through the final Trump legislation, all is well, right?   Considering the devastation of wind, solar, EV and other incentives, not to mention crippling budget cuts at the Department of Energy and EPA, the biofuels industry should feel like they dodged a bullet and survived the ax.

But surviving is not thriving, and there are caveats and even poison pills as it pertains to E15 and the RVOs.  Regardless of when the volume rule is finalized, the ethanol industry in particular would be well advised to push back at the proposed change that would make compliance a RIN game rather than one requiring physical/wet gallons. Importantly, use this opportunity to once and for all put the E15 issue to rest while doing what EPA, in their own words says it wants to do, which is to “Unleash the Production of American Energy.” For ethanol it’s a short leash and we need to lengthen it.

Despite losing two years off of the original proposal, there is little to complain about with regard to the 45 Z tax credits, so let’s put that in the win column for sure and start with the RVOs.

RVO Proposal

The RFS volumes have always been discretionary to EPA, despite established targets in the enabling legislation.  It has always had the ability to assess the market and adjust to what staff predicted as demand, forgetting the fact that the aggressive volumes called for in the legislation were intended to be demand drivers.  It has unnecessarily taken a lot of time, resources, and political capital to argue for what we are entitled to.  It has been a contentious issue every year– often with volumes being announced months late and into the following year of the compliance period.

The new RVO announcement that seems to ensure maximum volumes for ethanol and a significant boost for biomass diesel has everyone on the biofuels side giddy, but I don’t think people are understanding the impacts of EPA turning this into a RIN game.  EPA has come right out and said in the proposed rule they do not anticipate the 15 billion gallons of ethanol to be 15 billion wet gallons, but rather to fall short and be made up with advanced category RINS.  This is their own statement:

EPA recognizes that while the supply of conventional biofuel (D6 corn-based ethanol) in 2026 and 2027 will likely fall short of the implied 15 billion gallon volume, the proposed total renewable fuel volumes are still achievable through the use of additional volumes of advanced biofuel beyond the volume requirement for that category.

Wait, what?  It is misleading and factually incorrect to say the issue is the supply, we have plenty of ethanol and could make more, lots more.    Rather, the issue is the effective cap they put on demand by limiting ethanol blends to 10%.  So the EPA calls for 15 billion gallons but in the same breath says it is not really 15 billion gallons— perhaps as much as a billion or more gallons will be on paper. Total finished gasoline demand in 2023-2024 was around 137 billion gallons—at 10% blend levels 13.7 billion of that was ethanol. Sure, E15 is helping a bit but until that is a permanent fix you cannot put 15 billion gallons into this pool. Using excess credits/RINS from diesel to meet the shortfall in ethanol fails to displace gasoline and provides zero benefit. A gallon of ethanol that could have replaced a gallon of gasoline, reduced aromatics, reduced carbon, and lowered fuel cost is now replaced by a piece of paper that does none of that.  I’m not seeing boogeymen here—this has been EPAs position for years.  In the rule that set the 2023 RVOs the agency encouraged cannibalism among the categories when it stated, and I quote:

“Moreover, BBD can also be driven by the implied conventional renewable fuel volume requirement as an alternative to using increasing volumes of corn ethanol in higher level ethanol blends such as E15 and E85.

 So finding ways to not help corn ethanol, and in fact discouraging its use, is nothing new.  If under this Administration there is really a change in heart and EPA really wants to “unleash” American energy, they need to provide a place to put American ethanol, and they could with……

E15+:  (note the “plus”—I’ll get to that in a minute) Once again EPA issued an “emergency waiver” for summertime use instead of getting behind a permanent solution.  After more than a decade of fighting over the E15 issue, it is clear legislation is needed to stop the lawsuits and the whipsaw decisions from different administrations.  Strong and vocal support would help drive that legislation, and EPA should acknowledge that the real benefit is to go to 20, 25, and 30% blends that significantly reduce and even eliminate vapor pressure while lowering gasoline prices.  Any legislative fix must clarify the waiver is applicable to all blends above 10%, not just the 15% in current proposals.  Why would the corn and ethanol industries sign on to a 15% cap when their environmental argument gets stronger with the more ethanol that is used?   And with a potential $1 per gallon transferable tax credit available, why not put more gallons into the market?

For those that do adopt E15 or higher we would see a dramatic reduction in ……

RIN Prices:  It had always been the vision of the RFS that it would be a floor, and we would go well beyond targeted volumes. The more biofuels are used the more RINS that are generated, reducing RIN prices significantly.  If there is one thing that can really undermine the RFS it is refiners screaming about high RIN prices which they then use to attack the RFS for raising gas prices.  This issue came to a head in the first Trump Administrations when high RIN prices got  oil state members of Congress all riled up and they attacked the whole program.

That argument rings hollow if RINS are cheap and plentiful, and the RVOs, at least for ethanol, could be physical gallons rather than partly made up by RINS, thereby adding RINs to the market rather than draining from the RIN pool.  Then we would not have such a problem with…….

SREs:  Another poison pill that comes with the proposed ethanol volumes is the “hardship” argument that it is too difficult for these small refiners to comply.  It would be impossible to make that argument if RINS were inexpensive.   The SREs represent substantial volumes and certainly some will be granted.  If those gallons are not reallocated to others, it could further reduce the actual gallons of ethanol. Hard to imagine a Trump EPA turning to the major refiners and saying by the way, your percentage of obligation just went up. Again quoting EPA, the proposed rule suggests there will be 18 billion gallons of gasoline exempted, further reducing space for the 15 billion gallons of conventional/corn ethanol.

So where does this leave us?

The RINs and SREs are inextricably connected but easily addressed with higher volumes. So the message to EPA and Congress is give us higher volumes by getting out of the way and letting the market decide.   And spare us the argument that cars can’t use these higher blends. Again referencing previous articles, we have shown that the testing and demonstration done at the DOE labs, particularly Oak Ridge and NREL, clearly validated the use of blends in excess of 15%.  Just last week a report released from the state of Nebraska on their EPA-sanctioned E30 demonstration showed absolutely no adverse effects on performance or emissions, with lower costs and in many cases improved mileage.

Add to that the news coming out of Brazil that they are going to 30% blends as a base fuel. It is a misconception that they can do that only because all cars in Brazil are flex fuel. There are literally millions of cars that are not flex, in 2024 alone they imported 350,000 non-flex vehicles that will run on the base E30 gasoline and have been running on E27.

For anyone submitting comments on the RVO rule, these arguments would be well placed. It is rare when one single action can have the domino effect of solving so many issues that plague the biofuels industry.  Higher volumes, be it E15 or up to E30 will…..

• Facilitate a true 15 billion gallon corn ethanol program, making the RVOs non controversial,
• Generate new RINs, reducing prices and facilitating seamless compliance with the RFS,
• Provide Relief to Small Refiners taking the SREs off the table and solving a sticky political dilemma,
• Reduce costs for all gasoline and potentially make premium grades only marginally higher than regular, if at all,
• Encourages automakers to increase efficiency via higher engine compression to utilize high octane and remain competitive in the global market,
• Continue to reduce aromatics, fine pm, and overall carbon intensity,
• Provide new demand for US corn and other products at a time of trade and export uncertainty.