Is White House RFS Decision Really a “Win-win”?

Source: By Tyne Morgan, US Farm Report • Posted: Tuesday, May 8, 2018

After months of debate and consideration, a final meeting at the White House over ethanol and the Renewable Fuels Standard (RFS) laid out the president’s biofuel policy plan.

Senator Ted Cruz (R-TX) tweeting after the meeting, “Terrific final decision from POTUS meeting: E15, year-round, plus RINS [Renewable Identification Numbers] for all exports. This is a WIN-WIN for everyone. More corn will be sold (good for farmers), plus lower RINS (saves blue-collar refinery jobs), plus more ethanol exports (good for America).”

Senator Charles Grassley (R-Iowa) also attended the meeting. He tweeted “Had White House meeting on RFS/ethanol. No RIN cap and got E15 year round. Need to see Perdue + Perdue plan. Devil in the details.”

Is the decision by the administration really a win-win for both the oil and agriculture industry?

“I think that is the best they can do of a bad situation,” said Pete Meyer, senior director S&P Global Platts. “For the amount of pressure that Scott Pruitt and the EPA has been under for issuing the smaller refinery waivers, I mean those days will be gone; the playing field will become a little bit more even.”

Meyer said RINs (credits purchased or sold for compliance of the Renewable Fuels Standard) for exports will basically act as a cap for RIN prices as it will help drive down the price of RINs. However, the fact the Administration didn’t issue a RIN cap is something he views as neutral.

“A RIN cap on its own would have been detrimental to both the corn market and the ethanol market,” said Meyer. “That being that being said, now that you’re issuing RINs for ethanol exports, it puts the ethanol industry in the driver’s seat. There’s no question about it.”

Meyer said at first glance, what this decision translates into is RIN prices are going to become cheaper.

“In essence what that does is restricts the higher blends,” said Meyer. “That’s a negative right out of the box in that the if RIN prices get really cheap, your blender – or your refinery that recently received waivers- will now be able to buy cheap RINS.”

Meyer said that’s the short-term impact. He said in the long-run, it incentivizes more exports, which in turn will be a positive globally.

“In my opinion, the market is mature enough to stand on its own and that’s what we’ve done here,” said Meyer. “We’ve stopped this artificial push to push more ethanol into a gallon of gasoline.”

Growth Energy is also looking at the potential impact of the administration’s move. The group says white it applaud a move to higher ethanol blends year-round, it commissioned research last fall that showed the impacts of an export subsidiy for biofuels. The analysis shows it would create corn losses of $27.9 billion over the next four marketing years, and corn prices would immediately drop by 56 cents per bushel.

Meyer said he’s had conversations with some of the largest ethanol producers and companies in the country, who all have the same desire: allow the ethanol market work. He said their sights are on the possibility of growing global demand.

“They look at China adding ethanol to their blend stock, they look at Europe adding ethanol,” said Meyer. “They just want the market to work, and let it work freely. In this case it does. What we’ve done is we’ve taken U.S. corn and U.S. ethanol producers and put them on a global stage.”

The White House’s decision also vows to support the sale of E15 year-round. It’s a commitment the president has made before.

However, Meyer said the push for E15 year-round is only a drop in the bucket when looking at the overall ethanol demand picture.

“We’re going to allow E15 to be to be sold year-round; that’s great, and that’s somewhat of a positive, but really that on its own – according to our calculations – adds less than 1 percent more demand by adding E15 year round,” said Meyer. “It does, however, cause a lower RIN price.”

He says smaller refineries will benefit for the cheaper RIN prices, which could also mean more competition in the U.S. and possibly cheaper fuel prices. Meyer says the way farmers win is by growing exports.

“The farmer is only going to win if the ethanol business spends more time and more money working on global outlets for U.S ethanol, than lobbying the EPA to try to shove 15 percent of ethanol into a 10 percent tank,” said Meyer. “I think that’s what’s really going to happen here. “

Meyer says the only way the administration’s decision results in higher blends of ethanol in the U.S. is if oil prices continue to climb higher.

“It’s just that once you get above that $85, $90, $100 mark, it makes economic sense for you to blend more ethanol as long as corn is still relatively at the same price,” said Meyer.

Meyer points out this decision still has to clear the Courts and other channels in Washington D.C.