WASHINGTON — A new analysis issued by University of Illinois economist Scott Irwin finds that the impact of a 10-cent cap on RIN prices, as proposed by Texas Sen. Ted Cruz, would be “catastrophic” for the Renewable Fuel Standard (RFS) and “would have large impacts on biofuels in the U.S.” Specifically, such a price cap would serve as the mortar in the oil industry’s attempt to rebuild the “blend wall.” Irwin finds that “…the RINs price cap would remove all incentives for blending E15 and E85” and would be equivalent to “waiving…the conventional ethanol mandate down to the level of the E10 blend wall.”
Meanwhile, the analysis finds that if “…ethanol usage could be pushed up just a few hundred million gallons, …D6 [conventional biofuel RIN] prices would naturally fall to just a few cents. An RVP waiver for E15 might just do the trick.” Still, Irwin finds that the biofuel and agricultural industries would be the losers in any “deal” that exchanges an E15 RVP waiver for a 10-cent RIN price cap. “Agricultural and biofuels interests will find this tradeoff distinctly unappealing, while refining interests will tend to have just the opposite reaction,” he said.
Addressing the myth that RIN prices can somehow be capped without destroying the efficacy of the RFS program, Irwin writes, “…the RINs price and the mandate level are directly related–one cannot be changed without changing the other. Stated differently, reductions in the volume mandates will reduce the RINs price, or reductions in the RINs price will reduce the volume produced, effectively reducing the mandate.”
Reacting to the new analysis, Renewable Fuels Association (RFA) President and CEO Bob Dinneen said, “This study confirms that a demand-destroying 10-cent RIN price cap is absolutely the wrong policy for agriculture and consumers. We agree with Prof. Irwin that such a cap on RIN prices would be disastrous for the RFS and for jobs in the agricultural and manufacturing sectors. As we have stated repeatedly, and as this study underscores, the quickest way to lower RIN prices is to establish RVP parity for E15. That is the only ‘win-win’ solution that upholds the spirit and intent of the RFS and at the same time takes pressure off of RIN prices. We hope the administration closely examines this new analysis as it hosts ongoing discussions on this issue.”
The new analysis is available here.