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Refiners and ethanol producers continue to spar.
Refiners are urging the Environmental Protection Agency (EPA) to reduce the amount of renewable fuel required under blending mandates for 2013 and 2014 to avoid hitting the so-called ethanol blend wall. (For more on this topic, see "Hearings, Legislative Initiatives Ahead for Ethanol/RFS Mandate.")
EPA will finalize its 2013 renewable fuel standard (RFS) volume requirements this summer, with expectations of no change in the corn-based mandate. An EPA spokeswoman said the agency is still reviewing comments on the proposal. EPA predicted in the proposed rule that there would be sufficient renewable fuel credits to meet the 2013 standard. The 2014 mandate level will be a focus of this Congress, with hearings expected as soon as April.
No formal petition to EPA has been filed by refiners, but American Fuel & Petrochemical Manufacturers President Charles Drevna said the industry is "going to look at all options." "If recent events have told us anything, it's the RFS needs to change sooner rather than later," Drevna said.
EPA's proposed renewable fuel standard for 2013 would require petroleum refiners to blend 16.55 billion gallons of renewable fuels, including 13.8 billion of corn starch ethanol, and 14 million gallons of cellulosic ethanol, into the fuel supply. That would force petroleum refiners to blend more than 10 percent ethanol into the gasoline supply, which is known as the blend wall.
Volatile RIN prices are another focus. Sharp increases have occurred in renewable identification number (RIN) prices, due to several reasons, including the prospect of hitting the blend wall in 2013. Prices have ranged from single-digits to over $1 already this year. Ethanol RINs for the corn-based variety sank 3 cents Friday, or 4.3 percent, to 67.5 cents, according to data compiled by Bloomberg. RINs are assigned to each gallon of fuel introduced the market, then submitted by refiners to the EPA to show compliance with the law or traded. Advanced RINs, which include biodiesel and Brazilian sugarcane-based ethanol, were unchanged at 75.5 cents. The certificates for each RIN peaked at a record on March 8 at $1.06 for the conventional grain-based variety and $1.08 for the advanced.
Every dollar refiners spend on RINs adds 10 cents to the price of producing a gallon of gasoline, Drevna said.
Sen. Ron Wyden (D-Ore.), chairman of the Senate's Energy and Natural Resources Committee, sent EPA a letter March 22 asking the agency about the recent surge in RIN prices, saying the increases were most pronounced on the East and West coasts. He requested EPA data on recent high volume trades or unusually large trades made between Feb. 19 and March 14. He also asked for information about the 10 largest RIN holders who are not obligated parties under the renewable fuels standard (RFS).
Wyden also asked EPA about the blend wall, including how much E15 and E85 consumers actually purchased through the first months of 2013, and how retailers would need to modify their equipment to sell higher ethanol blends.
Some ethanol industry officials were quick to react. Tom Buis, chief executive officer of Growth Energy, an ethanol trade group, said in a statement he would "welcome Congressional oversight and an investigation." He accused oil companies of manipulating RIN prices to drive up costs for consumers. "With regards to RINs, what we have here is a classic example of an unregulated market manipulated by oil companies running wild," he said.
Analysis at the Renewable Fuels Association (link to RFA's blog on the blend wall) said it would be more cost effective for the petroleum industry to invest in higher ethanol blends than to purchase RINs to comply with the RFS, according to Geoff Cooper, vice president for research and analysis at the RFS. Installing the blender pumps and storage tanks at retail stations necessary to sell gasoline containing E15 and E85 would only cost 6 cents per gallon in comparison, Cooper said, adding that the petroleum industry has exaggerated the impact rising RIN prices will have on retail gasoline prices, arguing the credits will raise prices by less than a cent per gallon.