Ethanol--Does the RFS Matter?

by Scott Irwin and Darrel Good (University of Illinois/FarmDocDaily) ...The suggestion to waive the mandate assumes that ethanol production and blending is motivated only by the RFS and that a lower mandate would result in less ethanol production and blending and less corn consumption in that sector.

... Large and increasing mandated biofuels blending levels beginning in 2007 resulted in a fundamental shift in gasoline formulation. A simplified description of the change is that the refining industry has moved to using predominantly 84 octane "conventional" gasoline that is then blended with the higher octane ethanol (around 113) to produce the 87 octane gasoline that is most popular at the retail level in the U.S. Figure 1 shows that production of conventional (84 octane) gasoline with ethanol has moved in tandem with the rising production of ethanol. The adjustment to ethanol as the main source of octane enhancement appears to have been complete by early 2009. Since that time the two production series have moved almost one-for-one. This change in refining practices is not easily reversed. While other octane enhancers are available or could be become available, biofuels mandates and relatively low ethanol prices make it the current product of choice.

...The profitability of using ethanol as an octane enhancer increases with lower ethanol prices (given a fixed RBOB gasoline price) and refiners would have an economic incentive to use more ethanol, but the use of ethanol is capped by the blend wall. READ MORE