In September, this blog demonstrated that despite falling Renewable Fuel Standard (RFS) credit prices and small refiner exemptions (SREs) – and contrary to the claims of biofuel lobbyists - domestic ethanol consumption is actually increasing in the U.S. Unfortunately, questions from corn-state Senators at this week’s Senate Environment and Public Works (EPW) confirmation hearing suggest they haven’t yet developed the habit of reading our blog regularly. The ethanol mandate-friendly Senators pushed Acting Administrator Wheeler to quickly implement the E15 waiver while suggesting that EPA reduce its approvals of SRE applications.
However, in a brand new analysis from one of their own, University of Illinois agricultural economist Scott Irwin (who released his report one day after the hearing was held) updated his analysis of SREs and found, “the data now clearly show that small refinery exemptions (SREs) under the RFS have not reduced physical ethanol use.”
Additionally, the data shows that sales of higher ethanol blends including E15 and E85—contrary to ethanol lobby claims that these blends are more vulnerable—have not only held strong, but increased as well. Irwin again: “each of the three series available in the public domain on E85 use show a consistent upward trend since December 2017, just the opposite of that predicted by the SRE-driven crash in D6 RIN prices.”
Let’s dive into the data…
As stated in the September post, Minnesota is home to nearly 25 percent of all stations selling E15 in the country; by far the state with the highest concentration of outlets offering the fuel. It is also one of the few states that regularly reports E15 sales data. A recent blog post from the Minnesota Bio-Fuels Association notes that the state has sold “nearly 50 million gallons” through October of 2018, which is, “more than double the volume recorded for the whole of 2017 (19.05 million gallons).”
This trend seems to have persisted throughout the year, with October sales alone representing a volume that was, “68 percent higher than the total sold in October 2017 (3.19 million gallons).” E85 (fuel containing 85 percent ethanol, 15 percent gasoline) sales also seem to be on the rise: “…the volume in October brought the total volume of E85 sold in Minnesota this year (as of October) to 13.67 million gallons and on course to besting last year's volume of 14.82 million gallons.”
Minnesota E15 sales are not the only recent evidence that neither SREs nor falling RINs have resulted in any ethanol “demand destruction.” Irwin’s recently updated analysis on the topic highlights:
- “The updated analysis in this article shows even less evidence that the blend rate for ethanol has been reduced by SREs.”
- “The reason for this counter-intuitive result is that all but a tiny sliver of ethanol in the U.S. is consumed in the form of E10 and ethanol is very price competitive in the E10 gasoline blend.”
Finally, the U.S. Energy Information Administration’s (EIA’s) statistics reaffirm that 2018 will end as a year of robust ethanol consumption. Its latest Short Term Energy Outlook (STEO), which uses data about what actually happened in the market to date, projects a higher rate of ethanol blending in 2018 than 2017, with a blend rate of 10.2%, compared to 10.1% last year.
The facts keep proving that neither SREs nor lower RIN prices seem to be slowing down domestic ethanol consumption. Irwin himself summed it up nicely on Twitter: “My view is that the RIN has nothing to do with blending margins for ethanol.”
The Environmental Protection Agency (EPA) must take these facts into account when it moves forward with the statutorily required RFS “reset” next year. Market experience from 2018 proves that EPA can err on the side of caution and set a conservative volume requirements without adversely impacting biofuel consumption. However, the same experience shows that setting overly aggressive mandates puts refining jobs at risk, without advancing more biofuel consumption.