We believe our proposal to freeze RFS2 mandates in 2014 and 2015 at 2013 levels represents a pragmatic way forward. It is realistic in that it would not force large scale adoption of E15, E85, or biodiesel. This is particularly important since it is by no means clear whether the infrastructure investments necessary for widespread E15 or E85 adoption could actually be made in this time frame. There is also uncertainty whether sufficient biodiesel production capacity would be available. However, the proposal does provides incentive for modest growth in E15 and/or E85 penetration by keeping the mandate for renewable fuels above the current E10 blend wall. Even with relatively slow growth in domestic ethanol production through 2015, the proposal would maintain a high rate of use of ethanol production capacity and would provide for modest growth in the large demand base for corn. An increasing percentage of the domestic biodiesel capacity would be utilized without straining that capacity. Similarly, requirements for biodiesel feedstock would grow, but the growth would not overwhelm those markets. Obligated parties in the motor fuel supply chain could more easily meet their blending obligations with a combination of physical blending and use of RINs stocks. Finally, implementation of the proposal would also likely reduce the price of D6 ethanol RINs and eliminate the differential impact of those high prices on obligated parties. The key for the success of the proposal is that regulators, legislators, and industry participants use the next two years to develop a mutually agreeable biofuels policy beyond 2015.
Issued by Scott Irwin and Darrel Good Department of Agricultural and Consumer Economics University of Illinois