1

An Assessment of the Impact of RIN Prices on the Retail Price of E85

Dallas Burkholder, Office of Transportation and Air Quality, US EPA

November 2015

Executive Summary

On June 10, 2015 EPA published proposed volume standards for 2014 – 2016 that 

envisioned reductions from statutory target volumes for total renewable fuel, advanced 

biofuel, and cellulosic biofuel. The proposed reductions for advanced and total renewable 

fuel were based on the use of both the cellulosic and general waiver authorities, including 

in the latter case a proposed determination that there would be an “inadequate domestic 

supply” of renewable fuels to meet the statutory target volumes. EPA proposed to define 

“inadequate domestic supply” as including an assessment of both the potential to produce 

or import renewable fuel and the ability of the market to supply the renewable fuels to 

vehicles that can consume them. In comments on the proposed rule many renewable fuel 

supporters claimed that EPA had significantly under-estimated the quantity of renewable 

fuel that can be supplied to vehicles 2016. In particular many stated that the potential for 

E85 sales volumes was far greater than EPA had considered in our table of potential 

scenarios. These parties often cited the ability for higher RIN prices to enable a reduction in

the retail price of E85, and for the lowered retail price of E85 to subsequently increase the 

sales volumes of E85.

The purpose of this document is to explore the available data to evaluate the impact that 

RIN prices have on the price of E85. This document will focus on available data from 2013, 

when D6 RIN prices first rose above a few cents per gallon, through the most recent 

available data (July 2015). In reviewing the available data we conclude that E85 

wholesalers and/or retail station operators appear to be seeking to maximize their profits 

from E85 sales, rather than seeking to maximize E85 sales volumes. The result is that retail 

E85 prices only partially reflect the potential discount enabled by higher RIN prices. This is 

consistent with what would be expected in an E85 marketplace that is largely noncompetitive. The impact that the retail price of E85 has on the sales volumes of E85 has 

also been evaluated by EPA in a separate document.1

 

1

“Correlating E85 consumption volumes with E85 price,” memorandum from David Korotney to docket EPA-HQOAR-2015-0111
2

Background

E85 is a transportation fuel consisting of 51% - 83% ethanol, with the remainder 

comprised of gasoline and gasoline blendstocks. There are currently approximately 3,000 

fuel retail stations in the United States that sell E85,

2 and approximately 14.9 million 

flexible fuel vehicles (FFVs) that can operate on the fuel.3 While this represents only a 

portion of all of the refueling stations (2%) and vehicles (6.3%) nationwide, it nevertheless 

represents a significant opportunity for the consumption of E85. For example, if on average 

each FFV refueled on E85 25% of the time, E85 sales could exceed 5 billion gallons per 

year.4

Despite this potential for significant volumes of E85 sales, actual sales are estimated to be 

approximately 150 million gallons in 2014.5 There are many reasons for the large gap 

between the theoretical maximum sales volume of E85 and the actual volume of E85 sold, 

including limited access to refueling stations offering E85, lack of awareness on the part of 

FFV owners that they have an FFV that can operate on E85, and the need for a higher 

refueling frequency due to lower fuel economy for vehicles when operating on E85. We 

believe that a significant challenge to increasing sales of E85 is that fuel costs are generally 

higher for FFV owners purchasing E85vs. E10.6 Several parties have suggested that higher 

RIN prices are likely to result in lower retail prices for E85, which will in turn lead to 

increased sales volume of E85 through existing infrastructure, as well as the expansion of 

E85 infrastructure. This document explains the mechanism by which higher RIN prices can 

lead to lower E85 prices and examines the available RIN price and E85 retail pricing data to 

assess the extent to which these theoretical dynamics are reflected in the current market. 

The connection between E85 retail price and sales volumes is explored by EPA in a 

separate document.7

RIN Prices and E85 Retail Prices: The Theory

 

2 Data from AFDC Alternative Fueling Station Locator. Includes both public and private E85 stations. Accessed 

November 6, 2015. 

