America’s biofuel boondoggle isn’t just farcical—it’s expensive, and those costs are inevitably passed along to drivers who end up paying more at the pump. This week the EPA released next year’s quotas for the amount of ethanol U.S. refineries will be required to blend into fuel, and the 11 percent jump in required volumes promises to spike compliance costs and be reflected eventually in prices. Moreover, as Reuters reports, next year’s level looks to be higher than what refiners can safely utilize:
The EPA’s 2016 requirement would likely push the amount of ethanol in fuel over 10 percent – a “blend wall” that oil companies argue is a maximum before costly changes are needed to pumps and other infrastructure, as well as vehicles.
This blend wall is important: Many car engines on the road today could suffer damage if fueled by gasoline that’s more than 10 percent ethanol by volume. That sets a limit on the amount of ethanol refiners can use without danger, and so to satisfy federal mandates companies are forced to snatch up credits called RINs—Renewable Identification Numbers. As a result, demand for these RINs is spiking, raising costs for refiners. Reuters has more:
RIN prices have soared since the EPA said on Monday fuel companies will have to use 18.1 billion gallons of renewables next year, up from a May proposal, though not as high as Congress mandated in a 2007 law. Average RINs costs had already been higher this year than last amid regulatory delays and worries over supplies. That coincided with higher costs for refiners to comply with targets, according to industry sources and a Reuters analysis.
This isn’t the first time we’ve seen upswings in the RIN market hit the oil industry, and so long as refiners are forced to obey government mandates above what they can reasonably comply with, it won’t be the last. Keep in mind that as companies struggle to meet these mandates and drivers get gouged at the pump, this whole boondoggle is raising global food prices without actually accomplishing any of its purported green aims.