Ethanol Demand Destruction Is Fake News

Ethanol Demand Destruction Is Fake News
AP Photo/Charlie Riedel

Once again, biofuel lobbyists are crying “ethanol demand destruction,” and once again, their claims are false.

The biofuel lobbyists allege that the percentage of ethanol blended in the fuel supply, called the “blend rate,” has diminished due to retroactive Renewable Fuel Standard (RFS) waivers for small refiners granted by the Environmental Protection Agency (EPA) and falling costs for the program’s compliance credits. Government agencies, biofuel industry executives, experts, and independent industry analysts, however, all agree that domestic biofuel use is actually increasing. The facts continue to show the RFS can be reformed in a manner that significantly lowers the program costs without adversely impacting biofuel consumption.

More specifically, the Renewable Fuels Association (RFA) claims that the small refiner waivers have led to a large volume of RFS compliance credits, called Renewable Identification Numbers or RINs, being put on the market. And this, supposedly, causes refiners to blend less biofuel.

There are several flaws with this analysis. 

RFA relies on a month-to-month comparison of U.S. Energy Information Administration (EIA) Monthly Energy Review (MER) data. But the same federal agency also reports related data in its Petroleum Supply Monthly (PSM) that tell a different story.

The PSM shows February 2018 had a higher blend rate than all of last year (10.11 percent). And, as RFA admits, it also shows a May blend rate of 9.94 percent — higher than the 9.88 percent blend rate in May 2017. In fact, EIA recently released the MER data for May showing a 10.32 percent blend rate, higher than the MER derived blend rate from May of 2017 and the highest blend rate since January of this year. 

Of course, data analysis is always more accurate when studied over long periods of time. For the first five months of the year (the time frame for which we have the most up to date and consistent EIA data), the data reveal that the average 2018 blend rate using the EIA data set is 10.03 percent, compared to 9.97 percent over the same period in 2017. In other words, when comparing the blend rate year to year, the numbers are up slightly. (PSM data tells the same story: 9.89 percent in 2018 versus 9.86 percent in 2017).

But there are other data sets that help provide a more complete view of the ethanol landscape. Since the mandate is in physical gallons, it is instructive to look at actual physical ethanol consumption. The same data RFA uses in its analysis show physical ethanol consumption over the first five months of 2018 is 1.12 million barrels (approximately 47 million gallons) higher than the same period last year. EIA’s latest Short Term Energy Outlook (STEO), released at the beginning of August, also indicates an uptick in ethanol blending from its previous estimate, while projecting that the amount of ethanol blended into gasoline in 2018 will be approximately 153 million gallons more than in 2017.

EPA data provide additional insight, indicating more than 8.8 billion net conventional ethanol RINs have been generated via ethanol production through the first half of this year. That number is over 100 million gallons above last year’s pace at this time. RIN generation has increased throughout the year despite the fact that ethanol exports have dropped significantly since January, implying export reconciliation will not likely support the demand destruction argument. 

U.S. Department of Agriculture’s Grain Crushings and Co-Products Production figures also indicate the ethanol industry seems to be doing well. The data show the quantity of corn consumed for fuel ethanol has experienced a year-on-year increase every month this year, from 1 percent in January to a 6 percent increase in July. 

Statements from biofuel executives and independent market experts all back up these various data sets. Major biofuel companies Green Plains and ADM projected increased ethanol production and domestic demand for the rest of the year. The Andersons, Inc., CEO Pat Bowe stated small refiner waivers and low RIN prices, “have not yet had a significant impact on domestic blending due to high gasoline prices and low corn ethanol prices.” Independent experts at a recent Congressional hearing noted that the U.S. is experiencing record domestic ethanol consumption and that small refiner waivers are not adversely impacting biofuel demand. 

The data show that there is no evidence of domestic biofuel demand destruction from RFS waivers to small refiners. Biofuel demand is robust and increasing, likely as a result of what RFA recognizes in its own analysis: the low price of ethanol relative to gasoline. As numerous studies have indicated, ethanol blending will remain economic, even in the absence of a mandate. These facts strongly suggest that both Congress and the administration can take action to control the cost of the RFS and RINs in a manner that protects refining jobs, without adversely impacting the biofuel sector. 

Joanne Shore served as Chief Industry Analyst for AFPM until late 2016. She previously served as Senior Operations Research Analyst in the Office of Policy and International Affairs, Department of Energy for a year, and before that as Team Leader and Lead Operations Research Analyst for the U.S. Energy Information Administration for 12 years.

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