<http://www.afdc.energy.gov/locator/stations/results?utf8=%E2%9C%93&location=&fuel=E85&private=false&pri

vate=true&planned=false&owner=all&payment=all&radius=false&radius_miles=5&e85_has_blender_pump=false>

3 Sum of the Ethanol-Flex Fuel ICE Light-Duty Vehicle Stock (Cars and Light Trucks) from the Energy Information 

Administration’s 2015 Annual Energy Outlook

4

“E85: A Market Performance Analysis and Forecast” Fuels Institute

5

“Estimating E85 Consumption in 2013 and 2014,” memorandum from Dallas Burkholder to docket EPA-HQOAR-2015-0111

6 While E85 is generally offered at a lower price per gallon than E10, the lower per gallon price is generally 

insufficient to make up for the approximately 22% lower energy content of a gallon of E85 relative to a gallon of 

E10.

7

“Correlating E85 consumption volumes with E85 price,” memorandum from David Korotney to docket EPA-HQOAR-2015-0111
3

In theory, high RIN prices can reduce the price of E85 at retail by effectively reducing the 

cost of the ethanol component of the fuel. RINs are generated by ethanol producers and 

assigned to ethanol produced at registered facilities using approved renewable fuel 

production pathways. The RINs are initially sold along with the ethanol, but may be 

separated by obligated parties that purchase the ethanol, or by blenders who purchase 

ethanol and blend it with petroleum products to produce transportation fuel, such as E85 

or E10. If, for example, a fuel blender purchases a gallon of ethanol with an attached RIN for 

$2.00, separates the RIN (after blending the ethanol to produce a transportation fuel) and 

sells the RIN to an obligated party for $0.05 the net cost of the liquid ethanol without a RIN 

is $1.95 per gallon. If, however, the blender sells the RIN for $1.00 the net cost of the liquid 

ethanol without the RIN is $1.00 per gallon. By lowering the net cost of the liquid ethanol to 

the fuel blender, higher RIN prices (or RIN value) can potentially be “passed through” to 

consumers, reducing the cost of blended fuels that contain ethanol. The higher the ethanol 

content of the transportation fuel, the greater the potential discount enabled by high RIN 

prices. Papers published by Philip Verleger Jr.8 and Bruce Babcock and Sebastien Pouliot9

discussed this mechanism in their work examining the impact of higher RIN prices on E85 

retail prices and sales volumes.

EPA agrees that in theory passing through the RIN value to retail pricing should lead to 

lower retail prices for E85. The question examined in this document is the extent to which 

the pass-through of RIN value occurs and can be observed in the retail price of E85. This is 

a significant issue, as it is one of the primary ways the RFS program can incentivize the 

increasing use of renewable fuels. In order for the RIN price to impact the retail price of 

E85, the value of the RIN, either in whole or in part, must be passed along from the fuel 

blender to the retail station and ultimately to the FFV owner. One of the key assumptions 

made in both the Verleger and Babcock and Pouliot papers is that the entire RIN value is 

reflected in the retail price of E85. In his paper, Verleger states that “we will assume that 

100% of RIN costs are passed-through from refiners to blenders, and that blenders pass 

through 100% of the value of RINs down to retail customers. That is, we assume constant 

margins throughout the chain of transactions.”10 Similarly, Babcock and Pouliot make the 

assumption that margins remain constant as RIN prices change, and therefore the fully RIN 

value is passed through stating that “the markup between wholesale and retail fuel prices 

is a constant 75 cents per gallon...we make the further assumption that the wholesale price 

[of E85] equals the weighted average of wholesale ethanol and gasoline prices.”11

Our analysis focused on the validity of these assumptions. In a highly competitive market,

where E85 wholesalers (e.g., ethanol production facilities and terminals) and retailers are 

in direct competition with one another, we would expect nearly all of the RIN value to be 

reflected in the retail price of E85 as competing businesses seek to offer low cost products 

to attract customers. This would be consistent with the papers cited above, as well as our 

 

8 Verleger, Philip K., Jr. “The Renewable Fuel Standard: How Markets Can Knock Down Walls.” January 2014.

9 Babcock, Bruce A. and Sebastien Pouliot. Feasibility and Cost of Increasing US Ethanol Consumption Beyond 

E10. Card Policy Briefs, January 2014. 14-PB 17.

