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.