Congress returns to work in September with some proposing to &ldquo;reform&rdquo; the renewable fuel standard (RFS) by reducing it. As part of this effort, key lawmakers recently asked the American Coalition for Ethanol to help them understand what is responsible for higher renewable identification number (RIN) prices. Our response was: You&rsquo;re asking the wrong question.
Congress should be asking who is responsible for rising RIN prices and why. &nbsp;The answer is that refiners are so RINsane about repealing the RFS and controlling 90 percent of the fuel market that they are willing to pay for RINs and block consumer access to E15, E30 or E85, just to avoid buying ethanol (which costs less than gasoline).
Talk about RINsane, data from the U.S. EPA indicates refiners historically treat RINs as a reward for blending more ethanol than required by the RFS. &nbsp;Because ethanol has been less expensive than gasoline, for years most refiners have blended significantly more ethanol than their annual obligations. As a result, they&rsquo;ve been able to keep an oversupply of RINs on hand to limit the potential for more ethanol use. Refiners rolled 2.5 billion excess 2012 RINs over for compliance with the RFS in 2013. The current Big Oil hue and cry isn&rsquo;t about RIN prices, it is fear of actual competition from blends above 10 percent ethanol and having to let market forces actually decide pump prices.
That oil companies have been willing to pay $1 or more for a RIN, just to avoid buying ethanol at 70 cents per gallon less than gasoline and offering consumers safe and tested E15, should tell Congress everything it needs to know about the RFS. It is needed now, more than ever. And the lack of transparency in RIN trading leaves open the possibility that unscrupulous traders or refiners could create skewed transactions for the purpose of manipulating the RIN market for financial gain or to make a political point.
As I&rsquo;ve written in this column before, frankly, RINs are further proof the RFS works. Petroleum marketers who blend ethanol with gasoline are also allowed to &ldquo;separate&rdquo; RINs from physical ethanol gallons. It requires more paperwork, but they&rsquo;ve identified an advantage in purchasing ethanol for much less than gasoline, acquiring a RIN on top of the ethanol savings, using some of the RIN to pay for new infrastructure for E15 or E85, and passing a significant pump savings to consumers. Petroleum marketers are able to do what Big Oil suggests cannot be done&mdash;overcome the E10 blend wall&mdash;and they are doing so while saving consumers money.
Refiners have choices. As with other arguments they use to attack the RFS, even the volume of gasoline sold in the U.S. is largely under their control. By refining fewer barrels of oil and exporting gallons that could be added to the domestic fuel supply, oil companies are unilaterally reducing their own opportunity to blend ethanol and receive the RINs that come with those gallons at no cost, and they are choosing not to provide enough supply to the market to bring prices down. The fact that they are willingly spending more money and raising fuel prices by refusing to blend ethanol indicates the lengths oil companies are prepared to go to protect their continued artificial dominance in the marketplace. &nbsp;
Most ethanol opponents in Congress have rightfully concluded they don&rsquo;t have the votes to repeal the RFS, so what of this effort to reform the RFS by reducing it? &nbsp;
We&rsquo;ve got to be clear. Reducing the RFS below 10 percent of the U.S. gasoline market does not constitute reform of the RFS. It&rsquo;s a capitulation to oil companies who don&rsquo;t want consumers to have access to low-cost blends such as E15 and E85. Arbitrarily cutting the corn ethanol levels to satisfy demands of Tyson, Smithfield, and Perdue Farms, who feel entitled to cheap corn forever, does not constitute reform either. And, abandoning the cellulose portion of the RFS, when this promising fuel is at the cusp of commercialization and EPA has the tools it needs to make reasonable adjustments on its own, will drive investment overseas and prevent the U.S. from realizing further reductions in greenhouse gases.
Or, we could say it&rsquo;s RINsane.
Author: Brian Jennings Executive Vice President American Coalition for Ethanol 605-334-3381 bjennings@ethanol.org
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RINsane About Repealing the RFS

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