Gas prices at the pump are soaring, yet oil prices are flat. Why the disconnect? Part of the blame goes to an outdated federal energy policy that requires oil refiners to buy more corn-based ethanol than they want or need. The Environmental Protection Agency or Congress should end this boondoggle.
Before the Great Recession — in a very different energy world — Congress created a renewable fuel standard, which this year requires the petroleum industry to blend into the nation's gas supply some 13.8 billion gallons of ethanol created from American corn. The EPA assigns a 38-digit Renewable Identification Number (RIN) to every gallon of ethanol produced from biological sources, which going forward can include cellulosic sources such as switch grass and other nonedible plants as well as corn.
Here's the problem: That program wildly overestimated how much fuel Americans would burn because it was designed for a world that no longer exists. Lingering effects of the Great Recession, new fuel economy standards and emerging technology that has opened up vast new sources of domestic oil changed the dynamic. People are driving more fuel-efficient vehicles and driving less, and domestic oil production is soaring in ways that were unthinkable a few years ago, radically changing the energy outlook.
The federal rules require the production and purchase of ethanol that refiners don't need and drivers don't want. Refiners, in short, have hit what is called the "blend wall." With today's 10 percent blend, the renewable fuel schedule requires refiners to use 400 million gallons more ethanol this year than they actually need.
Now a market has opened that allows refiners to buy and trade RIN credits. With more buyers chasing fewer credits, their price predictably has soared. They were a few cents a gallon some months ago. Last week they were $1.10.
Those rising prices, of course, are passed along at the pump, not to mention ethanol's effect on the high price of corn itself. The situation will only get worse, as the ethanol numbers rise again next year. The ethanol lobby argues that the RIN credits contribute only a small part to gasoline's rising price. That is not a persuasive argument.
This is bad public policy that hurts consumers, and it should be scrapped. Using food for fuel was never a good idea, and it's a particularly bad one now. The EPA should put a stop to it, or Congress should step in and correct the situation.