The RFS and Domestic Consumption of Conventional Ethanol and Biomass-Based Diesel to 2022

by Scott Irwin and Darrel Good (FarmDoc Daily/University of Illinois) In the farmdoc daily article of November 30, 2016, we examined the magnitude of the "push" in production and consumption of biofuels implied by the U.S. Environmental Protection Agency (EPA) final rulemaking for the Renewable Fuels Standard (RFS) for 2017 and the biomass-based diesel volume requirement for 2018 announced on November 23^rd. Two important questions arose from that analysis. First, given our projection that domestic consumption of conventional ethanol could reach 14.41 billion gallons in 2017, when will domestic consumption reach the statutory mandate of 15 billion gallons and completely eliminate the conventional mandate gap? The answer has important policy implications, including the value of conventional ethanol (D6) RINs. Second, the advanced biofuels mandate for each year from 2014 to 2017 represent a push in production and consumption in that the write down in the total advanced mandate was less than the write down in the cellulosic mandate. That difference is 520 million gallons in 2017, much larger than in the previous two years. An important issue with regards to future implementation of the RFS, then, is the magnitude of the advanced mandate push, if any, under a new Administration. The answer has important implications for the demand for biomass-based diesel, required feedstocks, and the value of biomass-based biodiesel (D4) RINs. We analyze those questions in detail in this article.

The answer to the first question depends heavily on the rate of increase in domestic fuel consumption, while the answer to the second question will depend on how the new Administration chooses to implement the advanced RFS mandate starting in 2018. We conclude that: (1) consumption of conventional ethanol could reach the statutory mandate of 15 billion gallons sooner than the market anticipates, which could result in substantial downward pressure on D6 RINs prices; and (2) while annual production and consumption of biomass-based diesel and its feedstocks will likely increase substantially by 2022 in order to fulfill the advanced mandate, the magnitude of the increase could vary over a wide range depending on how much of the cellulosic mandate is effectively converted into additional biomass-based diesel mandate. READ MORE and MORE (Biodiesel Magazine)