To meet government ethanol blending quotas, American oil refiners can buy Renewable Identification Numbers (RINs). When in the past refiners grew worried that ethanol mandates would outstrip the amount they could physically blend into gasoline (fuel above 10 percent ethanol by volume can damage older car engines, so the industry refers to that threshold as the “blend wall”), the price for RINs spiked sharply. When that happened, the New York Times pointed out that Wall Street had taken a keen interest in the RIN market:
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.
Washington downplayed these concerns, but new data published earlier this week paints a very different picture. Reuters reports:
Published on Tuesday after a near two-year legal battle launched by a U.S. company against the U.S. Environmental Protection Agency (EPA), the data showed the bulk of sales in the past four years was booked by producers, blenders, merchants or speculators, grouped as non-obligated parties in the release. […]Of some 50.7 billion sales of the credits in 2014, fuel blenders and others in that group accounted for nearly 60 percent…It goes some way toward exposing the murky trade of RINs.
As so often happens, green meddling has produced a distorted market vulnerable to canny investors looking to take advantage of perverse incentives. The fact that “non-obligated parties”—in other words, those for whom these credits were not intended—were responsible for the majority of RIN sales last year suggests that something has gone wrong here, despite those government assurances.This is, of course, but one facet of our country’s misguided biofuels SNAFU. Look here for a more complete review of the disastrous policy, or, if you’d like, consider the simple fact that corn-based ethanol, the biofuel that makes up the majority of our refiners’ quotas, isn’t even green.Soup to nuts, this is a mess. Congress is considering bills to reform the Renewable Fuel Standard, but it’s hard to imagine successfully salvaging a thoughtful, workable solution from this boondoggle.