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.
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.
There are reports that House Majority Leader Eric Cantor may introduce legislation to reform the ethanol mandate. Cantor’s comments were made during a meeting with top oil industry executives and lobbyists from organizations, including Valero, Phillips 66, Chevron, and ExxonMobil.
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.
$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.
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.
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.
Refiners are hesitant to blend more than 10 percent ethanol into the fuel supply over safety concerns. Skyrocketing renewable fuel credit prices indicate that the industry is nearing the limits of what it can blend, or the “blend wall.”