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

Is the Blend Wall a RFS-buster?

Bob Dinneen, CEO, Renewable Fuels Association

In creating a market for 36 billion gallons of renewable fuels, Members of Congress most certainly knew in 2007 that such a large volume of fuel could not be absorbed by the gasoline market expected in 2022 without changes to the vehicle fleet and fuel distribution infrastructure.

The RFS was intended to drive innovation in technology by fostering investment in cellulosic ethanol and other advanced biofuels…and innovation in the marketplace, with E85 and other blends providing consumers choice at the pump.

As long as the RFS stays in place and is allowed to work as intended, it will create the economic incentive for gasoline marketers to install the infrastructure necessary to blend E85, E15 or other higher blends. Today’s market for Renewable Identification Numbers (RINs) will provide that incentive. In response to higher RIN prices, we have already seen increased E85 use, and renewed interest in E15. That is the genius of the RFS, the credit system not only provides flexibility, but it also provides the incentive to drive innovation in the marketplace.

The market-driving benefit of the RFS credit program was recently affirmed by BP Biofuels CEO Phil New, who stated: “[t]he conventional RIN markets are responding to the blend wall – exactly as could have been anticipated. The RIN markets are now starting to incentivize all members of the value chain to seek ways to resolve the blend wall. What had become a static, entrenched relationship is now starting to look much more fluid, as the incentives provided by the RIN markets provide a real prompt to innovation – not just on the supply side, but for the better demand side players as well.”

Viable options exist for breaking through the E10 “Blend Wall” and meeting RFS requirements with physical ethanol volumes instead of paper RIN credits. E15 and E85 blends are legally approved and offer a workable pathway for meeting increased RFS volumetric requirements. Only slight increases in E15 consumption would be needed in 2013 to satisfy this year’s RFS obligations with physical gallons rather than banked RINs. If E15 accounted for just 1% of total gasoline sales in 2013, the RFS requirement for renewable fuel could be met strictly with physical gallons of ethanol.

The Regulatory Impact Analysis that accompanied the RFS2 final rule includes a detailed assessment of the costs to modernize fuel distribution infrastructure to accommodate higher-level ethanol blends under the RFS. Notably, the analysis is based on input from petroleum terminal operators, the rail industry, the marine transport sector, the trucking industry, retail gas station owners, manufacturers of fuel storage and dispensing equipment, and other industry sources.

The higher-ethanol blend infrastructure necessary to bridge the gap between the infamous E10 “blend wall” (approximately 13.3 billion gallons) and the 2013 RFS requirement of 13.8 billion gallons would cost about $30 million—or $0.00023 per gallon of expected 2013 gasoline sales.

In today’s Digest — 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.