Reforming the RFS already has bipartisan support in Congress because policymakers on both sides of the aisle have seen the negative impact it has had in their home states.
Despite overwhelming evidence that the ethanol mandate is a failed policy, in 2014 the ethanol lobby continued to prove they are divorced from reality by declaring the Renewable Fuel Standard (RFS) an “unmitigated success.”
As we approach yearend without a 2014 ethanol mandate, discussion this week covers the worries consumers have about the future of our gas prices and food security.
In order to prevent Americans from hitting the blend wall, the EPA proposed lowering the 2014 mandate. With this proposal came major political pressure from ethanol makers and now the EPA is considering backing down.
For the first time since the ethanol mandate was enacted, a government agency has confirmed what the refining industry has said for years…forcing ethanol into our fuel supply will increase gas prices.
Oil refiners do oppose the ethanol mandate, but they are hardly the only ones who take issue with the policy. Environmentalists, taxpayers, food producers, consumer protection groups of all types, anti-hunger advocates and even farmers have all spoken out against the RFS.
On Friday, November 15, the EPA announced a reduction in the Renewable Fuel Standard, the first time this has happened since the policy began eight years ago. The proposed Renewable Fuel Standard will require refiners to blend about 15.21 billion gallons of biofuels into gasoline next year.
When energy companies mix ethanol into gas, or import fuel blended with ethanol, they get a credit from the government. That credit can be sold to other companies that don’t blend ethanol to help them meet federal requirements, creating a marketplace.
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 industry has hit what’s known as the “blend wall.” Hitting the blend wall is causing a host of complications for the ethanol industry, the Environmental Protection Agency, Congress, the petroleum industry and, maybe, the driving public.
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 renewable fuel standard is causing unintended problems and Congress should idle the renewable fuel standard and find ways to ease the pressures caused by the current mandates without ending the program.
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.
As the federally-mandated volume of ethanol usage increases and motor fuel consumption declines, to avoid lawsuits, gasoline refiners must purchase federal renewable "credits" to make up for the ethanol they don't blend, causing higher gasoline prices even in periods of lower demand.