The US Renewable Fuel Standard and repeal, reform: The Digest’s 5 Minute-Guide

The RINs situation

Charles Drevna, American Fuel & Petrochemical Manufacturers

As referenced above, gasoline demand is falling in the United States. EIA’s current projection of gasoline demand for 2013 is 132.9 billion gallons, and is expected to fall an additional 200 million gallons to132.7 billion gallons in 2014.

At these levels of demand, the 10 percent (E10) saturation point is approximately 13.2 billion gallons. This year, the RFS requires obligated parties to obtain and submit 13.8 billion conventional biofuel renewable identification numbers (RINs) to demonstrate that the requisite gallons of renewable fuel were blended into the fuel supply. In 2014, as obligated parties run out of banked credits from over- complying in previous years, and as gasoline demand declines further while facing an implicit ethanol mandate of 14.4 billion gallons, the math becomes even more problematic.

This is most apparent in the RIN market, which reflects the expectation of how much ethanol can be blended into gasoline. Prior to the onset of the blendwall, conventional biofuel RINs (D6 category) typically traded at $0.02-0.04 until late 2012. Since that time, however, D6 RIN prices increased to as much of $1.45 the week of July 15th as the market anticipates a RIN shortage.

E85 will not (and cannot) generate sufficient RINs to alleviate the effects of the blendwall—particularly in the short term. Due to limited infrastructure, the limited number of flex-fuel vehicles (FFVs) in commerce, and lack of interest in the fuel from FFV owners with access to the fuel, E85 will not solve the blendwall problem. In particular, the Department of Energy estimates that approximately 2,347 retail stations (less than 1.5 percent of stations nationwide) carry E85.

There are only approximately 11.5 million FFVs in use today (equal to about 5.1 percent of the overall light duty vehicle fleet).

E85 has not been price competitive with regular gasoline at any point since the inception of the RFS, a major reason for stagnant consumer interest. In fact, E85’s lackluster sales extend to the heart of the corn belt. Sales of E85 in Minnesota, which has the nation’s most developed E85 infrastructure, decreased from a peak of 22 million gallons in 2008 to 15 million in 2012 even as the number of FFVs in the Minnesota marketplace increased. In June, a National Association of Convenience Stores (NACS) survey found that 75 percent of retailers do not believe there is sufficient demand for E85 to justify installing an E85 pump.

In today’s Digest — is the Blend Wall and RFS-buster?; concerns about E15 ethanol; RFS impact on the food sector; diversifying the fuel supply; the real problems and immediate relief; and “a way forward?” – all by following the page links below.