The Impact of Biofuels Mandates on Grain and Oilseed Markets Scott Irwin University of Illinois

What is the RFS?

How is the RFS Enforced?

Renewable Fuel Standard Formulas for 2012 Cellulosic Biodiesel Advanced Total

Renewable Identification Numbers (RINS)  RFS is actually enforced using RINS, a tradable credit system administered by the U.S. EPA  A RIN is a 38-digit number assigned to each gallon or batch of renewable fuel produced or imported into the U.S.  Each RIN travels with the biofuel as it moves through the supply chain  RINs are actively traded in a secondary market  RINs allow obligated parties to meet their individual mandates by applying RINs representing biofuels which they have physically purchased and blended, or those which were purchased from another party through RIN trading

What is the Ethanol Blend Wall?

Ethanol-Gasoline Blending  The most common blend of ethanol and gasoline is known as E10  A mixture of 10% anhydrous ethanol and 90% gasoline  Can be used in the engines of most cars and light duty trucks without modification of the engine or fuel system  Uncertainty whether higher blends of ethanol will damage engines without modification  If E10 is the maximum blend, then the blend wall equals 10% of total motor gasoline supply  Puts an upper limit on the size of ethanol production and use of corn for fuel ethanol

Is E15 the Way Around the Blend Wall?  US EPA approved E15 blends for 2001 and newer vehicle models in January 2011  Only 10 gas stations in the U.S. currently offer E15  Implementation, has been delayed by a number of factors  Lack of clarification of liability issues associated with dispensing E15  Cost of installing blender pumps at retail stations  Engine warranties using E15

Is E15 the Way Around the Blend Wall?  US EPA approved E15 blends for 2001 and newer vehicle models in January 2011  Only 10 gas stations in the U.S. currently offer E15  Implementation, has been delayed by a number of factors  Lack of clarification of liability issues associated with dispensing E15  Cost of installing blender pumps at retail stations  Engine warranties using E15

Is E85 the Way Around the Blend Wall?  E85 has been approved for “flex fuel” vehicles for some time  Over 10 million flex fuel vehicles on the road  Represents a large potential consumption base for ethanol, as large as 5 billion gallons annually  Over 3,000 gas stations offer E85  Only about 125 million gallons of E85 used in 2012, or less than one tank per vehicle performance-car.php

E85 Pricing  A gallon of ethanol has only about 2/3 of the energy content of a gallon of conventional gasoline  Implies that a gallon of E85 will reduce gas mileage about 25% compared to conventional gasoline  Suggests E85 should be priced at about 75% of the pump price of conventional gasoline  $3.25 pump price of conventional gasoline translates into a breakeven E85 price of $2.44  A further discount may be required by consumers to compensate for more frequent refueling stops

Champaign, Illinois January 16, 2013

Outlook for E15 or E85 Through 2015  E15 use is likely to be quite limited  E85 use is limited by uncompetitive pricing and lack of consumer experience with this fuel  EPA analysis suggests current fueling infrastructure could accommodate up to 600 million gallons of E85  Lower ethanol (and corn) price and/or higher gasoline prices needed for competitive E85 pricing in order to maximize current fueling infrastructure  Uncertainty how large of a discount consumers will require for wider usage needed to encourage large scale expansion of infrastructure  Bottom-line: US is likely to be stuck near the E10 blend wall for at least the next several years

How Will the RFS be Implemented in the Next Several Years Given the Blend Wall?