The High Cost Of Renewable Credits

Command and control economies just don't work.  Congress requires refiners to blend gasoline with ethanol, but right now  gasoline consumption is dropping  and  there are relatively few cars that can use more than a 10% ethanol blend,so  refiners can't use all the ethanol they are supposed to.  To compensate, they  have to buy credits - i.e., pay a penalty for failure to use enough ethanol.  That gets tacked onto the price of a gallon of gas.

Jeff Macke of Breakout summarizes it this way.

 The vast majority — around 90% — of American cars don't work with an ethanol blend over 10%. When the ethanol requirements continued to rise while demand for end product fell, the refiners were reduced to buying and selling RINs or Renewable Identification Numbers, which are, in effect, credits that allow refiners to meet the terms of the 2005 Clean Air Act without producing fuel that is unsuitable for most cars.

So as demand for gas falls, refiners need to buy more RINs. From just pennies-per-gallon in January, RINs had soared over $1.40 by last summer. Lutz says as much as 75% of the additional cost was passed along to the consumer.

 Therefore, in an attempt to force cleaner burning fuels into the marketplace, the EPA created a policy that ended up artificially inflating the cost of refining gas when demand fell. So the refiners and consumers got gouged for not burning enough fossil fuels. Only the government could make refinery companies look sympathetic.

See the story here.  The good news is that Macke believes EPA will provide some relief on  renewable fuel credits, dropping the price of gasoline to perhaps less than $3 a gallon.