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?