The Impact of Biofuels Mandates
on Grain and Oilseed Markets
Scott Irwin
sirwin@illinois.edu
University of Illinois
What is the RFS?
U.S. Renewable Fuels Standards, 2008-2022
40
Gallons (billion)
35
Advanced
30
25
20
15
10
5
0
Year
Renewable
U.S. Renewable Fuels Standards, 2008-2022
40
Gallons (billion)
35
Advanced
30
Renewable
20% GHG
Reduction
25
20
15
50% GHG
Reduction
10
5
0
Year
U.S. Renewable Fuels Standards, 2008-2022
40
Advanced
35
Renewable
Gallons (billion)
30
15
20% GHG
Reduction
15
25
15
15
20
15
15
15
10
5
9
10.5
12
14.4
13.8
12.613.2
0
Year
15
15
50% GHG
Reduction
U.S. Renewable Fuels Standards, 2008-2022
40
Advanced
Gallons (billion)
35
Renewable
30
15
20% GHG
Reduction
21
50% GHG
Reduction
15
25
15
15
20
15
15
15
10
5
0
9
10.5
12
15
15
14.4
13.8
12.613.2
7.3 9
5.5
2.8 3.8
0.0 0.6 1.0 1.4 2.0
Year
15
11 13
18
U.S. Renewable Fuels Standards, 2008-2022
40
Cellulosic
Biodiesel
Undifferentiated
Renewable
Gallons (billion)
35
30
20% GHG
Reduction
25
20
15
50% GHG
Reduction
10
5
0
Year
How is the RFS Enforced?
Renewable Fuel Standard Formulas for 2012
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
RINS Price ($/gallon, ethanol equivalent)
Daily Price of Current Year RINS in the Secondary Market, April
1, 2008 - October 25, 2012
2.00
1.75
1.50
Biodiesel
1.25
1.00
0.75
Advanced
0.50
0.25
Ethanol
0.00
Date
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
U.S. Refinery and Blender Monthly Net Production of Finished
Motor Gasoline, January 2005 - August 2012
Barrels per Month (thousands)
350
300
250
200
Conventional w/out Ethanol
Conventional with Ethanol
150
100
Reformulated with Ethanol
50
Reformulated w/out Ethanol
0
16
RFS Mandate for Renewable Fuel (Corn Based Ethanol) and
E10 Blend Wall, 2009 - 2015
Mandate
Ethanol (bil. gal.)
15
15.0
Blend Wall
14.4
13.8
14
12.8
13
12.8
12.8
12.8
12
11
10
9
8
2009
2010
2011
2012
Year
2013
2014
2015
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
http://www.torquenews.com/397/gas-can-kill-your-car-called-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
http://www.greencar.com/articles/flexing-ford-mustang-muscle-e85performance-car.php
 Over 3,000 gas stations offer E85
 Only about 125 million gallons of E85
used in 2012, or less than one tank per
vehicle
http://www.afdc.energy.gov/fuels/ethanol_e85.html
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?
U.S. Ethanol Balance Sheet and Implied Corn Consumption for 2013-2015---Billion Gallons
except Corn
Calendar
Ethanol
Year
RFS
Consumption
Imports
Exports
Production
2013
13.8
12.9
0.50
0.50
12.90
2014
14.4
13.1
0.50
0.50
13.10
2015
15.0
13.4
0.50
0.50
13.40
Note: Assumes zero stock change each year. All ethanol variables exclude denaturant volumes.
http://en.wikipedia.org/wiki/File:Ethanol_plant.jpg
Corn
Consumption (bil. bu.)
4.61
4.68
4.79
U.S. Renewable (D6) RINS Stock
Calendar
Mandate Year
Beginning
Production
2013
2.6
0.9
2014
1.2
1.3
2015
0.0
1.6
Exports
0.5
0.5
0.5
http://en.wikipedia.org/wiki/File:Ethanol_plant.jpg
Ending
1.2
-0.6
-2.1
Advanced RFS for 2013 and Assumed for 2014-2015--Billion Gallons
Calendar
Undifferentiated
Undifferentiated
Year
Total
Cellulosic
Biodiesel
Biodiesel
Brazilian Ethanol
2013
2.75
0
1.28
0.00
0.50
2014
3.75
0
1.28
0.89
0.50
2015
5.50
0
1.28
2.05
0.50
Notes: Each gallon of biodiesel receives 1.5 gallons of credit toward meeting RFS mandates.
Undifferentiated biodiesel in 2013 is assumed to be zero due to the use of 220 million gallons of D4
biodiesel RINS credits.
http://en.wikipedia.org/wiki/File:Ethanol_plant.jpg
U.S. Biodiesel Production for 2013-2015--Billion Gallons except Feedstock
Calendar
Undifferentiated Renewable
Feedstock
Year
Mandate
Biodiesel Gap
Gap
Total
Requirement (bil. lbs.)
2013
1.28
0.00
0.00
1.28
9.6
2014
1.28
0.89
0.40
2.57
19.3
2015
1.28
2.05
1.40
4.73
35.5
http://static.ddmcdn.com/gif/biodiesel3.jpg