EPA likely to raise ethanol proposal modestly, says analyst
Higher-than-expected gasoline use will encourage the EPA to raise the ethanol mandate marginally from the levels proposed in May, says economist Scott Irwin of U-Illinois. The agency is expected to finalize the so-called Renewable Fuel Standard by Nov. 30. Irwin told Ag Insider that his expectation is an increase of 2-3 percent for each of the three years covered by the upcoming regulation – 2014, 2015 and 2016.
“Changes of this magnitude will have marginal impacts on the price of corn, DDGs [distillers dried grains, a co-product], and ethanol,” said Irwin, adding that the increases would be “slightly supportive of corn and ethanol.” EPA’s proposal for RFS translates into an ethanol mandate of 13.2 billion gallons in 2014, 13.4 billion gallons this year and 14 billion gallons in 2016.
Irwin said he believes the EPA will settle on an ethanol mandate of 13.6 billion gallons for 2014, 13.7 billion gallons for 2015 and 14.3 billion gallons for 2016 because the fuel market can absorb more ethanol than originally proposed.
It is widely recognized, Irwin said, that the agency’s projections of gasoline and diesel fuel use are too low and that the agency erred in how it calculated retirement of RINs – Renewable Identification Numbers – tied to ethanol export. An RIN is a serial number attached to each gallon of renewable fuel; it can substitute in RFS bookkeeping for actual use of a gallon of fuel.
The EPA proposals are well below the volumes set in a 2007 law. The agency says modifications are necessary because production of second-generation biofuels is a fraction of expected levels while the fuel market is saturated with biofuels at the usual blend rate of 10 percent, the so-called blend wall. The ethanol industry says the oil industry is unwilling to install pumps and storage tanks that dispense higher blends.