Skyrocketing ethanol credit prices are costing refineries hundreds of millions of dollars, and could raise prices at the gas pump – and Scott Mixon, acting chief economist of the Commodity Futures Trading Commission, says his agency may take a closer look at controversial trading in the credits.
Refiners use the credits – which they either earn by mixing ethanol into gasoline, or buy from other companies that do so – to comply with the Renewable Fuel Standard. But compliance is getting pricey: the cost per credit rose from seven cents in January to $1.43 in July, before falling to a current 60 cents, according to a major piece in the New York Times. Refiners Valero and PBF Energy say credits might cost them $800 million and $200 million, respectively. Some industry figures, traders and analysts say Wall Street is exploiting the market through practices such as stockpiling credits.
This is just the latest controversy to emerge out of the RFS and its credit system. Last December, the CBC reported that Canadian rail company CN shipped the same load of biodiesel back and forth over the US-Canada border 12 times, at a cost of $2.6 million, to rack up renewable identification numbers (RINs) – the US government’s tool for tracking ethanol credits.
In November 2011, the EPA said it caught more than a dozen major companies, including Morgan Stanley, Royal Dutch Shell and Exxon Mobil, in a scheme involving fraudulent RINs. The agency issued notices of violation alleging that the companies used invalid RINs purchased from Clean Green Fuel LLC, a company whose owner has been charged with carrying out a $9 million scam involving the distribution of 32 million invalid credits.
But the problems with the RFS are more fundamental than that, as the nascent cellulosic biofuels industry has failed to produce anywhere near the amounts required by the standard. And even ordinary ethanol is stretched to the limit as refineries this year began hitting the “blend wall,” the point at which the mandated amount of ethanol approaches the amount that would cause mechanical problems for drivers and gas stations. Part of the problem is another case of “when environmental good news bodes bad” – gasoline consumption was projected to rise but has actually fallen, meaning the mandated amount of ethanol is really too high a percentage of the end-fuel.
Meanwhile, other critics argue that the use of edible crops for fuel is driving up food prices. The National Council of Chain Restaurants, and members including White Castle and Wendy’s, have lobbied Capitol Hill on the issue.