Illinois economist: 80% chance EPA will reverse RVO write-down

By Susanne Retka Schill | March 06, 2014

The implied probability that the U.S. EPA will reverse the write-down of the renewable fuel standard (RFS) found in its proposed 2014 renewable volume obligations (RVO) is 80 percent, according to an analysis by University of Illinois economist Scott Irwin published March 5 on FarmDocDaily. 

In the post, Irwin outlines the method of analysis and assumptions as he considered possible outcomes of the EPA policy regarding the renewable mandate for 2014. Irwin built some of his equations on earlier work looking at the market for renewable identification numbers (RINs). “The probability calculation is fairly consistent across 2014 vintage D4 and D6 RINs prices,” Irwin wrote. 

“Given the heated political battle surrounding the 2014 RFS rulemaking it is more than a bit surprising to see the RINs market leaning so heavily in the direction of a reversal,” he said. But this view received a boost recently from a prominent supporter of biofuels. Senator Charles Grassley of Iowa last week told reporters, "I would doubt there would be a complete reversal [from the proposal], which is what I would like to happen. I'd be surprised if there wasn't some modification of the original rule that still might be considered a partial victory for ethanol."  A public statement of this nature from Senator Grassley suggests the main uncertainty at this point is not whether the EPA will reverse the write down of the renewable mandate for 2014, but, rather, how much the write down will be rolled back.

This is the third in a series in recent weeks. In the first, “Will the EPA Reverse Itself on the Write Down of the Renewable Mandate for 2014? The Message from the RINs Market,”   Irwin analyzed the RINs market, writing, “the rise of D6 ethanol prices relative to D4 biodiesel prices suggested that RINs traders believed the odds of the EPA reversing the proposed write down of the renewable mandate for 2014 in final rulemaking had increased sharply. The ‘coupling’ of D4 and D6 RINs prices indicated a revised expectation that the renewable mandate for 2014 would exceed the E10 blend wall.” 

The second analysis, “Who Wins if the EPA Reverses Itself on the Write Down of the Renewable Mandate in 2014?,”   concluded the most likely winner from a reversal of the policy would be the biodiesel industry. “Biomass-based diesel was cheaper than E85 in most scenarios in terms of compliance costs for obligated parties under the RFS,” Irwin concluded.