An increasing number of lawmakers realize the RFS is unworkable and driving up the price of food and gas. The most recent Member of Congress to pile on is Rep. Peter Welch (D-VT), who called the ethanol mandate a "flop" this week and rightfully argued for serious changes to the program.
The New York Times reported Sunday that traders for large banks and other institutions hoarded the credits as new, stricter federal standards forced refiners to buy more of them. The result: a 20-fold spike in the price of the credits in six months.
Concern over the blend wall has refiners snatching up RINs, ethanol credits available to fuel refiners looking to meet government-mandated biofuel production targets, causing the price spike. It’s not only the refiners that are buying up the credits, Wall Street has also taken an interest.
Wall Street has found another, more obscure, market to manipulate: ethanol credits. Fortunately, the EPA has the power to bring transparency to this marketplace -- it just needs to do it.
Refiners are required by law to use 13.8 billion gallons of ethanol in 2013. Renewable Identification Numbers are attached to each gallon of ethanol to track compliance. Once the additive is blended into gasoline, refiners can retain the certificate to show compliance or trade it to another party.
The RFS created a market-based compliance system in which refiners must submit credits to prove that the required amount of renewable fuel is used or paid for by them each year. These credits, known as Renewable Identification Numbers, can be bought or sold like commodities.
The result of the ethanol mandate, oil companies argue, is a “blend wall” that inevitably translates into higher gasoline prices for consumers, since oil firms have to buy special credits to make up for missing the law’s blending targets.
In an attempt to spur usage of biofuels, the EPA mandated that refiners blend a given amount of ethanol into gasoline. That requisite number of gallons of renewable fuels required has risen over time, and is set to rise further.
The blend wall is the threshold at which the RFS requires more ethanol to be blended into US gasoline than the quantity necessary to dose essentially all of it with the maximum 10% ethanol content for which most cars on the road were designed.
Even after yesterday’s 14 percent decline, the price U.S. refiners are paying to comply with a 2007 law that requires companies to blend ethanol with gasoline is at least 10 times more than at the start of the year.
Eight months after the legal deadline the Obama Administration has released the 2013 Renewable Fuels Standard rule. More importantly it promised waivers next year that will supposedly keep this badly designed law from inflating gasoline prices.
By 2017, combined U.S. and Canadian imports will be less than three million barrels a day of crude oil – half of current levels. But all this good news begs the question: why are gas prices still so high?
$800 million dollars. That's how much money Valero estimates it will cost to comply with the RFS through the purchase of Renewable Identification Numbers, or RINs. It's a pretty hefty bill no matter how you spin it, and those charges can only lead to one thing: higher gas prices.
As the blend wall approaches, the price of RINs skyrocketed from a few cents to around $1.40 per gallon of ethanol. RIN prices then declined sharply this week, to around $1.00, on hopes that the Obama Administration and Congress may be preparing to address the blend wall problem by easing the RFS.
A problem that has energy executives tearing their hair out may soon spill over to the consumer. Absent Congressional action, the increased cost of RINS could lead to a meaningful increase in the price of gasoline.
The Energy and Commerce Committee of the US House of Representatives has been holding hearings this week on the Renewable Fuel Standard (RFS). These hearings are timely, since at least two bills have been introduced to reform or repeal the RFS.
Makers of some renewable fuels are asking the federal government to ease quotas for use of their products in a bid to head off a congressional overhaul of a program that refiners say is driving up costs at the pump.
Industries as wide-ranging as oil refiners, biofuel manufacturers, chain restaurants and chicken farmers sparred over the future of the federal ethanol mandate Tuesday.
The summer is high driving season, so $4 gasoline in many parts of the country will add to the cost of family vacations. The gas price is mostly dictated by supply and demand, but Washington is helping to keep prices high.
In 2005, Congress imposed the RFS on America. The RFS mandates yearly increases in the amount of ethanol that is used in motor fuel, on an increasing schedule, through 2022. Problem is, nobody anticipated a crummy economy, high gasoline prices and shrinking consumption of motor fuel.
As the mandate for ethanol increases, so does the amount of RINs required to show compliance. When the law mandates using more ethanol and other biofuel than can safely be blended into the fuel supply, refiners are required to hand in more RINs to meet the mandate than will actually be available.