Lowering the RFS: The Most Significant Tool in the Toolbox to Lower Gas Prices

However, increased pain at the pump resulting from the RFS program’s tradeable compliance credits — Renewable Identification Numbers or “RINs” — is nothing new.

“If the EPA materially altered the RVO and D6 RINs market, an immediate decline in D6 RINs and retail gasoline prices would likely occur, in our view.”

“Combined, ethanol blending (i.e., lower energy content) and RINs have cost US drivers $0.15/gal since 2017. In 2022, we estimate costs are one-third higher at $0.20/gal.”

“Pump Prices Cheaper When RINs Suppressed. Ignoring the energy content adjustments, we did find that E10 blends delivered a retail price benefit to consumers of less than $0.01/gal in 2018 and 2019 — a period of low corn prices/ethanol and very low RINs costs.”

“Some market participants assert that the most efficient way for the administration to alleviate high gasoline prices is to simply cut the RVO blending requirement and/or provide SREs (we concur).”

“Today, the RFS program is raising gasoline prices by approximately 30 cents a gallon.”

“Adding carryover RINs to the volume projected to be produced would effectively guarantee that the demand for these RINs was always equal to the overall market supply and would likely result in cellulosic RIN prices at or near the price of an advanced biofuel RIN plus the price of a cellulosic waiver credit in future years. While raising prices would increase revenue for cellulosic biofuel producers, it may also increase the price of cellulosic biofuel. These higher prices would be passed on to consumers, who ultimately bear these costs.”

“A significant change to the RFS structure is more likely if either 1) high gasoline prices persist and RVOs are seen as one of the few ways to bring them down;”

“The removal or modification of the RVO mandate would be the single most immediate and effective way to lower fuel prices at the pump,’ said John Auers, executive vice president at energy consultant Turner, Mason & Co. Depending on how the mandate is modified and other conditions, the move could potentially reduce retail gasoline prices ‘in the double digits’ a gallon, he said.”

“The EPA under the Biden administration will have to balance its green intentions against commodity inflation, including RINs and agriculture prices,’ Bank of America Corp. analysts including Warren Russell said last week in a note to clients. ‘If not properly managed, RFS policy could drive both food and fuel inflation.’”

“RINs prices set all-time highs on June 9 with the ethanol (D6) RIN exceeding the impact of the federal excise tax on gasoline.”

Setting the Renewable Volume Obligation (RVO) under the RFS to a standard based on the maximum amount of ethanol the fuel supply can consume, which is about 13.5 billion gallons based on projected gasoline demand for the year, rather than an unachievable gallon requirement that simply drives up the price of RINs and consumer fuel prices, could shave as much as 30 cents per gallon off the cost of making gasoline and diesel.

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