Post by Glenn on Mar 26, 2013 8:22:58 GMT -6
RIN -- RENEWABLE INDENTIFICATION NUMBER
Most people have never heard of a RIN but the RIN certificates or credits are a hotly debated item in Congress and at the center of the government's ethanol policy. Refiners will produce 133 billion gallons of gasoline this year. The government has mandated that 13.8 billion gallons of that production be sourced from ethanol. When a refiner has blended ethanol, they create a certificate for the amount blended and those certificates or credits can be traded among other refiners.
For example, a refiner using imported sugar based ethanol from Brazil might issue a certificate showing they have blended over the 10% mandate and another refiner could purchase the certificate and use it instead of purchasing corn based ethanol. The price of RIN credits have skyrocketed as ethanol plants close and less ethanol is available to meet the Renewable Fuel Standard.
Refiners are complaining that the 10% mandate is costing consumers at least an additional 10 cents on every gallon of gasoline produced. Because of the drought, corn supplies are tight and ethanol plants have closed and are trimming back production. Without ethanol to fulfill the Renewable Fuel Standard mandate, refiners have forced the price of RIN certificates to record highs. Valero, a refiner, testified that they expect to spend between $500 and $750 million dollars this year purchasing RIN credits and the added cost to each gasoline consumer is $2700 per year.
The ethanol industry is warning Congress that if they drop the mandate, hundreds of thousands of jobs will be lost from plant closures. They insist that farmers will lose a market for their corn and that billions of dollars will be lost on closed ethanol plants. The ethanol industry has been a strong supporter of President Obama and contributions to his campaign have been thankfully rewarded. Secretary Vilsack and USDA economists have testified on several occasions that the ethanol plants have had a negligible impact on corn prices.
Top down governmental planning is never a solution to commodity problems. Whether the initiative is from the President or Congress, the result is always the same -- failure. Commodities are market based command systems driven by market signals and responding to them. The first sign of trouble is when a governmental entity attempts to interfere and provide a solution. Absent the government mandate on ethanol, the market was already responding to the need for energy self sufficiency by developing new drilling techniques like horizontal drilling and discovering new previously un-mined reserves in shale rocks. Between newly discovered natural gas fields and oil fields, some say we have reached energy independence. The economic sectors of the economy will respond to crisis on their own.
The simple fact is corn based ethanol makes no economic sense. It forces gasoline prices higher. It raises the price of all meats in the grocery store. It leaves the American consumer holding the bag overpaying for gas and food. Not only was it bad public policy from the start it has gotten worse as time progressed.
Most people have never heard of a RIN but the RIN certificates or credits are a hotly debated item in Congress and at the center of the government's ethanol policy. Refiners will produce 133 billion gallons of gasoline this year. The government has mandated that 13.8 billion gallons of that production be sourced from ethanol. When a refiner has blended ethanol, they create a certificate for the amount blended and those certificates or credits can be traded among other refiners.
For example, a refiner using imported sugar based ethanol from Brazil might issue a certificate showing they have blended over the 10% mandate and another refiner could purchase the certificate and use it instead of purchasing corn based ethanol. The price of RIN credits have skyrocketed as ethanol plants close and less ethanol is available to meet the Renewable Fuel Standard.
Refiners are complaining that the 10% mandate is costing consumers at least an additional 10 cents on every gallon of gasoline produced. Because of the drought, corn supplies are tight and ethanol plants have closed and are trimming back production. Without ethanol to fulfill the Renewable Fuel Standard mandate, refiners have forced the price of RIN certificates to record highs. Valero, a refiner, testified that they expect to spend between $500 and $750 million dollars this year purchasing RIN credits and the added cost to each gasoline consumer is $2700 per year.
The ethanol industry is warning Congress that if they drop the mandate, hundreds of thousands of jobs will be lost from plant closures. They insist that farmers will lose a market for their corn and that billions of dollars will be lost on closed ethanol plants. The ethanol industry has been a strong supporter of President Obama and contributions to his campaign have been thankfully rewarded. Secretary Vilsack and USDA economists have testified on several occasions that the ethanol plants have had a negligible impact on corn prices.
Top down governmental planning is never a solution to commodity problems. Whether the initiative is from the President or Congress, the result is always the same -- failure. Commodities are market based command systems driven by market signals and responding to them. The first sign of trouble is when a governmental entity attempts to interfere and provide a solution. Absent the government mandate on ethanol, the market was already responding to the need for energy self sufficiency by developing new drilling techniques like horizontal drilling and discovering new previously un-mined reserves in shale rocks. Between newly discovered natural gas fields and oil fields, some say we have reached energy independence. The economic sectors of the economy will respond to crisis on their own.
The simple fact is corn based ethanol makes no economic sense. It forces gasoline prices higher. It raises the price of all meats in the grocery store. It leaves the American consumer holding the bag overpaying for gas and food. Not only was it bad public policy from the start it has gotten worse as time progressed.