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] LOG IN or REGISTER

ABOUT US

SUPPORT US AND PLEDGE TODAY



### HOME FOOD FUEL FIELD PODCAST BLOG HARVEST NETWORK

RESOURCES

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. SHARE ON FACEBOOK SHARE ON TWITTER SHARE ON EMAIL MAR. 12, 2013Why 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.

Sorry, the browser you are using is not currently supported. To use the comments, Disqus recommends the following browsers:
Firefox Chrome Internet Explorer 9 Safari

More like this: Ethanol plants caught in 'blend wall' Why organic food may not be healthier for you Blender pumps may be coming to a gas station near you Suddenly, corn costs more. Why not corn flakes? Food industry's green efforts may hit price wall

Home Food Fuel Field Podcast Blog Partner Stations