Ethanol Industry Perspective on The Renewable Fuel Standard NCSL 2013 Legislative Summit Aug. 14, 2013 Geoff Cooper Renewable Fuels Association
About the Renewable Fuels Association (RFA) Trade association representing U.S. ethanol producers Mission is to Drive expanded production and use of Americanmade renewable fuels and bioproducts worldwide Founded in 1981 Offices in Washington D.C., St. Louis (MO), and Omaha (NE) Member producers include large agribusinesses as well as small farmer-owned co-ops Associate members include vendors, suppliers, supporters, etc.
Back to the Beginning: Why do we have the RFS in the first place? Diversify transportation fuel portfolio Reduce fossil fuel use (particularly imports) Reduce pressure on fuel prices Stimulate economic development and enhance farm income Reduce GHG emissions (& other pollutants) Are these policy objectives any less important today than they were in 2007 or 2005?
MILLION GALLONS RFS2: A 15-Year Energy Plan 36,000 32,000 28,000 24,000 20,000 Renewable Fuel Standard 2013: Year 6 of a 15-year plan 16,000 12,000 8,000 4,000 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Renewable Fuel Advanced Biofuel Cellulosic Biofuel Biomass-based Diesel Source: EPA Note: 2010-2013 RFS requirements based on actual RVOs; 2014-2022 based on statutory volumes
How Are We Doing So Far? Policy Goal Response Diversify fuels portfolio Ethanol now accounts for 10% of U.S. gasoline pool E15 now a legal fuel blend; E85 sales on the rise Reduce fossil fuel imports Petroleum import reliance: 41% in 2012 vs. 60% in 2005 U.S. now a net exporter of finished gasoline Economic development $43 billion in GDP from ethanol industry 380,000 jobs across all sectors Farm Income Record income for agriculture sector in 2012 Farm program payments significantly reduced GHG and other emissions CO2 emissions from gasoline/diesel lowest since 2002 Emissions falling faster than VMT CO and other criteria pollutants significantly reduced RFS can t claim all the credit for these developments, but it has absolutely played a significant role
Million Gallons Ethanol Production has Responded to RFS Policy Signals 2000 2001 Actual U.S. Ethanol Production Compared to RFS1 and RFS2 Requirements Production has always exceeded RFS targets, meaning excess RINs have been generated 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2012 drought curtailed production Actual Production RFS2 (EISA07) "Conventional" RFS (EPAct05) 2013 2014 2015 15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0
What s a RIN Credit? A RIN (Renewable Identification Number) is a serial-numbered credit that is generated when a gallon of ethanol is produced Oil companies get one RIN (for free) with each gallon of ethanol they purchase Today, a gallon of ethanol (w/rin attached) costs $0.75 less than a gallon of gasoline Oil companies turn in RINs to EPA at the end of the year to demonstrate they blended required amounts of renewable fuels RIN credits are tradable Example: Refiner A fails to blend the required amount of ethanol, and Refiner B blends more than required. Refiner A can buy excess RINs from Refiner B to cover balance of obligation RINs have a two-year compliance life RINs have no meaningful impact on retail gas prices Informa Economics study: Impact of RINs is 4/10 th of 1 cent/gallon at most RIN market is zero sum : refiners, blenders, marketers buying and selling RINs to and from each other
2013 is a Critical Year Gasoline demand flat as RFS2 volumes increase 2013 RFS2 requirements exceed E10 saturation, necessitating the use of higher-level ethanol blends such as E15 and E85 For first time since RFS was enacted, 2013 requirements compel a fundamental change in the behavior of obligated parties
