Ethanol Blog

Irwin: Evidence Still Lacking for Lost Ethanol Demand from Waivers

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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University of Illinois economist Scott Irwin points to errors in government ethanol export data to explain dip in ethanol blend rate. (Graphic courtesy of farmdoc)

University of Illinois economist Scott Irwin took a fair amount of heat for his conclusions in an analysis this past summer that there was little or no real market effects from small refinery waivers to the Renewable Fuel Standard.

In an updated analysis released on Thursday, Irwin offered data to show that volatility in the implied domestic blend rate for ethanol in the second half of 2017 and the first half of 2018 were explained for ongoing measurement errors in export survey data released by the U.S. Energy Information Administration.

Ethanol industry officials have pointed to a dip in the average implied ethanol blend rate, from February 2018 to September 2018 to below 10% at 9.94%, as indication of how EPA's small refinery waivers granted for 2016 and 2017 essentially cut ethanol blending. The EPA granted 48 such waivers totaling 2.25 billion gallons of biofuels, including about 300 million gallons of biodiesel.

Irwin's analysis finds consistent EIA measurement errors on ethanol export survey data, from January 2016 to September 2018 -- errors that account for the dip in the average implied ethanol blend rate.

"In particular, the surge in ethanol exports in the second half of 2017 and early 2018 must have been associated with large amounts of ethanol in transit for ethanol," Irwin writes. "This created the appearance of a surge in implied domestic ethanol use and the implied ethanol blend rate over this same time period. Once the surge in ethanol exports receded, there was a compensating drop in implied domestic ethanol use and the implied ethanol blend rate.

"As discussed previously, the finding that SREs have not had a material impact on physical ethanol demand to date does not necessarily mean that all biofuels demand has been unaffected. First, the drop in RIN (Renewable Identification Numbers) prices associated with SREs should have reduced E15 and E85 demand. While the magnitude of this impact is very small now, it also precludes further expansion in the demand for higher ethanol blends so long as SREs are granted (and not reallocated). Second, the demand for biomass-based diesel in all likelihood has been reduced in direct proportion to the impact of SREs on total obligated gasoline and diesel gallons because the biomass-based diesel mandate is highly binding."

Irwin said the analysis shows the small refinery waivers have led to "very, very small" lost ethanol demand, in the neighborhood of about 70 million gallons on an annual basis.

Read Irwin's analysis here: https://farmdocdaily.illinois.edu/…

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

Follow me on Twitter @toddneeleyDTN

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