10 Verleger, Philip K., Jr. “The Renewable Fuel Standard: How Markets Can Knock Down Walls.” January 2014.

11 Babcock, Bruce A. and Sebastien Pouliot. Feasibility and Cost of Increasing US Ethanol Consumption Beyond 

E10. Card Policy Briefs, January 2014. 14-PB 17.
4

observations in the highly competitive retail gasoline (E10) market. However, even if we 

recognize that such a situation might occur in the future, this is not necessarily the case in 

the E85 market today. If, contrary to the assumptions made in these papers, higher RIN 

prices primarily lead to the opportunity for increased per gallon profits for the fuel 

blenders or retail station owners then any analyses assuming the full pass through of the 

RIN value would not accurately reflect the current marketplace. In this case the RIN price 

would have a much lesser, or in an extreme case where the entire RIN value is withheld as 

profit, no impact on the retail price of E85, and thus little to no impact on E85 sales 

volumes.

RIN Prices and E85 Retail Prices: Observed Impacts

To better understand the relationship between RIN prices and the retail price of E85, EPA 

examined the available information from January 2013, when D6 RIN prices first rose 

above a few cents per gallon, through July 2015. EPA used pricing data for E85 and E10 

from E85prices.com. While the pricing data reported on E85prices.com is user reported, 

rather than the result of a comprehensive survey or data collection effort, it was the best 

pricing data available to EPA at the time of this assessment, and has proven to be consistent 

with other data sets.12 EPA used D6 RIN prices as reported by OPIS. Using this information 

we began by plotting the monthly average D6 RIN price versus the monthly average retail 

E85 price and the monthly average discount of E85 relative to E10 (Figure 1 and Figure 2 

below).

 

12

“Correlating E85 consumption volumes with E85 price,” memorandum from David Korotney to docket EPA-HQOAR-2015-0111
5

Figure 1

D6 RIN Price vs. E85 Retail Price

January 2013 – July 2015

Figure 2

D6 RIN Price vs. E85 Discount Relative to E10

January 2013 – July 2015
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Figure 1 shows that from January 2013 through July 2015, for a dollar increase in RIN price 

the retail price of E85 decreased by approximately $0.21 instead of decreasing by $0.74

(assuming E85 contains 74% ethanol on average) as would be expected if the entire RIN 

value was passed along to the consumer and all other factors were held constant. From this 

data alone we cannot necessarily conclude that increasing RIN prices caused a decrease in 

E85 prices, or conversely that RIN prices had only a limited impact on E85 retail prices, 

since RIN prices are just one of many factors that impact the retail price of E85. In addition, 

the limited data available and the poor correlation indicated by the very low R2 value 

indicate that these data were far from conclusive. Finally, it is likely that when both E10 

and E85 fuels are available for purchase, FFV owners will make the decision of which fuel 

to buy based on the relative price of E85 compared to E10 rather than the absolute price of 

E85.

Figure 2 explores the relationship between E85 and E10 retail prices with varying RIN 

prices. If the RIN price is being passed through to customers, as was assumed in the 

Verleger and Babcock and Pouliot studies, we would expect to see a large and increasing 

discount for E85 relative to E10 as the RIN price increased if all other factors were 

constant. When assessing these data we do see a weak correlation between the RIN price 

and the discount for E85 relative to E10 at the retail level, but it is smaller than would be 

expected if the full value of the D6 RIN was being passed through. These data suggest that 

for a dollar increase in RIN price the percent discount for the retail price of E85 relative to 

E10 increases by approximately 5%, or about $0.15 per gallon relative to E10. Again, 

however, the data is limited to the observed prices and market conditions that varied over 

the two and a half years for which data is available, and under other conditions this 

correlation may change. It is also not possible to use this correlation to determine how 

much of the RIN value is being “passed on” to consumers, as this correlation does not 

attempt to control for changes in the prices of ethanol or gasoline. While the correlation 

between the D6 RIN price and the E85 discount relative to E10 is better than the 

correlation between the D6 RIN price and the average retail price of E85, it is still a 

relatively poor correlation.

