Ethanol price spike didn’t cause high gas prices — study

Source: Amanda Peterka, E&E reporter • Posted: Wednesday, January 8, 2014

The spike in ethanol credit prices last year did not drive up the cost of gasoline at the pump, according to a study released today that was commissioned by the ethanol industry.

Although both the price consumers paid for retail gas and the price refiners paid for ethanol credits rose during the first half of 2013, ethanol credits had no effect on gas prices, the study by Informa Economics Inc. found. Rather, crude oil prices and the number of vehicle miles driven in the United States were the drivers of gas prices last year.

“What we wanted to do was take a look in the rearview mirror and see on a statistical basis what actually happened with gasoline prices,” said Scott Richman, senior vice president at Informa, an agribusiness consulting and analytical firm.

The ethanol credits — known formally as renewable identification numbers, or RINs — are used by refiners to show compliance with the federal biofuel mandate. They spiked from just a few cents a credit at the beginning of last year to more than $1.40 in the summer before dropping back down as the year ended.

Throughout last year, oil industry trade groups warned the high RIN prices could be behind high gas prices — which rose to more than $3.50 a gallon in the first half of last year — and signaled that the country had hit the blend wall, the term used to signify the 10 percent limit to the amount of ethanol that can be blended into petroleum-based gasoline.

But biofuel supporters argued that refiners were causing the high RIN prices by not investing in fueling infrastructure that can handle higher blends of ethanol, such as E15.

Informa said it relied on common statistical methods to conclude that the high RIN prices were not behind gas prices last year. The peak of RIN prices also came a few months after the peak in gas prices at $3.85 in February, Informa said.

“Although retail gasoline prices and RIN prices both increased in early 2013 and remained elevated during the middle of the year, this was coincidental,” said Crystal Carpenter, senior consultant at Informa. “Based on a statistical analysis, changes in RIN prices did not cause or play a significant role in changes in retail prices that occurred.”

Informa found that the primary driver of retail gas prices last year instead was the price of crude oil, the main input in gasoline production. The volatile spread between international and domestic crude oil prices and seasonal demand also played a role, the study said.

The Renewable Fuels Association, which commissioned the study, touted the results today and said it would be submitting the analysis as part of its comments to U.S. EPA on the agency’s biofuels proposal for 2014.

For the first time since the renewable fuel standard was put in place in 2007, EPA has proposed to reduce the amount of ethanol and advanced biofuels that must be blended into petroleum-based fuel this year, largely on concerns over the blend wall.

“We believe it does reinforce our statements that there is no correlation between rising RIN prices and rising gas prices, which is a key factor in EPA’s decision,” said Bob Dinneen, president and CEO of the Renewable Fuels