Result of $1.05/gal RINs, 3-11-13

1. PRX Strategic BriefingSCALING THE E10 BLEND WALL—ODDS ARE SLIGHTLY ABOVE 50-50,SO LET’S WAIT AND SEE!EPA Still Owes Us the Final Rule For 2013,which Might Show Some Flexibility,at least on Sugar Ethanol ImportsBill Hudson, 3-25-13with several new tables and charts—and a Podcast!

4. According to EPA, it is not the law that must be changed to fit the market, but vice versa. Below from EPA’s Nov-2012 Waiver Decision. “The RFS program establishes volume requirements for each obligated party, but it is neutral with respect to the type or form of renewable fuel used to meet the volume requirements, as long as the fuels are used to replace or reduce the quantity of fossil fuel present in a transportation fuel, heating oil or jet fuel; meet the required life-cycle greenhouse gas (GHG) performance standards; and are made from qualifying renewable biomass. Ethanol has been the dominant domestic renewable fuel for several years, and during development of the law and regulations stakeholders in the fuel sector reasonably expected that ethanol would play a significant role in fulfilling the RFS volume requirements. As pointed out by commenters, E10 is approaching the point at which it saturates the gasoline market. As a result, if obligated parties choose to achieve their required RFS volumes using ethanol they should work with their partners in the vehicle and fuel market to overcome any market limitations on increasing the volume of ethanol that is used. Stakeholders in the refining sector have been aware of the E10 blendwall since passage of EISA in December of 2007. As the market has approached the E10 blendwall, the ethanol industry has worked to support the introduction of E15 into the market, and domestic auto manufacturers have increased production of vehicles capable of running on even higher ethanol blends. Over ten million flex-fuel vehicles (FFVs) are now in the existing fleet. FFVs currently consume E85 only about 0.4% of the time, but were they to be regularly fueled on E85, such vehicles would be capable of consuming billions of additional gallons of ethanol. The affected industries have had and continue to have the ability to achieve widespread adoption of E85 through working with partners in the retail and terminal infrastructure sectors to increase the number of stations that offer E85 or other intermediate ethanol blends and improve the pricing structure relative to E10.86 As noted above, however, other fuel options are available to meet RFS requirements.” 86 The number of retail service stations that offer E85 has grown at a rate of only 350 stations per year since 2007. As of today, the total number of retail stations offering E85 is only about 3000, so that only one out of every 50 retail fuel stations offers E85.

8. Result of $1.05/gal RINs, 3-11-13 • Problem is that only about 2500 stations of the country’s 170,000 offers E-85, and only 6 to 12 offer E-15. • For the official view on why expansion of E-85/E-15 is virtually impossible, see page 16 text from recent Congressional Research Report. (DOE says the same.) • But D6 RIN price has just now begun to make the economics viable. And what choice do refiners & blenders have? Maybe a little more biodiesel? • Let’s wait and see a little longer. PRX is sticking with its 50-50 forecast that the rollover RINs will prolong compliance long enough for more E85/E-15 in 2014.

16. From Congressional Research Service, “RFS Overview & Issues,” R40155, March 14, 2013, p. 29-30 E15/E85 Problems—Typical of Recent Statements of DOE as well “Numerous other changes have to occur before large numbers of gasoline stations will begin selling E15, including many approvals by states and potentially significant infrastructure changes (pumps, storage tanks, etc.). As a result, the vehicle limitation to newer models, coupled with infrastructure issues, are likely to limit rapid expansion of blending rates. Moreover, a group of engine and equipment manufacturers challenged the partial waiver in court, arguing that EPA failed to estimate the likelihood of misfueling (using E15 in equipment denied a waiver), and the economic and environmental consequences of that misfueling. In response to these concerns, EPA requires E15 suppliers to submit to the agency misfueling mitigation plans (MMP). Concerns over a preliminary MMP that required a four gallon minimum purchase from some pumps supplying both E15 and E10 led to a new MMP that EPA approved in February 2013 that eliminates the four-gallon requirement as long as a fuel station has at least one dedicated E10 (or lower) pump to fuel older passenger cars and light trucks as well as non-road vehicles/engines. Two additional options to resolving this bottleneck exist but appear to be long-run alternatives. First, increased use of ethanol in flex-fuel vehicles (FFVs) at ethanol-to-gasoline blend ratios as high as 85% (referred to as E85) is a possibility. However, increased E85 use involves substantial infrastructure development, particularly in the number of designated storage tanks and E85 retail pumps, as well as a rapid expansion of the FFV fleet to absorb larger volumes of ethanol. Infrastructure expansion will require significant investments, especially at the retail level. Installation of a new E85 pump and underground tank can cost as much as $100,000 to $200,000. However, if existing equipment can be used with little modification, the cost could be less than $10,000. A second alternative is to expand use of processing technologies at the biofuel plant to produce biofuels in a “drop-in” form (e.g., butanol) that can be used by existing petroleum-based distribution and storage infrastructure and the current fleet of U.S. vehicles. However, more infrastructure-friendly biofuels generally require more processing than ethanol and are therefore more expensive to produce.”