The government could take it easy on drivers
Have you been paying too much for gasoline? The culprit might be corn. But a shift by the Environmental Protection Agency could alleviate the situation.
In an attempt to spur usage of biofuels, the EPA mandated that refiners blend a given amount of ethanol into gasoline. That requisite number of gallons of renewable fuels required has risen over time, and is set to rise further.
The problem is that fuel consumption is falling. And since the law enacted by Congress simply requires more gallons of biofuels to be used (rather than requiring a certain percentage of biofuels in each gallon), declining gasoline usage makes it difficult to blend in the growing amounts of ethanol required.
This is because few cars on the road can safely take gas with more than 10 percent ethanol, leaving refiners searching for another solution.
So to substitute for additional ethanol, refiners have bought Renewable Identification Numbers, known as RINs. These RINs have become a new input cost for gasoline, and they have been rising in price. Many have worried that as the standards for the amount of biofuels needed increases, the situation will become worse, driving the cost of RINs yet higher.
"The problem is that you're trying to put more renewable fuel into a declining market," explained Andy Lipow of Lipow Oil Associates. "If standards continue to rise, the industry will be in a situation where they can't comply. And as a result, refiners announced that they will reduce the amount of crude they're processing due to the high cost of RINs. That decreases supply [of gasoline], and over time, prices go up."
So as a palliative measure, the EPA has said it might lower the biofuel volume goal for 2014. Specifically, the EPA wrote in a Wednesday press release that because of the fact that most gasoline has no more than 10 percent ethanol, "EPA is announcing that it will propose to use flexibilities in the RFS [Renewable Fuel Standards] statute to reduce both the advanced biofuel and total renewable volumes in the forthcoming 2014 RFS volume requirement proposal."
This sent the price of RINs nearly 20 percent lower, and gasoline futures fell 1.3 percent on Wednesday.
"It immediately relieves the pressure on the gasoline market and the products market," said CNBC contributor Brian Kelly, who said the move was not unexpected. "Changing the standards was always out there; with a swipe of a pen you could change the problem here."
And relief for consumers could come quite soon as a result.
"RIN prices have fallen, and that reduction in cost has been passed through to the RBOB futures market and to the consumer," Lipow said. "The wholesale price of gasoline is going to fall, and you'll see that at the retail level."
The bottom line is that while "RINs" might not be a household phrase, they've been cutting into the piggy banks of nearly every household in America.
"RINs have been priced into the market," Lipow said. "If you have a car, you have been paying for it. And if you're buying food or clothing that's been delivered by a truck, you have been paying for it."
The hope is that the EPA will cut down on the ethanol mandate—reducing the cost of RINs, and possibly saving everyone a bit of money at the pump and at the supermarket in the process.