Given the 15 billion-gallon cap on corn ethanol in RFS and a rough target of 10% ethanol blends, we can assume that the agency figured ethanol production would top off when gasoline consumption hit 150 billion gallons. Oops.
This is the root of the problem. Refiners such as Valero Energy Corporation (NYSE:VLO) and Marathon Petroleum Corp (NYSE:MPC) are making a short-term push to buy RINs on the secondary market — without equivalent volumes of ethanol — to combat the blend wall. Doing this allows blenders to have enough credits to meet their renewable-fuel requirements without exceeding 10% blends.
What’s the rush? In April, the EPA is expected to announce the 2013 ethanol mandate calling for 14 billion gallons of corn ethanol. Continually increasing engine efficiency could lower total gasoline consumption to around 130 billion gallons for the year, resulting in a national ethanol blend just above the line refiners have drawn in the sand.
Foolish bottom line
Will rising RIN values affect gasoline prices? Assuming the credits remain at current prices of $0.70 per gallon and a 10% ethanol blend for 2013, RINs will add $0.07 to a gallon of gasoline. Consider that gasoline prices last week were $0.12 below last year’s prices. Therefore, it seems unlikely that ethanol will make a major impact on your budget.
As for the larger problem at hand, I find it difficult to show compassion for refiners complaining about skyrocketing RIN prices when they’re the ones buying certificates on the open market. Furthermore, refiners can increase exports of non-blended gasoline to countries that don’t have ethanol mandates, so it may actually increase margins even further.
That doesn’t mean the EPA gets off the hook. The agency urgently needs to address its plans for the future of renewable fuels. When 2022 rolls around, it will be impossible to blend the required 31 billion gallons of ethanol (16 billion gallons of cellulosic) into our fuel. The market needs to be reassured by the EPA and car manufacturers such as Ford Motor Company (NYSE:F) that the country’s infrastructure and automobile engines can handle higher blends of ethanol without significant modifications (where possible). Many see E15 blends as an inevitable reality in the next several years, but that won’t solve the problems we’ll face in 2022. And it’s much closer than you think.
The article Will Soaring Ethanol Credits Cost You at the Pump? originally appeared on Fool.com and is written by Maxx Chatsko.
Fool contributor Maxx Chatsko has no position in any stocks mentioned. Check out his personal portfolio, his CAPS page, or follow him on Twitter, @BlacknGoldFool, to keep up with his writing on energy, bioprocessing, and emerging technologies.The Motley Fool recommends and owns shares of Ford.
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