The average price of gas in the U.S. has exceeded $4.50 per gallon, marking an increase of about 45% from last year. If Congress moves forward with a bill that permits year-round use of a higher ethanol blend in gasoline—known as “E15”—without safeguards for small refineries, the financial strain on consumers will likely worsen.
This proposal aims to allow the sale of E15 all year round. It’s not so much about whether higher ethanol blends should be used, but rather a longstanding requirement mandating ethanol to be integrated into the fuel supply.
The Renewable Fuel Standard (RFS) obliges refiners to incorporate biofuels, mainly corn-based ethanol, into the gasoline supply. Each refiner must ensure a portion of its domestic sales consists of this blended ethanol.
Refiners can fulfill part of this obligation by purchasing credits known as renewable identification numbers (RINs). The Environmental Protection Agency enforces these RINs to help track and hold refiners accountable for their renewable fuel volumes.
Both the RFS and RIN requirements contribute to rising fuel prices. Currently, RINs trade between $1.65 and $1.95, and this cost permeates through the supply chain ultimately affecting prices at the pump. At those trading levels, the cost embedded in a gallon of gas can range from 20 to 30 cents.
For smaller refineries, complying with the RFS often represents a major expense. Operating in limited regional markets, these small refineries frequently lack blending infrastructure, work with tighter profit margins, and face competition from larger firms. As a result, the fluctuating costs associated with RINs can threaten their viability.
Back in 2005, when the law was passed, Congress recognized these challenges and included provisions for Small Refinery Exemptions (SREs) to prevent “disproportionate economic hardship.” The current bill would eliminate these exemptions permanently, risking refinery closures and leading to increased gas prices.
Moreover, the RIN system is plagued by fraud and manipulation. Just this year, federal prosecutors secured a guilty plea from a biodiesel executive in Florida who exaggerated production figures to earn millions in fraudulent RINs.
Supporters of ethanol often suggest that refiners could simply buy ethanol instead of RINs. This view overlooks the mechanics of the system, though.
Buying ethanol doesn’t fulfill compliance demands on its own; the ethanol must be physically blended into fuel to use the RINs associated with it. Therefore, refiners lacking blending operations still depend on purchasing RINs from third parties, leaving them vulnerable to unpredictable costs.
Refiners have suggested reforms to maintain renewable fuel blending while easing compliance costs. Independent refiners not involved in blending or retail have advocated for a system allowing RINs to be transferred more effectively, aligning compliance responsibility with those blending the ethanol.
Additionally, there have been proposals to retain compliance value for exported gallons of ethanol through associated RINs, highlighting that exports still contribute to domestic production. However, the ethanol industry has pushed back against these reforms. This opposition indicates a deeper issue: the conversation often centers less on enhancing consumer choices and more on sustaining a constrained RIN market that benefits specific players at the expense of smaller refineries and consumers.
The argument for repealing the RFS seems stronger now than at its inception. It has proven economically detrimental, entrenching advantages for special interests while imposing higher costs for families.
Environmentally, it’s also fallen short, promoting increased crop production detrimental to wildlife habitats and water resources, all while achieving minimal reductions in greenhouse gas emissions.
In the end, the market should dictate the use of biofuels rather than government mandates. This wouldn’t mean the use drops to zero; corn-based ethanol plays a crucial role in ensuring gasoline burns cleaner and meets octane standards.
At the very least, SREs shouldn’t be dismissed as loopholes to be closed. They are vital safeguards given the mixed impact of mandates across the refining industry, alleviating pressure on smaller operators and reducing cost implications for consumers.
If there’s a desire to sell E15 all year, that’s fine.
However, it shouldn’t be imposed on consumers who prefer alternatives, nor should it eliminate the only protective measure for small refineries struggling to keep up. If E15 truly proves to be the superior option, it should succeed on its own merits.