To take a more comprehensive look at the question of whether or not RIN prices are passed 

through to consumers of E85 through lower net ethanol costs we must consider not only 

RIN prices and E85 retail prices, but also the price of ethanol and gasoline to the E85 

blenders. This is because a decrease in the cost of gasoline relative to the cost of ethanol

could potentially mask any reduction in the retail price of E85 that may otherwise have 

resulted from an increasing RIN price. Similarly, a decrease in the price of ethanol (with an 

assigned RIN) in conjunction with an increase in the D6 RIN price may amplify the impact 

that we would expect to observe on the retail price of E85 due to the rising D6 RIN price 

absent the change in ethanol price. To examine this issue we first determined the cost of 

producing E85 from ethanol and gasoline available at the terminal using the equation 

below.

E85COP = (EP – RINP) * 0.71 + GP * 0.29
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Where:

E85COP = E85 Cost of Production

EP = Wholesale price of ethanol (USDA reported Iowa price)

RINP = D6 RIN price (Reported by OPIS)

GP = Gasoline (E10) Price (National average wholesale price; reported by 

EIA for regular gasoline)

In this equation, E85 is assumed to contain 74% ethanol and 26% gasoline,

13 and is 

assumed to be produced by combining 0.71gallons of ethanol and 0.29 gallons of gasoline 

(E10).

14

We then subtracted the cost of production of E85 from the observed E85 retail price for 

each month from January 2013 through July 2015. This gives us the monthly average markup between the cost of production of E85 and the retail price. This value is not necessarily 

equal to per gallon profit, as it also includes the cost of blending and transporting the E85, 

any taxes on E85, and margin to cover the overhead of the fuel blender and retailer

(including the potentially significant costs to upgrade their equipment to be compatible 

with E85). Nevertheless, if the assumptions made in the two papers referenced above were 

valid, we would not expect the mark-up to vary with the RIN value if the value of the RIN 

was being passed through to the E85 consumers. We plotted the D6 RIN price against the 

E85 retail mark-up (E85 retail price – E85 cost of production). This plot is shown in Figure 

3 below.

 

13 The national average ethanol content for E85, as estimated by EIA, is 74%. In some cases natural gasoline may 

have been used to as a petroleum blendstock to produce E85, but in the absence of such data we have assumed that 

the E85 was produced using gasoline and/or gasoline blendstock.

14 While it may be a more common practice to produce E85 by blending pure gasoline (E0) and ethanol rather than 

ethanol and E10, as this calculation assumes, nationwide pricing for pure gasoline (E0) was not available. We 

believe that any error introduced by using the E10 price and adjusting for the number of RINs that would be 

generated in doing so is very small.
8

Figure 3

RIN Price vs. E85 Retail Mark-Upa

January 2013 – July 2015

aD6 RIN prices and E85 retail prices from OPIS. E85 cost of production calculated using the 

equation above.

As a control case, we also plotted the D6 RIN price versus the E10 retail mark-up in 

Figure 4 below. This was done to explore whether there might be factors unrelated to, but 

correlated with, the D6 RIN price over the observed time period, for which we are not 

accounting. As expected, we found no correlation between the D6 RIN price and the E10 

retail mark-up.
9

Figure 4

RIN Price vs. E10 Retail Mark-Up

January 2013 – July 2015

While the correlation between the E85 mark-up and the RIN price shown in Figure 3 is still 

fairly low, it is significantly stronger than the previous plots, and a discernable trend can be 

seen. These data reveal that, contrary to the assumptions made by Verleger and Babcock 

and Pouliot, there was a positive correlation between RIN prices and the retail mark-up of 

E85 in the observed time period. This indicates that the full value of the RIN is not being 

passed through to E85 consumers. For a dollar increase in the D6 RIN price, the difference 

between the cost of production of a gallon of E85 and the average retail price (the retailer 

mark-up) increased by approximately $0.40. To state this another way, for every dollar 

increase in RIN value of a gallon of E8515 the average retail price of a gallon of E85 

decreases by approximately $0.44 while the retail mark-up increased by $0.56. The price 

data from January 2013 through July 2015 show that, on average, only 44% of the RIN 

value was being passed along to consumers rather than the 100% assumed by Verleger and 

