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Oh, the RINsanity!


On January 8, RINs, ethanol credits available to fuel refiners looking to meet government-mandated biofuel production targets, were trading at 7 cents a credit. The price of credits spiked sharply this year, hitting $1.33 in late July before settling back down to roughly 60 cents a credit today.

Here’s why: while biofuels targets have risen every year since they were initially put in place in 2007 as part of the country’s Renewable Fuel Standard (RFS), demand for gasoline has stagnated as a result of economic stagnation and more fuel-efficient cars. To meet the mandates, refiners have had to blend more and more ethanol in to every gallon of gasoline, but are butting up against what the industry calls the blend wall: gasoline that is more than 10 percent ethanol by volume can damage car engines. Concern over the blend wall has refiners snatching up RINs, causing the price spike, but as the New York Times reports, it’s not only the refiners that are buying up the credits. Wall Street has taken an interest:

A few worried that Wall Street would set out to exploit this young market, fears the government dismissed. But many people believe that is what happened this year when the price of the ethanol credits skyrocketed 20-fold in just six months, according to an analysis of regulatory documents and interviews with more than 40 people involved in the market, including industry executives, brokers, traders and analysts.

Traders for big banks and other financial institutions, these people say, amassed millions of the credits just as refiners were looking to buy more of them to meet an expanding federal requirement. Industry executives familiar with JPMorgan Chase’s activities, for example, told The Times that the bank offered to sell them hundreds of millions of the credits earlier this summer. When asked how the bank had amassed such a stake, the executives said they were told by the bank that it had stockpiled the credits.

The NYT report is on the dry side, but paints a detailed picture of the RIN roller coaster gasoline refiners have had to ride this year. The situation is all the more farcical when you account for the fact that corn-based ethanol, the source of the vast majority of America’s biofuel, isn’t even green.

This biofuels boondoggle is yet more evidence that greens aren’t very good policy wonks. The core competency they claim for the movement is an ability to understand the way complex systems work. But they are naive babes in the woods when it comes to both politics and financial markets.

Europe moved to nearly halve its biofuels targets last week. This time, at least, America should take its green policy cues from the EU.

[Withered corn crop image courtesy of Shutterstock]

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  • Corlyss

    Another tale from the dark side of idiotic greens: Apparently Cuomo refuses to allow fracking in NY because 4 people oppose it: RFK, Jr., Lady Gaga, Matt Damon, and a 4th no-account celebrity who probably doesn’t live in NY. I can understand the pol on the list, despite the unutterably unending embarrassment of stupid policy choices he represents, but really! The other 3? Are THEY singly or in concert going to do ANYTHING substantive to relieve the suffering of citizens in the withering upstate economies? Anything? Not likely.

  • Jacksonian_Libertarian

    The whole reason for this Ethanol program was to reduce CO2 emissions and so Global Warming (Renamed Climate Change because of the lack of actual Global Warming). Since Global Warming is a hoax, as can be seen from the overwhelming evidence accumulated at
    , the Ethanol program is an even bigger boondoggle than recognized in this article.

  • Jim__L

    Does anyone who likes to put together quantitative financial models ever test what will happen if some assumptions are violated? (E.g., a reduction in fuel consumption, a sustained drop in housing prices.)

    Our “Too Clever By Half” Credentialed Elites have a lot to answer for.

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