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Harvard Professor: Year-Round E15 Sales Would Reduce Biofuel Credits Costs

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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As debate rages on about whether the price of biofuels credits in the Renewable Fuel Standard are putting small refiners out of business, a little-known analysis by a Harvard University economics professor last summer said the best way to reduce the price of those credits is to allow year-round sales of E15.

On Jan. 22 PES Holdings, LLC, a subsidiary of Philadelphia Energy Solutions LLC, announced it was filing for Chapter 11 bankruptcy protection for a refinery it owns on the East Coast, in part blaming the high costs to comply with RFS as a primary reason.

The company said in a news release it is going forward with Chapter 11 in part because of "skyrocketing costs of RINs (renewable identification numbers)." The company said RINs cost the company about $281 million in 2017; its largest single expense after crude oil.

James H. Stock, a professor in the department of economics in the Harvard Kennedy School at Harvard University, wrote in a July 11, 2017, analysis, that concerns about the price of RINs could be alleviated by allowing the year-round sale of E15.

"Extending the RVP (Reid vapor pressure) waiver to E15 (and higher blends) would facilitate additional corn kernel ethanol being blended into the fuel supply, as some E10 sales are converted to E15 sales," he writes.

"This additionally blended ethanol would make it easier to comply with the RFS obligation for blending conventional fuels, because more D6 RINS would become available for compliance. The annual conventional volumetric requirement is already at its statutory maximum of 15 billion gallons, so these additional RINs would exert downward pressure on RIN prices. Additional sales of E15, along with the continued expansion of total gasoline demand, would tend to stabilize RIN prices at a lower value, all else equal. The extent of this RIN price reduction and stabilization would depend on the success of E15 marketing and availability, paired with the RVP waiver extension."

Stock is expected to be a featured speaker at the National Ethanol Conference in San Antonio, Texas, next week.

In the analysis, Stock said even adding 200 million gallons of E15 in sales could exert "substantial" downward pressure on RIN prices.

"Producing 200 million gallons of additional D6 RINs from E15 would require converting 4 billion gallons of E10 sales to E15," he writes.

"Whether such an expansion is plausible is a matter of controversy. On the up side, the number of stations offering E15 increased substantially under the USDA Biofuel Infrastructure Program and the private Prime The Pump program; EPA estimates that the number of E15 stations could reach 2,700 in 2018."

Stock points to one estimate that says there was expected to be about 687 million gallons of E15 sold in 2017.

"These are nine-month sales so would be expected to increase with the RVP waiver," he writes.

"Also, although E15 price data are poor, the limited available data suggests that E15 sells at a sufficient discount, relative to E10, to more than compensate for its 1.7% reduction in energy content (not taking into account its higher octane than E10).

"On the down side, E15 is a fuel that is largely unknown to the consumer, a few foreign manufacturers still recommend against using E15 in new vehicles, and E15 is available almost exclusively at independent retailers. While the unavailability of the RVP waiver is an important impediment to E15 sales, it is safe to say that the extension of the RVP waiver to higher blends will need to be paired with aggressive marketing and consumer education by retailers to see large expansions in E15 sales."

A number of oil refining interests have been pressing members of Congress to reform the RFS, because of rising RIN prices.

"If refiners truly want lower RIN prices, the answer is really quite simple: blend more ethanol," Renewable Fuels Association President and Chief Executive Officer Bob Dinneen said in a statement.

"The very purpose of the RFS is to drive expanded consumption of renewable fuels and the RIN provides a powerful incentive to do just that. Once the D6 RIN has done its job to expand conventional renewable consumption to 15 billion gallons and beyond, its value will naturally recede."

Read the Stock analysis here: http://bit.ly/…

Todd Neeley can be reached at todd.neeley@dtn.com

Follow me on Twitter @toddneeleyDTN

(CZ)

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