EPA delivered their much awaited decision on the fate of E-15 during a press conference today, Oct 13, 2010, and with it a result that attempts to satisfy everyone but will almost certainly make no one happy.   By allowing the use of up to 15% ethanol in model year 2007 and newer vehicles, EPA has facilitated the bifurcation of the fuel ethanol market.

What is Bifurcation you say?  That’s a fair enough question, consider the fact that it isn’t a word you hear in every day conversation.  Webster’s Dictionary states that bifurcation is “the division of something into two branches or parts”.

Tap Water with Fluorides Added

Tap Water with 50% More Fluorides Added

From a commercial standpoint, the bifurcation of gasoline/ethanol blends into E-10 and E-15 has virtually no practical chance of working at anything close to a full scale level.  For the purpose of illustration, this approach would be analogies to offering two levels of fluorides in the residential tap water for everyone in your city or town.   Let’s say that you prefer the standard fluorinated water but your spouse would like the high-grade water with 50% more fluorides.  Unless the provider is willing to build the storage towers, pumps, and parallel piping system to deliver the two grades of water simultaneously to your home, you can’t even get started.   Not to mention the fact that you would need to install new plumbing and sinks in your own home to take advantage of these bifurcated products.

The fact is that the local water authority is only likely to deliver a single grade to the entire community, and only if an overwhelming outcry came from all of your neighbors who sided with your spouse for high-grading, would that single grade of water be the premium 50% fluoride water.  Now back to gasoline and why  it is so  important to listen when the petroleum marketers say that they plan to stick with the old standard for now.

Another possible scenario would be the mandate of high-grade fluorinated water, which would replace the standard water over some period of time.   This was exactly what happened with Ultra-Low Sulfur Diesel (ULSD) back in 2004 as it was set to replace the then standard Low Sulfur Diesel (LSD).  Within a few months you could not find anything but ULSD, and would have actually had to pay a premium for the old standard LSD.  Of course ULSD was mandated.  EPA has not mandated E-15, but has rather limited it to only 2007 and newer model vehicles  – at least for now.

So what does all this have to do with RINs anyway?  The short answer to that question resides in the fact that the overall mandate for renewable fuel, brought about by the Advance Renewable Fuel Standard (RFS2), remain intact.  With an eye towards a more long term horizon, EPA’s E-15 ruling means that they have provided industry with the necessary expansion – mathematically speaking – to meet the future mandates without going up against the “Blend-Wall”.   This does bring a certain amount of certainty to the ethanol suppliers and creates a new level of complexity for those obligated to meet the regulatory standards.

Whether you are an ethanol producer, petroleum refiner, splash blender, marketer, or trader, the new E-15 factor will impact your business in the coming months and years.   We will be discussing more about E-15 and the Bifurcation Blues during the 2010  RIN World Summit.  Aside from the politics of it all, I would welcome hearing what you think about the practical implementation of RFS2 with E-15 now in place.  Just leave a comment on this post and we will work it into the discussion during the appropriate session at this years RIN World Summit.  Hopefully you will be able to join us November 3-5 in Dallas where we will be discuss E-15 and the dozens of other factors influencing business under the Renewable Fuel Standard.