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Still Boondogglin'
Biofuel Mandates Bleed American Refineries Dry

America’s largest oil refiner wants people to know that it’s being price gouged by biofuel mandates. Reuters reports:

For the full year, the company’s cost to blend renewable fuels like ethanol will swell to between $750 million to $850 million, mainly to pay for the paper credits used to meet the U.S. biofuels program, the Renewable Fuel Standard (RFS), the San Antonio, Texas-based refiner [Valero] said on Tuesday as it reported second-quarter results.

The RFS program requires oil refiners and importers to blend more renewable fuel or buy paper credits in an opaque, sometimes volatile market. Compliance credits to meet the standards, known as Renewable Identification Numbers (RINs), were about 25 percent higher in the second quarter than a year earlier. It is another blow for the company, which is already dealing with weak refining margins.

The price tag would be up from the $440 million Valero paid for biofuels compliance in 2015, the most it has paid to meet RFS requirements since at least 2009, according to U.S. Securities and Exchange Commission filings.

To create a domestic biofuels market, the U.S. has implemented a series of quotas for refiners that require annually rising quantities of ethanol be blended into gasoline. Refiners have found it difficult to meet these demands, though, as they’ve run up against what the industry calls the “blend wall,” the maximum amount of ethanol capable of being blended into fuel before said fuel starts becoming harmful for older cars.

When refiners can’t meet quotas because of this blend wall, or because of difficulties sourcing enough ethanol, they can buy up credits called RINs. But the market for these RINs is volatile, and it’s subject to Wall Street chicanery as well. Prices for these credits are up this year, so much in fact that Valero expects to spend half a billion dollars more than it spent last year snatching them up.

The Renewable Fuel Standard (RFS) is clearly a raw deal for refiners, but it’s also bad for just about every other stakeholder (besides the corn industry): it starves the world’s poor by raising global food prices, it fleeces drivers, and it isn’t even green. Next year this boondoggle will turn ten years old—a remarkable achievement for a policy that makes so little sense for so many people.

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  • Blackbeard

    One great debate in economics at the moment is the “secular stagnation” hypothesis. Why is economic growth so slow all over the developed world? Has everything really been invented as Gordon says? Do we just need to run bigger deficits as Krugman demands? Or is it just an illusion because we don’t know how to value free services such as Google and Facebook?

    But maybe overall growth is low because our economy is blend of areas where we have real growth, such as IT, and other areas areas where we throw money away, such as energy policy, because of misguided ideology.

    • seattleoutcast

      Asking economists ruled by Keynesian theory why there is stagnation is like asking the the public union sector why city services keep increasing. Epicycles, epicycles everywhere.

    • Josephbleau

      Not misguided idiology but pure and simple theft. Teapot dome in full career was not this valuable to the well connected political elites. “I steal but I give 20% to the democrat party, so I am actually ethical.”

  • FriendlyGoat

    Nothing is standing in the way but dandy corn-state politics.

    • Blackbeard

      Partially true. It really hurts that Iowa has an early primary and they grow a lot of corn in Iowa. But let’s not forget that when all this was in the formative stages the Greens were big supporters and their support matters as lot to the Democrats and to the media. At this point even the Greens, or most of them, have realized it’s a boondoggle but they have never focused on correcting this. Too busy blocking something utterly symbolic like Keystone XL.

      • FriendlyGoat

        The Greens have mostly realized that the RFS doesn’t have an overall Green result. But the corn business is going to be a tough nut to dislodge.

  • LarryD

    Check today’s freefall cartoon at http://freefall.purrsia.com/ff2900/fc02843.png

    Seems relevant, somehow.

    • Jim__L

      The problem is, machines aren’t all that inaccessible. Chances are you’ve got one in your pocket.

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