July 15, 2016

Report by Brattle Economists Examines EPA’s Proposed 2017 Renewable Volume Obligations

Brattle economists have authored a report that analyzes the role that higher ethanol blends of gasoline (E85) could play in meeting the proposed 2017 renewable volume obligations (RVOs) under the Renewable Fuel Standards (RFS) program.

Prepared for Growth Energy, the Brattle report reviews the Environmental Protection Agency’s (EPA) approach to analyzing the potential for E85 market expansion to determine whether pricing mechanisms would incentivize further E85 sales if the EPA increased the RVOs further past the E10 “blendwall” (when the average concentration of ethanol in gasoline exceeds the typical ten percent level).

Overall, the Brattle study finds that the “constraints” that the EPA associates with the pricing mechanism for stimulating increased E85 sales are themselves a product of a backward-looking analysis approach, which assumes that historic market outcomes and pricing relationships reflect actual limits on sales. The authors describe shortcomings in the EPA analysis and explain why the EPA’s conclusions are not a reliable prediction of future market dynamics. The report peeks over the blendwall by describing the price dynamics and consumer reactions that would accompany a transition to an E85 market and RVO well beyond the blendwall. Additionally, the authors describe how a new long-run equilibrium would emerge with minimal disruptive effects on fuel prices and much higher use of E85 in existing flex-fuel vehicles.

The report, “Peeking over the Blendwall: An Analysis of the Proposed 2017 Renewable Volume Obligations,” is authored by Brattle Principal Marc Chupka, Associate Michael Hagerty, Senior Associate Nicholas Powers, and Research Analyst Sarah Germain. It is available for download using the link below.

Associated Experts
Chupka 090
Mr. Chupka is an economist with more than 30 years of public and private sector experience analyzing energy markets and regulation while assisting energy clients and counsel in a broad span of commercial analysis, regulatory proceedings, and litigation support. More icon f02782c24cccaf6d90e1da53920c42f20e5a8955f54ac2ca5727ec7dc89987b4
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Senior Associate
Dr. Powers has expertise in industrial organization and energy economics. More icon f02782c24cccaf6d90e1da53920c42f20e5a8955f54ac2ca5727ec7dc89987b4
Hagerty 043