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Reading the ethanol RINs
University of Illinois ag economist Scott Irwin doesn't read tea leaves, but he does find clues to EPA biofuels policies when he looks at the market for RINs, the renewable identification numbers that act like credits that blenders trade to meet ethanol and biodiesel mandates.
Last week, Irwin posted a Farmdoc Daily analysis that shows the price of ethanol RINs, which usually are cheaper than those for biodiesel, starting to converge. They decoupled last July, months before the EPA announced its dramatic reduction in the blending mandate, the Renewable Fuel Standard (RFS.) Irwin thought that was a sign that the market believed EPA was going to reduce the 2014 ethanol mandate to the so-called blend wall of about 13 billion gallons.
Since late January, both the ethanol and biodiesel RINs have started to converge again, which "strongly suggests that the RINs market traders were convinced there is a much higher chance that the EPA will reverse the write-down of the 2014 renewable mandate . . . " Irwin wrote.
Irwin was more blunt in a recent interview with Agriculture.com.
"I interpret this as saying the RINs market is telling me that the Obama administration has already caved on the cuts to the ethanol mandate," Irwin said.
When asked today about what the market might know about a reversal, ethanol supporter Senator Chuck Grassley (R-IA), said "I assume they've had rumors to that effect. I'm not aware of those rumors."
Grassley said he doubts that a bureaucracy would easily reverse its November-proposed rule entirely.
"I would doubt if there would be a complete reversal, which I would like to happen," he said.
But Grassley believes it's possible that EPA will modify its rule, and he added some speculation to support that theory:
-- President Obama's new senior adviser, John Podesta, is considered a strong supporter of biofuels.
-- The president himself, a former Midwestern senator, has also been outspoken in support of biofuels.
-- A meeting with EPA Administrator Gina McCarthy and senators who back biofuels late last year was one that "a lot of my colleagues felt made some progress," Grassley said.
-- Nearly a third of the U.S. Senate, 31 senators, have written to oppose last fall's write-down of the mandate.
Grassley said he has no inside knowledge to support his hunches.
"Do I know for sure? No. I can just give you speculation," he told a reporter during his weekly telephone press conference Tuesday.
And he's not allowing too much optimism.
"You've got to still consider the weight of big oil lobbying," he said.
Nor does Irwin's analysis support a complete reversal of the mandate that would restore roughly 3 billion additional gallons of blending of different types of biofuels in 2014.
As Irwin pointed out in his Farmdoc Daily posting, "As long as the reversal of policy results in a renewable mandate for 2014 that exceeds the total capacity of the domestic fuel market to physically absorb the mandated quantity of ethanol, then D4 biodiesel and D6 ethanol prices should be effectively recoupled. So, the reversal does not need to be complete for the switch to be flipped."
Irwin explains all this and shows graphs of RIN prices here.