Decreasing supply of an input (corn ethanol credits are an input to gas production for refineries), increasing exports due to relative price decreases in importing countries, decreasing supply of refined gas, inelastic demand for gas...what more intrigue could you want?
Congressional committees are taking note of a massive spike in the price of corn ethanol credits that refiners use to meet the Environmental Protection Agency’s renewable fuels mandate — amid concern it could increase gasoline prices.
House and Senate energy panels are eyeing the price of ethanol renewable identification numbers, or RINs, which have skyrocketed from pennies a gallon to more than $1 per gallon in recent weeks. That could cost the refining industry $7 billion this year, according to a Barclays analyst as cited by the Financial Times.
“We’ve talked about how they’ve been skyrocketing,” House Energy and Power Subcommittee Chairman Ed Whitfield (R-Ky.) said last week, though he was unsure what action his panel would take.
Refiners and the ethanol industry disagree about the cause of the price spike.
A spokesman for Valero, the largest independent U.S. refiner, said refiners can do only three things about the spike in the short term: Increase gasoline exports to countries that do not have the added RIN cost, decrease the amount of gasoline refined or shift the costs to gasoline consumers. “I suspect a combination of all three things happening with refiners,” said the spokesman, Bill Day.
That could further restrict domestic supply and raise gasoline prices, which typically rise anyway around the summer driving season.