EPA add-up RFS and the biodiesel blenders tax credit
click image to zoom An extension of the biodiesel tax credit would reduce the need to draw down D4 RIN stocks to meet the RFS requirement (Figure 2). When setting the broader requirements, however, the EPA's stock-neutral approach does not capture the full increase in biomass-based diesel use and thus may under-estimate the true use that is likely to occur in the event of a biodiesel blender's credit extension.
For more about the tax credit case, see FAPRI-MU Report #01-14 (www.fapri.missouri.edu).
Past analysis of biofuel markets and the impact of blenders' credits on biofuel use assumed fixed mandates and that might now appear incorrect if the Add-Up method is adopted by EPA. A blender's tax credit might still have some impacts on RIN prices, but there are more implications for total biofuel use in the Add-Up relative to the EISA. This impact can be extended more broadly, in that factors which make biofuel use more attractive in a given year, such as lower feedstock prices (corn and soybean oil) or higher petroleum prices, could result in higher mandates in subsequent years. Similarly, mandates which result in high RIN prices, and thus increased ethanol blending in products such as E85 could result in greater mandates to accommodate the expected use in subsequent years. Thus mandate choices today may have a direct impact on future mandate levels. Responses to other shocks might also differ between EISA and Add-Up.
Under the proposed Add-Up method, the RFS renewable fuel requirements will respond to market conditions and other policies, not remain at set EISA targets.