Why the blend wall may cost you two cents a gallon | Harvest Public Media

file:///C|/Documents%20and%20Settings/dkorotne/My%20Documents/The%20blendwall.htm[3/18/2013 4:09:08 PM]

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By: Grant Gerlock

Some economists think refiners will sell more

E85, gasoline comprised of 85 percent ethanol,

to meet ethanol quotas. (hansenbrian/Flickr)

Why the blend wall may cost you two cents a

gallon

Last week I reported on the

fact that as many as 30

ethanol plants have been

shut down over recent

months. As you might

expect, high corn prices

from the drought are part of

the reason, but as one

industry official told me, if

high corn prices were the

only problem many of those

plants would still be

running.

The problem, he said, is that many ethanol plants are stuck behind the

“blend wall,” a term used to describe the fact that the U.S. Renewable

Fuel Standard (RFS) mandates the use of more ethanol than can

actually be blended into the gasoline supply.

Now there’s another sign of the blend wall: Recently, RIN (Renewable

Identification Numbers) prices have skyrocketed.

Fuel refiners collect RINs, or blending credits, from each gallon of

ethanol they combine with gasoline. When refiners go beyond their

obligations excess RINs can be banked and redeemed to meet future

quotas, or the RINs can be bought and sold on the commodities

market.

Normally, RINs are worth mere pennies per gallon. But that changed in

recent weeks as RIN prices reached $1 per gallon for the first time.

Iowa State ag economist Bruce Babcock said economists like him

anticipated the jump in the RIN market. He thinks rising RIN prices are

actually a sign that the oil industry is working toward a blend wall

solution.

Ethanol groups see a path around the blend wall behind E15, gas

comprised of 15 percent ethanol instead of the current 10 percent. That

would use enough additional biofuel to meet the government mandate.

But only a small number of stations carry E15 at the pump.

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MAR. 12, 2013
Why the blend wall may cost you two cents a gallon | Harvest Public Media

file:///C|/Documents%20and%20Settings/dkorotne/My%20Documents/The%20blendwall.htm[3/18/2013 4:09:08 PM]

For their part, oil, auto and food interest groups are lobbying Congress

to dismantle the blend wall by repealing or cutting back the Renewable

Fuel Standard. But biofuels still have strong support from the Obama

administration.

Babcock, though, interprets high-priced RINs as a sign of something

different. He believes fuel refiners plan to scale the blend wall and

meet the RFS by selling more E85, 85 percent ethanol gas. He expects

fuel companies to heavily discount the price of E85 for drivers of Flex

Fuel Vehicles (FFVs).

“To sell E85, though, you have to have very cheap ethanol,” Babcock

said. “And to have very cheap ethanol you need very high RINs. So I

think that the high RIN prices are a recognition that we’re going to have

very inexpensive E85 sometime in 2014.”

Babcock estimates E85 prices could fall to just over $2 per gallon, a

dollar or more less than typical E85 prices today. However, Babcock

said, fuel companies may cover any losses by charging other drivers 2

or 3 cents more for regular E10.

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