Wisconsin Bio Industry Alliance, Renewable Fuels Association Release Ethanol, Drought Myth-Busting Reports
by Jim Lane (Biofuels Digest) In Wisconsin, the Wisconsin Bio Industry Alliance published a note “to once again clear up a few myths about ethanol and ethanol production in America.”
…In Washington, the Renewable Fuel Association’s Geoff Cooper noted that “The likelihood of a short corn crop has caused some to question how the ethanol industry and Renewable Fuel Standard (RFS) will be affected,” and prepared a detailed white paper to examine the potential impacts on the RFS and outlook for the ethanol industry. READ MORE and MORE (Wisconsin Bio Industry Alliance) and MORE (Renewable Fuels Association)
Excerpt from Renewable Fuels Association white paper:
Will we meet the 2012 RFS target for renewable fuel?
The recent downturn in ethanol production has caused some to question whether 2012 output will be sufficient to meet the 2012 RFS requirement. The Energy Independence and Security Act (EISA) statute requires refiners to use 13.2 bg of “renewable fuel” (the category that includes grain ethanol) in 2012. Even if ethanol production remains at current low levels for the remainder of the year, obligated parties should have no problem meeting their 2012 RFS blending obligations.Congress and the Environmental Protection Agency (EPA) built considerable flexibility into the RFS program specifically to address unique market conditions and unusual events. Several factors need to be taken into consideration when discussing the ability of refiners to meet 2012 RFS targets:
1. While the statutory requirements are for specific volumes, the “renewable volume obligations (RVO)” determined annually by EPA are actually percentages. This means the actual amount of the obligation may be somewhat less than the statutory volume if overall gasoline and diesel fuel demand is lower than anticipated by EPA.
Based on the overall 2012 RFS statutory requirement of 15.2 bg (2.0 bg of advanced biofuel and 13.2 bg of renewable fuel) and prospective non-exempt gasoline and diesel fuel use of 164.68 bg, EPA set the RVO for 2012 at 9.23% (15.2/164.68). This means 9.23% of each obligated party’s fuel must be comprised of renewable fuel. However, total non-exempt gasoline and diesel fuel use is now projected at approximately 162.6 bg, meaning the actual blending obligation is 15.01 bg. The actual advanced biofuel obligation would be approximately 1.97 bg, leaving the renewable fuel obligation at 13.04 bg, some 200 million gallons lower than the statutory volume.
2. Excess RINs can be used for compliance in lieu of physical gallons
In the event physical gallons are not available to an obligated party for meeting its 2012 RFS2 obligation, the party may use banked RINs for compliance. If an obligated party acquires more RINs than it needs to meet its RVOs, then in general it can retain the excess RINs for use in complying with its RVOs in the following year. As much as 20% of a party’s obligation can be met using RINs generated in the previous compliance year. Because oil refiners and blenders have always used more ethanol than required by the statute, a significant “bank” of excess RINs has been generated. The surplus of renewable fuel RINs has been estimated to be as large as 2.5 billion. This means use of physical gallons for compliance with the 2012 RFS could be short of the RVO, but the shortfall can be entirely offset by using excess RINs.
…3. Obligated parties can carry a compliance deficits forward one year
In the unlikely event that an obligated party could not obtain sufficient physical gallons or RINs to meet its 2012 obligation, it may carry forward the deficit and apply it to next year’s renewable volume obligation.
Given these flexibilities in the RFS program, meeting the 2012 RVO will not be a problem for obligated parties. In particular, the ability to use excess RINs from previous over-compliance will ensure the 2012 requirements are met without placing undue strain on corn, ethanol, and RIN markets.
What is the outlook for the 2013 RFS targets?