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CARD analysis considers outlook for RINs in 2013, 2014

By Erin Voegele | January 04, 2013

Iowa State University’s Center for Agricultural and Rural Development recently published a policy brief on the outlook for ethanol and conventional biofuel renewable identification numbers (RINs) through 2014. The brief was written by economics professor Bruce Babcock and focuses whether the supply of banked RINS will be used in 2013 to offset high production costs, or in 2014 to help offset low ethanol prices.

In his analysis, Babcock stresses that when the cost to an obligated party to use a banked or purchased RIN to meet its volume requirements under the renewable fuels standard (RFS) is less than the value lost from buying ethanol, that party will use RINs to meet its obligations, rather than actually buying ethanol. Babcock said this will have two effects on the market: ethanol use will decline and the increased use of RINs will increase their price. If enough obligated parties turn to banked RINs, the purchase price of ethanol will eventually be reduced, increasing the use value of the fuel. These impacts will continue until the value loss from using ethanol decreases to the point that obligated parties are indifferent to purchasing ethanol or using banked RINs.

Regarding the expected production costs for ethanol, Babcock said that while the 2012 drought pushed corn prices higher, increasing the cost of producing ethanol from most of 2013, unless another drought occurs, corn and ethanol production prices are expected to be reduced following the 2013 harvest.

However, corn prices are just one of the factors impacting the U.S. ethanol marketplace in the short-term. According to Babcock’s analysis, the ability of the U.S. to consume ethanol in 2013 and 2014 is expected to be severely constrained by the E10 blend wall.

He also specifies that the demand curve used by the U.S. EPA last fall when it denied a request to waive the 2013 for corn ethanol, if proven accurate, shows that there is no price at which either the 2013 mandated volume of 14.6 billion gallons or the 2014 mandated volume of 16.2 billion gallons can be met with ethanol. However, there are alternative ways of meeting these mandates, including the use of sugarcane ethanol to meet the advanced biofuel mandate. Babcock also points out that it is possible that the demand curve is not an accurate reflection of what will happen to ethanol demand if the price of the fuel drops enough. For example, low ethanol prices could motivate flex fuel vehicle owners to use high ethanol blends. It is also possible, he said, that regulatory and legal hurdles could be quickly overcome, allowing for more E15 sales.

According to Babcock, owners of banked RINs will use them when they have their greatest value. “This principle implies that RINs will be used in 2013 until their 2013 value is equal to their expected value in 2014,” he said in the brief, noting that a significant portion of these banked RINs are expected to be used this year, due in part to the E10 blend wall and high ethanol production costs. However, the actual use of banked RINs will be highly dependent on this year’s corn yields, the use of sugarcane ethanol to meet RFS advanced biofuel targets, and the biodiesel mandate.

A full copy of the analysis, titled “Outlook for Ethanol and Conventional Biofuel RINs in 2013 and 2014,” is available for download on the CARD website.

 

2 Responses

  1. Barnabas Lancaster

    2013-01-05

    1

    My new 2013 Toyota yaris forbids the use of E15 if I use it I'll lose it, my warranty will be void, my older Nissan car a 1993 model year handbook clearly states the prohibited use of Oxygenated blends of fuels if exceeds a 5% blend, loss of engine performance will accrue if experienced to stop use Immediately switch to a non-blended gasoline, well on this car engine stall, engine violently shakes, I had my car engine fixed this violently shaking of the engine caused damaged, with my engine fixed due to damage, I no longer use shit gas ethanol. Ps I'm not against ethanol but it needs to be re-looked at, mostly for older aging cars which was never designed to use.

  2. Hector

    2013-01-17

    2

    its experts are “unable to cofnirm and replicate” EPA science on indirect land use change theory. That’s because it can’t be scientifically proven and probably never will be. Upon request by the RFA, for the Food and Agriculture Policy Research Institute’s (FAPRI) model, the EPA was unable to release the actual model. That ought to tell you something. They don’t have one. The “peer review” itself could not agree on preliminary modeling. Even if there was a working model, if you put false assumptions in, you’re gong to get false conclusions out. Yet the EPA is trying to force indirect land use change theory into their regulations, while it remains unproven and highly controversial.Followers of indirect land use change theory claim that an acre of biofuel displaces an acre of food, which must then be grown somewhere else, on deforested land FALSE. Our corn crop is the same number of acres planted this year that was in cultivation 60 years ago. Since then, the yield per acre keeps going up, so we are not displacing other crops to grow more corn. Technology is getting much more out of the same acreage.What biofuel critics omit, is that 87% of our corn crop is feed corn, unsuitable for human consumption. We only use 25% of our feed corn to make ethanol. That same portion of the crop used for biofuel also produces food. A 150 bushel acre of corn ethanol produces 450 gallons of fuel from the grain, plus 400 gallons of fuel from the corn cobs and stover biomass, plus 20 gallons of corn oil, plus 50 bushels of high protein livestock feed – used to produce dairy products, meat, poultry, fish, and farm-raised “seafood”.For soy, only 1/5 of the soybean is extracted for the oil, and that can go to food or fuel. The other 75% is high protein soy meal, which is also fed to livestock to produce food. Glycerin is a byproduct of biodiesel production that is being purified and made into value-added products also. And soybeans naturally enrich the soil by fixing nitrogen, displacing nitrogen fertilizer. All of these factors need to be evaluated and credited accurately to the lifecycle of biofuels. The EPA fails to do so.Even 70% of the oil extracted from a palm-oil plantation in Indonesia is used for human consumption, not biofuels.The demand for food is going to keep going up, as world population increases. If you see land being deforested in Africa, The Amazon, or Indonesia, the majority of it is being used for subsistence farming and livestock grazing, not biofuels or “replacement crops”. That’s after lumber companies and paper pulp companies have stripped the timber. A percentage of deforested land lays abandoned and unused for years afterwards. It’s a false assumption to claim that American corn based ethanol or American soy based biodiesel is causing deforestation in foreign countries. The facts on the ground prove otherwise.In “Deforestation Debunked”, Jackie Helling says an Amazon study conducted earlier this year, by the Soybean Work Group (GTS), “showed that of 630 samples of deforested areas since July 2006, only 12 had gone to soybeans and 200 to cattle. The remaining 418, or 70 percent, were unused indicating that the main reason for cutting down trees was for timber and land grabbing.”Rainforest deforestation has been going on for decades, long before the recent expansion of biofuels.In the U.S. and many other countries, there is no shortage of food and no shortage of land, as biofuel critics would have you fear. We will have a large corn crop and a sizeable surplus this year, because foreign acreage of competing grain crops increased significantly. So do we now blame this expansion of foreign grain crops for deforestation? No – because, for the most part, that would be a false assumption.In the U.S., we only use one third of our arable land. And in many other places, including Russia, Africa, South America, and Australia, there is also a surplus of arable land. With the exception of densely populated countries like India and China, we have many years to go, before we need to be concerned about different crops competing against each other for arable land. And yields per acre continue to go up every year.Hypothetically, if indirect land use change was actually happening, expansion of a sugar crop in India could have caused it. Expanding rice or cassava in China could have caused it. A new palm oil plantation in Indonesia could have caused it. A new jatropha grove in Africa may have caused it. A new cattle pasture in Argentina may have caused it. An apple orchard in New Zealand could have caused it, and so on.Deforestation is Not automatic proof that biofuels are the cause. Yet a lawyer, a lobbyist, an environmental activist, a biofuels critic, the mastermind of indirect land use change theory, is steering EPA computer modeling to blame biofuels. That’s junk science.

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