Bill Klesse, chairman and CEO, Valero Energy Corp. - 04/26/13 03:00 PM ET
In Washington these days, it is hard to get Democrats and Republicans to agree on much. But one thing they do agree on is the need to closely examine how the dramatic increase in the price of compliance with the Renewable Fuel Standard, or RFS, could lead to gasoline price increases.
Recently, the Democratic chairman of the Senate Energy Committee Ron Wyden of Oregon warned of "unprecedented price spikes" for credits, known as renewable identification numbers, or RINs. Across the political aisle Republican Senators Lisa Murkowski of Alaska and David Vitter of Louisiana argued that "recent prices for RINs have skyrocketed" likely resulting in "increased costs to consumers" as well as greater gasoline exports and reduced domestic production. Obviously, this is a grim picture recognized by both sides in Washington as we approach the summer driving season.
Policy makers are smart to be concerned. Whether you support ethanol or oppose it, there is clearly something wrong with the way refiners and importers must demonstrate compliance with the RFS. Back in 2007, Congress enacted the renewable fuel standard as part of broader energy legislation. Each year, the U.S. Environmental Protection Agency has been ratcheting up the amount of ethanol that must be blended into gasoline, but at the same time, the recession and efficiency gains have significantly decreased demand for gasoline. No one expects that gasoline demand will rebound strongly, and there are physical constraints on safely using higher blends of ethanol. As a result, there aren't enough gallons of gasoline to put all of the required gallons of ethanol into - and that has driven the price of credits through the roof.
Without action by the EPA, the results could be particularly bad for a nation only beginning to recover from a