By Scott Irwin and Darrel Good
In our farmdoc daily post on February 13 of this year, we traced through the implications of implementing RFS2 as currently quantified through 2015. We made the following qualifying assumptions in that analysis:
- Cellulosic mandates would continue to be written down to near zero in each year,
- Total mandated biofuels quantities would not be altered,
- Annual imports and exports of ethanol would be equal at 500 million gallons,
- A domestic ethanol blend wall of 12.9, 13.1 and 13.4 billion gallons in 2013, 2014, and 2015, respectively,
- The annual mandated minimum for biomass-based biodiesel would remain at 1.28 billion gallons,
- Ethanol (D6) RINs stocks totaled 2.6 billion gallons at the start of 2013, and
- Biodiesel (D4) RINs stocks totaled 330 million gallons (ethanol equivalent) at the beginning of 2013.
That analysis resulted in the following conclusions:
- Annual U.S. ethanol production would equal the blend wall amounts of 12.9, 13.1, and 13.4 billion gallons in 2013, 2014, and 2015, respectively,
- Annual corn consumption for ethanol production would be 4.61, 4.68, and 4.79 billion bushels in 2013, 2014, and 2015, respectively,
- Biomass-based biodiesel production would increase from 1.28 billion gallons in 2013, to 2.57 billion gallons in 2014, and 4.73 billion gallons in 2015,
- Feedstock requirements for biomass-based biodiesel production would increase from 9.6 billion pounds in 2013, to 19.3 billion pounds in 2014, and 35.5 billion pounds in 2015,
- Ethanol RINs stocks would be depleted sometime in 2014, and
- Biodiesel RINs stocks would be depleted in 2013.
We found these outcomes problematic for two reasons. First, the capacity to produce the required level of biomass-based biodiesel beyond 2014 does not currently exist. Second, the feedstock requirements for biomass-based biodiesel production in 2014 and 2015 would overwhelm those markets. These issues stem primarily from the assumed very slow expansion in the size of the domestic ethanol blend wall. Ethanol consumption is being limited by a lack of growth in domestic motor fuel consumption and slow growth in the consumption of E15 and E85. The ethanol blend wall results in larger quantities of advanced biofuels to meet the total RFS. These blend wall constraints have now been expressed in the form of rapidly increasing D6 RINs prices since the first of the year. These issues become even more problematic beyond 2015.
Here, we present a proposal for implementing the RFS2 through 2015 that recognizes the constraints implied by the E10 blend wall and will avert the impact of the issues identified in the previous analysis. We believe the proposal is realistic because it balances the competing interests of various parties in the policy process and allows some additional time for regulators, legislators, and industry participants to consider any adjustments to RFS2 that might be needed in the longer-run. Our proposal is to simply cap or "freeze" the advanced biofuels and total mandates for 2014 and 2015 at the 2013 level of 2.75 billion gallons for advanced biofuels and 16.55 billion gallons for all biofuels. The RFS2 currently requires 3.75 billion gallons of advanced biofuels in 2014 and 5.5 billion gallons in 2015. The mandates are for 18.15 billion gallons of all biofuels in 2014 and 20.5 billion gallons in 2015.
Tables 1 through 7 are similar to the tables included in our previous analysis and trace through the implications of this proposal, with one change in the assumptions compared to our previous analysis. Due to the re-instatement of the biodiesel tax credit of $1 per gallon (and assuming the tax credit is extended to 2014 and 2015), the analysis here assumes that imported Brazilian sugarcane ethanol will have an economic disadvantage to biomass-based biodiesel in meeting the undifferentiated advanced biofuels requirements. As a result, annual ethanol imports are assumed to be 200 million gallons rather than 500 million gallons assumed in the previous analysis.
Source: Farmdocdaily
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