Sunday, September 15, 2013

Banks Exploit Ethanol Credit Market

NYT (h/t nc links)
The market in ethanol credits is exactly the kind Wall Street loves: opaque, lightly regulated and potentially very lucrative. Officials at the E.P.A., which oversees the market, say they have seen no evidence of improper trading, like hoarding, in the market. But they do not police the RIN market as a financial regulator would....
The RINs story began in 2005, when the Bush administration joined Democrats in Congress to pass an energy bill mandating renewable fuel standards. That law was broadened in 2007 to establish requirements for the amount of biofuel to be blended into gasoline annually through 2022. This year, refiners and importers are required to blend 13.8 billion gallons of ethanol, up from 13.2 billion last year. For 2014, the figure is 14.4 billion.
But the estimates Congress used about how much gas Americans would keep buying were wrong. When the biofuel credits were created, gasoline consumption was projected to grow 6 percent by 2013. But thanks in large part to the recession and more fuel-efficient cars, consumption has actually fallen.
As a result, refiners this year began hitting what is known as “the blend wall,” meaning that the amount of ethanol the government is requiring them to use is close to the maximum amount that can be blended into gasoline without creating problems for gas stations and motorists.
 This doesn't bode well for market-based pollution controls, or for federal regulation in general.  It has been obvious for some time that we won't meet the cellulosic ethanol requirements in the RFS, and also that without many, many more folks using E85 ready vehicles, the blend wall would come into effect.  The fact that EPA seems almost powerless to make reasonable changes because of opposition by entrenched interests is dispiriting.  The way that ethanol plants popped up because of the policy, and the way that the bankers found the ways to squeeze money out of market participants is also troubling.  The impact this policy has had on grain and livestock farming, the rural economy and land prices is immense.  Unwinding it will be very messy.  I believe that we can get smarter and more efficient government with regulation, but this is a challenge to that belief.

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