MILLION GALLONS RFS2 and the so-called Blend Wall 36,000 Renewable Fuel Standard 32,000 28,000 24,000 20,000 16,000 12,000 8,000 E10 Blend Wall 4,000 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Renewable Fuel Advanced Biofuel Cellulosic Biofuel Biomass-based Diesel Source: EPA Note: 2010-2013 RFS requirements based on actual RVOs; 2014-2022 based on statutory volumes
The Blend Wall CAN Be Torn Down There ARE safe, legal and economical options E85/ flex fuel (E51-E83)in Flex Fuel Vehicles (FFVs) Mid-Level Blends (e.g. E16-E50) in FFVs E15 in MY2001 and newer vehicles (85% of VMT) But there are challenges that must be overcome E85 and MLBs must be priced competitively/ appropriately Lack of explicit E15 warranty coverage from autos for pre-my2012 is a perceived issue Disparate RVP treatment for E15 (restricts summer use) Some state regulations must be changed to allow E15
The Blend Wall CAN be Torn Down FFV numbers are large and growing (currently enough FFVs to use 8-9 bg of E85) RIN prices enabling attractive E85/MLB pricing at ~3,100 stations nationwide E15 has sold well for the ~25 retailers who have offered it since summer 2012 GM/Ford explicitly approve E15 in most MY12-13 vehicles. Add Volkswagen in MY14. Supreme Court will not hear Oil/Auto/Food appeal on E15 waiver case 2,000,000 Minnesota E85 Sales 1,500,000 1,000,000 500,000 Major retail chain initiates E85 pricing program at its ~60 Minnesota locations - Jan-13 Feb-13 Mar-13 Apr-13 May-13
$/Gallon RINs drive lower prices & increased demand for high ethanol blends like E85 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $- Prices for Ethanol, RBOB Gasoline, and RINs Ethanol w/rin RBOB Gasoline RIN Credit Ethanol - RIN A gallon of RBOB gasoline costs $3.00 A refiner or blender can buy a gallon of ethanol with a RIN for $2.20 The refiner or blender can separate the RIN and sell it for $0.80 Thus, the net cost of ethanol to the refiner/blender is $1.40 per gallon The low net cost of ethanol translates to lower prices for E85 at the pump
Oil industry quarterly earnings statements about RINs BP is quite well positioned in the short term. We're net long RINs. We've been able to trade into this spike recently and done quite well out of it. I'm very pleased about that. we are pretty well balanced. We do generate the majority of our credits by blending our biofuels directly. RINs are not real significant. Our retail and terminal networks generate more renewable credits than we require to meet our supply needs. We're generating around $20-million/month of excess RINs. The increase in Murphy s refining/marketing income was primarily due to better results for ethanol production operations and higher sales prices for ethanol renewable identification numbers (RINs) in the current period. Casey s most recent quarterly margins benefited from the sale of 10.3-million RINs for $4.8-million in the period. (47 cents apiece)
Oil industry claim: The RFS is inflexible and rigid Congress gave EPA tremendous administrative flexibility to manage the program EPA can waive part or all of the RFS if a petitioner demonstrates the program is causing economic harm EPA can adjust some RFS volume requirements annually if the fuels aren t available EPA has already signaled that it will likely adjust some 2014 requirements: EPA anticipates that in the 2014 proposed rule, we will propose adjustments to the 2014 volume requirements, including to both the advanced biofuel and total renewable fuel categories.
