Ethanol backers return critics’ fire over gas prices
Source: By Emily Nohr, Omaha World Herald • Posted: Wednesday, March 20, 2013
Oil supporters say that the ethanol standards were set at a time when gasoline demand was expected to rise steadily. Instead, demand has declined, and refiners, forced to blend more ethanol than they can actually use, have resorted to buying a lot of ethanol credits, known as renewable identification numbers, or RINs, to meet federally mandated levels.
Renewable-fuel supporters say that oil stakeholders are incorrectly pointing to ethanol and an uptick earlier this month in the price of RINs for higher prices at the gas pump.
“The RIN program was designed to meet any shortages of renewable fuels, not to allow oil companies to avoid blending ethanol with gasoline. Now oil companies have simply bid up the price of RINs instead of buying ethanol,” wrote Bob Dinneen, president of the Renewable Fuels Association, in response to a Wall Street Journal editorial earlier this month that said the 2007 mandate is causing higher gas prices.
It’s the latest in the battle over the Renewable Fuel Standard, a federal law that requires gas companies to blend a certain number of gallons of ethanol into their fuel.
Refiners argue that some cannot reach the set requirements because they are nearing their blend wall, or the maximum percentage of ethanol in gasoline that most gas stations can handle, 10 percent.
The demand for RINs, they say, caused their price to spike above $1, while they’d previously been closer to pennies. Companies without enough credits rushed into a market that is thinly trading, driving the spike in prices, according to the American Fuel and Petrochemical Manufacturers.
“The market’s broken, because the Renewable Fuel Standard has been broken since the day it was enacted,” said Charles T. Drevna, president of the trade association.
Sens. Roger Wicker, R-Miss., and David Vitter, R-La., have introduced legislation to overturn using gasoline containing 15 percent ethanol, or E15, saying that higher-blend ethanol can damage vehicle engines and add to high corn prices and food costs.
The ethanol industry says that resistance to higher ethanol blends is about preserving the oil industry’s profits. Ethanol, they say, actually keeps gas prices down.
Monte Shaw, executive director of the Iowa Renewable Fuels Association, said the increased price of RINs is avoidable if oil companies would accept higher ethanol blends. Efforts to shut out higher blends is deliberate, he said.
“All they have to do is take their foot off the throat of E15 and they’ll be fine,” he said. “There’s not a lot of downside to it unless you’re an oil company that doesn’t want to give up on a monopoly.”
Last year, the Environmental Protection Agency upheld production requirements for ethanol that requires 13.8 billion gallons of ethanol to be used this year, 14.4 billion gallons in 2014 and 15 billion gallons by 2015.
In a half-page advertisement in the Wall Street Journal on Monday, Omaha-based ethanol producer Green Plains Renewable Energy outlined “fact versus fiction” about ethanol and gas prices.
The company says that ethanol lowers the price of gas by 25 cents per gallon, which is an annual savings of $8 billion, and that wholesale ethanol is currently trading 70 cents per gallon below gasoline.
“They’re using this to say, ‘Let’s waive the (Renewable Fuel) Standard. It’s not working. Ignore the $8 billion or $9 billion ethanol is saving (each year),’” said Todd Becker, Green Plains CEO.
Meanwhile, the ad says, RINs have little impact on the actual price of gas and an increased price of RINs only lessens the overall profit that blending puts in the pockets of oil companies.
Becker said discussion about RINs may have been sparked by a Wells Fargo report from earlier this month that he said has been taken out of context, plus media coverage.
“It’s all this complicated math they’re using to their advantage,” he said of the oil industry.
Todd Sneller, administrator for the Nebraska Ethanol Board, said the campaign by oil companies to dismiss the fuel standard comes at a time when some Nebraska ethanol plants that were offline are starting to pick up again.
“It does complicate the re-emergence of some of these plants,” he said. Ethanol “is just getting stronger, and that’s a signal to step up this (oil) campaign. From a strategy standpoint, it’s a good one, and it’s troubling because of their enormous control.”