$20 Oil? $200 Oil? Does It Matter? Part 1 of the 3-Part Digest series: Carbon 2017

by Jim Lane (Biofuels Digest) For the world of renewable fuels — the only significant carbon legislation on the books, it really doesn’t matter what the oil price is. The RFS creates a separate market for renewable fuels and they compete against each other as alternatives within that market.

It’s not unheard of. California, for example, has a separate market, anyway, because of the requirement to produce reformulated gasoline, a unique type of anti-smog fuel. To use another example, Colorado and Wyoming utilize 85-octane regular unleaded fuel, instead of 87-octane as we see elsewhere around the country. There are distinct fuels markets for different reasons, and the renewable fuels market is one of them.

Within the market that the Renewable Fuel Standard creates, it is the competition between renewable alternatives that keeps prices in check for consumers. There is no earthly reason why Green Plains or POET, for example, couldn’t charge $100 per gallon for ethanol — except that they have to compete against every other potential supplier in their class of fuel — not only US producers, but international ones as well. There’s no cartel to control and inflate prices, as we have in the world of petroleum.

In one sense, when Congress established the Renewable Fuel Standard, they did expect to have competition between petroleum and renewable alternatives, and that was in the realm of flex-fuel cars and higher ethanol blends. They expected that a robust market for E85 would emerge and that this would allow the US to avoid reaching a saturation point at E10 around now, and E15 later on when that fuel standard becomes compatible with more cars or retailers establish more pumps.

E85 does compete with the gasoline price — and fuels like B20 biodiesel or B99 biodiesel compete with the petroleum diesel price — because the selection of those fuels is based on consumer choice (so long as the consumer is driving a fuel-compatible car) and consumers in most cases make choices based on price.

You see, because of the E10 saturation point and the lack of a large E15 or E85 market for the distribution of added production, cellulosic ethanol competes against conventional ethanol not in terms of the RFS’s separate classes (cellulosic ethanol has its own class), but in terms of distribution.

The pathway to 36 billion gallons may well proceed on the basis of diesel fuels and biocrudes.

The distribution (or demand) constraint drops away when we are thinking in terms of biocrude or renewable hydrocarbon diesel. It is possible to replace far more fuels this way than the RFS ever envisaged. From the point of view of vehicle, pump and pipeline infrastructure, it is possible to produce more than 100 billion gallons of these two fuels, for the US market alone.

EPA with its rulings on the size of the renewables market — is essentially establishing a carbon price, but without further legislation to establish a price on carbon or without Congress imposing a carbon tax.

Through its rulings in the 2014-2016 period, when the EPA was clamping down on the growth of the market, it was reducing the price on carbon — and signaling “don’t bother” to the marginal cost producers. Those were primarily the potential investors in cellulosic ethanol —something that BIO has been railing against.

The fight against climate change never had such a false friend as the Obama Administration — who gutted the only carbon legislation on the books, and built all its other actions on carbon on such a flimsy footing that President Trump swept them away with a stroke of the pen.

But there’s hope, ironically, in this Administration, which is generally regarded to be the least climate-friendly in recent decades. But the President is RFS-friendly — so far. READ MORE and MORE (OilPrice.com)