Ethanol industry reacts to Valero's letter to EPA on waiving RFS

By Holly Jessen | September 13, 2013

Valero’s concern about the high price of renewable identification numbers (RINs) is more about bad planning than it is a problem with the renewable fuel standard (RFS).  

The oil refiner, which is also the third largest ethanol producer, recently sent a letter to the U.S. EPA, requesting a waiver of RFS, to provide relief from high RINs prices. In response, the Renewable Fuels Association and Growth Energy both pointed out that Valero generates RINs with every gallon of ethanol produced at its 10 ethanol plants. “They want to change game in third quarter, because they were not looking far enough down the road to get out of this because of poor decisions,” said Michael Frohlich, director of communications for Growth Energy.

Bob Dinneen, RFA’s President and CEO, said something along the same lines. “If the third largest RIN producer in the country can't find RINs and needs a waiver, Valero has a problem,” he said. “But the problem is not with the RFS. The problem is with their own lack of planning. Perhaps they should call any of the oil companies that planned properly and have reported earnings from RINs and ask them how they did it!” 

The American Coalition for Ethanol also chimed in, saying it would seem to be in Valero’s interest to sell more ethanol through E15 and E85. “It’s Valero’s fault, not EPA’s or Congress’, that Valero doesn’t understand how to comply with the RFS,” said Brian Jennings, executive vice president of ACE.

Valero’s Sept. 9 letter to Gina McCarthy, administrator of the EPA, said the company supports E10 and some incentives for cellulosic ethanol, in which the company has invested money. However, Valero said the mandated volumes for cellulosic ethanol cannot be met by the U.S. marketplace, and the company does not support an “import mandate” for advanced biofuels or increased ethanol percentages. “High RINs prices are not a fair or acceptable way to force higher ethanol volumes,” wrote Valero’s William Klesse, CEO and chairman of the board, adding that a waiver, which the company believes would lower RIN prices, is needed now. The high price of RINs is hurting independent, merchant refiners, independent retail marketers, branded or not, and consumers, because of the higher price of gasoline.

RFA recently came out with a list of fiction vs. fact, debunking arguments by Big Oil, such as the false assertion that ethanol and RINs are increasing gas prices.  Although the spike in RIN prices can’t be explained by ethanol supply, demand fundamentals, the RFA illustrated a coloration with political showmanship.

RINs are free and come attached to every gallon of ethanol produced, Frohlich said. They only have value once they are traded on the market, something that obligated parties and refiners asked for from the EPA. And, there are winners and losers in the RINs market, he pointed out. While some are paying a high price for RINs, others are making money off RINs. The argument that the cost of RINs has to be passed on to gasoline consumers is absurd and doesn’t “pass the smell test, much less the laugh test,” he said. With competition in the marketplace, one gas station can’t afford to raise the price of fuel when the station across the street has a lower price.

D6 RINs for conventional ethanol are currently edging lower in value and on Sept. 13 were at 64.5 cents, said Brian Milne, energy editor and product manager for Schneider Electric, a global energy management company that tracks the prices of RINs trading on the spot market, among other things. RINs prices started increasing at a few cents in July 2012 and peaked this July at $1.49. Prices then started dropping and with a few other small increases, have decreased overall since that time.