…your gas prices are as high as they are? It isn’t only the summer driving season. It isn’t only limits on gasoline production at our refineries. It isn’t even that ethanol-laced gasoline doesn’t even store well so that inventories can be built to smooth out the ebbs and flows of supply and demand. Here’s another reason, alluded to in a Wednesday op-ed by Kimberly Strassel on a related topic.
Last week, the Environmental Protection Agency issued its annual renewable-fuels mandate, telling refineries how much ethanol they must blend into the nation’s gas supply. This quota, which grows each year, is becoming a horrific financial burden on the industry, forcing many refineries to buy federal ethanol “credits” to satisfy the rules. The skyrocketing price of those credits is adding hundreds of millions of dollars to refineries’ annual costs.
Those costs are passed on. To gasoline-buying customers like our neighborhood filling stations—and you and me.
Refiners say that, with declining demand for gasoline, next year (2014—oddly, a mid-term election year), the existing quota for ethanol use will force them to blend in more than 10% of ethanol into their gasoline production, which both adds to gasoline costs and isn’t safe for many of the engines that use gasoline—like some cars that are optimized only for 10% blends, and smaller engines such as those used in our lawnmowers.
Even at that, the mandated ethanol use quotas simply aren’t possible to get to. The 2013 mandated quota is 6 million gallons (down, incidentally, from the EPA’s original laughable requirement of 1 billion (that’s with a “b”) gallons to be used this year); the nation’s total ethanol production for this year will top out below 50 thousand gallons. The quota stands, though, so the refiners are required to go onto the EPA’s ethanol credit market that Strassel mentioned, and buy up enough credits to make up for their collective failure to use 950,000 gallons of ethanol.