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Buying RINs Cheaper than Ethanol

February 20, 2015

Congress mandated the amount of biofuels that must be included in gasoline and diesel fuel.

RIN Requirements from EPA 2015

“Refiners, blenders, and importers can meet their obligations by either selling required biofuel volumes or purchasing RINs from parties that exceed their requirements.”

This year, 15 billion gallons of ethanol from corn must be included in gasoline. See chart.

In addition, during 2015, about 3 billion gallons of cellulosic ethanol must also be included.

This has created two problems. Three, if you include the huge bureaucracy that has been created to account for whether the prescribed amounts of biofuels have been included in gasoline and diesel fuel, and also account for the number of RINs created and sold.

The first problem is that cellulosic ethanol doesn’t exist in anything more than tiny quantities, since it’s essentially still experimental. Therefore, refiners are required to buy a product that doesn’t exist.

Looking at the chart, it’s alarmingly obvious that refiners are required to add huge quantities of cellulosic ethanol in 2022, specifically 16 billion gallons of an imaginary product.

The second problem? Not enough gasoline is always being sold to use all the ethanol being produced.

This has led to the EPA’s bizarre proposal to increase the concentration of ethanol in gasoline from 10% to 15%.

Cars built before 2004 will be damaged if ethanol requirements exceed 10%.

Whether newer cars can use gasoline with 15% is debatable.

Car manufacturers 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.

RINs have created an ancillary problem affecting the price of gasoline.

Over the past few years, we have seen where the price of RINs has been as high as $1.46 per gallon, increasing the cost of gasoline at the pump, or where, as has been the case this year, it’s below the cost of producing ethanol.

  • Bloomberg recently reported that refiners are buying less expensive RINs to avoid buying ethanol from ethanol producers. Two years ago the high price of RINs was increasing the price of gasoline at the pump. See High Gasoline Prices and RINs.

A major reason for using ethanol was to cut CO2 emissions, but it’s subsequently been determined that ethanol won’t cut CO2 emissions.

Ethanol was also supposed to cut oil imports, but with oil production increasing in the United States, there is no need to use ethanol.

It’s obvious that the entire process is quixotic, expensive and, probably, immoral. Specifically:

  • Mandating the use of a product that doesn’t exist, i.e., cellulosic ethanol, is absurd.
  • Requiring ethanol concentrations to increase to 15%, from 10%, which can damage cars, is definitely not in the interest of consumers.
  • Increased volatility in the price of RINs affects the price of gasoline at the pump.
  • Increased bureaucracy to oversee the production and use of ethanol and RINs is costly.
  • Using food to create a fuel to be burned in a car has been called immoral.
  • Using tax payer money to subsidize the development and production of unneeded biofuels places a burden on tax payers.

Eliminating the biofuel mandates, i.e., cellulosic ethanol, biodiesel and other such biofuels, other than corn-based ethanol, should be one of the first priorities of Congress when addressing energy issues.

While it may not be fair to farmers to suddenly and drastically cut the use of corn-based ethanol, it should be possible to establish gradual cuts in ethanol produced from corn.

Senators Feinstein and Toomey have proposed legislation to eliminate the mandate to use ethanol. How this proposal evolves will be interesting watch.

We don’t need ethanol, of any variety, to reduce oil imports, and we certainly don’t need ethanol to cut CO2 emissions.

The ethanol mandates have been another example of bad legislation that’s not in America’s interest.

* * * * * *


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9 Comments leave one →
  1. permalink
    February 20, 2015 10:04 am

    Good one.

  2. Steve Andelman permalink
    February 21, 2015 7:24 am

    Doesn’t it take more that a gallon of gas to make a gallon of Ethanol?
    Keep up the good work.

    • February 21, 2015 8:42 am

      Probably, if you include the gas used to farm the corn. And ethanol has about 15% less energy. Any way one looks at it, ethanol is not a good idea.

  3. February 22, 2015 12:38 am

    Another excellent column, Donn. Plugged it in here:

    • February 22, 2015 9:08 am

      Thanks. Appreciate the extra coverage and the link for additional information on biofuels.

  4. Ken Risden permalink
    March 5, 2015 11:38 am


    Unfortunately I have to disagree with your premise that purchasing RINs is cheaper than purchasing and blending ethanol. The major reason that merchant refiners purchase RINs is that they do not have the ability to purchase and blend ethanol with CBOB or RBOB gasoline so they must purchase RINs to meet their obligation. This is especially true in the case of biodiesel,

    It is important to note that gasoline can only be blended with ethanol at the terminal rack. It is not blended before movement in pipelines or ships because ethanol is miscible with water. As a result, unless a refiner has ethanol blending at its terminal rack or at the point where its products are sold (pipelines and or terminals down the line, they cannot blend and must purchase ethanol.

    With regard to diesel it is much the same thing, only much more magnified. While there is ready infrastructure to blend ethanol around the US, there are many places in the US with no capability to blend biodiesel. Diesel cannot be moved in a blended state across the vast majority of public pipelines as any pipeline that moves jet fuel has a restriction that prohibits biodiesel blends (potential contamination of jet fuel (can confirm looking at Magellan and other public pipeline company product requirements/restrictions).

    Further, in the cold weather states refiners are unable to blend biodiesel with#2 diesel. In Minnesota, they mandate blending, but in order to achieve blends, refiners must use #1 diesel and or heavy additives so the biodiesel blend will not cloud/gel in winter. A major reason that no refiners in the Rockies blend biodiesel at their refineries at this time. To my knowledge there is no biodiesel blending in the Rockies outside of Colorado.

    While I agree with some of the conclusions of your article, I believe the story is more complicated and not necessarily as clear cut.

    • March 5, 2015 2:12 pm

      Thanks for your comments.
      It was not my intention to say that RINs were always cheaper than ethanol, but that it has been the case for a period of time this year.
      Your other information is very interesting and I appreciate your taking the time to discuss these additional factors.


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