Illinois economists examine long-term trajectory of proposed RVO

By Sue Retka Schill | June 18, 2015

What would the long-term implications be, if the U.S. EPA maintains the policy trajectory outlined in the May 29 proposed renewable volume obligations (RVO)? University of Illinois economists Scott Irwin and Darrel Good analyzed that question in the third in a series of FarmDocDaily posts, “Implementing the RFS with a "Push" Strategy: What Happens after 2016?” 

Based on language in the EPA proposal, they write, “We assume that over time, the EPA will expand the magnitude of the push implied in the most recent proposal.” The proposal lays out the RVO’s for 2014, 2015 and 2015. Using that as the base, the economists project what might happen through 2022 and compare that with the statute establishing the renewable fuels standard (RFS). One assumption made is that the cellulosic mandate continues to be written down, the biodiesel mandate continues to increase each year and domestic gasoline and diesel consumption in 2017-2022 stabilizes at the projected level for 2016.

After stating the assumptions, the pair offer multiple tables showing the magnitude of the expected annual write down from statutory requirements and the magnitude of the advanced biofuels gap. The EPA’s write down of the statutory levels of the RVO compared to the statute narrows fairly quickly, they conclude and disappears by 2022.

“The EPA signaled an important change in direction for setting annual RFS standards in its recent preliminary proposal for 2014-2016,” Good and Irwin write. “The proposal indicates the EPA is serious about pushing RFS standards past the E10 blend wall. We examined the implications of the EPA continuing this policy direction after 2016 and found that the size of the total gap in the RFS mandates, or the ‘push,’ grows surprisingly quickly. For example, the total gap exceeds 2 billion gallons by 2018 and grows to 3 billion gallons in 2022.”

Future analysis will look at different scenarios in how the gap might be filled.