GOP senators request answers on price spike as study warns of ‘death spiral’

Source: Amanda Peterka, E&E reporter • Posted: Thursday, March 21, 2013

Top energy and environment Republicans today demanded answers from U.S. EPA on spiking ethanol credit prices, linking them to increased costs for consumers at the gas station.

In a letter to the agency’s air chief and President Obama’s nominee for EPA administrator, Gina McCarthy, Sens. David Vitter (R-La.) and Lisa Murkowski (R-Alaska) wrote that the credits, which are tied to gallons of ethanol and traded to help refiners comply with renewable fuel obligations, could have a “dramatic impact” on the economy.

“It is imperative that EPA act decisively,” the senators wrote. “Accordingly, we ask that you utilize any and all existing regulatory authority and flexibility to address the issue of rising [credit] costs and alleviate the threat of increased consumer fuel costs.”

In recent weeks, ethanol credits, identified by 38-digit unique renewable identification numbers known in the industry by their abbreviation “RINs,” have spiked to more than $1 a gallon, up from 7 cents in January. The price jump has refiners warning that the market has reached the so-called blend wall, or the point at which the market cannot handle any more ethanol because of technical limitations (Greenwire, March 18).

The spike has pitted the oil industry against ethanol producers, who dispute claims that the turmoil in the RIN market could lead to high prices at the gas station. They blame oil companies for erecting an artificial wall by refusing to produce gasoline with increased levels of ethanol.

In their letter, Vitter and Murkowski warned that higher credit prices could not only lead to higher gas prices but also increase fuel exports overseas and lower refinery utilization rates. They’ve asked McCarthy to respond within 14 days with “a detailed plan describing how you intend to address these concerns.”

“This issue will remain the focus of significant congressional interest as more reports and studies are published on how RIN prices impact the nation’s economy,” they added.

Earlier today, the American Petroleum Institute released the results of a commissioned study from October that cast a gloomy picture for the fuels market, warning of a “death spiral” should the renewable fuel standard be kept in place. The study by NERA Economic Consulting and paid for by API predicted “significant economic harm” to the U.S. economy within the next three to four years as the RFS requires levels of ethanol beyond that which is currently technically feasible.

Refiners, the study said, will not be able to meet market demand for transportation fuel while remaining in compliance with the RFS and will be forced to scale back fuel production or export more.

“As domestic fuel supplies decrease, large increases in transportation fuel costs would ripple through the economy, imposing significant costs on society,” the report said. “More specifically, as the [renewable fuel standard] mandate is ratcheted up every year, the fuels market will be pushed into a death spiral.”

Even before API released the study, the renewable fuels industry pushed back against its results, accusing the oil trade group of buying studies “to support their self-interested views.”

“The oil industry has been complaining about the renewable fuel standard, yet they are the ones who failed to invest in the infrastructure necessary to avoid the compliance mechanism that has them up in arms,” said Fuels America, a coalition of biofuel, agriculture and national security interests. “Everyone knew this investment would be necessary many years ago, and in typical form, the oil industry is threatening to pass the cost of their own inaction on to consumers.”

The RIN debacle has been one of several obstacles this year for the biofuels industry as opponents have ramped up calls for the repeal of the renewable fuel standard. Currently, several ethanol plants across the country remain idled, stemming from the high corn prices last year, and congressional opponents have introduced legislation to bar higher amounts of ethanol from entering the market and to scale back advanced biofuels targets.

In a press call this morning, though, Renewable Fuels Association President and CEO Bob Dinneen said he would embrace congressional hearings on the RFS and an investigation into the high RIN prices.

“The RFS is a proven success. We would welcome a look at what is driving up these RIN prices and what’s really going on because I think it’ll expose” what’s been happening, Dinneen said. “This RIN market is not at all transparent. We don’t really know how many trades are being made, who is making the trades.”