Babcock and Pouliot. With an average D6 RIN price of $0.56 from January 2013 through 

July 2015, the average RIN value per gallon of E85 sold was $0.40 (71% of the D6 RIN 

price). Assuming, based on the historic data, that only 44% of the RIN value is passed on 

from wholesale to the customer, then on average only $0.18 out of the $0.40 RIN value per

gallon of E85 (based on the approximate average price of 2015 D6 RINs) made its way to 

FFV owners who purchase E85. This represents a discount of E85 at retail of 7% per gallon 

attributable to the RIN price. This is well short of the 16% discount that could have been 

 

15 A $1 increase in the RIN value of a gallon of E85 would require a $1.41 increase in the cost of a D6 RIN since 

blending a gallon of E85 from 0.71 gallons of ethanol and 0.29 gallons of E10 allows the blender to separate 0.71 

D6 RINs
10

realized if the full value of the RIN was passed through to consumers and reflected in the 

retail price of E85.

The implication of this data is that somewhere along the E85 distribution chain, either at 

the wholesale or retail level, or perhaps a combination of both, those who sell E85 are 

increasing their profits, perhaps as a means to pay off their infrastructure investments,

rather than passing along the full value of the RIN to consumers. In the time period 

observed the 56% of the RIN value that was not passed along to consumers was withheld 

by some combination of these parties.16 As discussed in more detail below, this behavior is 

not unexpected. The primary motivation for E85 wholesalers and retailers is to maximize 

their profit, not to maximize the quantity of ethanol sold as transportation fuel by passing 

along the full RIN value to their customers. It therefore makes sense for the wholesalers 

and retailers to pass along the RIN value only to the extent that doing so increases sales 

volumes of E85 to a sufficient degree to offset the higher per gallon profit margin that 

would otherwise be realized if the entire RIN value were withheld as profit. It is uncertain 

how these parties would act if RIN prices were to increase beyond the levels observed, 

whether they would withhold more or less of the RIN value in seeking to maximize their 

profit. The data strongly suggest, however, that a significant portion of this RIN value is 

being, and likely will continue to be, withheld by E85 wholesalers and retailers in order to 

maximize their profits. The E85 retail price point that maximizes profits for individual 

retailers will vary dramatically, depending on the number of FFVs in their area, the number 

of competing stations selling E85, their relationship to the E85 blender, and many other 

factors.

The Challenge of Non-Competitive Markets

While the observed data from January 2013 through July 2015 are inconsistent with the 

assumption of complete pass through of the RIN value to E85 retail price, they are 

consistent with what one would expect in a non-competitive market. At the majority of 

terminals today, E85 is still a low volume specialty product. These terminals are currently 

optimized to blend and distribute E10. Producing increasing volumes of E85 at these 

terminals, while technically possible, may result in longer fuel loading times, require the 

installation of new fuel storage tanks and blending equipment, the repurposing of existing 

storage tanks from other profit making purposes, and the replacement of seals and valves

to be compatible with fuels containing higher levels of ethanol. These costs and challenges, 

combined with the low demand for E85, have historically limited the expansion of E85 at 

terminals and resulted in a generally non-competitive market for E85 at the terminal level.

A similarly non-competitive situation exists at the retail level. While the in use fleet is 

estimated to contain 14.2 million FFVs in 2014, they still represent only 6.3% of the 

 

16 EPA is aware of retail stations that are passing on all, or nearly all of the RIN value to their E85 customers in the 

retail price of the E85 they sell. These retailers often have agreements with E85 wholesalers, which in many cases 

are ethanol producers, to purchase wholesale E85 at a favorable price in return for an agreement sell E85 at an 

agreed upon discount relative to E10. This practice is not currently widespread, however, and these stations are 

included in the national average data used in this assessment.
11

passenger vehicle and light truck fleet. Given that the cost of adding a new E85 refueling 

system (potentially including underground storage tank) can cost anywhere from tens of 

thousands of dollars to over $100,00017 or more, any retailer must be able to project a 

significant profit from sales of E85 to the relatively small number of FFV owners to justify 

such an investment. Consequently, E85 is currently only offered at approximately 2% of all 

retail fueling stations nationwide. With few exceptions, the fueling stations that offer E85 

