High Gasoline Prices and RINs
By now, most people realize that putting corn, a food, into the gas tank is immoral.
It’s also a terrible economic policy that steals money from consumers … money that could be used to pay every day expenses or be used for investment.
The law requires refineries to blend cellulosic ethanol into gasoline, or pay a penalty. But cellulosic ethanol doesn’t exist so penalties are paid that refiners must recover from their customers … you and me.
The increasingly large cellulosic ethanol requirements, shown in yellow, are a delusion.
And then there are RINs, Renewable Identification Numbers1.
Here we have another fallacy of thinking green, where there is a contradiction between improving gasoline mileage and blending ethanol with gasoline.
Improved gasoline mileage has reduced the consumption of gasoline.
The law mandates that 13.8 billion gallons (0.9 million barrels/day) of ethanol be blended into gasoline in 2013, regardless of how much gasoline is used.
But with US gasoline demand at 8.7 million barrels/day in 2012 and declining due to higher vehicle efficiency standards, there isn’t enough gasoline being used to blend all the 13.8 billion gallons of ethanol required by law, without exceeding the 10% limit of ethanol in gasoline.
This creates a blend wall where only 13.4 billion gallons of ethanol can be used, so refiners can’t meet their legal obligations.
What’s the EPA’s answer to this ridiculous state of affairs? It’s to create another ridiculous requirement that adds to the cost of gasoline.
Since refiners are required to add all 13.8 billion gallons of ethanol, but can’t without exceeding the 10% ethanol limit in gasoline, they must pay a penalty or submit RINs to the EPA in place of blending ethanol into gasoline.
The supply of RINs has gotten tight, with the cost of RINs increasing from 2 cents per RIN last year, to as high as $1.46 this year on July 15.
The refiner buys the RINs so it can meet the total gallons of ethanol required by law.
But wait, this monstrosity gets worse.
There’s only a limited number of RINs available next year, fewer than this year. The law, meanwhile, requires that more ethanol be blended next year, while gasoline usage continues to drop … an impossible situation. The supply of RINs may drop to zero by the end of next year. Then what?
So the price of RINs will go up, based on the law of supply and demand, and there is no way to fulfill the RFS without the use of RINs.
This is why the EPA wants to increase the percentage of ethanol in gasoline to 15%.
Rather than changing or eliminating the outrageous ethanol law, the EPA wants to make a bureaucratic adjustment to absorb the surplus ethanol and eliminate the need for RINs.
Car makers have said their warranties will be cancelled if gasoline, used in other than E85 vehicles, contains more than 10% ethanol. Prudent car owners will by-pass any gasoline pump that says 15% ethanol.
The reasons why the law was enacted no longer exist.
Environmental organizations claimed that ethanol would reduce CO2 emissions, but this is generally recognized as not true.
They also argued that ethanol would keep us from importing oil from countries such as Saudi Arabia, but that’s no longer valid since North America will be energy independent within the next few years.
The Energy Policy Research Foundation estimates that the price of gasoline could increase by as much as a dollar per gallon in 2014 due to RINs and the RFS.
This is a law that should be repealed.
- It’s immoral
- It’s taking money out of consumers’ pockets
- It requires using a product that doesn’t exist, i.e., Cellulosic Ethanol
- It requires the use of expensive RINs that add to the cost of gasoline
- It requires a nightmare of hard to understand regulations that only a bureaucrat could love
- RIN refers to Renewable Identification Numbers. RINs are created by the producer or importer of the renewable fuel. The EPA has developed a system called the EPA Moderated Transaction System (EMTS) to manage RIN transactions. EMTS screens RINs and provides a structured environment for conducting RIN transactions.
A pdf describing the bureaucratic RIN system is available at http://www.ers.usda.gov/media/138383/bio03.pdf
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