This week the Congressional Budget Office (CBO) released a report, "The Renewable Fuel Standard: Issues for 2014 and Beyond." In the analysis, CBO looks at the possible impacts on emissions, fuel and food prices under three different scenarios for renewable fuel volumes. The three scenarios considered by CBO are the original 2017 volumes as laid out by the 2007 Energy Independence and Security Act (EISA), a 2017 scenario which is consistent with the 2014 EPA reduced proposal, and the third scenario being the most unlikely - a complete repeal.
The report contains a lot of careful predictions regarding the future of renewable fuels, but the most discussed part of the report so far is the impact on E10 gasoline prices under various scenarios. CBO predicts that if the original volumes under EISA are maintained, E10 gasoline prices would increase between 13 and 26 cents per gallon, or 4 to 9 percent by 2017. What's received much less attention is the fact that the CBO concludes that the full RFS requirements would cause E85 prices to decline between 91 cents and $1.27 per gallon, or 37 to 51 percent in the same time period. While these price projections for E85 mean the RFS would be meeting its goal – cost-competitive alternatives to petroleum, the CBO forecasts leave out a huge piece of the renewable fuels equation, mid-level (E15 to E30) blends. Instead, these price predictions are based on the assumption that in 2017, E10 will still be the dominant ethanol fuel, regardless of the total volume of renewable fuels. This would cause a glut of ethanol and resulting in skyrocketing compliance costs, since more refiners would be forced to purchase Renewable Identification Numbers (RINs) in order to comply with the law.
An ‘E10 only’ future ignores the possibilities unlocked by mid-blends. While FlexFuel Vehicle (FFV) technology is needed for consumers to use E85, E15 is a virtually untapped compliance strategy. Today, 80 percent of the vehicles on the road are able to fill up with E15 fuels, with the EPA approving E15 use in 2001 model year vehicles and beyond. Additionally, at least 12 million FFVs are on the road today, but fewer than 15 percent of them fill up with E85. That’s not necessarily by choice either since only 2 percent of U.S. gas stations offer E85. What’s needed is a cohesive infrastructure investment to bring mid- and higher-blends to market, to allow consumers true choice at the pump.
EESI will be conducting a more thorough analysis of the CBO report – stay tuned.
For more information see:
The Renewable Fuel Standard: Issues for 2014 and Beyond, Congressional Budget Office