Ag Notes

Trump’s Tax Reform May Have Already Fixed the RFS RINs Issue


a conversation with ILLINOIS Ag Economist Scott Irwin

Next Tuesday President Trump will meet with Senators Grassley, Ernst, and Cruz to discuss how ethanol RINs are related to a refinery’s bankruptcy in Pennsylvania. Secretary of Agriculture Perdue and EPA Administrator Pruitt should be in the room, too. They’re hoping to work out a fix for the oil industry. However, as you’ll hear, the gap isn’t that big anymore and the Trump tax cut may solve the issue.

read farmdocDaily article

by Scott Irwin, University of Illinois
excerpt - Implications

The political battle over the RFS has centered on the high price of ethanol RIN credits that are used to comply with the RFS conventional ethanol mandate. Independent “merchant” refiners claim that large RINs costs have materially harmed their profitability. We show in this article that high D6 RINs prices can be directly traced to conventional ethanol mandates that exceed the E10 blend wall, creating a gap that has to be filled by biodiesel.

When biodiesel takes on the role of the “marginal gallon” for filling the conventional ethanol mandate, this forces the price of a D6 ethanol RINs to equal the much higher price of a D4 biodiesel RINs. This is essentially the story of the RFS and the resulting political battles since 2012. What has received little notice is how rapidly the conventional ethanol gap has shrunk since 2014 due to the combination of: (1) the crash in crude oil prices stimulating gasoline consumption, and (2) an improving economy. For example, the latest ethanol use estimate from the EIA for 2019 implies a conventional ethanol gap of a little less than 300 million gallons.

This gap is so small that an increase in projected ethanol use for 2019 of just two percent would erase the gap completely. This means it is not out of the realm of possibility for D6 RINs prices to fall back their pre–2013 level of just a few cents without making any changes to the RFS. In this sense, “fixing” the RFS is getting easier and easier.