Oil industry claim: EPA requires us to blend fuels that don t exist Congress gave EPA authority to waive cellulosic biofuels requirements in the event the fuels aren t available in the marketplace EPA has waived the requirements every year EPA has enforced just 0.5% of the statutory cellulosic biofuel requirement since RFS2 began (99.5% has been effectively waived)
Oil industry claim: E15 could damage your car according to our study Oil-funded study results are at odds with results from DOE/EPA study program and other research E15 has been sold for over a year: ~25 stations in 6 states ~1.7-2 million gallons sold Usually offered at 3-5 cent/gal. discount to E10, despite higher octane (89) Roughly 40 million miles driven on E15 ZERO cases of misfueling in small engines or boats ZERO claims of engine damage, failure, problems, etc. ZERO claims of inferior vehicle performance
Jan-2000 May-2000 Sep-2000 Jan-2001 May-2001 Sep-2001 Jan-2002 May-2002 Sep-2002 Jan-2003 May-2003 Sep-2003 Jan-2004 May-2004 Sep-2004 Jan-2005 May-2005 Sep-2005 Jan-2006 May-2006 Sep-2006 Jan-2007 May-2007 Sep-2007 Jan-2008 May-2008 Sep-2008 Jan-2009 May-2009 Sep-2009 Jan-2010 May-2010 Sep-2010 Jan-2011 May-2011 Sep-2011 Jan-2012 May-2012 Sep-2012 Jan-2013 May-2013 Thousand Barrels Oil industry claim: Fracking has eliminated the need for the RFS Yes, U.S. crude oil production has increased in recent years U.S. Crude Oil Production U.S. Crude Oil Production 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0
Jan-2000 May-2000 Sep-2000 Jan-2001 May-2001 Sep-2001 Jan-2002 May-2002 Sep-2002 Jan-2003 May-2003 Sep-2003 Jan-2004 May-2004 Sep-2004 Jan-2005 May-2005 Sep-2005 Jan-2006 May-2006 Sep-2006 Jan-2007 May-2007 Sep-2007 Jan-2008 May-2008 Sep-2008 Jan-2009 May-2009 Sep-2009 Jan-2010 May-2010 Sep-2010 Jan-2011 May-2011 Sep-2011 Jan-2012 May-2012 Sep-2012 Jan-2013 May-2013 Thousand Barrels Oil industry claim: Fracking has eliminated the need for the RFS 350,000 but we still import 50% of our crude oil! U.S. Crude Oil Imports vs. Production U.S. Crude Oil Imports U.S. Crude Oil Production U.S. spending on crude oil imports: $1 billion per day 300,000 250,000 200,000 150,000 100,000 50,000 U.S. crude oil imports from Saudi Arabia hit 5- year high in 2012 0
Oil industry claim: Government should stay out of energy markets Ethanol tax incentive expired in 2011 There is no such thing as a free market in energy Yale/DBL Investors study: Oil & gas subsidies totaled nearly $450 billion from 1918-2009 Some tax incentive programs (e.g., percentage depletion allowance) used by O&G industry have been in place since 1913 Oil industry urged Congress to maintain subsidies in July 16 testimony: Without current law regarding intangible drilling costs (IDCs) and percentage depletion, producers would not be able to generate the capital necessary for the continued growth in domestic drilling and production activity. Big Oil believes there is a need to maintain support of the oil and gas industry
Year-on-Year Food Inflation Million Gallons Oil industry claim: The RFS increases food prices 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% U.S. Food Price Inflation and Ethanol Production 2013F 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 Ethanol Production (Right) Avg. since 2005 = 2.8% Avg. 1985-2004 = 3.1% YoY Food Inflation Trend (1980-2012) Annual Food Inflation Rate (Left) 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 U.S. ethanol uses less than 3% of world grain supply More grain available for food/feed than at any time in history World Bank: most of the food price increases are accounted for by crude oil prices (more than 50 percent) Crude oil prices mattered most during the recent boom period because they experienced the largest increase.
The Next Nine Years December 2012 article* in Biofuels: Global economic effects of the RFS2 policy are positive RFS2 increases U.S. GDP by 0.8% (~$120 B) in 2022 fossil energy prices, particularly oil, declined as biofuels replace increasing portions of liquid fuel use in the USA. Commodity prices increase less than 1% under RFS2 Slight increase (0.4%) in U.S. agricultural land use is more than offset by agricultural land use declines in ROW The transition to advanced biofuels is crucial to sustain the momentum in developing biofuels as alternatives to fossilbased liquid fuels. *Oladosu et al. (2012). Global economic effects of US biofuels policy and the potential contribution from advanced biofuels. Biofuels, 3(6):703-723.
Thank You Geoff Cooper Vice President, Research & Analysis Renewable Fuels Association 16024 Manchester Road, Suite 223 Ellisville, MO 63011 O: 636.594.2284 C: 636.399.4928