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What the finalized Renewable Fuel Standard renewable volume obligations mean to you and corn demand going forward

Jacqui Fatka, Policy editor

January 4, 2016

4 Min Read

On the court-mandated deadline of Nov. 30, the Environmental Protection Agency revealed final renewable fuel targets for 2015 and 2016 under the federal Renewable Fuel Standard.

As in previous years, it is likely the EPA decision will be challenged in federal court, possibly this time by both the petroleum and the ethanol industries, as both had woes with the final targets.

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Janet McCabe, EPA acting administrator for the office of air and radiation, said the levels provide ambitious but achievable growth, especially in advanced biofuel levels. Levels do go beyond the "blend wall" levels, but she said the agency had to strike a balance of the law's intent to increase biofuels but also takes into account real world circumstances that have affected the advancement of next generation fuels.

The final levels were above the previously proposed levels, but still below the levels called for by Congress in the law. The original corn-based ethanol targets under the RFS call for 15.0 billion gallons in 2015 and 2016. The EPA finalized these targets at 14.05 billion gallons for 2015 and 14.5 billion gallons for 2016.

With the announcement, EPA is two years late in setting the 2014 volume, thus setting the mandate retroactively, after twice increasing the initial proposed volume levels. The first proposed volume was issued in November 2013 set at 13 billion gallons. A revised proposal was issued in May 2015, raising the implied corn ethanol volume to 13.25 billion gallons.

The final rule retroactively sets the 2014 compliance volume at 13.61 billion gallons. Additionally, the agency is one year late in setting the 2015 volume, also effectively setting this year's standard retroactively and at 14.05 billion gallons, which is 650 million gallons more than the 13.4 billion gallon volume initially proposed in May.

Moreover, the 2016 volume has been increased from the 14 billion gallons provided by the May proposal to 14.5 billion gallons, a level that will break the 10% blend wall. 

Under the new RFS rule, biomass-based diesel volumes would grow to 1.9 billion gallons in 2016 and 2 billion gallons in 2017. The new standards reflect modest but meaningful growth over recent years when the U.S. market has hovered around 1.8 billion gallons annually.

The National Biodiesel Board had requested more aggressive growth to a biodiesel standard of 2.7 billion gallons by 2017, along with additional growth in the overall Advanced Biofuel category. To date, biodiesel has been the only domestically-produced, commercial-scaled advanced biofuel.

"Total advanced biofuels targets have been met because of biodiesel's success with a doubling of production in a five-year period," said Joe Jobe, NBB chief executive officer. He said the industry goal is to double that again in the next five years.

Demand impact >>

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Demand impact
Scott Irwin, ag economist at the University of Illinois, projects the numbers are "moderately positive" for corn use for ethanol as it sets the EPA mandates through at least 2016 relatively high; this protects corn use for ethanol during a period where ethanol prices may be at a premium relative to gasoline.

Irwin's colleague, Darrel Good, also an ag economist at the University of Illinois, shared in an outlook article that domestic conventional ethanol consumption in 2016 could be about 200 million gallons larger than projected, requiring an additional 70 million bushels of feedstock.

"Still, feedstock consumption would be only slightly larger than in 2015. A larger increase in feedstock consumption will require some combination of a larger increase in domestic gasoline consumption, larger consumption of higher ethanol blends, and an increase in ethanol exports," Good wrote.

Irwin adds it also opens up the possibility of corn ethanol competing for the amount of the ethanol mandates above the E10 blend wall in the form of E85 or E15.

The final numbers are also "very positive for soybean oil and other vegetable oils and biodiesel as my view is that biodiesel will have to do the majority of the backfilling of the ethanol mandate above the E10 blend wall, at least for the next couple of years," Irwin says.  "I am not optimistic about a ramp up in E85 use very quickly due to a variety of constraints. This is a point of sharp debate among agricultural economists."

About the Author(s)

Jacqui Fatka

Policy editor, Farm Futures

Jacqui Fatka grew up on a diversified livestock and grain farm in southwest Iowa and graduated from Iowa State University with a bachelor’s degree in journalism and mass communications, with a minor in agriculture education, in 2003. She’s been writing for agricultural audiences ever since. In college, she interned with Wallaces Farmer and cultivated her love of ag policy during an internship with the Iowa Pork Producers Association, working in Sen. Chuck Grassley’s Capitol Hill press office. In 2003, she started full time for Farm Progress companies’ state and regional publications as the e-content editor, and became Farm Futures’ policy editor in 2004. A few years later, she began covering grain and biofuels markets for the weekly newspaper Feedstuffs. As the current policy editor for Farm Progress, she covers the ongoing developments in ag policy, trade, regulations and court rulings. Fatka also serves as the interim executive secretary-treasurer for the North American Agricultural Journalists. She lives on a small acreage in central Ohio with her husband and three children.

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