are located at a significant distance from each other so as to avoid competition with one 

another. As a result, potential customers of E85 fuel are generally not able to seek out the 

lowest price for E85 in the same way that they would for more widely available fuels such 

as E10. This results in a situation in which consumers are comparing the price of E10 to the 

price of E85 when deciding which fuel to purchase. Station owners that offer E85, rather 

than competing with other retailers to offer the most cost competitive product, are seeking 

to establish a price for E85 at a level that maximizes their profit (and reduces they payback 

time for their investment), taking into account both the per gallon profit margins for both 

products (E10 and E85) and the potential to increase sales volumes by decreasing the retail 

price of E85.

For example, consider the various pricing options of a hypothetical retail fuel station owner 

who has invested in the necessary infrastructure to sell E85. If the market conditions for 

the fuel retail owner are such that they can sell 1000 gallons of E85 per month while 

setting the price for E85 to maintain a profit margin is $0.50 per gallon of E85, profits on 

E85 sales for that month will be $500. If the retail station owner reduces the retail price for 

E85 we would expect the monthly sales volumes of E85 to increase; however this would 

likely result in a lower profit margin per gallon of E85 sold. If all other factors remain 

constant, dropping the retail price of E85 by $0.40 per gallon reduces the retailer’s per 

gallon profit margin from $0.50 per gallon of E85 sold to $0.10 per gallon. If, as a result of 

this drop in the retail price of E85, sales of E85 increase by an order of magnitude to 10,000 

gallons per month, the retailer’s monthly profit on E85 sales would increase to $1,000 per 

month. If, however, the lower retail price of E85 doubles E85 sales to 2,000 gallons per 

month the retailer’s profit on E85 sales drops to $200 per month. Data reviewed by EPA on 

E85 prices and sales volumes suggests that the average E85 station would be expected to 

increase E85 sales by approximately 1,250 gallons per month by increasing the price 

discount for E85 relative to E10 by 10% (i.e. discounting the retail price of E85 by $0.25 

per gallon if we assume an average retail price for gasoline of $2.50 per gallon).18 The 

pricing decisions that the hypothetical retail station owner is likely to make are therefore 

expected to be highly influenced by their expected sales volumes of E85 at various price 

points and profit margin associated with these E85 retail prices.19

 

17 Regulatory Impact Analysis for the RFS2 final rule, March 26, 2010, Section 1.7.4.

18 For a further discussion of the observed relationship between E85 prices and sales volumes see “Correlating E85 

consumption volumes with E85 price,” memorandum from David Korotney to docket EPA-HQ-OAR-2015-0111

19 Other factors, such as the impact of lower fuel prices on convenience store sales and the degree to which 

increasing E85 sales attract new customers vs. cause existing customers to choose E85 over E10 will likely also be 

significant factors in a retail station owner’s pricing decisions.
12

Implications

The data examined by EPA above suggests that while increasing RIN prices are expected to 

provide an opportunity for a reduction in the retail price of E85 by reducing the effective 

price of the ethanol component of E85, the observed impact of increasing RIN prices is 

significantly less than what would be expected if the full value of the RIN was passed 

through to consumers at the retail level. The withholding of this RIN value is reasonable 

behavior by E85 wholesalers and retailers seeking to maximize their profits in a noncompetitive market. As the number of terminals and number of retail stations selling E85 

increases it is expected that competitive pricing behavior will reduce the per gallon profit 

margins for E85 until they are at or near the low levels currently realized for gasoline and 

diesel fuel. Such a scenario is, ultimately, the dynamic that will enable E85 sales volumes to 

increase at a more rapid rate than would be expected by infrastructure expansion alone. As 

we approach this point, encouraged by standards that push beyond the E10 blendwall, we 

would expect to see an increasing portion of the RIN value passed through to consumers of 

E85 at the retail level. Efforts to increase the number of parties selling E85, such as ethanol 

production facilities adding fuel blending capabilities or government or industry 

associations offering grants or alternative funding mechanisms for the installation of E85 

pumps such as the recent funding announced by USDA20, would serve to increase E85 sales 

not only by increasing the availability of the fuel, but also by increasing the value of E85 

relative to E10 through greater competition.

