Regulation of Fuels and Fuel Additives: Renewable Fuel Standard ...

Table III.D.3.c-2
Required and projected renewable fuel volumes (billion gallons)
Required
under RFS α
Ethanol
produced β
Excess δ
Previous Year excess ethanol as a
fraction of current year compliance
2008 5.4 6.0 0.6
2009 6.1 6.9 0.8 9.8%
2010 6.8 7.9 1.1 11.8%
2011 7.4 8.8 1.4 14.9%
2012 7.5 9.6 2.1 18.7%
2013 7.6 γ
10.1 2.5 27.6%
2014 7.8 γ
10.3 2.5 32.1%
2015 7.9 γ
10.5 2.6 31.6%
α Equivalent to the required volumes shown in Table I.B-1
β Projected ethanol production volumes from EIA, Annual Energy Outlook 2006.
γ Example of possible increases in the required volumes. The Energy Act requires at
minimum a constant percentage of renewable fuel in gasoline after 2012.
δ Does not include other renewable fuels such as biodiesel which would increase the
excess even further.
In 2009, for instance, the cap would be 9.8 percent, and by 2012 it would be 18.7 percent.
Under such an approach, the value of the cap might more precisely reflect the actual excess
RINs and preclude their rollover. However, the annual calculation of the cap would require
that the total renewable fuel volumes from the previous year be known. For compliance year
2009, information on 2008 renewable fuels production would not generally be known until
spring of 2009. Therefore, obligated parties would not know until mid-year at the earliest
what the exact cap would be for that year. The Agency could publish an estimate of the cap
by the end of the previous year, but it would not provide obligated parties with the certainty
they may need for establishing contracts and business relationships for RIN trading. In
addition, such a variable cap may not ensure a smoothly functioning RIN market under all
possible market conditions. Market flexibility is needed most when the RIN market is the
tightest (i.e. when renewable fuel production volumes are closest to the volumes required
under the RFS program). Yet under this alternative approach, the cap would be the smallest
when supply was closest to demand for RINs. The cap would approach zero as supply
approached the volumes required under the RFS program, and thus an obligated party that
had even a small number of excess RINs from the prior year could not use them, but rather
would be forced to trade them to someone else. Conversely, when supply significantly
exceeds demand and market flexibility is needed least, the cap would be the highest. Fixing
the cap at 20 percent both provides certainty to the RIN market, and ensures that some
minimum level of flexibility exists for individual obligated parties even in a market without
excess RINs.
The level of 20 percent is also consistent with both past ethanol market fluctuations
and future projections of excess ethanol. As described above, the largest single-year drop in
ethanol supply occurred in 1996 and resulted in 21% less ethanol being produced than in
1995. While future supply shortfalls may be larger or smaller, the circumstances of 1996
provide one example of their potential magnitude. Furthermore, as illustrated in Table
III.D.3.c-2, EIA projections indicate that previous year volumes will exceed current-year
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