Gas prices are displayed at an Exxon gas station in Washington, D.C.

Logic Should Prevail on Ethanol

Mandated ethanol requirements put pressure on the gas industry and hurt consumers.

Gas prices are displayed at an Exxon gas station in Washington, D.C.

Consumers should support a cap on ethanol requirements.

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In 2013, the price of ethanol blending credits cost independent refiners at least $1.3 billion, more than three times as much as it did in 2012, according to Reuters., an energy markets blog, opined that the $1.3 billion total seems conservative since it includes only nine refiners that disclosed the figures; others affected did not specify the cost of buying what are known as "Renewable Identification Numbers," which are used to meet quotas for blending biofuel into gasoline and diesel. Reuters' review noted that the impact was unevenly distributed, with independent refiners alone bearing more than 20 percent of the cost although they account for just 2.5 percent of daily U.S. refining capacity.

[Read blogger Gregg Laskoski on the golden age for energy.]

Meanwhile, Valero Energy is said to have spent $517 million on Renewable Identification Numbers in 2013, with estimates it will spend another $250 million to $350 million on them this year. Other refiners refrain from disclosing those expenses, but one might expect that such taxes (some call them credits) and other costs of doing business will flow downstream. Is there any doubt about who absorbs those costs?

Not surprisingly, ExxonMobil wants the U.S. government to revise its rules for blending ethanol into gasoline to cap the level at 10 percent of total gasoline consumption, according to spokesman Bill Colton.  Automobile manufacturers aren’t comfortable with ethanol making up more than 10 percent of fuel blend, he said.

And he’s right about that. Government regulations are calling for the total amount of ethanol to be blended into gasoline this year to be greater than 10 percent of total expected gasoline demand. “We call it the blend wall,” Colton said. “The problem is, when they set those mandates and they have them growing, I don’t think they realized demand for gasoline would be shrinking."

[See a collection of political cartoons on gas prices.]

‘‘It’s just another reason why it’s difficult to make gasoline, and frankly it puts cost pressures on making gasoline,” he added. “So we think it’s in the general good to cap it at 10 percent, and even less would be a bonus for consumers.”

Whether it was politics or logic, the Environmental Protection Agency’s proposal to reduce the biofuels mandate by 2.94 billion gallons in 2014 is one that consumers can support. Let’s see if logic prevails.