In the near term, the fact that E85 wholesalers and retailers are expected to retain a 

significant portion of the RIN value while the E85 market is still small is the very factor that 

will encourage the market for E85 to grow. If E85 wholesalers and retailers were unable to 

realize higher profit margins for E85 relative to E10 they would likely struggle to recover

their investments in the infrastructure necessary to sell E85, and there would be very little 

incentive to invest in the new infrastructure projects needed to expand the availability of 

E85. With D6 RIN prices averaging approximately $0.56 from January 2013 through July 

2015, the correlation developed from the data in Figure 3 suggests that the mark-up of E85 

from the cost of production to the retail price was approximately $0.22 per gallon higher 

than would have been expected if the average RIN price was negligible.21 This value, in 

addition to whatever margins were available without higher RIN prices, was available to 

wholesalers and retailers to allow them to more quickly recover the cost of their 

investments. If this profit margin continues in future years, those that have invested in E85 

will be able to pay off these investments and begin making significant profits more quickly. 

This significant profit potential would incentivize the further expansion of both wholesale 

and retail E85 infrastructure. 

 

20 USDA Announced State Finalists for the Biofuel Infrastructure Partnership. Accessed online at 

<http://www.usda.gov/wps/portal/usda/usdamediafb?contentid=2015/09/0249.xml&printable=true&contentidonly=t

rue>

21 The linear regression on the data shown in Figure 3 suggests a relationship between the D6 RIN price and the E85 

Retail Mark-Up that can be estimated by the following equation: E85 Retail Mark-Up = $0.60 + 0.40*D6 RIN Price. 

Using this equation we would project an E85 Retail Mark-Up price of $0.60 if the D6 RIN price was $0.00 and an 

E85 Retail Mark-Up of $0.82 if the RIN price was $0.56. 
13

We have already seen this beginning to occur over the last few years, especially at the 

wholesale level where an increasing number of ethanol production facilities have entered 

into the E85 wholesale market. We anticipate that this trend will continue and expand 

further to more fuel terminals. The recent data on E85 retail outlets have shown steady 

growth at about 100 new stations per year, and experienced a peak in 2010 of about 350 

new stations per year when the price of ethanol blended into gasoline was low relative to 

gasoline.22

Conclusion

After examining the available data from January 2013 through July 2015 we have 

concluded that while D6 RINs have the potential to decrease retail prices for E85, much of 

this potential price reduction was not realized in the E85 retail price. The data strongly 

suggest that RINs, at present, are limited in their ability to reduce E85 retail prices and 

ultimately increase E85 sales volumes. We believe this is primarily the result of the noncompetitive nature of the E85 market limiting the effectiveness of the RIN price as a tool for 

reducing the retail price of E85. As long as wholesalers and retailers can maximize their 

profit through higher per gallon margins, generally corresponding to lower sales volumes,

they will have an incentive to do so. If their potential profit increases with higher RIN 

prices (and corresponding lower net ethanol prices) there would be little or no incentive to 

pass along these potential price discounts to their customers unless and until the lower 

retail prices result in E85 sales volume increases that are high enough to overcome the 

lower per gallon profit margins.23 While the current non-competitive nature of the E85 

markets result in higher retail prices for E85 than would otherwise be expected, they also 

allow for those wholesalers and retailers who have invested in E85 infrastructure to more 

quickly recover the cost of these investments by realizing higher margins of E85 sales 

volumes. This opportunity for higher profit margins can also serve as an incentive for 

parties who have not yet done so to invest in the infrastructure necessary to offer E85. 

Over time, we believe that the RFS program – through the RIN price mechanism – can lead 

to E85 sales growth that accelerates at an increasing pace by encouraging infrastructure 

investment motivated by higher profit margins in the near term, and lower E85 retail 

pricing that results from increasingly competitive E85 markets in the long term.

 

22 It is likely that this was in part due to the $0.45 per gallon ethanol blenders tax credit (VEETC) that expired at the 

end of 2011

23 “Correlating E85 consumption volumes with E85 price,” memorandum from David Korotney to docket EPA-HQOAR-2015-0111