Allegedly imaginary ethanol “blend wall” mysteriously cost refiners at least $1.3 billion in 2013
posted at 2:51 pm on April 1, 2014 by Erika Johnsen
When Congress first enacted and then expanded the inglorious ethanol subsidy that is the Renewable Fuel Standard back in 2007, lawmakers devised the rule — requiring that refiners blend certain volumes of biofuels into the country’s fuel supply or else buy credits for an exemption — based on the crucial assumption that the nation’s demand for gasoline would continue to increase* indefinitely as our economy grew. Therefore, they reasoned, the fuel supply would be able to absorb an annually increasing amount of ethanol — but because of increased fuel efficiency and slackened economic growth, that hasn’t been the case at all. For awhile now, refiners have been expressing concern over being forced to run the country’s gasoline up against the “blend wall,” i.e., the point at which the ethanol-gasoline blends are no longer safe for use in most cars and trucks.
Pish tosh!, cried the ethanol lobby, which (as you might imagine) is rather partial to the Standard and the many ways in which it has artificially jacked up the country’s demand for corn and other biofuel resources. When the Environmental Protection Agency announced late last year that it intended to revise the required volumes of biofuels in a downward direction, ethanol producers across the country immediately went into a tailspin of furious denunciations against the oh-so-rent-seeking oil industry’s supposedly illegitimate complaints about ethanol-to-oil ratios, or whatever made-up nonsense about which those greedy oil execs were raving. Even if that were as big a problem as the oil industry was making it out to be, Big Ethanol insisted about Big Oil’s motives, Big Oil is super-duper rich, and can totally handle the extra pressure without passing costs onto consumers.
Last year’s spike in the price of ethanol blending credits cost independent refiners at least $1.35 billion, more than three times as much as the year before, according to a Reuters’ review of securities filings.
The tally, which has not been previously reported, is a conservative estimate as it includes only nine refiners that disclosed the figures. Others affected did not specify the cost of buying Renewable Identification Number (RINs), paper credits used to meet quotas for blending biofuel into gasoline and diesel. …
The review also highlights how the impact was unevenly distributed, with independent refiners CVR Refining and LyondellBasell alone shouldering more than a fifth of the cost although they only account for 2.5 percent of the nation’s daily refining capacity. …
Valero Energy Corp, the biggest U.S. refiner with 10 percent of capacity, spent about $517 million on RINs in 2013.
“We were clear that Valero could not bear that cost alone, so much or all was passed on to consumers,” said Valero spokesman Bill Day. The company estimates that it will spend another $250 million to $350 million on RINs in 2014.
Ugh. The EPA has yet to make a final decision on the RFS’s requirements for 2014 (although, yes — they will be applied retroactively), and you can count on Big Ethanol continuing to fight the potential downshift every step of the way. The fact that the Renewable Fuel Standard’s supposed “green” credentials have long since been disproved is of little consequence to them.
*Oops: I originally wrote “decrease” where I meant “increase,” gah.